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Magdalena Komaracka: Good afternoon. Welcome warmly at the PZU Group results for the third quarter 2025 presentation. It will be led by our CEO -- PZU CEO, Bogdan Benczak; and Tomasz Kulik, CFO of PZU Group and Management Board member of other PZU companies. Bogdan Benczak: Good afternoon. I'm extremely pleased to welcome you at the presentation of the PZU Group results after 9 months. That's my lifetime and first-time opportunity to -- for me, to manage this presentation. So please understand my unwanted mistakes. Let me start with the key achievements and plans. As you have already seen in our press release, and in our stock exchange communication after 9 months, we've reached PLN 23.1 billion in sales with the consolidated profit of PLN 5.2 billion, capital position 234% of solvability and 246% of stand-alone solvability and the dividend yield for the dividend paid in October is at around 8%. aROE is at the level above 20%. That's a very good position, sort of a head start for me as the acting CEO of the PZU Group. Let me stress that the growth that you've seen in insurance refers mainly to non-life insurance and in particular, non-motor insurance. I'm extremely happy with this result because this is close to my heart. We've had a major growth in foreign markets where we are present in Lithuania, Latvia, Estonia and Ukraine. We've had growth in Life Insurance segment, especially in Individual Life Insurance segment. And we've managed to substantially improve the results after 3 quarters, our capital position is very strong. It's robust and figures are really, really good. The results after 3 quarters and parameters -- profitability and capital adequacy parameters will allow us to pay an attractive dividend in the next year and about the level of the dividend, well, the details of the dividend, if the trajectory is kept could be discussed the next year after the recommendations and the approval of the Management Board and the Supervisory Board. Income and net profit more than PLN 5.2 billion with a share of PLN 3.6 billion from insurance services and PLN 2.2 billion from investment portfolio. We are proud with the results in insurance service increase of 73%. We do know, however, that the last year was truly exceptional. And we had some additional compensation PLN 222 million paid because of the flooding. I believe it's even more last year, we reported PLN 275 million more than PLN 0.5 billion gross of compensations paid. So the third quarter, PLN 1.5 billion and 127% year-to-year growth in insurance service and 85.8% of combined ratio. This shows our diversification. We've got a pillar of insurance services. We've got a pillar of banking activities, and we are working to consolidate further our health pillar, so PLN 3.6 billion result in insurance service, cess PLN 2.2 billion on investment portfolio and combined ratio, as I said, 85.8%. This is a very good result. And we are also happy to -- with our high operating margin in life insurance and with this, we are able to get to an aROE at 22.1%. After 3 quarters, we have a 2-digit dynamics in non-motor insurance. 2-digit is a success and it's a source of pride for us. We've managed to have a growth in this segment. This is a core activity, 77% extremely important for us, especially that the number of initiatives have been launched and actions campaigns for this segment, and now we see a tangible result of our efforts. Individual Insurance segment has also seen improvement in efficiency in our sales network. We've also launched some new products. And here, we also have a 2-digit dynamics in Individual Protection Insurance segment. This shows that when you focus well and define your priorities, clearly, you can be really effective, and this is our case, and we truly deliver. Health pillar. Again, 2-digit dynamics. We are particularly pleased with a number of results. We do see the room for improvement, but quarter-to-quarter and quarter after quarter, we are able to improve in this pillar. Tomasz will give you some more details how referrals to our network of branches -- own branches have improved. He will tell you what kind of tools are used and what tools are actually the best to improve the referral rate. Indeed, as I said, we see the room for improvement, but we've been consistent, and we've been implementing a recovery program. And as you can see, the results are there. We are also happy to see a 2-digit growth in external customers number in our 2 investment fund companies, TFI. This pillar is on the rise and we look into the future with optimistic perspective. This is yet another source of diversification for our revenues within the group. We've managed to increase the value of assets within the group by PLN 20 billion year-to-year. When you have revenue, you have a better solvability ratios. Our credit rating is a A- and positive outlook granted by Standard & Poor's Global Ratings. They've kept the Polish rating as well. So you see that the situation is stable. Group solvability -- solvency ratio is at 234%. We are above the EU average for European insurers. 81% of our investment portfolio is made of bonds, including 65% represented by sovereign bonds. We are aware that our investment portfolio is conservative, but it produces stable and predictable yield on deposits. One more item effective reinsurance protection. Reinsurance program was launched some years ago. It turned out to be effective when we were struck by catastrophic events on the territory of our country, 45% of our reinsurers have AA rating and the remaining 55% half A rating. I presented briefly the financial results. And now let me move to the priorities of the PZU Group for 2026, 2027. This is a sort of an opening statement as a person appointed the CEO of the group. We have a very strong financial position, thanks to our scale to our profitability and our diversification. We have a solid market share. We are leaders in Non-life Insurance and in Life Insurance segments with 30% and 44% of share, respectively, for both of them. We are growing in terms of scale after 9 months, we have PLN 23 billion in insurance services. We have profitability. We are profitable, and we are better than our competitors in terms of technical profitability, for non-life insurance and technical profitability for life insurance according to the data from the 6 months. We are then positioned among the top European insurers. And let me point out that the PZU Group is a financial conglomerate, but we are diversified. We are #1 in Poland for non-life and life insurances and in top 3 for health. We are 30 among banking, #3 in terms of investment funds. And our Baltic-country companies are leaders in their respective local markets and contribute to our consolidated financial results. I hope I'm not committing a blunder by showing you this chart, but this is a moment when we can be proud of our achievements. I don't know what the cost of PZU is right now. But as we announced our results, the price of shares has skyrocketed 61%. So that has gone down a bit. But since 2024, we were growing by 71% versus 46% of the week 20. So this is very good news and if you have a look at our European peers and their valuation, there is room for growth for us. And this is precisely our ambition, the ambition of the Management Board to improve our position respectively versus our peers. So the group is likely to grow, and it will grow. But we are also aware of some negative trends on the market. That's why we're focusing on opportunities. So this means demographic and social changes and also the fact that the forecast for the Polish economy are positive. We would like to tap into the growth of the Polish GDP and take advantage of it because I think that the economic growth will have a positive impact on the capabilities of customers who will be able to take out more insurance policies and now the demographic and social changes. So the purchase power of society is growing. Therefore, we think that both investments and life insurance will grow and so will be the value of the property to be insured, and this will also mean some benefits for us through the amount of the premium and now the aging society. Let me address that. We think that this means a higher demand for health and protection products, meaning life insurance. There is also a pressure related to the negative market trends, namely the TPL market is changing. It's moving more towards what we call the soft cycle. We are now nearing the soft cycle. But we can see that there is a huge competitive pressure in segments that continue to be profitable like the MOD and non-motor. So this is a trend we have to face because this is a threat. But at the same time, this is an opportunity, namely the fact that intermediaries are growing, 50% of distribution is now done through brokers and multi-agencies and this is a challenge the group has to face. Also, interest rates will be going down, and this will have an effect on the investment result, and this will also affect the contribution of our banking pillar to our consolidated result. And also higher corporate income tax for banks will have an effect on us as well. Now these are our plans, and I would like to highlight some thanks as CEO, namely over the last 2 months, the group has done the following. We have set priorities for our initiatives and strategies. We have assigned responsibility for specific projects to specific people. And also, we have grouped initiatives. This will help us reverse trends in some market segments, but it will also help us stay the leader of the insurance market in Poland and we will be the leader in terms of profitability and the market share because we already got there but we will be also creating new solutions and products in the market. So from my point of view, the most important thing for us is non-life and mass insurance. We have to improve our pricing here and there are also other initiatives leading to an improvement in the effectiveness of our sales network, and I'm referring to our agents who are our edge -- our advantage, and I believe that they will make a contribution to our results. But at the same time, I think that developing our collaboration with multi-agencies would be an interesting opportunity for the group because traditionally speaking, in this segment, the group was not strong and unlike our peers, our competitors, but I think, and I believe that if we make some moves in terms of pricing and tariff setting, if we modify our distribution and develop the right skills and if we have the right tools at the front end, we will be able to increase sales in this channel as well, keeping our profitability at the same time. Also, now let me address the implementation of the new system of claims handling, and this covers both the non-life and the life insurance company. Obviously, the non-life company is a priority here because I can see that in this company, in particular, there is a huge technical -- technological debt, which is something I realized when I came back to the company. And I think that here, there's a lot of room for improvement of our profitability. And now I personally would like to focus on Health. I would like us to carry out the strategy, which would lead us to the results, the target figures that have been provided for in our strategy, and this could be a strong pillar that has a positive effect on our operations. I can see room here for organic growth, greenfields. But also, we have an opportunistic approach here because we are looking for acquisitions. And we are doing this to improve the take-up, the utilization of our health business in our own clinics, facilities and also to address and eliminate the white spots in Poland. And I'm referring to the coverage of the territory of Poland with our health facilities. So speaking about the investment activity, decreasing interest rates are a negative trend. We would like to manage our own portfolio in an effective way. But at the same time, we want to develop product offer for our external customers and partners so that the investment pillar can increase its role -- its share in the PZU Group's revenue. Now speaking about motor insurance, we are relatively happy with this segment because it has a positive contribution to our P&L account, but we would like to grow outside through inward reinsurance. We have proven partners through the MG model and we believe that this will lead us to positive results. Individual life insurance is what we do, new products, activating the sales network to reach our target customers. So we would like to focus on individual continued products and we would like to reach the silver and middle age generations as well. Now group insurance. So traditionally, it's a strong segment for the company. Currently, the margin is very satisfactory. It goes beyond our strategic expectations. But we would like to be more swift here and respond faster to the changing market, and we'd like to gradually transform here to change the group insurance into an employee's benefit made up of the insurance component, health component and also other elements to be used as a benefit for employees. Bancassurance, we are focusing strongly on the collaboration with Pekao SA and Alior, but we are active on the market. We collaborate also with other companies from outside the group. Now international business, we would like to take advantage of the synergy. We've had some successful projects in our foreign companies. But we are also looking into how to make the most of our companies, let's say, in Ukraine for future projects like the recovery of Ukraine. And obviously, hopefully, the war ends as soon as possible so that we can take advantage of the reconstruction. But for the time being, the contribution of our international companies is at the satisfactory levels of the Baltic countries, combined ratio is at the level of the parent company. So we are very happy with that. Now the group is transformation and the growth of the organization. Let me stress one thing. According to current strategy of PZU, the Solvency -- the new Solvency II regime was to take effect. This was the assumption of the strategy according to our estimates. So new regulations and a new way of appraisal of our assets -- banking assets. This would lead to a drop in our liquidity of 190% to this level and we were expecting this. And even at this level, we have a permanent contribution of the same dividend policy of the group. And this is our starting point. We are also undergoing the reorganization of the PZU Group. We have signed memorandum with Pekao SA and now the group, the PZU Group is getting ready for the baseline scenario and this scenario has been described in the term sheet. There are factors we cannot have impact on. I mean by that legislative changes. Without any amendments to the legal framework, we will be unable to do the reorganization and revamping as described in the documents signed with Pekao SA. We are awaiting further steps, but we do see risks that these regulatory changes will come into effect at a later date than the day defined in the term sheet. And we work together with the Pekao SA on how to react and to see if we are going to sign a new memorandum or not. And I think that we will know that in December, once we've known the exact deadlines. But we do stay in close contact with all stakeholders. So that will be for our Copenhagen project. We do follow up the development on the market. And in the media coverage -- what happens in the media coverage, the Minister of State Assets announced that securing state interest in this project is a key priority for him. Within the group, we are preparing the deployment of a new organizational model, the design works are underway, and we stay in close contact with the supervision authority to know if we will have the endorsement, but we do realize that the challenge is huge. When I joined PZU Group, my first -- one of my first task was to stabilize the situation within the organization. We have 2 collective bargainings and we managed -- we had collective bargainings and we managed to close 2 -- to settle 2 disputes, and we are now in a dialogue with social partners. I do hope that by the end of the year, we will be able to find settlements in other disputes. We focus on a transparent and open communication with social partners in these collective bargainings. And I do hope we will be successful. We are preparing for the cultural transition. We want to transform our governance and culture. We want to be more agile, and we want to shift from silo thinking to a tribal thinking. It's a huge challenge ahead. But within the group, together with the other leadership team members, we believe that we are on the right track. For technology. Well, in our previous meeting, we already said that we had a serious technology that within the group. The Management Board and especially [indiscernible] has been working in that. We've designed a plan to replace the key IT systems and we want to have low-code platforms to -- because we want to act swiftly and in an agile way or respond to any market developments. I've already said that we will have some new claims handling processes. We estimate that by the end of the first semester of 2026, we will already have all the analysis at hand and the provider will be selected and that we will be able to trigger the deployment. We've been implementing our corporate social responsibility policy. We want to build a society resilient to ongoing and current challenges. I'm sure you know our campaign champion slowed down. That's a road safety campaign. I'm sure you know the visualization and look at me moustache only in November because we have another health awareness raising campaign. I wear moustache this month because that's how I see my role as a leader -- as the CEO of the leader of the market leader. Its high profitability and yield, but it's also a major key player and a participant of the social life. Just don't forget we have people to live for talk to your family members about health, about prevention, about screening just go do screening tests. And my colleague does not wear moustache. I encourage him to do the same. That will be the overview of our achievement -- efforts behind these achievements and plans for the future, my personal ambitions as the CEO -- acting CEO for now of the PZU. And now I will move to Tomasz, who will give some more detailed brief of our business in the third quarter 2025. Tomasz Kulik: Thank you very much. I try to be brief to get some time for the sum up by segment and to have a question-and-answer session. Let me start with some important factors impacting our results. We will start with non-life insurance. It was flat. However, over the same period we had some major rises on revenues from insurance services. There is a stratification among corporate clients, a drop of 9%, but the revenue grew by 7%. Why? Well, it's long-term business. The long-term business is still in our portfolio. We do provide our services, and that's an element of our exposure, and there is a different format used for the reporting to the supervisory authority. Our competitors would report that as a recent premium, especially that there was no change in coverage over the period, and we could not reprice that part of business. This is an element of our exposure, as I've said. And we had some major rises in corporate and mass segments. Under the previous standard, we had the different measurement premium and that value reflects better what happens on the revenue side. Now motor insurance, continued drop, especially Link4 portfolio mass insurances, a multi-agency nonprofitable channel, there has been a reduction. The channel was not among the top profitable entities last year in 2025 for the whole group and for Link4. In 2025, we focus mainly on profitability and yield where such yield is achievable. And we skip any formats that historically are no longer attractive to us. There has been a slight adjustment, therefore, but just have a look the difference between written premium and revenue on insurance, which are -- the difference is the source of this adjustment. Here, in this segment, you have -- we have 3% -- growth of 3%. That's for health, either [indiscernible] of the existing portfolio or new contracts, new protection, insurances. This is a result of consistent work on the portfolio, and we added some new products, which help us improve our insurance margin. We had an 8% increase in individual health insurances. It was quite high, especially that the last year, the starting point was also quite solid. And we had a major share of investment products, including life and endowment insurance products. Quasi investment products sold through different channels, including through banks. And despite that, we still have a rise of 8% for individual health insurances and regular protection insurance products registered a 20% dynamics. For the segment of Non-life Insurance, we've opened stand-alone products in bancassurance, Alior Bank and education. We've already launched what was announced upon the publication of our strategy. We started to go beyond Poland in active reassurance format. We want to be present in foreign markets outside Poland. We are in the stage of studying these markets, together with our reassurance partners and because the balance sheet is good, we have enough space to take on some more risk. And we want to limit anti-selection at the very start of that journey. So we had a fresh start, that is a strong team. And I do hope that in the incoming quarters, we will be able to give you some more details on revenues in this specific channel. We still focus on building and expanding skills in underwriting and bancassurance. We wanted to improve analytical skills of our teams. Let us move to Life Insurance. We have some additional products, serious diseases, treatment abroad. These are elements that are now covered. We are an aging society, and we have ailment typical of much mature and aging societies. So health insurance is a topic of focus for us. We have an attractive offer with very, very hard premiums, and this offer really resonates among customers, attract a lot of customers. In group insurance, we offer a new product based on the insurance sum and the insurance sum is calculated based on the remuneration level. This is a pilot project. We've been testing that solution, and we have also products in bancassurance. Health area, the CEO has already given you the details. We have had growth in both subscriptions and insurances, 15% year-to-year. And the same applies to medical facilities, whether it's occupational medicine or fee-for-service model, we have to digit it's more than 12% always. We are growing, thanks to our partners. We have partnered medical facilities. We want to be present everywhere and to attract more and more customers. We act as an adviser. We can suggest our own facilities or partner facilities simply to streamline the cost -- the average cost of medical procedures. We also increased the number of online visits, and there is a channeling of patients inflows to our medical facilities, 40% of all patients in the third quarter. Assets under management, whether it's the TFI PZU or our group banks, we have TFI PZU as a leader PLN 3.5 billion, a large share in banks and growing scales of assets in ECS. And now for product. A new fund, private debt fund which is done together with the Bank Pekao SA with joint allocation, both for us, for the bank. It's over PLN 100 million. It's a fund to finance companies as a long corporate debt with the offer is directed at the clients of private banking of Pekao SA and it looks like a good top-up of our offer in terms of the attractiveness of the investment, especially with this type of assets in mind. Now Innovate Poland, which recently was inaugurated by the CEO. So over to the CEO. Bogdan Benczak: Innovate Poland, this is the Poland version of the program and PZU is one of the originators of the project. We are the private company, the joint projects together for the Polish Development Bank and the Polish expansion fund, which are public entities. We have done this to diversify our portfolio and to get extraordinary rates of return. This is also aligned with our strategy, because we've been diversifying our revenue on deposits. Thirdly, we see it as a project where there is a room for synergy with other projects that we have now in the pipeline. We collaborate with the highest number of start-ups in Poland. We have the PZU Ready project, which is for start-ups. So we can see some synergies here and the possibility to fund some of our partners with money from this Innovate Poland fund. Also additionally, thanks to the ideas of the project and some accreditation procedures and certification procedures, we think that this will let us to achieve synergy and speed up the certification and speed up the selection of funds we would like to invest in the future. Thank you. Tomasz Kulik: Now our collaboration with banks -- bancassurance. Here, the sale measured through written premium quarterly reached PLN 600 million. So it's a very important distribution channel. It's growing, thanks to the same groups of products and the growing offer. And this time, stand-alone products have been added to our offer. So we hope that this channel will only continue to grow. And now I would like to walk you through the financial results in Q3 with a breakdown into segments. So first, general results. The highest top line ever in Q3 and the highest result ever for the group. So top line now the growth year-to-year is around 5% with an important contribution of the non-life mass insurance, especially non-motor because here, the growth rate is almost 10%, 8.1% growth, corporate and non-life insurance. Group individually continued insurance are a bit lower, but the baseline was very high, and we will tell you what has happened here in this segment, double digit, 18% of growth in individual protection insurance and life insurance, a very high contribution from our foreign companies. So this actually generated our insurance revenue in this quarter. Now net insurance revenue is the same as the gross amount that the year-to-year, a lot has been happening on the side of the costs, especially if you think about the claims and benefits. Here, you can break it down into 3 areas. So first, no comparability because let me remind you that last year, we were speaking from the point of view of the operations, and we were facing the flood and its consequences on the very next day after the flood and we were already there. So Q3 last year and the reported results was affected by this -- by this mass incident and actually brought the result down by PLN 265 million -- rather PLN 275 million. At the same time, the frequency of claims was lower in motor insurance, which also had an effect on the rate of return and MOD and MTPL in both segments, which is good news. At the same time, the reserves from previous years were overrated mainly because of the reversal of the trends of indexation. And I'm speaking here about PLN 56 million, the overestimate. There was also a drop in the reserve of the [indiscernible] provision. Cost effectiveness is very important for us. This concerns how to reach customers in an effective way, also how much we want to spend on customer service. In both terms, we have increased our effectiveness. So we have increased the effectiveness of our administrative costs, personnel costs and technological cost is offset by other cost categories. So this means an improvement which translates into index which is lower by 30 basis points. The same goes for the cost of acquisition. And also now let me mention something that actually proves the quality of our business, the net contribution and the improvement of the loss component. As you can see, the new loss component and the amortization. Overall, has a positive effect on the result. In all the segments, it's worth over PLN 90 million. So it's very good news especially if you think about what's happening in the Non-life and the Motor Insurance segment. Q3 ends at the level of [ 505 ], a huge change, 170% here year-to-year with strong growth and financial income, PLN 360 million with a growth of 45% year-to-year. This is the final result. And this mostly generated by the increase in the corporate debt and the improvement of the profitability of corporate capital instruments. So the final results for nonbanking amounts to PLN 1.419 billion. The banker segment is flat, 2.2% is a slight adjustment. This is -- this means that the result is PLN 1.9 billion and with very high profitability of equity over 25%. And this is much higher than expected when we published our strategy at the end of last year. Now we have improved cost effectiveness both on the side of life and non-life. And again, this is good news because this has had an effect on the result. And now let's have a look at the segments. So first, let's start with the mass segment. The dynamic in non-motor insurance was a bit different because the growth rate was almost 10% and mostly household insurance, but also PZU [indiscernible] PZU company and offer for SMEs. This is a new approach to the insurance sum with a aggressive pricing. So this led to an important increase compared to Q3 last year. Motor insurance is quite flat, especially if you think about all the things happened with Link4. As we have already mentioned, Link4 needs to focus on bringing back profitability this year, but a slight increase in the acquisition costs. Now quality has improved. Speaking about the expenses and the cost structure in this segment has changed totally. The share of cost in revenue has gone down, but there is also a lower liability for current claims. So there are some massive claims payouts, but also -- that were the last year, not this year, but also there has been an improvement in motor insurance. As I've told you in Q3, we had an improvement in the loss ratio -- loss frequency concerning this product. So a smaller loss component and the amortization of the loss component from last year gave us overall PLN 40 million, which contributed to the result of the SKU and with a positive effect of the overvaluation, overstatement of the reserves from last year. So PLN 715 million. This is the overall result in this segment with the effectiveness ratios improved practically in every area. Now the motor market and how the trends are going to translate into the results in the upcoming quarters. So first of all, the price dynamics in MOD and MTPL. MOD now, it achieved the highest values in December, January and Q1 this year. The growth rate was at the level of 7.6%, with a drop to the level of 1.5 percent point. But still, it's a positive unlike MOD, which is minus 3%, the previous was MTPL. So for MOD, maybe the only positive thing is that maybe we have already hit the bottom and then we'll pick up. But in MOD, well, it still continues to be quite a profitable product at the end of Q2, which is the last publicly available data, it has a 7% of -- almost 7% of profitability. And MTPL now. In Q1, this profitability was quite high and quite surprising. Now we are at the level of 0 given that the price is not growing anymore at the same rate. For MOD, there is no effect of the increase of the value of the cars. This was a phenomenon that was there after the pandemic for some time, but this was the main driver of growth that now has disappeared. This slide is based on the PAS data. So cannot be directly referred to our reporting. Corporate Insurance segment, high dynamics, more than 8%, both for non-motor insurance, it's almost 7% and motor insurance Link4. Well, it's similar to mass segment, the acquisition costs are lower. The costs of acquisition are similar to mass segment structure of expenses has changed more or less 4% drop due to better cost efficiency, and that's an important parameter for the results of this third quarter, much more than the improvement in quality. We just look at net loss. The net loss also had a positive impact on corporate clients. Current liabilities have gone down. We had lower payments and lower liabilities in non-motor insurances. As you see a bunch of factors that help us to get a double growth up to PLN 309 million. It's similar to mass segments. We've seen the improvement in all major product group. Group individual continued insurance. We started with a high base and then we had increases. However, what I would like to stress is a lower allocated premium for future expected claims and benefits. We had a drop of 64% in this loss component. We've had a better alignment and a more conservative approach. We just thought that the loss ratio and mortality could be higher, but not -- it did not happen. We had very positive variations on these components last year. Because we had better alignment for 2025, we've managed to get a better share of CSM. And with that, we got 26% increase year-to-year. It's not only a standard scale up. We've also changed cost and actuarial assumptions regarding insurance liabilities. That is why we have a 1.5% increase in insurance revenues. We had lower payments under individual continued health insurance, and there was a slight increase -- general slight increase in health insurances with positive cost components. And we end Q3 in operating result of PLN 550 million and a profitability of 27%. Mortality. In the 3Q -- well, 3Q is usually a period of seasonally moderate number of deaths and that was the case this year with a slight improvement year-to-year compared to 3Q 2024, we had an improvement of 3.3%. So the number of compensation benefits to death ratio, it remains positive for us compared to the similar period. So it's better by 10%, around 10%. Individual protection insurance. In this segment, you see very high increases 18.1%. We've already mentioned that. It's basically due to 2 products, individual insurance, which profits and individual protection insurance, PLN 17 million and PLN 14 million increases, respectively, for both of them over that period and CSM has grown considerably 21% year-to-year. And this was a result of better cost effectiveness. Because of that, we decided to change the assumptions regarding costs and the share of costs in contracted insurances. These increases come mainly as a result of scale-up of our businesses, and this translates into better operating results, 10% compared to the previous year. So this quarter is closed with PLN 120 million contribution of that segment to the consolidated results. Let me now move to the CSM balance sheet value. It will be recognized in consolidated results. As you can see, we've had some major increases for CSM from existing businesses and new businesses. For existing businesses, we've had some positive impact of rate indexation, rate tarification and there was also a change in assumptions, and that influenced our way of thinking our approach to costs of that service in the future. Let me mention 2 points regarding that change. The change is usually introduced in quarter 4. This year, we've introduced the change in quarter 3 because there has been some earlier dates set for reporting. So we want to be ready for February because we want to change, be more proactive in communication with the market, and we want to report faster. But sometimes, we were unable to get involved in some communication because we had a delayed reporting. That is why some procedures were implemented earlier and among them were the procedure on the update of technical assumptions and for CSM, we got a very positive effect because we got better cost efficiency in the end. As you can see in both segments, there has been a major improvement. Investment results 5.7% in interest. We also see an increase and the same can be said about debt instruments, the same parameter was different a year before. Last year, we wanted to seize the opportunity on the market, and we wanted to extend the portfolio. There was some negative valuation of these instruments. Also last year, we had depreciation write-off on 1 corporate exposure item. And that's why you've seen a major increase year-to-year, there has been an increase for capital instruments, indexing, private equity and health sector, all of them contributed to this class of deposits. We note a positive contribution to investment real estate assets with a level of 5.7% at the end. And I will end with solvency. It's extremely secure. Results are very high, and we can adopt an extremely optimistic outlook for the year to come. As you see and as you hear, third quarter is the time of growth of our own funds with a slight increase in Solvency II requirement. The increase was observed for both insurance business and for banking -- Bancassurance segment. What's our trajectory and what's the state of play. Gross insurance revenue. Here, we need to look for and prospect new sources inward reassurance. And definitely, as the CEO has said, we need to step up our efforts to get our ambitious goal and to deliver what we've defined by the end of 2027. Value-based thinking pays off. And just have a look at our ROE. We are within the range of our strategic goals for both life and non-life insurance, profitability. We have high Solvency II ratio, and we didn't have reorganization. We just have changes as part of the Solvency II regulation. We've known the details for some time. And now we can say that depending on different scenarios, we are quite well prepared. We are a value-based company and that is why we are selected by investors who believe that we will be able to provide high value and high return on dividends so the dividend per share will be really high. So as I've said, we are really prepared for that. That would be the sum up of the results for quarter 3 and our trajectory in the state of play. And now I give the floor to our CEO, and please feel free to ask any questions. Bogdan Benczak: It was very solid, good positive 10 months. That would be my final word. Bogdan Benczak: Yes, I have to speak to the mic. We had very good 10 months. And now I open the question-answer session. I look at the chat, but let us start with people who are physically in the room. Any questions from the audience in the room. So let us start with questions on non-life insurance. Magdalena Komaracka: Autonomous Research. I will translate that into Polish. To what extent was the combined ratio in Poland in 3Q by favorable weather conditions and/or reserve releases in the third quarter. Unknown Executive: Let me phrase it that way. I would like to stress firmly the following thing. Our DNA includes a conservative approach to liabilities, including insurance liabilities. So we will not act unpredictably here. We have reserves. The level of reserves is absolutely adequate to the market situation -- persisting market situation. These reserves are also adequate because they will allow us to cover all insurance liabilities whatever the scenario. So our insurance portfolio is like this. And the economy has an effect on it as well, and this is what has happened in Q3. So the first thing that happened was the following. And this was purely economical. The inflation got down. And this is about modeling results for the capitalized value. And together with the drop in the inflation rate. So there is also a huge correlation between the indexation level decided by the courts and also the trends of the inflation, the CPI or the salaries inflation. So we see some room for a drop in the level of reserves. And at the same time, we will remain as conservative as before because in the upcoming years, probably we won't have double-digit figures as in the previous years. And this is because the inflation rate is on a very good trajectory to reach the inflation rate goals, as mentioned by the Polish National Bank. So PLN 50 million for MTPL. This was 1 of the reserves I'm referring to. The second parameter is the following. Let me remind you -- but years ago, given the case law, whenever there were injured people in a car accident that actually survived but they were in persistent vegetative state, the family had to look after a person -- bedridden people or seriously ill. So we are speaking here about their mental psychological consequences, which led to claims and in 2017, 2018, we created a reserve for that purpose. But we can see that there are fewer and fewer claims, where courts decides the money to be paid. And this was for years, 1998, 2017, so 20 years of liability. And now we are gradually decreasing that reserve, and this also has had an effect to the overestimate of PLN 21 million on the results. So this is what it looks like in the non-life insurance segment and I hope this addresses your question. Magdalena Komaracka: The second question is from HSBC. How does business mix shift from motor to non-motor impact your combined ratio over the next few years? Can this shift to higher-margin non-motor offset pressure from softer market conditions? Unknown Executive: So we made it very clear in our strategy. What we really are focused on is the growth of profitability that's in our DNA. That's why it was our conscious decision to limit situations, which are not very attractive in terms of value generation. We have told you about the Link4 portfolio situation. We also repositioned PZU SA and the effect of which has been and probably will be the increase in the share of the non-motor segment line of business. What we think is still relevant is that the mass and corporate segment with the mixed portfolio, which brings together motor and non-motor insurance. Here, we want to have profitability managed by combined ratio, but at the levels of no more than 90%. This is our target. Hence, the new activities whose purpose is also to make more room for more revenues in a situation of a soft market. Magdalena Komaracka: And now speaking about motor insurance, given the pricing pressures in motor insurance, what levels do you have to sustain your core in the upcoming period? Bogdan Benczak: Well, I think it depends on how the market behaves. Because the claim inflation rate has been going down. So when you think about the average price of compensation and motor insurance, we can't be too optimistic about the levels of this and the fact that they will start at the same level. So frequency might have an effect, and this is precisely what happened in Q3, but the inflation trends will also have an effect. What we see is the following situation. The MOD market remains to be profitable -- remains profitable, and we are a bit more profitable here. But please bear in mind that we are using a different standard and the one that allows us to gather market data. So if the situation continues, probably this will lead to a compression of margins and whether it's 5% because this is very, very stable and the profitability is going down very slowly but steadily. Anyway, it's very difficult to predict. Now we have negative data from 2 quarters. Q2 and Q3, the negative adjustment is minus 2.8%, and we'll see how it continues at the end of the year, because the end of the year is a very interesting time because some are already positioning themselves for the next year, some are still trying to deliver targets from the current year. So it's interesting things to happen. So if we are able to grab this opportunity and position ourselves the right way, we might even benefit from this situation in Q4. And now MTPL. We don't want to grow at any cost in channels where there is no value for us. So maybe as discussed in our strategy, we will continue to grow but slower, but we will be able to generate value for our shareholders or for our customers because we have a very big portfolio and also, I think that we have mentioned pricing and other issues and we're getting better at the offering to our customers. So if nothing happens, we think there will be a slight depreciation of the margin on MTPL, but we still think it's going to be a profitable product but also depends on the market and the situation. Today, the market is not profitable. And there are companies that generate value and there are some that loss value. And we want to be among the former, but it means that it's very hard work, and it's very nuanced in terms of accepting risking and portfolio and tariff settings in the mass insurance are part of PZU's activity and the part of our priorities. Of course, there is the market situation, but also we have a list of activities that help us improve like pricing, claim handling, frauds. So we have to analyze thoroughly what's going on in the market, but there are also things happening inside PZU. Magdalena Komaracka: And there is also 1 more question from [ Trigun ] about the Motor Insurance segment. So what's behind this very significant improvement in the profitability quarter-to-quarter. Unknown Executive: And we have answered this question already. Well, there is 1 more element that also happened in Q2, the amortization versus the new creation of loss component, the amortization is higher and has a positive contribution to the result. Magdalena Komaracka: There is 1 more question, a new one from HSBC. Historically, so -- is this the moment in the market where the pressure allows it to reverse? I mean, become more profitable? So historically speaking, where are we. So is it subsidizing 1 product with another? Unknown Executive: I think that the Polish market changed significantly when the pandemic started. Let me remind you. In 2019, we told you that a new underwriting cycle was beginning, but the pandemic was a game changer. And first, we had gigantic profits. This was largely because there was no traffic and no insurance incidents. But then people started to work half remotely and half in the office in a hybrid way the traffic came back to the street. And you could see that this cycle was very much disrupted by the pandemic, and the cycle took overall 6 -- almost 7 years. So it's difficult to find a similar period in the past. So historically speaking, in a totally different legislative environment, there was a point where both MOD and MTPL products were not profitable, and this was when the regulator, the financial authority started its interventions. And that was 2017 as far as I remember when the new regulations on the price adequacy took effect. The purpose was to curb the situation that had been happening back then. So now it's difficult to imagine a situation or a huge technical losses offset. And everyone is happy. Why? Usually such a model has a very negative effect on the capital position and insurance companies need to guarantee the right capital to cover and to pay insurance liabilities. So the rules have changed a bit here. So after such a long cycle, it's difficult to compare this time to a similar moment in 2015 or '17. And this approach could be also seen in our strategy, but it looks like we are going to move in a much narrower corridor historically speaking, maybe with a pricing cycle or an underwriting cycle. But it's time span is going to be totally different unprecedented. Let me stress one thing. We are far from a negative technical result, far from it. That's not our philosophy. Magdalena Komaracka: We have 2 more questions regarding results and communication, 1 from HSBC and [ Trigun ]. Regarding non-motor insurances, do you see any one-offs. That will be from [ Trigun ]. And from HSBC, weather losses were having in 2024, but would you describe 2025 as a normal year? If not, how much should we normalize for weather? Unknown Executive: Well, let me phrase it this way. Depends what you understand by normal. The flood, we experienced last year. It's not a regular event. And it's recurring event that should be included in the forecast for every year. I believe that technically speaking in non-motor insurance, it's quite okay. We had some frost in the second quarter for PLN 10 million. Apart from that, there were now other massive events, the ones we had last year, like flooding. So again, what is normal? What does it mean normal? We had more violent weather incidents that's for sure and we have some unseen events. For instance, a heavy rainfall during winter. And we believe that these events may have impact on the claims side. But this is a quotation element. The parameters, which influenced the level of risks are also taken into account when the quotation is being produced. Right now, we've changed our way of thinking. We know that we may have clients on -- in the flooding areas. We have flood protection, not far from the Vistula River in Warsaw, and we have big villas. And when we produce quotation for insurance for such large villas, we will do a totally different valuation than the valuation for a small 3-room flat, somewhere in the tenement building. So these elements unprecedented weather events are already piece and parcel of our quotation methodology. So again, normal for us here means positive. This year is positive. Magdalena Komaracka: I still have 1 question about investment -- about holding. So about investments. It's from Autonomous Research. You've mentioned pressure on investment income in insurance and the contribution from banks, given the duration and maturity profile of your fixed income portfolio, what pace of compression should we expect on the fixed income yield in banking? Can lending growth potentially offset pressure on net interest margins? Tomasz Kulik: Let me answer the following way -- give you the following answer. I will take the perspective of the last 12 months because we started efforts in this area in the third quarter of 2024. What happened there then was that we simply wanted to use what happened around us. So in order to extend and in some way freeze our debt portfolio, mainly sovereign bonds portfolio. We simply seized the opportunity of very positive environment and positive external parameters. And there were some positive results last year. We managed that. And we believe that we can benefit from this on -- in the long term. If interest rates go down by 100 -- 100 basis points, we will be between PLN 80 million and PLN 110 million, PLN 120 million corridor. That would be our position right now. We will do our best to offset that corridor, and we can afford that today, considering our capital position right now. So we can increase that level -- slightly increase that level of acceptable risk. And the share of debt -- corporate debt instruments in our investment portfolio. This share is not excessively big. And the CEO said today that the sovereign debt treasury -- debt share in our portfolio corresponds to 65%. So it's 65% of the whole debt portfolio, and we are not representative Europe-wise when compared to other European peers. So we still have some room, but it needs to be meaningful if you have no reasons to rely on out-of-the-box solutions, you won't use out-of-the-box solutions. However, the number of possibilities is limited. This is not a very deep market. The Polish market is not very deep. And we do have some strategies which try to go beyond the Polish market as sort of a change of cap, and we will think about it if there are new drops of interest rates. And this will be aligned with the new organization and with the new -- with our strategy. Magdalena Komaracka: And we have the last question about holding. Could you remind us of the time line to complete the merger with Bank Pekao or reorganization? And could you provide an update on the legislative process that will enable the merger -- the reorganization? Unknown Executive: Well, you should have been closed by the end of the second quarter, it should be closed by the end of the second quarter 2026 according to the time sheet. Legislative process. The draft will be sent to the parliament. We are just ahead of the parliamentary work. And it's too early to answer the question on the shares and the price of shares. Magdalena Komaracka: And brokerage house of Citi Handlowy Bank. I have a very specific question, but I know that the CEO has such a background. I have a question about the presence -- your presence in the Baltic states. There have been some details in the presentation, but what is the cycle? What's the stage of the cycle? And what are the risks? What are the threats? Bogdan Benczak: Well, the market is similar to the Polish market. There are less insurance companies, but the competition is similar. There is a different mix, slightly different mix split by industries. Traditionally, transportation, logistics, furniture and wood industries. These are the traditional industries within the mix. As you probably know, we are facing a major challenge in Lithuania, there has been a 10% tax on revenues from insurance that has been just introduced, 10% of the written premium tax. And we -- just want to know how this tax on the 10% of the written premium will be calculated. We know that the proceeds from the tax will be used to finance the defense spending. And I believe that this may have an impact on the insurance market in Lithuania. There are no implementing acts and some business lines will be exempted. This is the situation in the Lithuanian market. As you probably know, a long time ago, as part of the transaction with RSA acquired Lithuanian Latvian PZU and the branch of [indiscernible] in Estonia. Right now, [indiscernible] is faring extremely well. They are agile. They are the market leader and they represent the sales mix as we do. They have their own network of insurance agents and they also have cooperation with external channels, a strong position of brokers within the network, similar to multi-agencies in Poland, similar price leverages. The mass segment is most developed for medics. For us, it's health insurance, and it's in Lithuania, the same sector is now on the rise in Lithuania and Latvia, the most developed and Lithuania developing. In both cases, we have good profitability. And the reasons for that are similar to the causes in Poland, the difficulties in accessing public health care. In Estonia, the situation is slightly different, public health care services are of high quality, and that's why health insurance is not a widespread product. And there is a high level of digitization, plus need for quick response. So when you get the request for quotation need to react immediately. We are market leader in non-life in Lithuania. We are market leader as a stand-alone company without consolidation, so as a stand-alone company. And we are also a leader in Latvia. And in Estonia, we are #3. As far as I know, for non-life. Our life insurance company in Lithuania has started to show a positive dynamic. So there has been some growth. But undoubtedly, we need to speed up and we are right now thinking how to reposition the company on the market. The Lithuanian company has a branch in Estonia [indiscernible] has a branch in Estonia. Many years ago, we bought a branch actually and Volta is a standalone company headquartered in Riga, combined ratio and written premiums. I don't know if we have data on that. Let me show you the exact slide. And if you add to Ukrainian companies, PLN 2.3 billion of written premium for third quarter alone. So the Baltic countries plus Ukraine. It's integrated, consolidated in 2025. 86.5% of combined ratio, Baltic States and Ukraine and then the conversion of local currencies. I have to check for written premiums. We actually, you got me, you got me with your question. I have to check and get back to you with the details. However, the combined ratio is at 86.5%, and it's similar to PZU's combined ratio, and the product mix is also close to what we have here. Distribution channels. When we bought Estonian branch Bancassurance and City Bank had a major share. Now this share has shrinken and there is a bigger share of broker and agent sales -- broker and agent-mediated sales. So bancassurance still counts, but its share is not that important. Many years ago, I was involved in the acquisition of this business and I can tell you and Tomasz will agree with me probably that all the basic assumptions were delivered with a surplus. So all the companies are agile, and they have a very successful contribution. And now Ukraine. We are now undergoing a very, very deep restructuring of the companies and this year, Q3 has witnessed a strong pickup in terms of sales and the combined ratio is at the level of 94. So there is no reason to be ashamed given the extreme conditions over the circumstances. So we can be actually proud of it. Magdalena Komaracka: Any more questions? No more questions online. Bogdan Benczak: So thank you very much for your attention, and we hope we see you -- we'll see you again in -- after Q4 and we will be informed about the date of the conference in the current report. Magdalena Komaracka: Thank you very much. It has been very stressful, but also a very interesting experience. And please have a look at our website and our awareness campaigns. Thank you.
Nini Arshakuni: Welcome to Lion Finance's Third Quarter results call. My name is Nini Arshakuni. I'm Head of Investor Relations, and I will be the moderator for today's call. I'm joined on this call by Archil Gachechiladze, our Group CEO; Hovhannes Toroyan, who's the Chief Financial Officer of Ameriabank, our banking subsidiary in Armenia; and Akaki Liqokeli, our Group Economist, who will be covering the macro. We're pleased to report another set of solid results for the quarter with very strong customer franchise growth across our business operations in Georgia and Armenia. Our loan book grew 22% in constant currency. It was even more -- with even stronger growth in the Armenia operations. Overall, our profit for the quarter amounted to GEL 547 million, an 8% increase versus the prior year. Return on average equity stood at solid 28%. Cost to income was 35.3%, an improvement versus the prior quarter. And our cost of credit risk ratio was 0.5%, and we maintained robust asset quality across the whole business. Before we dive into the details of these results, we'll first start with the macroeconomic developments, and Akaki will kick off, and then we'll hear from Archil and Hovhannes. And in the end, we'll open the floor for questions. Akaki, now you can start the macro part, and let's move on. Akaki Liqokeli: Thank you, Nini. Hello, everyone. I will be presenting the macroeconomic update for our core markets, Georgia and Armenia. Let's start with growth performance. In the first 9 months of the year, both economies delivered solid growth numbers, supported by robust domestic demand and resilient external sector inflows. Accordingly, we have maintained our full year real GDP growth forecast for 2025 at 7.5% for Georgia and 5% for Armenia. That said, the uncertainty around the baseline remains elevated due to geopolitical instability in the region and domestic political tensions. Nevertheless, the demonstrated resilience of the economies, along with continued improvements in relations between Armenia and Azerbaijan has strengthened the outlook. And we have revised our expectation for 2026, is the strong growth will persist at 6% real GDP growth in Georgia and 5.5% growth in Armenia. Importantly, our projections are in line with the latest IMF forecast, which place Georgia and Armenia among the top performers in the region in terms of average real GDP growth over the next 5 years. Turning to the composition of growth. Both economies have increasingly shifted to domestic demand drivers, particularly consumption, which is supported by sustained increases in household income from employment and remittances. And ongoing fiscal expansion in Armenia is also helping in this regard. Investment spending is also contributing positively, aided by ongoing public infrastructure projects. External sector inflows are also contributing to growth. The income from exports, tourism and remittances is increasing at a solid pace in Georgia. We also see that the inflows have gained momentum in Armenia after one-off highs registered last year. Also, the nontravel export of services, particularly IT and transport, demonstrate solid growth and contributing to overall hard currency inflows. The strength of inflows is supporting the stability of local currencies as well. Georgian lari and Armenian dram have been broadly stable against the U.S. dollar over the last 2 years in contrast to most peer currencies. The real exchange rates are also adjusting smoothly after strong depreciations in previous years. This is working through lower inflation with no impact on nominal exchange rates. We expect GEL and Armenian dram to remain stable over the medium term, supported by solid macro fundamentals and prudent policies. Exchange rate stability is also essential for keeping inflation low and stable, which we have observed in both countries in recent years. However, more recently, we have seen some uptick in inflation in Georgia, where the headline number was 5.2% year-on-year in October. This is mostly driven by price increases on several food items from last year's low levels. And we expect this to be temporary and short-lived as inflation expectations remain well anchored as reflected in low core inflation numbers and the National Bank of Georgia maintains moderately tight monetary policy with the refinancing rate at 8%. In 2026, as inflation pressures ease, we see scope for 0.5 percentage point cut -- rate cut by the NBG. On the Armenian side, the inflation is more stable, and refinancing rate is slightly lower at 6.75%. In 2026, we also expect a limited space for cuts within 25, 50 basis points. The central banks of Georgian and Armenia have been also very active in foreign currency purchases this year. And as a result, there is -- official reserve levels have reached record high numbers. And they are also converging toward the minimum adequacy levels. According to our estimates, [ $6 billion ] will be sufficient to reach the debt level in Georgia and [ $5 billion ] in Armenia, and those levels are quite realistic to be achieved in the following year. Strong reserve positions are essential for macroeconomic stability as well as fiscal discipline that we also observe in both countries. Georgia remains on a consolidation path with tightly managed fiscal deficit within 3% of GDP and also the government targets to reduce further the debt level below 35% of GDP. On the Armenian side, the temporary increase in spending needs has led to somewhat elevated budget deficits in the following years. But notably, this is -- more spending is going to CapEx projects, and the government is committed to maintain the public debt below 55% of GDP, and this is also supported by ongoing IMF arrangements. Lastly, a few words about the banking sectors, which benefit from favorable macroeconomic conditions in both countries. Lending growth has converged to the nominal economic growth in Georgia. And in Armenia, we also see some moderation to more sustainable levels as the mortgage subsidy program is phasing out. Loan dollarization has been stable after substantial decreases in previous years, which contribute to lower exposure to exchange rate risk and the asset quality remains solid with Armenia and Georgia among the top countries in the region in terms of low nonperforming loans according to IMF. So this concludes my part. Back to you, Nini. Nini Arshakuni: Thank you, Akaki. Now we'll move to discussing our performance in Georgia and Armenia separately, and Archil will first start with Georgian operations and strategic highlights, and then we'll move to Armenia. Archil Gachechiladze: Hello, everyone. Thank you for joining the call. Let me share the presentation. Nini, can you see me share the screen? Nini Arshakuni: We see the screen. We don't see -- yes, now we see the presentation. Archil Gachechiladze: Excellent. So thank you again for joining the earnings call. We will discuss some of the numbers here. So I will present the operating parameters of our Georgia subsidiary, then Hovhannes will present the Armenia side, and then I'll summarize in terms of the overall revenue numbers and costs and so forth. So the Georgian subsidiary had a very good showing of return on equity of 32% with 16% year-on-year growth in loans and 14% in deposits as well as continuing to increase its retail coverage with retail monthly active users achieving 1.74 million users, up by almost 15% year-on-year. Just a kind reminder basically that our mobile application retail as well as business is basically financial superapp with a lot of different capabilities, including not only daily banking and multicurrency accounts attached to a single card and so forth, but peer-to-peer payment and bill split and so forth as well as fractional trading on U.S. markets, low-cost fractional trading and many other capabilities. And for that reason and not just that, but as our overall digital capabilities of the bank, we have been recognized second time in a row by Global Finance as the Best Digital Bank in the World, and in the run-up to this competition for the best in the world, there were some big global names, including Revolut and others. So it's -- I would like to congratulate our team behind this effort. And it is a nice achievement and recognition for our bank to have that given that our home markets are rather small on a global scale. So what we see here is that we are going from strength to strength in terms of the monthly active users. You can see this number here, the middle gray line, which is up by 14.7% that I already mentioned. And the daily engagement is very good. Basically, it's about 50% now, which is very strong. What's also notable is that our business users are growing year-on-year monthly active user of our business mobile application is up 19%, which is quite incredible. In terms of the shares sold digitally, we have achieved a new high of 70%, which is very good. So more and more of our loans and deposits and cards and other packages are acquired fully digitally. And on top of that, our NPS score, we achieved a new high of 74% -- not percent, 74, I apologize, in terms of the NPS showing, which shows you the strength of our franchise and the satisfaction of our customers with our services and daily banking that they do. That has translated into a 21% increase in terms of volumes of payments, that's POS terminals and e-commerce with a slight pickup in the market share year-on-year. Some people have asked the question in terms of this used to be 57%, that's restated to exclude peer-to-peer payment that went through the card rails, but that's not really an acquiring business. So we excluded that. And if you restated it for longer term, that's -- those are the numbers. In terms of number of people using -- unit individuals using our cards, year-on-year, it's up by 13.9%. So given our high penetration, it's an incredible number, well above 1.5 million now. And so it's 2.5% up Q-over-Q. Loan growth was 16.5%, constant currency, 16.1% and a quarterly number of 3.6% on a constant currency basis, which is very strong showing the markets growing about 13%. Deposit was up also by 14%, a slight bump on a quarterly basis. Capital position remains strong. CET1 and Tier 1 is a big focus, obviously, because the sub debt is widely available for a number of providers. So it's more tightly managed. But this is plenty of capital. And as a reminder, we target a management buffer of 1.5% above the minimum requirement. We can go slightly lower, if need be, but basically, that provides a slightly higher cushion that we target. Now I would like to ask Hovhannes to step in and present the shiny results that Ameriabank has. Hovhannes Toroyan: Can you see my screen? Nini Arshakuni: Yes, Hovhannes. Yes. Hovhannes Toroyan: Yes. Perfect. Thank you, everyone, for your time. For the Armenian operations, I want to mention that our profit grew 22% year-over-year to reach GEL 111.5 million. Our return on equity also improved quarter versus quarter to reach 21.8%. As Archil already mentioned, both loan and deposit portfolios grew at significant rates, namely loan book grew 36.5 percentage point in constant currency basis and deposit portfolio grew 28.6% again, in constant currency basis. We continue our expansion in terms of acquiring more customers. And here, you can see that both total customer base, monthly active customers as well as MAU/DAUs are increasing pretty solidly, and I'll be talking about it on the next slides. Here, again, likewise, we're working on developing superapp locally that is becoming more and more popular. Indeed, the usage of our mobile application that is called MyAmeria has increased more than 60%. That is also remarkable given the high penetration that we have in the local market. And there, we have several different features, more than actually 100 new features introduced during this quarter. And we also introduced our loyalty program that we hope will tie up our customers with us in the long term. As we spoke last quarter, we have launched MyAmeriaStar, this is application for kids, 2 quarters ago. And we can be very happy that it's gaining more and more popularity among children and is serving to become a financial educational platform for a number of kids in Armenia. In terms of digital usage, as I mentioned, if you look on our growth on an annual basis, it's mostly at or about 60% for both MAU and DAU, and we are very also happy and proud to share that also our digital uptake has improved more than 5 percentage point quarter-over-quarter. That is also remarkable given this very rapid growth of the number of customers that we have, number of MAU and DAU. Here, I also want to mention that we have been doing a number of campaigns to attract new-to-bank customers as well as to activate the customer base that we have. And we are offering a number of perks and benefits to our customer base. So when we'll be talking about fees and commissions, the costs on there are running a bit faster related to card transactions due to the campaigns that we are doing. For the loan and deposit portfolio, again, we have remarkable results, 36.9% on loans. It's very important to note that the growth is very balanced, both on the corporate and retail side. Also, just to remind that last year, we had elevated demand for the mortgages due to this tax rebate program. I want to mention that on one hand, the growth pace of the mortgages has decreased, but it's higher than whatever we had in 2023 and 2022. So there is a very healthy growth continuing in this market. So we have no fears about any potential bubbles in this sector. As for the deposits, again, 28.8% growth year-over-year. And here, I also want to mark another milestone agreement that we announced very recently with another DFI, EBRD. We have been very active with our DFI partners to attract more liabilities to support our long-term growth. As for the capital position and liquidity position, I'm very happy to also mention that there is improvement in both areas. Our headroom versus requirements has improved versus quarter 2. Also, the Central Bank of Armenia has made -- officially introduced the changes to the local regulation, where in line with a couple of other changes. Now banks can do perpetual bonds as part of their regulatory equity. Also, there is significant improvement in our liquidity ratio. You can see 202% and 121% for NFSR and LCR ratios. So we are standing very sound, both in terms of capital position as well as liquidity. Our NPS has also further improved to 77.4. It's 1.4 percentage point increase versus previous year-end. And obviously, with the remarkable growth rates of the loans and deposits, our market share both for loans and deposits has increased by 1.6 percentage point. So as we announced earlier, we see significant untapped market opportunities, and we will be working towards increasing our market share in the local market. With this, I can conclude and pass the floor back to Nini. Thank you. Nini Arshakuni: Thank you, Hovhannes. And I'll now hand it over to Archil for the overall group overview. Archil Gachechiladze: Congratulations to the whole Armenian team. I think it's incredible results in terms of balance sheet growth, but also in terms of the -- fundamentally, our coverage and rolling out of our retail products and enhancing monthly active users there. So with 300,000 people using our products there monthly, that's about 10% of the population. In Georgia, we're covering 45%. So there's plenty of opportunity to grow and roll out our daily banking excellent services to more and more clients. So in terms of how this translates into the overall numbers, you can say that our operating income grew by 15.6%. And you see an equal distribution of 13.4% in Georgia and 21.3% in Armenia. In terms of the net interest income, the growth was stronger than the overall revenue, which was 18.4% in Georgia and 30% in Armenia, so translating into 21% growth of net interest income year-over-year. And net noninterest income was rather subdued, and we have discussed it in our results as well, and I'll go into detail in terms of FX and non-FX numbers on the next slide. So net fee and commission income grew by only 4.8% for the overall group. In Georgia, it was 8.6%. Last quarter, I said in Georgia would be high single digits. So that's more or less what we have there. And in Armenia, it was down by 17.8%, largely due to the massive spending on the client acquisition and reactivation that Hovhannes mentioned as well. In net FX, it has been largely flat, slight decrease in Georgia, 3.3% year-over-year, partly due to the stability of the currency. So this line of revenue is more juicy when there's more volatility in the currency. In both markets, the stability has been there because basically, there's a strong inflow into the country and both national banks are basically providing the lower target basically through which they're not allowing the currency to get stronger, but they are refilling the reserves, which -- that kind of stability is not great for us, obviously. But overall, it's still solid numbers. Operating expenses were up 17.1%, about 15.4% and 16.6% in Georgia and Armenia, and the other business was a bit slightly higher. But overall, Q-over-Q, there was a slight improvement in cost-to-income, but year-over-year slight [ decrease ] from 34.8% blended to 35.3% blended. That remains our focus. And from next year, we should expect neutral to positive operating jaws. Loan portfolio growth and deposit portfolio growth for both countries were very positive in this quarter. In Georgia, we grew by 16.1% in constant currency year-over-year and in Armenia was incredible 36.5%. And as Hovhannes has mentioned, it was well distributed between retail and corporate. So it's all very good and strong growth in deposits as well. So all in all, that -- yes, one other good news was that as we deployed more liquidity in Georgia, we had a slight pickup in the net interest margin in Georgia and a 10 basis point pickup in Armenia as well. And so all in all, it translated into an increase of 20 basis points Q-over-Q, which was welcome news. Cost of credit was 0.5%, and that's more closer to the normal levels. And we guide between 80 and 100 basis points through the cycle, but we are in a good benign environment. So that's what it is. We had a slight pickup in NPL ratios, which was mostly on the SME side, reclassifying some small hotels, mainly in the regions that have not performed very well. There's no systemic underlying issue in any of these segments there. So that's about that. So the profit was up by 7.5% year-over-year, although that basically does not show the fundamental pre-provision size of the business grew about 15%, which is something that we focus on as well. Return on equity is 27.8%. All in all, strong showing. We are announcing a dividend -- quarterly dividend of GEL 2.65 per share as well as recommending to do the buybacks of GEL 51.5 million for this quarter, and it's a buyback and cancellation, as you know. And you see over the last 5 years how the number of share has been reducing because of this type of capital returns that we do. This is what we promised to do, and we are continuing to do that. I'll wrap it up here and open for Q&A. Nini, anything to add? Nini Arshakuni: Yes, we can start the Q&A, nothing to add. So to ask questions, please use the Raise hand button or the Q&A chat, and please introduce yourself when you speak. So we have the first question from Jens Ehrenberg and let me bring him on the line. Jens Ehrenberg: I hope you can hear me all right. A couple of questions from my side. And sorry, I should have introduced myself. It's Jens Ehrenberg from Cavendish. Firstly, I suppose looking at loan book growth, which has been pretty strong across both markets. Are there any key growth levers you'd look at over the next 12 to 18 months that we should be mindful of? Then secondly, just on the level of NIMs. I mean it's great to see how robust they've been in the quarter. I suppose in the face of uncertainty around global rates, how should we think about this going forward? Are you sort of confident in the stability of those margins? Or is there anything we should be mindful of? And finally, more on the sort of digital side of things, particularly on the retail side. Thinking back to sort of the time of the demerger, to what extent do you believe that, I suppose the market actually appreciates the franchise value that you've built on the back of the digital retail offering? Archil Gachechiladze: So thank you. So for loan growth, I'll say Georgia and then maybe Hovhannes can cover the Armenian side. So we guide -- we don't guide Georgia separately, but our expectation is between 10% and 12%, 13% medium term, although as long as the growth of the Georgian economy remains above 5%, which is the medium to long term expectation of Georgian growth, not long term, but medium term, that allows us to grow faster than that. So we have been able to grow -- as the market grows at 13%, we have been able to grow at 16%. There's no particular sites other than -- so retail and corporate, both are growing very strongly. SME has not been growing strongly. It's high single digit there. And we are in discussion with policymakers how to support SME growth, SME loan growth there. But in terms of Georgian corporates are in excellent shape. They've delevered as the denominator of the economy overall grew their profitability as well as margins were in excellent shape over the last 3, 5 years. So they're delevered and able to invest in many different sectors. Energy remains a big sector that should attract a lot of investment over the next 3 years in Georgia. So -- and consumer is still growing very well because the income levels have been growing at double digits 5 years in a row, 5 years, every year, double digit, which is excellent growth that we are seeing. And Hovhannes, do you want to say about loan growth in Armenia and then I'll switch to NIM? Why don't you cover NIM as well in Armenia and then I'll turn to Georgian side. Hovhannes Toroyan: Sure. Yes. Absolutely. So for the loan growth, we do anticipate for the market like lower double-digit growth for the next couple of years. For Ameriabank, our estimate is to keep it between 15% and 20%, maybe a bit higher for the initial years and then going slightly lower towards like 3, 4 years horizon. But we should be able to keep it between 15% and 20% growth for the next 3 to 4 years. As for NIM, we do think that the level of the NIM where we are is fairly stable. So we do not anticipate any sharp changes either way, either up or down. So there could be 10, 15 basis point change over time. But overall, we think this is -- in terms of midterm, this is -- this could be a guiding figure for the management. Archil Gachechiladze: Thank you, Hovhannes. I'm a bit more optimistic on the loan growth side. As long as we grow on retail side as we want to, I think it should provide 20-plus percent growth, but we'll see. On the NIM, in Georgia, it's broadly stable. We are in a good shape there. I don't expect any major changes. Obviously, this business just happens. So we'll see [Technical Difficulty] there is no reason to expect a particular movement there. On the franchise value side, you're absolutely right. So a lot of people are focused on book multiple because there's this understanding that banking is all about the balance sheet play and somebody can bring a couple of billion dollars and recreate this franchise. And I don't think that is right. I mean when there's the front end, it's not just the balance sheet, the front end, which basically -- that's why I focus so much on the NPS, on the top of mind, most trusted bank. So this shows the stickiness of the customer revenue and so forth, which translate then into growth [indiscernible], but also, it's the stickiness of such revenue. And unfortunately, the market has not given us credit for it because we're still trading around 5x P/E, while historically, we used to trade at 8, 9, sometimes 10x. And if you ask me, and maybe that's subjective, but also objective measures show that we are in the best shape in terms of the franchise quality that we have ever been on the Georgian side, and now it's joined with Armenia, it's getting better and going from strength to strength there as well. So unfortunately, not yet appreciated, but hopefully, it's coming, right? There were a few questions typed into the Q&A side. Nini, do you want to cover those? Nini Arshakuni: Yes. So maybe if we kind of categorize them, there are 2 questions on the market shares. For -- on the Armenian side, basically, the question is what percent market share is attainable in the next few years? And then for Georgia, the question is, given already large market share, how much more market share could be BOG gain in the next few years? So maybe we'll cover the market share questions first. Archil Gachechiladze: I can cover both, Hovhannes, sorry. In Georgia, regulator has basically said that they would like to keep the concentration constant and not increase it too much, i.e. below 40%. So we have basically -- so there's more capital requirement as we go above 40% in deposits, which we are currently -- we have about 50 basis points extra for that. So we intend to keep it just under 40%, a slight percentage or 2% gain still available on the loan side. So there's not much to gain there, a little bit. But in Armenia, we would like to grow towards 30% and slightly above that over the next few years. So that the scale advantage that we currently have actually translates into good advantage in cost-to-income ratio as well. Nini Arshakuni: Okay. Then [ Mike Gabon ] has a few questions. One is if we can give more color into the potential perpetual bond issuance from Armenia? Archil Gachechiladze: Hovhannes, do you want to say anything? But be aware of the public market rules there. Hovhannes Toroyan: Sure. So we have not formally yet discussed and approved internally. So I would really prefer to refrain from giving any guidance, but we will definitely -- I mean, we have been working with some of the bankers to understand actually [Technical Difficulty] market opportunities. And also, we clearly understand our needs. I just can say that this is very good tool to improve the efficiency and cost structure of the equity. And we are actually seriously considering that opportunity. But once approved by our ALCO committee and then by the Board, I think after that, we can disclose more. Nini Arshakuni: Thank you, Hovhannes. So another question is from Mike Gabon as well on the Bank of Georgia's recent eurobond issuance. The question is if -- why did we issue this 3-year bond if we have so much capital and why in Georgian lari and why 11.5%, which Mike thinks is a high rate? So [indiscernible]. Archil, can you take it? Archil Gachechiladze: Yes. I think lari instrument has not been present on the local -- on the international market for some time. So I agree that 11.5% was a bit disappointing. But it's unfortunate that the people have not been looking at the lari's strength for a long time because there was no instrument, lari instrument outstanding. So that's partly due to the fact of the high interest. But we would like to have some public financing available in U.S. dollar as well as lari. There's no need for U.S. dollar at this point. But in lari, there was need. So that's why we raised it. Given how we are deploying it, we thought it was a good idea. So I don't know what you are referring to. So if we didn't think it was a good idea, we would not raise it, but we think it's a good idea. And it does help us to de-dollarize the balance sheet, which has a marginal improvement on the liquidity requirement as well. So that helps as well overall, which every time you de-dollarize either because of funding basically or the loans, then it helps you with the lower liquidity requirement. So marginal side is pretty good. It provides longer-term value as well, 3 years is better than most of the deposit, which is either current or 1 year. Nini, next question. Nini Arshakuni: Yes. So the next 2 questions come from [indiscernible] Capital. The first is, please comment on the fee and commission income Q-over-Q decline and outlook for the next several quarters. Maybe we'll take that first. And then the second is on the operating leverage. You mentioned positive operating leverage effects ahead. Could you guide us a bit with what cost -- with respect to cost-to-income ratio for GFS and AFS. Archil Gachechiladze: Yes. So on the fee and commission income, so basically, we will have improvement. It was not decline. It was a small increase, 3.8%. But we should be in Georgian side, growing double digit in the fourth quarter and then going forward, we should -- that should stick. In Armenia, it's a bit more bumpy, could be given the fact that we are in a very high expansion period of grabbing new clients and so forth. So there should be improvement, but we don't provide more guidance than that. And the same is true for cost-to-income as well. So we are guiding either neutral or positive or slightly positive operating jaws for next year, but we don't want to provide more breakdown than that. Nini Arshakuni: Thank you, Archil. So now we have a raised hand from Simon Nellis from Citi. So I'll let him talk. Simon Nellis: I was hoping you could elaborate a bit more on what was driving the margin expansion in Georgia, I think, a little bit over the quarter in Armenia as well. I know you're guiding for broadly stable margins, but can you kind of give us some thoughts longer term about the sensitivity of your margin in both markets to rates, which might come down, I guess? And what is your rate view kind of going forward over the next 12 to 24 months? Archil Gachechiladze: Yes. Let me do that on the Georgian side. So basically, I'll start with the last one. So first -- sorry. First was deploying higher liquidity. So we had slightly higher liquidity than normal. And as we were deploying it, we thought that it would translate into a slight pickup. So there was a pretty simple exercise there. Our -- in the mix, we have slightly higher consumer. So consumer is growing slightly more than other stuff. So that's also helping the margin. So that's why it's north of 6% instead of historically lower. So if you rewind 5, 10 years before, sometimes we have had it at 7%, 8%, but then we have had it just about 5% as well. Right now, it's 6%, partly due to the mix and high interest rate environment. Now talking about interest rates, as our Chief Economist, shared with you, we expect around 50 basis point reduction at the end of 2026 in lari. And that should be either neutral or maybe 10 basis point reduction over time. So initially, it's slightly positive, in fact, because we have short term and fixed lari is more of the assets, are in fixed short term than the funding. So that, in fact, has a slight pickup of 10 basis points or so. But then over time, it neutralizes up. And in Armenia, Hovhannes, do you want to say a few things? Hovhannes Toroyan: In Armenia, we also have a short position on interest rate on the FX. So technically, the decrease of the rates of USD or euro LIBOR will affect slightly positively, but that's not going to be anything significant because we do not really keep a very big position, I mean, open position. As for the NIM, yes, we did have a 0.1 percentage point improvement in NIM. But here, we again are guiding it to be flat in the Q4 and probably in the next couple of quarters. This was due to a slight increase in the yield of the loans. But at the same time, we also note that short term, our cost of funding has gone up slightly, and that was mainly driven by our attraction of DFI funding. That is slightly more expensive as of today. But given the long tenure of those facilities, we have estimated that through the lifetime, the average cost of that fund will be slightly lower than the local borrowing. So we are currently paying a bit more than the local market, but with the expectation to be paying less within the expectation that the rates will go down. Nini Arshakuni: Let's see. So we have one question from [indiscernible] on the Georgian business. What is your market share in private banking affluent retail in Georgia? And asking specifically about retail deposit market share. And how much is the share of these deposits in your total deposit base? And what is the dollar... Archil Gachechiladze: Yes, it's -- we cannot exactly measure the market share, but my estimate is somewhere between 45% plus/minus. And in terms of the total share, I don't remember. So we'll probably have to get back to you. So there's the solo, which is upper premium segment, which is substantial, and we do disclose. But in terms of what you are asking for, I think it's more like wealth management. I'm not sure we disclose the breakdown of that, but we can get back to you on that. In terms of how much we are paying, it's the average deposit cost, I also don't remember. We'll need to provide that to you. Nini Arshakuni: So overall, part of the cost in Georgian operations cost of client deposits in foreign currency is 1.4%, but that's blended across all segments. Archil Gachechiladze: Correct. Nini Arshakuni: I see Jens' hand, but he might have just forgotten to -- yes, he put it down. Let's see what else. Then we have one raised hand from [indiscernible] think from Armenia, but let's see if -- [ Gohar ], do you have a question? Maybe it's accidental. Archil Gachechiladze: There are a few questions from Mike Gabon that are in Q&A. Do you want to cover those? Nini Arshakuni: Yes. Let's see. Questions on Armenia. Is there a higher regulatory capital requirement on foreign currency in Armenia? That's probably for Hovhannes. And also, is there any notable inflows, outflows of foreign currency into and out of Armenia? Hovhannes Toroyan: We do have higher capital requirement for FX-denominated loans, and that has been enforced from 2004. So it's not new to us. On average, I would say, because there are different weights, risk weights for different asset classes, but most of the FX-denominated assets have approximately 50% more capital requirement or their risk weights are about 50% higher. And the second part was about the cap... Nini Arshakuni: About the foreign currency inflows in and out of Armenia. Any notable foreign currency inflows happening in and out of Armenia? Hovhannes Toroyan: Yes. I think Akaki also presented that when we look at the remittances, for instance, I mean, there is very healthy growth in Armenia. If I'm not mistaken, it's about 16% year-over-year. And that positive trend is continuing both in 2025 and was also there in 2024. Nini Arshakuni: Hovhannes, and then the clarifying question was that the cap -- Mike was asking about the cap, any cap on deposits in foreign currency or any additional requirements? Hovhannes Toroyan: There is no any capital requirement for FX-denominated deposits, but there is a higher regulatory cost in terms of higher required reserves for foreign currency-denominated deposits regardless where they're attracted from. And now with these new changes to the regulation, the Central Bank of Armenia is also introducing higher requirements for concentrated attractions for our customers in terms of calculation of NSFR and LCR, probability of the outflow. But again, we did our internal analysis. And due to this increased requirement to this concentrated means, the requirement for liquidity position for Ameriabank will not change. That is very immaterial change. So we're going to be, as I presented, well above the required thresholds. Nini Arshakuni: Okay. Thank you, Hovhannes. Another question is regarding the potential M&A opportunities, if we can comment on any potential M&A plans and if we have any interest in Central Asia, I think that's the question in summary. Archil Gachechiladze: There's no comment that we can provide in terms of our expansion, but we are scanning the market, and that would be East Europe -- Central and Eastern Europe, Southeast Europe, Central Asia, mainly 2 countries, which is Kazakhstan, Uzbekistan, we're always looking. But we are concentrated on top banks, top 3, maybe top 5 for larger banks. We don't like turnaround stories. We like stories where we can enhance and so forth. So there's no immediate update there. Should I cover the next one? [ Bruno Berry ] is asking about capital distribution. Nini Arshakuni: Yes. So the range of 30%, 50%, which is our medium -- like the target, where do we expect it to be in the near term? And what are our thoughts regarding the split between dividends and buybacks? Archil Gachechiladze: We expect it to be in low 30s as we guided a couple of years ago for 2, 3 years. And that's because the growth, we remain on the higher side, and we have been growing more than our medium guidance, medium-term guidance. So that's why we are deploying capital there. And in terms of the split of capital returns, roughly 2/3, 1/3 has been dividend and buybacks, and we'll probably stick to that. Nini Arshakuni: The next question is from Ben Maher on the line. Benjamin Maher: Can you hear me? Nini Arshakuni: Yes. Benjamin Maher: Just a quick one on -- I think you mentioned some regulatory changes in Armenia. I'm interested if you have any -- do you expect any further regulatory changes or any headwinds as we move into next year across Georgia or Armenia? Any color would be helpful. Hovhannes Toroyan: There's nothing material coming up in Armenia. Archil Gachechiladze: There's nothing immediate in Georgia, either. There's plenty of discussion in terms of open banking and how this is affecting and encouraging fintechs and so forth, but there's no particular big change right now. Nini Arshakuni: No more questions. Archil Gachechiladze: So with that, thank you very much for joining our quarterly call. Third quarter was a record high. This is the first time that we made more than $200 million equivalent, right? Nini, maybe you correct me if I'm wrong. But I think it was the first time and given the fact that we'll be growing quarter-by-quarter, hopefully, we can deliver value to our shareholders. Armenia remains a very strong case and prospects there are also very positive, medium- to long-term prospects given the fact that Azerbaijan and Turkish borders remain closed while there's an in-principle agreement already to open those up, but this will take time, a few months but less than a year, hopefully. And that means that the economy will open up with plenty of opportunities that will emerge, and we are very well placed there to fund and provide funding for growth to go there. And Georgia remains and continues to be a very strong economy. So more and more people appreciate how strong the economy and numbers have been. As you can see, the growth has been good, high single digit. Inflation is under control. CPI picked up, but core inflation remains at 2.4%. And all of this basically translates into a strong economy, people benefiting with average incomes growing double digit, and all of this is reflected in our strength. And Georgia, so on the macro side, it's a very good story. On the franchise value, I think we are stronger than we've ever been. So we are very well placed to benefit from this medium-term wave, which is called investment in the middle corridor, be it through this highway being discussed from Azerbaijan to Armenia or being through a more established Georgian route. In both cases, we're very well placed to benefit from this medium-term movement. And all of that, I think, will translate into long-term value creation. So thank you for joining this call, and we look forward to seeing you in one quarter. Nini Arshakuni: Thank you, and take care. Bye.
Operator: Good morning, everyone. My name is Danielle, and I will be your conference operator. Welcome to the Tiendas 3B Third Quarter 2025 Conference Call. [Operator Instructions] Also, please note that this call is for investors and analysts only. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available to us. Today, we are joined by Tiendas 3B's Chairman and Chief Executive Officer, Anthony Hatoum; and Chief Financial Officer, Eduardo Pizzuto. I will now turn the call over to Anthony. Please go ahead. Kamal Hatoum: Good morning, everyone, and thank you for joining Tiendas 3B's third quarter earnings call. I will begin with a review of our operating results for the quarter and will be followed by our CFO, Eduardo Pizzuto, who will provide an overview of our financial performance. We will conclude with a Q&A session. We've delivered another quarter of exceptional growth, outperforming other listed players. We opened 131 net new stores in the quarter for a total of 3,162 stores. We opened 2 distribution centers in the quarter for now a total of 18. Our LTM store openings are 528 stores. Same-store sales grew by 17.9%. Total revenues increased by 36.7% to reach MXN 20.3 billion. EBITDA reported a loss of MXN 404 million. If we exclude our noncash share-based payments, then EBITDA increased by 43.6% and reached a positive MXN 1.2 billion. For the 9 months of 2025, cash flow generated by operating activities reached MXN 3 billion or a 30% increase year-on-year. We ended with a net cash position of approximately MXN 1.1 billion. In addition to this, we have $151 million in short-term deposits. Let's turn to operational performance. We are increasing the number of store openings. In the first 9 months of 2025, we opened 390 stores. This compares to 346 stores opened in the first 9 months of last year. Revenue growth remains rapid. We continue to be one of the fastest-growing retailers globally. Total revenues reached MXN 20.3 billion or an increase of 36.7% year-over-year, this, with a very strong same-store sales growth of 17.9%. Same-store sales is being driven by the continuous improvement of our value proposition to customers and more consumers realizing that. When comparing to ANTAD, our gap continues to increase. Our gap versus ANTAD is almost 17 percentage points today. I will now pass the microphone to Eduardo. Eduardo Pizzuto: Thank you, Anthony. Good morning, everyone. Sales expenses as a percentage of revenue increased from 10.1% to 10.2%. On one hand, we see real operational leverage as our store mature. On the other, we see this quarter an increase in D&A expenses as a percentage of revenue. I expect that next quarter, the comparison will be more favorable. Admin expenses, excluding share-based payments, increased by 16 basis points due to investments in new regions and hiring more talent. With respect to share-based payment expense, these are noncash and already reflected in our fully diluted share count. Please see the appendix of this earnings release. You can also see the projection of this noncash expense in the appendix. EBITDA increased 43.6% to reach 5.8%, driven by sales and margin growth and operational efficiency. I want to touch on operational leverage and margins. Close to half of our stores were opened in the last 3 years. When we look at our older vintages, their EBITDA margins are close to those you would see at other hard discounters. As you know, we don't drive to an EBITDA. It will naturally increase over time as a consequence of all the good things we are doing. Ours is a business model that generates significant negative working capital. And in turn, we generate significant cash flow from the changes in negative working capital. We can see, for example, that in September '25, we had MXN 7.8 billion compared to a negative working capital of MXN 5.4 billion in the third quarter of '24, excluding IPO proceeds. We are roughly at 10.8% of total revenue, excluding IPO proceeds. I will now turn the call back over to Anthony for some final remarks. Kamal Hatoum: We are hitting or exceeding our targets with same-store sales that stand out versus industry. Our business is robust, noncyclical and battle tested. In terms of store growth, we have significant runway with room for no less than 14,000 3B stores in Mexico. Today, we are opening more stores and faster. Our same-store sales growth is not only due to our newer stores, our older vintages continue to grow their same-store sales faster than inflation. This is driven by the continuous improvements in the products we sell both in terms of quality and price. Our brand equity continues to strengthen. This drives a faster sales ramp-up of our newer stores and draws new clients to our stores. Our older vintages are already showing EBITDA margins that are in line with those recorded by other listed hard discounters. We continue to invest in talent. We believe that this is a key success factor. The talent density within our team stands out in the market. Our share-based compensation approach has been a key driver to our success. It attracts entrepreneurial talent and aligns everyone with shareholders. Just as a note, our Board of Directors decided in its last meeting not to make additional reserves for our equity incentive plan for the year 2026. We continue to do the same, just better and faster. The future looks bright. We'll now start the Q&A session. So please go ahead, operator. Operator: [Operator Instructions] And our first question is coming in from Bob Ford at Bank of America. Robert Ford: Congratulations on the quarter. Anthony, I know your gross margin is a dependent variable, but can you comment a little bit on how you're thinking about your current value propositions and the volume response? And do you see any need to further sharpen value propositions? It looks like there's been some additional price reinvestment in the marketplace. And then I was wondering if you could also tell us how we should think about market share in the trade areas around your oldest cohorts and the implications for some of the younger units. And then as you scale, I was curious if you're beginning to see unsolicited interest from national suppliers, right? And as you scale, how should we think about your use of national suppliers, particularly as you go into new categories and segments just because those smaller vendors may not be able to supply you in terms of the quantities that you'll need as you continue to grow? Kamal Hatoum: Let's talk about margins. Because we're scaling, you'll naturally see an improvement in our commercial margin over time because on one side, you're lowering your purchasing costs and two, you're increasing your logistics efficiency. And the question, as we have seen many times is, okay, how does that translate into percentage margin versus an investment in price? And I've shared before that on the pricing side, it's dynamically set by doing elasticity testing. But the bottom line is that we are improving our value proposition to our customers. So we're increasing scale, and we are also opening new stores. So we're increasing scale, and therefore, we're getting better purchasing terms across the board. And naturally, over time, we will see a very natural increase in margins. However, I stress that quarter-to-quarter, we will see volatility in this number, and this is very normal. As you know, we don't set any specific targets for margin, but we're very comfortable that over time, this number increases. And if you look at other publicly listed hard discounters, you can sort of extrapolate where this naturally ends. Now in terms of market share related to our oldest vintages, cohorts. Well, we're very pleased to see that even our oldest vintage continues to grow its same-store sales well above inflation. And when we look at it, the main driver is, again, an improved value proposition and what we sell today is so much better than what we sold you 5 years ago. And that, as a consequence, does 2 things. One, it still draws new customers. And from the existing customer base, what we are seeing is purchases of more things within [ 3B ]. And if you look at it numerically, what you see is an increase in number of tickets and an increase in ticket size. And then internally, we ask ourselves the question, okay, how long can this last? When do we reach saturation in these oldest vintages cohorts? And we do extensive market research on these old cohorts, and we see that we have significant room still today to penetrate their wallet. And that is even before taking into account potential new categories that we might introduce. Your last question was about suppliers. There was 2 parts to that question, if I'm not mistaken. One, are we getting unsolicited requests from national suppliers? And my answer is yes. I mean we're becoming a significant player in the market. And therefore, it's only natural that suppliers will come and knock on our door and say, can we do business with you? And that's great. And second, our existing suppliers able to keep up with the pace? And the answer to that is yes. And the reason is simply because we've planned for it a long time ago. All our planning in terms of supply chain is done 3 years ahead of time. So that mitigates the risk -- any risks associated with ensuring that supply is there at the right time. And that's how we operate across 3B anyway. Long-term planning takes out a lot of the execution of operational risks that you would normally have in a business like ours. Operator: Our next question is coming in from Joseph Giordano at JPMorgan. Joseph Giordano: I want to explore one thing you mentioned on the release, the fact that new like store vintages are actually maturing faster than initially expected. So my question goes 2 ways here. So first, like, don't you think that like maybe the maturation level -- so the sales at regime is still a moving target. So as you flagged, you continue to see increasing number of tickets or so clients and larger baskets. So that's the first question. And the second question to you goes into like the return levels, right? So back in the day, I recall you guys mentioned a 60% cash-on-cash return on the new stores. So I'd like to understand how the new cohorts are actually behaving in terms of returns because it seems having higher returns. And in that aspect, how should we think about like further expansion acceleration going forward? Kamal Hatoum: So Joe, you're absolutely right in observing that new vintages mature faster. And therefore, they have improved return on invested capital versus the ones we've opened 10 years ago. And simply put, our brand is better recognized in the market today, and our value proposition is so much stronger than what it was. And therefore, it's natural that when you open a new store, clients come to it much faster and buy more immediately as opposed to taking the time it used to take to get to know us and know if our products are good or not. And that trend, I think, will continue. As long as we continue to improve our value proposition to customers, which is basically our job every day, you will see that phenomenon continue. In terms of -- again, I'm going back to older cohorts and what the returns have been versus today's cohorts. I think the returns are just as good, if not better. And that's due to the acceleration, as you pointed out so nicely. So we are not seeing anything but better numbers in everything that we're opening that's new. And even -- let's say, we take extreme cases of we open a store next to an old store, and therefore, it might cannibalize. And these things happen, but are, let's say, few and far in between. Then we simply look at the 2 stores together and see what their performance is. And together, their performance is better than what it used to be as a single store. So across the board, an improvement in returns and performance for the newer vintages. Eduardo Pizzuto: And Joe, it's Eduardo. Just to finalize on your questions, as we do on a yearly basis, we update our models, and we continue to update the models. And you're right on the moving target because we have not seen maturation yet. Even for our 2005 vintage, we continue to see very strong increases. So yes, we will do the same modeling this year, and it will be with improved numbers for the coming years. Kamal Hatoum: Now eventually, like I mentioned in the previous question, theoretically, you reach a point of saturation where there is no more real growth because you're selling everything you can to everybody that is within reach of your stores. But all our research points out that we're far from that point. And like I mentioned before, that's not even taking into account any new potential categories that might come to market via our stores. Operator: Our next question is from Álvaro García at BTG Pactual. Alvaro Garcia: Two questions. Eduardo, you mentioned in your prepared remarks that next quarter, we might see more favorable comps on sales expenses specifically. So if you could expand on that, that would be helpful. And my second question is a follow-up on the faster ramp-up of new stores. I was wondering if maybe you could provide a -- maybe some color on the regional basis, you are opening up new regions, new DCs and new regions. So in the context of that faster ramp, is that faster ramp in stores in sort of the central area of Mexico? Or are you seeing that ramp-up in new regions as well? Eduardo Pizzuto: Thanks, Alvaro. On the -- on selling expenses, it's really related to D&A. What I meant by that is that in -- and this is something that we touched on, on the call on the fourth quarter of last year. So there's a portion of D&A that was recognized in the fourth quarter of 2024 rather than on the third quarter of 2024. So that's why you'll see a more favorable number in fourth quarter of 2025. That's on the selling expenses side. Kamal Hatoum: In terms of faster ramp-ups, we're seeing them across the board. There is no notable differences geographically or by type of store or by their location. And fundamentally, when we ask ourselves, should there be, and the answer is not really because at the end of the day, we're selling basic goods, things that everybody consumes all the time. And we haven't seen a real change in behavior geographically as we're expanding into new regions. Also keep in mind that in terms of real estate strategy, we have been extremely balanced in where we open our stores on purpose in order to see maybe there is something different as we expand. And the answer is no. It's been very, very consistent. Operator: Our next question is coming from Alejandro Fuchs. Alejandro Fuchs: Congratulations on the results. I just have very 2 brief ones, maybe to dig a little bit deeper into Álvaro's question in terms of the expansion. Obviously, you're opening a lot of stores quarter by quarter. I wanted to see if maybe you could share if you see any difference in terms of competition depending on the region that you're entering in Mexico, maybe some of these new regions that you are penetrating or anything that has been interesting that you can share from the new regions? And then second, in terms of same-store sales, you mentioned, Anthony, that this is because of volume, right, number of tickets and mix as more SKUs in the ticket. If you have to pick those 2, how is the proportion? Who is maybe growing a little bit more or adding more to the same-store sales? Is it more volume? Or is it more mix? That will be all. Kamal Hatoum: Okay. With regards to competition as we are expanding, let me step back and say that Mexico has always been a very competitive market, very dynamic and healthily so. And so we have seen no increase or change in this competitive landscape. And if anything, we are becoming more competitive. So bottom line is no changes in terms of encountering new competition or a different kind of competition. Let me just say that it's strong and healthy competition across the board and has always been the case with a 3B that's becoming more competitive over time versus everything else. Eduardo Pizzuto: Alejandro, with respect to your second question on same-store sales, what we're seeing is very consistent to what we've seen in the past is that we're seeing more transactions in the stores. And in addition to that, we are also looking into more products in the basket. We don't disclose the percentage of those numbers, but it's mainly coming from having more people coming into the stores and just taking more products home. That's really -- it boils down to those 2. Kamal Hatoum: And that's versus price inflation, which is minimal in our case. Operator: Our next question comes from Héctor Maya at Scotiabank. Héctor Maya López: Congratulations on your results. Two key things on your very strong same-store sales growth, how confident are you on maintaining this space, I mean, particularly next year? And if you think we could continue to see this kind of levels as older stores continue to mature. That would be number one. And the second one is related to the higher commercial margin. I know this comes from your elasticity analysis, scale efficiencies and price negotiation with suppliers, but could you please guide us through your decision process here to define what to do with the savings that you achieved? Like how do you decide how much to take from that? And when do you decide to pass the full savings to consumers just to get a better sense of margins despite quarter-to-quarter volatility? Kamal Hatoum: Hector, let me start with the last part of your question. So we are generating real savings in purchasing given scale, given stronger relationships with suppliers, given efficiencies across the board that we particularly focus on. I mean we're very focused at seeing where can we save money, where can we improve the value proposition and therefore, where can we increase now volumes because people are buying more of this better product. And you can see the positive flywheel effect. And so comes your question about, okay, so how much of this goes into margin and how much of this goes into price. And we do it on a product-by-product basis, very much driven by elasticity testing in the market. At any point in time, in 3B, you'll have about 60 products that are being tested across the board for pricing elasticity. And we optimize them for volumes and dollar margin. And the result of doing this all the time across all our products is the margin that you see today in our numbers. So it's extremely hard for me to guide you and say, well, this is going to be this much next quarter. But what I can tell you from previous experience and if you look also at other hard discounters, you will see that naturally over time, a certain amount of these savings are going into percent margin and a certain amount are reflected in higher sales curves. So basically, that also drives same-store sales across the board. So again, apologies, but very hard to give you specific guidance, but I can give you the tendency, the trend as one where, over time, it does improve; quarter-to-quarter, it remains volatile. So this sort of leads into your first part of the question, what can I guide you in terms of same-store sales for next year? Would it be as robust? And I can say with a high degree of confidence based on all the work and research we've done that we see no reason why same-store sales would be any weaker than this year. So we expect them to continue to be strong, mainly driven by the fact that we know and we have in the pipeline, significant improvements in the products that we're going to be bringing to market over the next 12 months. If you ask me, does it remain strong 10 years from now, I can probably say, I don't know. But I can say that for the very immediate future for the next couple of years, it remains very strong. Operator: Our next question comes from Alexandre Namioka at Morgan Stanley. Alexandre Namioka: The majority of mine have been already answered. But perhaps touching on the -- on what Anthony mentioned about like innovating in the product categories here. If you can give us any update on how the perishables category sort of pilot test is evolving? And if we should see next year already some of these newer categories already in the stores here? Kamal Hatoum: We're constantly innovating, not only in perishables, but across the board in all product categories. I mean that's what we do. The latest example, the one I'm very excited about is our new ice cream bar, which is a banana with chocolate, and it is a blockbuster. So innovation and bringing in more value to our customers and new exciting products, we still have significant runway without breaking any of our principles of a hard discounter, which is limited assortment and an assortment that rotates very fast and therefore, generates significant amount of negative capital, which is, we think, a competitive advantage. To answer specifically on the matter of perishables, they have -- they're very high potential categories. But however, we have set ourselves very high standards in terms of quality, and other metrics, efficiency back, we want to make sure that the whole value chain is working perfectly before we launch it. But all our tests are extremely positive, and we remain very optimistic about that. Operator: Our next question comes from Irma Sgarz at HSBC sic [ Goldman Sachs. ] Eduardo Pizzuto: It's Goldman Sachs. Irma Sgarz: No worries. Yes. My questions are just a couple of sort of double-clicking on a couple of the other questions that the other analysts brought up on that product development and product mix. Anthony, it's super interesting what you were just saying sort of on the different products that you're bringing in. And I think the earlier comments on how the even mature cohorts of the customers still sort of migrating up in the -- and just increasing the basket size. So perhaps maybe if you could share some color on when you see sort of the typical customer journey, what typically brings them into the store? What is sort of -- is there a path that certain categories are being put in the basket first and then they migrate to new categories? What have you learned sort of in that journey of your customers, especially the oldest cohorts of the customers? And then linked to that, I know you're doing multiple year plannings when you think about both expansion and product pipeline. So I'd be curious if you also have something to share about when you think about demographics and shifts in the Mexican population, how to adapt -- how you have perhaps already adapted your product mix to that? And how -- I think I know some of those examples with some of the sort of health-related items. But more importantly, going forward, if there's any specific trends that you are keeping an eye on and that you're looking to get in front of? And then the final question, sorry to go on here, but hopefully, it's helpful for everyone. When we just think about operating expense leverage into next year, is it -- I know you've sort of -- you've had some heavy lifting around putting some structures in place this year. Is it fair to think that, that should be growing below your same-store sales next year? Kamal Hatoum: Thank you, Irma. Let's start with the customer journey. And I would say that in general, it's word of mouth. Your neighbor tells you what a great store they have been to. And suddenly, you decide to go visit it, and it happens to be walking distance and in your neighborhood. And you walk in and you do see a lot of brands that you're not familiar with. And our private labels are managed as brands, and we position them and communicate them as well as any FMCG company would do in the market, but you're not familiar with them. So what happens typically is you would start with basic goods. You'll buy eggs because they're at a great price and they're very fresh. You'll buy oil because it's at a great price. You'll buy rice. But slowly over time, as you've correctly pointed out, you will see, oh, well, they have canned goods, let me try that. And the detergent, I've not tried that. And by the way, anything you buy has 100% money back guarantee, no questions asked. I don't even need to see your receipt. And that's a very powerful trust builder. And over time, you start migrating to more sensitive products. And eventually, you end up trying our cosmetics and you realize that they're great and that they're at a great price, and you have no reason to go back to the other cosmetic that you were using that was much more expensive. And that's what we've observed in the customer journey, and that continues to be true today and more so when we introduce new products. In terms of what we could introduce in the future and what we're working on, some of you have pointed out that we have ongoing tests on perishables, but we also have ongoing tests on many other categories that you won't necessarily pick up as you walk in through the store. And that's true because even though we're focused on basic goods and high rotation goods, we are far from supplying everything you need. And there is a lot of potential to continue to increase our offering in what we currently offer as categories. And I think I've mentioned previously that our stores are designed to absorb much more SKUs without even -- without having to change anything either in store size or logistics or anything in the back office or transportation. And that's very important because that allows us and gives us significant cushion to expand our offering without incurring operational inefficiencies. On the contrary, it's all designed to become more efficient over time as we scale. I'll let Eduardo answer the question on operating leverage, especially as it looks like for next year. Eduardo Pizzuto: So Irma, without providing any type of guidance, truly, the answer becomes on how fast we expand. And as you know, we've been rapidly expanding, and we believe that will continue to be the case. What's been very helpful for us and the way we view things is what I mentioned in the release is that when we're looking at leverage for the older stores, we're seeing very strong leverage there. And if we divide the company in 2, the stores that have been open for more than, let's say, 2, 3 years, we've seen very strong leverage. You don't see that immediately because of the pace of growth. I mean we've opened close to 50% of our stores in the past 3 years. That's a massive amount of store openings in a very short period of time. So that drags the number down. And as I mentioned in our last call, it's a little bit perverse because the faster we grow, the less leverage you'll see in the very short term. However, that provides and that increases shareholder value drastically. So we will continue to operate in the same way. And we'll provide guidance for the next year in our next call. Kamal Hatoum: But mechanically, the operating leverage is real and very powerful. Any of you, if you model it, you see it. Operator: Our next question comes from Alex Wright at Jefferies. Alexander Wright: Yes. So you've given some indications of the long-term runway in terms of the number of stores that you're targeting. And you've consistently spoken about people constraints really being the main constraint on growth and the pace of expansion. So I wanted to ask, really, as you grow larger, you're obviously increasing the internal talent pool and the average experience of your teams quite rapidly. So is that something that you see alleviating some of those HR pressures that could allow you to expand more rapidly in terms of new store openings than you already are? And then the second question I have is on the CapEx for this year. I believe your budget was about MXN 3.65 billion. You've done about MXN 2.4 billion in the first 9 months whilst being well on track to meet your store openings. Obviously, still have a couple of DCs to open in the fourth quarter. Is it fair to say there's some headroom there to come in below CapEx budget? Or are there certain investments that you expect to make in Q4 that will lead to a pickup in CapEx in the fourth quarter? Kamal Hatoum: With regards to people, let me just start by saying we set a very high bar. And we're very proud that we invest in talent development and in human resources in general because we firmly believe that, that's one of our key success drivers, what's allowed us to grow now for more than 12 years at the growth rates of plus 30% that you've seen without any hiccups, and that's very unusual. And so we will continue to invest significantly in human resources and in developing talent. And I'm proud to say that I believe we have probably one of the best talent densities of anybody in the market. So going forward, is that an obstacle for expansion? It's always been, let's say, the gating item. But again, as we -- in everything, long-term plan, we work backwards. We say, if we want to open that many stores 3 years from now, how many people do we need? And then we ask ourselves, well, where are these people today? And what do we need to do today to make sure that 3 years from now, we have enough people of the caliber that we want with the profiles that we want in order to open that number of stores successfully and have them operate at the level of quality and efficiency that we'd like them to operate at. So yes, I would say that is always on our radar, but I think we have a very robust plan to tackle that and proof is in the pudding. We're opening more stores today, and they're all very successful. I'll let Eduardo handle the CapEx question. Eduardo Pizzuto: Sure. Alex, yes, so you're right. We still have a couple of more DCs to open for the [ back half ] of the year. So we opened one. So there's an additional one that will happen in early December and the balance of the year with more store openings. So I think we're going to be very close to the number that we projected late last year around the MXN 3.7 billion. Operator: Our next question comes from [ Santiago Alvarez. ] Unknown Analyst: This is [ Santiago Alvarez ] with Summit Management. Congrats on the quarter. We really appreciate the color on growth and EBITDA margins on the older cohorts. Can you provide any information regarding on how the product sales mix is behaving on those older cohorts? Is private label sales as a percentage of merchandise reaching the levels you were expecting? Eduardo Pizzuto: Santiago, in regards to EBITDA, we don't disclose this number, but conceptually, what I can tell you is we are -- those stores are reaching what other hard discounters in other geographies are reaching. So let's talk about around, let's say, 7% EBITDA margins. So what we're seeing in our older cohorts is that all these stores are starting to get to that number. In terms of the profile of these stores, what we're seeing is, of course, the sales penetration is higher than what you see on a consolidated basis. There's, as I mentioned in previous questions, a significant amount of leverage that gets us to the 7% EBITDA margin. In terms of private label penetration and the profile of these stores is -- I mean, at the end of the day, as Anthony mentioned, we are selling very basic goods that the average Mexican consumer consumes on an everyday basis. So there's really no significant differences between the profile of the stores. All of the stores are pretty much selling the same products. It's just a matter of time for the newer cohorts to get to that level of sales and therefore, profitability. But no major differences from one type of store -- one age of store versus the next. I think you had a second question on private label penetration overall. Is it as were we expecting? And the answer is yes. I mean, as you saw in the numbers that we have published is end of 2023, we were at mid-40s; end of 2024, we were at mid-50s. And this is a number that continues to evolve. If you visited the stores lately, you've seen that we've launched more products, and they're all doing fantastic. So that number continues to be -- we're very happy with the results of those numbers. Let me put it that way. Operator: Our following question comes from [ Gullie Arshad. ] Unknown Analyst: Yes. Anthony and Eduardo, congratulations on a great quarter. I have a kind of a sensitive topic I would like to ask you. Have there been any interest from larger national and/or international players about your business? And what are your thoughts of a potential bear hug from them? And I ask this question because I consider your shares very undervalued and your growth is incredible. So would you comment on that? Kamal Hatoum: The short answer, [ Gullie ], by the way, is not to my knowledge. We've talked with international players in terms of cooperating on certain matters, but the topic of a bearhug has not emerged today. In terms of the shares being undervalued or not, I'll let the market judge on that. This is a company that continues to show extremely high growth, healthy growth and improving returns across every single metric. So hopefully, the market recognizes that at some point. Operator: [Operator Instructions] We have not received any further questions. I would now like to hand the call back over to Anthony Hatoum for some closing remarks. Kamal Hatoum: Thank you to our investors who continue to be very supportive and very enthusiastic. Thank you for the analysts who are covering us who keep us challenged with interesting questions. And thank you overall for participating in this call. I'd like to leave you with the thought that our company continues to perform very strongly, and the future looks very bright for us. Thank you again. Operator: That concludes today's call. You may now disconnect.
Andrzej Matyczynski: Thank you for joining Reading International's earnings call to discuss our 2025 third quarter results. My name is Andrzej Matyczynski, and I'm Reading's Executive Vice President of Global Operations. With me are Ellen Cotter, our President and Chief Executive Officer; and Gilbert Avanes, our Executive Vice President, Chief Financial Officer and Treasurer. Before we begin the substance of the call, I will run through the usual caveats. In accordance with the safe harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that will be addressed in this earnings call may constitute forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause our actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are clearly set out in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, we will discuss non-GAAP financial measures on this call. Reconciliations and definitions of non-GAAP financial measures, which are segment operating income, EBITDA and adjusted EBITDA are included in our recently issued 2025 third quarter earnings release released on November 14 on our company's website. We have adjusted where applicable the EBITDA items we believe to be external to our business and not reflective of our cost of doing business or results of operations. Such costs could include legal expenses relating to extraordinary litigation and any other items that we consider to be nonrecurring in accordance with the 2-year SEC requirement for determining whether an item is nonrecurring, infrequent or unusual in nature. We believe that adjusted EBITDA is an important supplemental measure of our performance. In today's call, we also use an industry accepted financial measure called theater-level cash flow, TLCF, which is theater-level revenue less direct theater-level expenses. Average ticket price, ATP, which is calculated by dividing cinema box office revenue by the number of cinema admissions is also used as an accepted industry acronym. We also use a measure referred to as food and beverage spend per patron, F&B SPP, which is a key performance indicator for our cinemas. The F&B SPP is calculated by dividing the cinema's revenues generated by food and beverage sales by the number of admissions at that cinema. Please note that our comments are necessarily summary in nature, and anything we say is qualified by the more detailed exposure set forth in our Form 10-Q and other filings with the U.S. Securities and Exchange Commission. So with that behind us, I'll turn it over to Ellen, who will review our 2025 third quarter results and discuss our business strategy going forward, followed by Gilbert, who will provide a more detailed financial review. Ellen? Ellen Cotter: Thank you, Andrzej, and welcome, everyone, to the call today. As we expected and following global cinema industry trends, despite the strong performance of certain titles through the third quarter of '25, the overall box office was behind last year's third quarter. At $52.2 million, our global total revenue decreased 13% versus Q3 2024, which was driven by a slate of 2025 movies that just didn't match up to the stronger titles in the same period last year. Last year's lineup included record-setting releases like Deadpool & Wolverine, Despicable Me 4, Beetlejuice Beetlejuice and It Ends with Us. Despite this past quarter's revenue performance, the company continued making progress on several strategic initiatives, which is evident in some of our key income metrics for Q3 2025. With respect to our global operations, both cinema and real estate, despite the decrease in our cinema revenues, we continue to effectively manage our expenses. At a loss of $329,000, our global operating loss improved by 4%. At $3.6 million, our positive EBITDA increased 26% from Q3 2024's EBITDA. With this past quarter's results, we've delivered 5 straight quarters of positive EBITDA. At a loss of $4.2 million, our net loss improved by 41%, representing the best third quarter result since Q3 2019. Through the quarter and the year in 2025, our operating teams continue to improve the company's overall profitability. In the U.S., by closing a 14-screen cinema in San Diego in Q2 '25, we eliminated a cash loss that resulted in a 7.3% reduction in our U.S. screen count. We have limited control over the quantity and grossing potential of the movies we play. However, in operational areas where we have more control like F&B and alternative content programming, we delivered record results that I'll touch on in a minute. Across the global cinema circuit, we're working with our landlords to reduce our overall occupancy costs to reflect the fact that attendance has not returned to pre-pandemic levels and our operating expenses for the most part have all increased. Our U.S. Real Estate division delivered the best third quarter operating income since Q3 2014 due in part or in large part to our improved performance of our live theater assets in New York City. Despite the elimination of the cash flow generated by the real estate assets sold in early 2025, Cannon Park in Townsville, Australia and our Wellington assets in New Zealand, our global property teams are driving productive changes in our 58 third-party tenant portfolio, which I'll touch on shortly. Those 2025 strategic asset sales have led to a significant debt reduction. From December 31, '24, we've reduced our global debt balance from $202.7 million to $172.6 million or about 15% as of September 30, 2025. Our interest expense for the 9 months ended September 30, 2025, has been reduced by $2.6 million or 17% compared to the same period last year. This follows an overall debt reduction of $112.3 million since December of 2020. Historically, about 50% of our revenues have been generated in Australia and New Zealand, and the third quarter 2025 was no different, with 49% of our revenues being generated internationally. In Q3 2025, our quarterly revenue was negatively impacted as the Australian and New Zealand dollar devalued against the U.S. dollar by 2.3% and 3.1% compared to the Q3 in '24. As you'll note from the exchange rate table included in our 10-Q, the average exchange rates for these 2 currencies are at a 20-year low. As I'll touch on in greater detail in a minute, despite the weak third quarter, we continue to have enthusiasm and confidence about the cinema business. Today, we're reporting global presales for Wicked: For Good of almost $850,000, which is one of the strongest global presale numbers we've experienced in years. Wicked: For Good is followed by Zootopia 2, Five Nights at Freddy's, Avatar: Fire and Ash, SpongeBob SquarePants movie and Anaconda. In addition to these movies that appeal to the family audience, we believe that Marty Supreme, Song Sung Blue and The Housemaid will give the older audience some compelling choices during the holidays. The 2025 holiday season will be followed by what looks to be a very robust lineup for 2026. We're thrilled about the upcoming 2026 film slate, which includes major franchise releases like Spider-Man: Brand New Day, Toy Story 5, The Devil Wears Prada 2, Minions 3, Mega Minions, Shrek 5, Supergirl, The Super Mario Bros. Movie 2, Moana, Ice Age 6 and Jumanji 3. Many industry insiders and analysts think that 2026 could be one of the biggest years ever at the box office. With 5 straight quarters of positive EBITDA, the most improved net loss delivered for any third quarter since Q3 2019, a balance sheet which continues to be anchored by a strong real estate portfolio and cinemas, which we believe to be poised for an exciting and robust 2026 movie release schedule. We believe the company is well positioned to deliver a much stronger '26 and beyond, having weathered a very challenging last 5 years. People ask whether following our monetization of various assets over recent years, whether we're still committed to our 2-business, 3-country strategy. And the answer to that is yes. It's obviously true that we've monetized a number of our real estate assets. This has been done strategically to meet our liquidity needs in the face of a pandemic that physically shut down all of our cinemas, then an unprecedented combination of writers and actor strikes that completely disrupted the supply of movies to our cinemas during a time when customers are just getting reacquainted with outside the home entertainment. We chose those assets, which typically were either negative cash flow or which after debt service did not materially contribute to our cash flow and which, in our view, have reached the best value reasonably achievable without significant further capital investment. We monetized our California headquarter building to cut administrative costs and have been able to work remotely now for 2 years. We've reduced our cinema count in the U.S. by 6 theaters, all of which have been negative cash flow since at least the pandemic. We believe that we continue to have a good core of cinemas and real estate assets. We've navigated these treacherous waters without one penny of U.S. government assistance without resorting to debtor rights, legal remedies and without diluting our stockholders. So now let's look at our specific businesses. I'll take a look at our Q3 2025 global cinema business and compared to the same period in '24. At $48.6 million, our Q3 '25 global cinema revenues decreased 14%. At $1.8 million, our Q3 '25 global cinema operating income decreased by 21%. As I mentioned, the overall weaker Q3 ' 25 performance was anticipated and followed along industry trends. This year's lineup just couldn't match the slate from last year when Deadpool versus Wolverine (sic) [ Deadpool & Wolverine ], Starring Ryan Reynolds and Hugh Jackman performed exceptionally well in all of our 3 countries. We believe our particular results were also impacted by unfavorable FX movements, the 7.3% reduction in our U.S. screen count due to the closure of an underperforming cinema in San Diego and the partial closure of a 16-screen U.S. cinema under renovation that I'll touch on in a minute. When you look at the year-to-date through September 30, 2025, our global cinema revenues increased slightly and operating income grew by 142%, reflecting stronger performance due to a Q2 2025 and our focus on our various strategic initiatives. Let me highlight a few of those key strategic initiatives that we focused on throughout '25 and have supported our results through the year. First, our food and beverage program. It remains a key area of focus. At AUD 8.05, our Q3 2025 Australian F&B SPP was the highest third quarter ever. At NZD 6.75, our Q3 2025 New Zealand F&B SPP was also our highest third quarter ever in our history. At $8.74, our Q3 '25 U.S. food and beverage SPP was the highest third quarter ever and the second highest quarter ever when our U.S. circuit has been fully operational. That excludes pandemic closure periods. And the U.S. F&B SPP appears to exceed the results of other major publicly traded exhibitors that disclosed their F&B SPPs. These strong F&B results were supported by improvement in our online and app food and beverage sales, the continued embrace of our movie themed menus in all 3 countries. For instance, in the U.S., our Spicy-Saurus Flatbread was a strong seller this quarter. And in Australia, the Jurassic Combo was one of our most popular movie theme menus. Also, the ever-increasing merchandise spend, where especially in the U.S., we're complementing our guest's movie experience with the opportunity to buy movie-themed merch. In the U.S., this past quarter, we generated just over $350,000 in revenue from movie themed merchandise. For instance, our Superman Totem popcorn container was one of the best-selling merch items we had during the period. We're also driving guests to our theaters through existing loyalty programs and are in the process of developing new and improved rewards and membership programs, which are set to launch over the next few months. In Australia and New Zealand, we recently revamped and relaunched our free-to-join Reading Rewards program to provide better perks and savings. Today, we have over 363,000 members, which is an 8% increase over last quarter. With respect to our paid memberships in Australia and New Zealand for both our Reading and Angelika brands, since our late Q4 2024 launch, we signed up over 17,400 paid memberships, which is a 16% increase over last quarter. In December '25, we're launching a new free-to-join rewards and premium membership program in Hawaii and in select U.S.-based Reading cinemas. In the U.S., our free-to-join Angelika membership program has 171,000 members today for our 8 Angelika branded theaters, and we plan to launch our premium Angelika monthly membership early next year. Another primary initiative for our global executive team has been the collaboration with our cinema landlords to reset occupancy costs to become more in line with the economic realities of recent years. During our negotiations for occupancy expense relief, our position is that although attendance has not returned to pre-pandemic levels, nearly all of our operating costs have increased. We also highlight there's really a limit on how much we can increase our ticket and food and beverage prices. Let's take a closer look at the third quarter 2025 results for our U.S. cinemas. Our revenue decreased by 10% to $25.1 million compared to the Q3 in '24, while our operating loss improved by 92% to a loss of $100,000 from a loss of $1 million in Q3 2024. In addition to what I mentioned earlier, a couple of other milestones to mention. Our average ticket price or ATP of $13.13 marks our second highest third quarter ever for our U.S. cinema circuit. This is impressive in light of the strength of our discount Tuesdays, which is branded Mahalo Holidays in Hawaii and Half-Price Tuesdays in the U.S. Mainland. With respect to our U.S. cinema circuit, our gross box office for alternative content and signature series programming, which is our nontraditional programming, delivered the highest third quarter box office ever. One of the reasons we performed so well in this regard had to do with the 2-day KPop Demon Hunters Sing-Along event distributed by Netflix, which provided another pivotal cultural moment for cinemagoers, especially in our markets. We received questions about the strength of specialty titles in 2026. But first, let me report that the box office of the Angelika New York year-to-date through mid-November 2025 has beaten the same period in 2024. For this period, the top grossing films included Wes Anderson's Phoenician Scheme, the third quarter's Sorry, Baby and most recently, Frankenstein from Director Guillermo Del Toro, which was released by Netflix and presented in 35-millimeter. Following the positive 2025 trends, we expect 2026 will deliver a similar result in the world of art house and specialty film. The Japanese movie, Kokuho from Director Lee Sang-il, which has been a runaway critical and commercial success in Japan will release in '26 at the Angelika. Its Oscar qualifying run at the Angelika this week has already demonstrated impressive presales. Director Park Chan-wook No Other Choice from Neon opens late in 2025 and will carry over into 2026. And later in '26, we anticipate that specialty film growers will enjoy movies like Sony Classics, A Private Life starring Jodie Foster, The Drama starring Zendaya and Robert Pattinson from A24, Focus Features Sense And Sensibility starring Daisy Ecker-Jones and Werwulf from Director Robert Eggers, the Director of Nosferatu. We also received questions about the status of our CapEx spend in '26. With respect to our U.S. circuit, we're in the process right now of renovating our Reading Cinemas in Bakersfield, California, which renovation should be completed by the end of January '26. We've now added recliners to our IMAX screen, which will make the only IMAX with recliners within a 100-mile radius of Bakersfield. We're creating a premium screen, TITAN LUXE with Dolby Atmos sound system that also features heated recliners, which will open for Wicked: For Good. And we're adding another 8 screens of recliners, 3 of which are open right now with another 5 screens to open in January. We'll be working on plans to add a TITAN LUXE and recliners to our Angelika in Mosaic, Fairfax, Virginia, which should be done by the end of '26 and through '26, we're also looking to refurbish many of our existing recliner seats that were damaged through the pandemic. And that project should also be completed by the end of next year. I'll note that by the end of '26, 68% of our existing screens in the U.S. will feature recliners and 44% of the theaters will have premium screens. Turning now to our cinemas in Australia and New Zealand. Following Q3 2025 box office industry trends and comparing to Q3 '24, our Australian cinema revenue decreased 17% to $20.5 million, and our operating income decreased 38% to $1.8 million. Our New Zealand cinema revenue decreased 23% to $2.9 million, and the operating income decreased 96% to $10,000. In addition to the milestones I've already mentioned, during the third quarter of '25, our Australian team also achieved the following, which are all in functional currency. Our Q3 2025 Australian ATP of $15.44 was the highest third quarter ever for Australian cinemas. We also secured a major ancillary revenue sponsorship from a major telco who signed up for our turn your cell phone off naming rights. With the agreement running through March of '27, the team achieved an exceptional sponsorship deal. With respect to our New Zealand cinemas, our Q3 2025 New Zealand ATP of $13.65 was the highest third quarter ever. And now turning to our CapEx spend in 2026 in Australia and New Zealand. I'll start with New Zealand. In New Zealand, through 2026, we'll be redesigning our Reading Cinemas at Courtenay Central in Wellington. The renovation will be a full top to bottom upgrade where we'll add recliners to all theaters, at least 2 premium screen concepts such as TITAN LUXE or others and upgrade our F&B offer and that whole renovation will follow our new landlord's seismic upgrade. We anticipate that the renovation will be completed sometime in '27. And in Australia, we'll be adding a TITAN LUXE with Dolby Atmos and 1 premium screen with recliners to another key Reading cinema sometime in '26. I'll note that by the end of '26, 36% of our existing screens will feature recliners and 59% of our international theaters will have premium screens. Now let's turn to our global real estate business, which on a segment reporting basis includes not only our third-party rental income, but also our live theater business in New York City and our intercompany rents. Starting with the third quarter of '25 global results and compared again to the same period in '24. At $4.6 million, our global real estate total revenues decreased by 7% and at $1.4 million, our total income was flat. The results were primarily driven by the elimination of property level cash flow from the third-party rents that we had received at our property assets in Townsville, Australia and in Wellington, New Zealand. Both of those assets were sold earlier in '25 to create liquidity to pay down debt. Breaking it down by division for the third quarter of '25 and again, compared to the same quarter in '24 with respect to Australia, our real estate revenue decreased by 22% to $2.4 million, and our income of $1 million decreased by 35%. At $221,000, our New Zealand real estate revenue decreased by 41% and our New Zealand real estate operating income of $90,000 increased by 169% from an operating loss of $130,000 in the third quarter of '24. With respect to our Australian and New Zealand portfolio, as of September 30, 2025, due to our asset sales in Wellington, New Zealand and Townsville, Australia at Cannon Park, the number of third-party tenants in our combined Australia and New Zealand real estate portfolio reduced to 58 and is now primarily made up of tenants at Newmarket Village in Brisbane and the Belmont Common in Perth. The quality of the remaining tenants is strong, and today, we have an occupancy rate of 98%. For the third quarter, our combined third-party tenant sales from our Australian real estate were AUD 25.9 million. During the quarter, 5 lease transactions were completed with existing tenants. These included 1 new lease, 3 renewals and 1 lease variation, reflecting continued tenant retention and portfolio stability. Also, as we recently reported in our 10-Q, we signed an agreement to sell our Napier property in New Zealand for NZD 2.5 million with a leaseback of the Reading cinema on the property. The contract is conditioned on the completions of various conditions, including due diligence. And right now, we can't provide any assurance that the deal will, in fact, close or when. Now turning to our U.S. real estate business, which includes our 2 live theaters in New York City. On a quarter-to-date basis, it delivered a 35% increase in revenue and operating income of $253,000, which represents a 433% increase. Our live theater segment delivered a standout performance this quarter, fueled by critically acclaimed productions and audience favorites. At the Minetta Lane Theatre for the third quarter of '25, our attendance increased over 450% and theater-level cash flow increased by over 140%, which is largely attributed to the successful shows produced by Audible and the Amazon Company and our licensee at Minetta Lane. The acclaimed musical Mexodus just concluded its successful run in the third quarter at the Minetta Lane. I'll also note that Audible recently exercised its option to extend their license another year at the Minetta Lane and will be there now through March of '27. Since the departure of STOMP, the Orpheum theater continues to be in high demand with theater producers. During Q3 and part of Q4, Ginger Twinsies, a parody inspired by the iconic film, The Parent Trap, received strong praise and played at the Orpheum. And it was just announced that the viral TikTok dance duo Cost N' Mayor, who have about 7.4 million followers on TikTok will debut their new show 11 to Midnight at the Orpheum, which opens in January of '26. We also received questions about the leasing at 44 Union Square. As previously reported, we signed a non-exclusive LOI and have exchanged lease drafts with 1 potential tenant who is a non-office user for all the remaining space in the building. We're continuing to work with this tenant to see if a deal can be completed within the company's long-term goals before the end of the year. However, we continue to explore other leasing opportunities. Based on industry reports from area brokers, we know there's been material improvement in the leasing environment in the Midtown South market, which has been further reinforced by the 2025 Union Square commercial report, which highlights positive momentum not only in the Union Square leasing statistics, but also the increased foot traffic in the area. Our Newberry Yard property in Williamsport, Pennsylvania remains classified as held for sale. While we've reviewed offers from both rail and non-rail users, we believe the property's highest and best use is tied to the rail industry as the tracks and infrastructure remain valuable. We're now exploring different marketing strategies to reach a greater pool of candidates. We've also received various questions about our Reading Viaduct in Pennsylvania. As we reported in our most recently filed 10-Q, the City of Philadelphia has expressed an interest in condemning all or portions of our Reading Viaduct for use as a public park, and they passed an ordinance to permit such an action to proceed. Since railroad properties are subject to the jurisdiction of the Federal Surface Transportation Board, or STB, and cannot be condemned without the consent of the STB, the city brought a petition before the STB for a declaration that all railroad use of our Viaduct have been abandoned and that as a consequence, our Viaduct was no longer subject to the jurisdiction of the STB. And by implication, that the city could proceed with the condemnation action without seeking approval of the STB. We've recently appealed the STB's recent decision. The city has also filed litigation against us claiming a failure on our part to address certain claimed building violations and seeking injunctive relief as well as certain fines and penalties. We're in the process right now of defending against that lawsuit. Regarding the potential for a condemnation, however, I can note that under applicable Pennsylvania law, the city would be required to pay us the fair market value of our property. We've not received any proposal from the city of Philadelphia before or after the adoption of the ordinance in December of '23. Though we do understand that funding has been received for the planning and design work tied to the development of a rail park on our property. We're not aware of any funding being secured or set aside for an actual acquisition in whole or part of our Viaduct. The company believes that the Reading Viaduct is a valuable asset of the company, and it will continue to vigorously defend itself in these cases. If the city does pursue condemnation, we'll work vigorously to obtain the maximum fair market value for any property taken. That wraps up my report on recent developments. So in summary, despite facing significant challenges over the last 5 years and having an underwhelming third quarter, the company has remained focused on safeguarding our global theaters and sustaining stockholder equity through strategic theater closures, cost reductions and the sale of select real estate assets to meet liquidity needs created by the pandemic and the unprecedented 2023 Hollywood strikes and to significantly reduce our overall debt. At the same time, our cinema teams have implemented strategic initiatives to increase revenue and enhance cost efficiency, while our global real estate teams have secured a strong, stable and dynamic base of third-party tenants, providing us with optimism regarding the future of Reading and the cinema industry as a whole. In addition, our global interest expense has decreased due to multiple paydowns a result of asset sales and overall lower government interest rates in all 3 countries. This reduction in interest expense, coupled with a steady and strong lineup of Hollywood releases for the remainder of '25 and '26, we believe Reading is well positioned for stronger growth and a return to profitability in the fourth quarter in 2026 and beyond. Before I turn it over to Gilbert, Margaret and I want to express our continued heartfelt appreciation to the entire management team and our Board and all of our employees. Your dedication, professionalism and tireless efforts have been instrumental in keeping the company moving forward and staying true to its long-term vision. Thank you. Now let me turn it over to Gilbert. Gilbert Avanes: Thank you, Ellen. Consolidated revenue for the quarter ended September 30, 2025, decreased by $7.9 million to $52.2 million when compared to the third quarter of 2024. This decrease was due to decreased cinema revenue from lower attendance in all 3 countries as a result of weaker overall movie slate released from the Hollywood studios in the third quarter of 2025 compared to the same period 2024 and the reduction in screen count due to closure of one of our cinema complexes in San Diego, California. These decreases in revenues were compounded by the decline in real estate rent revenue in Australia and New Zealand due to the sale of Cannon Park and Courtenay Central and the weakening of Australia and New Zealand foreign exchange rate against the U.S. dollar, partially offset by the improved live theater rental and ancillary income. Consolidated revenue for the 9 months ended September 30, 2025, increased slightly by $0.8 million to $152.7 million when compared to the same period of 2024. This increase is due to improved box office from better movie slates as Lilo & Stitch and Minecraft movies released during the second quarter of 2025 improved U.S. food and beverage revenue and better live theater rental and ancillary income, which was partially offset by a decrease in real estate rental revenue and decrease in food and beverage revenue in Australia and New Zealand. Net loss attributable to Reading International Inc. for the quarter ended September 30, 2025, decreased by $2.9 million to a loss of $4.2 million compared to a loss of $7 million in Q3 2024. Q3 2025 basic loss per share improved by $0.13 to a basic loss per share of $0.18 compared to a basic loss per share of $0.31 for Q3 2024. These improved results were partially due to a $1.1 million reduction in interest expense, a $1.2 million increase in other income and a $0.7 million reduction in depreciation and amortization expense compared to the same period in prior year. Net loss attributable to Reading International Inc. for the 9 months ended September 30, 2025, decreased by $21.1 million from a loss of $33.1 million to a loss of $11.6 million when compared to the same period in the prior year. Basic loss per share improved by $0.90 to a loss of $0.51 compared to a loss of $1.48 for the first 9 months of 2024. These results were primarily due to strengthened segment results, a $2.6 million reduction in interest expense and the $9.7 million increase in gain on sale of assets as a result of gain on selling our Courtenay Central and Cannon Park properties in 2025 compared to a loss on selling our previously owned Culver City office in 2024. Our total company depreciation, amortization impairment and general and administrative expenses for the quarter ended September 30, 2025, decreased by $1 million to $7.9 million compared to Q3 2024. For the 9 months ended September 30, 2025, it decreased by $2.6 million to $25.2 million compared to the same period in the prior year. Income tax expense for the 3 months ended September 30, 2025, decreased by $0.4 million compared to the equivalent prior year period. The change between 2025 and 2024 is primarily related to a decrease in reserve for valuation allowance in 2025. Income tax expense for the 9 months ended September 30, 2025, increased by $0.8 million compared to the equivalent prior year period. The change between 2025 and 2024 is primarily related to a decrease in consolidated loss in 2025. For the third quarter of 2025, our adjusted EBITDA increased by $0.7 million to an income of $3.6 million from an income of $2.8 million compared to Q3 2024. This increase was primarily due to an increase in other income. For the 9 months ended September 30, 2025, our adjusted EBITDA increased by $17.4 million to an income of $12.8 million compared to the same prior year period. This increase was due to improved operational performance through more efficient management of operating expenses and gains from asset monetization as mentioned previously. Shifting to cash flow for the 9 months ended September 30, 2025, net cash used in operating activities decreased by $6 million to $5.9 million compared to the cash used in 9 months ended September 30, 2024, of $11.8 million. This was primarily driven by a decrease in net operating loss, partially offset by a decrease in net payables. Cash provided by investing activities during the 9 months ended September 30, 2025, increased by $32.3 million to $37.3 million compared to the cash provided in the 9 months ended September 30, 2024, of $5 million. This was due to proceeds from sale of our Cannon Park property assets in May 2025 and the Wellington property assets in January 2025 compared to the proceeds from the sale of our Culver City office in February 2024. Cash used in financing activities for the 9 months ended September 30, 2025, increased by $38.3 million to $36.2 million compared to the cash provided in 9 months ended September 30, 2024, of $2.1 million. This was primarily due to the paydown of our Westpac debt, Bank of America debt and NAV facility in 2025 as discussed previously, compared to the NAV bridge facility drawn in the same period of 2024. Turning now to our financial position. Our total assets on September 30, 2025, were $435.2 million compared to $471 million on December 31, 2024. This decrease was driven by a $4.3 million decrease in cash and cash equivalents from which we funded our ongoing business operations, a $31.9 million decrease in land and property held for sale due to the sale of our Cannon Park and Courtenay Central assets. As of September 30, 2025, our total outstanding borrowings were $172.6 million compared to $202.7 million on December 31, 2024. The debt reduction was primarily funded by the net proceeds from the sale of our 2 major property assets, Cannon Park in Australia and Courtenay Central in New Zealand. Our cash and cash equivalents as of September 30, 2025, were $8.1 million. Further to address liquidity pressure on our business, we continue to work with our lenders to amend certain debt facilities, and we continue to have our Newbury Yard, Williamsport, Pennsylvania property classified as held for sale. During the third quarter and the beginning of the fourth quarter of 2025, we made progress with our lenders on the following financing arrangements. On July 3, 2025, we extended the maturity date of our Bank of America loan to May 18, 2026, and modified the principal repayment schedule. On July 18, 2025, we extended the maturity date of our Santander loan, which is the loan on our live theater assets in New York City to June 1, 2026. We also paid down $100,000 on the loan at signing. On November 12, 2025, we extended the maturity of our National Australia Bank loan to July 31, 2030, and modified the principal repayment schedule. On November 13, 2025, we extended the maturity of our Valley National Bank loan to October 1, 2026. With that, I will now turn it over to Andrzej. Andrzej Matyczynski: Thank you, Gilb. First, I'd like to thank our stockholders for forwarding questions to our Investor Relations e-mail. As usual, in addition to addressing many of your questions in the prepared remarks from Ellen and Gilbert, we've selected a few additional questions to offer additional insights from management. The first such question, which Ellen will address, there was a mention in the 10-Q about the Noosa Australian cinema development project still planned for 2027 or has it been deferred indefinitely? What is the current budget and expected ROI for this project? Ellen? Ellen Cotter: Yes. We're still expecting the Reading Cinema, which is being an 8-screen cinema with the TITAN LUXE to be built out in Noosa in Queensland. Our landlord and developer of the Stockwell Development Group is still in the town planning stage of its major multi-use project. Today, we believe the completion of the theater construction and the opening won't happen until around 2028. And we don't announce the terms and conditions of specific cinema deals. However, as we've reported in the past for third-party cinema lease deals, we usually target at least a high-teen double-digit return. And the current deal for the Noosa Cinema is consistent with those targets. Andrzej Matyczynski: The next question, we've been asked several questions about our plans for the refinancing of our Bank of America, Emerald and Valley National loans. Can you please elaborate? Gilbert? Gilbert Avanes: We plan to refinance this debt in 2026 and are considering a variety of alternatives and structures. We are encouraged by what we see as the improving environment from real estate financing, including anticipated reduction in interest rates, improving commercial rental market in Manhattan and the current industry box office projections for 2026. Obviously, a significant factor in any refinancing of our Emerald debt would be the lease status of our 44 Union Square. While no assurance can be given, we anticipate resolution of our current nonexclusive LOI by the end of the year. Andrzej Matyczynski: The next question, given Reading has no present New Zealand debt and the excess proceeds from the Wellington Courtenay sale were upstream to pay down costly U.S. debt, can you share what your likely use of the Napier sale proceeds will be? Ellen? Ellen Cotter: The Napier transaction closes, we'll likely use the proceeds to support the renovation of our Reading Cinema Courtenay Central in Wellington, New Zealand or -- and/or we may use the proceeds for general corporate use in New Zealand. Andrzej Matyczynski: And finally, one last question, which I will deal with. We also received a number of questions about the Sutton Hill Associates acquisition that involves RDI assuming $13.65 million in third-party notes at 4.75% interest maturing September 30, 2035, who will be the holder of these third-party notes? What assets will secure the guarantee and guarantee these notes? Sutton Hill Associates 25%, Sutton Hill Properties interest and Village East ground lease and Reading USA or Reading International, respectively. I appreciate the low interest rate on the debt. Can you explain why so favorable, especially with a 10-year maturity? Well, a very complex question. We believe that this will be a good transaction for Reading. It will, in essence, wind up and close out of our master lease transaction we entered into with Sutton Hill Capital, LLC in the year 2000. The third-party notes are, as previously disclosed, payable to a third party and the reasons for that third party's willingness to do the deal described in our 10-Q would only be a matter of speculation on our part. As part of the transaction, the third-party notes would be guaranteed by Reading International, Inc., but would otherwise be unsecured. And that marks the conclusion of our third quarter conference call for 2025. This year continues to see a gradual resurgence of the breadth and depth of the cinematic experience despite the slight downturn in the third quarter numbers. And we aspire to translate this into future enhanced value for our stockholders as the end of 2025 comes and the full 2026 year unfolds. We appreciate you listening to the call today. We thank you for your attention and support and wish everyone and safety. And as always, we look forward to seeing you at our movie venues.
Operator: Welcome to Evogene's Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded in November 20, 2025. Before we begin, we'd like to caution that certain statements made during this earnings conference call by Evogene's management will constitute forward-looking statements that relate to future events. This presentation contains forward-looking statements relating to future events and Evogene Ltd, the company may from time to time make other statements regarding our outlook or expectation for future financial or operating results and/or other matters regarding or affecting us that are considered forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995, the PSLRA, and other securities laws as demand. Statements that are not statements or historical fact may be deemed to be forward-looking statements. Such forward-looking statements may be identified by the use of such words as believe, expect, anticipate, should, plan, estimate, intend and potential or words of similar meaning. We are using forward-looking statements in this presentation when we discuss our value drivers, commercializations, efforts and timing, product development and launches, estimate market sizes and milestones pipeline as well as our capabilities and technology. Such statements are based on current expectations, estimates, projections and assumptions described opinions about future events, involve certain risks and uncertainties, which are difficult to predict and are not guarantees of future performance. Readers are cautioned that certain important factors may affect the company's actual results and could cause such results to differ materially from any forward-looking statement that may be made in this presentation. Therefore, actual future results, performance or achievements, and trends in the future may differ materially from what is expressed or implied by such forward-looking statements, due to a variety of factors, many of which are beyond our control, including without limitation, the current war between Israel and Hamas and any other adverse impact that it may have on economic activity in Israel, due to the calling up of a large number of reserve soldiers or the incurrence of debt to pay for the high cost of the war and any accompanying future uncertainties for the security of the company's operations in Southern Israel, as well as those additional factors described in greater detail in Evogene's annual report on Form 20-F and in other reports Evogene files with and furnishes to the Israel Securities Authorities and the U.S. Securities and Exchange Commission, including those factors under the heading, Risk Factors. Expect as required by applicable securities law, we disclaim any obligation or commitment to update any information contained in this presentation or to publicly release the results of any revisions to any statement that may be made to reflect future events and developments or changes in expectations, estimates, projections and assumptions. The information contained herein does not constitute a prospectus or other offering documents, nor does it constitute or form part of any invitation or offer to sell, or any solicitation of any invitation or offer to purchase or subscribe for, any securities of the company, nor shall the information or any part of it or the fact of its distribution from the basis of, or be relied on in connection with, any action, contract or commitment relating thereto or to securities of the company. The trademarks include herein are the property of the owners thereof and are used for reference purposes only. Such use should not be construed as an endorsement of our product or services. With us on the line will be Ofer Haviv, President and CEO of Evogene; and Yaron Eldad, CFO of Evogene. Now I will turn the call over to Ofer Haviv. Mr. Haviv, please go ahead. Ofer Haviv: Thank you for joining Evogene's Third Quarter 2025 Analyst Call. In today's call, I'd like to focus on the company's new strategy. which I partly shared at our previous quarterly calls and its current implementation. I will also provide an update on our expectation to start breaking the business benefits of the strategic shift over the coming year. Following my remarks, our CFO, Yaron Eldad will present the financial results, and we will then open the call for questions. But as usual, I will start with the financial highlights. During the first 9 months ending September 30, 2025, Evogene advanced its strategic transition towards establishing itself as a leader in computational chemistry, with a focus on the generative design of small molecules for the pharmaceutical and agriculture industries. As part of this new strategy, the company executed an organizational change and cost reduction plan, most of which was completed by the end of the second quarter. The impact of these measures is reflected in the third quarter results, with total operating expenses, net, of approximately $2.9 million compared to $6.6 million in the same period of 2024. This new expense level is expected to be maintained going forward. The financial results of Lavie Bio, Evogene's subsidiary, for the 9- and 3-month ending September 30, 2025, are presented as a single-line item in Evogene's consolidated P&L statement for 2025. Its results are including under the line titled: income or loss from discontinued operations net, this accounting presentation includes the sale of the majority of Lavie Bio's activities to ICL, which was completed in July 2025, and together with the sale of MicroBoost for Ag, generated income of approximately $7.9 million in the third quarter of 2025. In the 9 months ending September 30, 2025, revenues amounted to approximately $3.5 million, compared to $4 million in the same period last year. The decrease was primarily driven by lower revenue from AgPlenus' activity, which included a onetime payment from Bayer during the first quarter of 2024, partially offset by an increase in seed sales generated by Casterra. Total research and development expenses in the 9 months ending September 30, 2025, were approximately $5.9 million, compared to approximately $9.8 million in the same period of 2024. The decrease is primarily attributed to a reduction in Biomica's and Evogene R&D activities and the discontinuation of Canonic's operations. Sales and marketing expenses in the 9 months ending September 30, 2025, totaled approximately $1.1 million, compared to approximately $1.6 million in the same period of 2024. The decrease is mainly due to reduction in headcount across the subsidiaries. In the 9 months ending September 30, 2025, total operating loss was approximately $8.8 million, compared to approximately $15.3 million in the same period of 2024. This decrease is mainly due to the decrease in the subsidiaries' and Evogene's activity. As of the end of the third quarter of 2025, the company's cash and short-term bank deposit balance was approximately $16 million. This cash balance reflects the proceeds from the sale of Lavie Bio's assets and the MicroBoost AI for Ag tech-engine to ICL. The following are the business highlights of our subsidiary and related parties in the past quarter. Lavie Bio completed the transfer of its team and the majority of its activity to ICL. Its collaboration agreement with an existing partner continues with positive results. The distribution of funds to its shareholders with Evogene as the majority holder is advancing. No additional activities are expected. Biomica's clinical trial continues according to plan and is expected to be completed in early 2026. Currently, only one patient is in the trial and the efforts to secure partners to lead Biomica's current development program continue. No additional activity are expected. Last week, Casterra partnered with Fantini to advance agricultural mechanization for scalable commercial castor farming. The collaboration focus on integrating high-yield castor varieties with advanced mechanized solutions, including harvesting and threshing technologies. In addition, the company is investing efforts in strengthening its position in Brazil's castor farming ecosystem. AgPlenus underwent organizational restructuring, including the completion of workforce reductions. Evogene's related party, Finally Food, which drove the casein in protein in potatoes, announced raising $1.2 million led by CBC Group and signed a commercial agreement with it. Now I would like to continue with Evogene new strategy and its implementation, which includes AgPlenus' activity for the agriculture industry. The following slides reflect Evogene's new messaging and appearance supporting its new strategy. At Evogene, we are on an ongoing mission to redefine the future of science and business. By harnessing the power of our proprietary generative AI tech-engine, ChemPass AI, we designed novel groundbreaking small molecules, highly potent and precisely optimized across multiple parameters to transform the pharmaceutical and ag-chemical industries. Our goal is not just innovation, but meaningful beneficial impact for our world. Headlining this slide is the phrase real-world innovation. What do we mean by it? One of the greatest challenges in developing product in life sciences, from pharmaceuticals to ag-chemicals is the gap between real-word challenges and innovative scientific discovery. Anyone involved in life science product development knows this challenge well. It's reflected in the high failure rate of product that start full of innovative promise, but ultimately fall short of one or more critical criteria that often emerge only in later stages of development. We believe now is the time for change, for bridging the gap between innovation and real-world impact. The key lies in harnessing the possibilities of the computational revolution, transforming our word and above all, in unlocking the power of AI. Today's computational capabilities allows for simultaneous analysis of countless parameters, achieving a level of scientific depth that was once behind reach. They empower us to design solutions that integrate scientific innovation with commercial viabilities, pushing beyond the limits of traditional trial-and-error product development. Computational technology serve as the bridge connecting scientific discovery to commercial success. And this is exactly what we focus on. We call our approach real-world innovation. Evogene is structured on three interconnected pillars: our groundbreaking Gen AI best technology, ChemPass AI, which serve as the competitive advantage for our offering in the pharmaceutical and agriculture industries; second, our established activity in agriculture through our subsidiary, AgPlenus, where we have already achieved results in collaboration with leading global companies in the development of ag-chemical product; and our recent expansion into the pharma industry where ChemPass AI significantly increased the likelihood of the discovery of novel molecules with the highest potential to become breakthrough commercial drugs. I will begin with brief introduction to ChemPass AI, which is at the core of our operations. To understand the unique value of ChemPass AI, it is essential to consider the background of the product development process and its inherent challenges. Here is a simplified overview of how a small molecule product such as drug or pesticides is developed. It started with identifying the target protein we aim to inhibit, followed by searching for a chemical molecules capable of binding to it from an almost infinite number of possibilities. During the discovery and optimization phase, the objective is to design the most promising candidate for advancement into the next stage of development. These later stages are time consuming and costly, so choosing wisely early on is crucial. It's also worth noting that once these advanced stages are reached, the chemical structure of the molecules is basically set. This is the version that hopefully will eventually make it all the way to market. Therefore, very early in the process right after optimization, we commit to the molecule, we believe has the highest probability of becoming the final product. The outcome of this process is often frustrating. Statistically, only a small fraction of promising molecules that make it into advanced development actually reach the market. Success rates are usually somewhere between 3% and 10%, depending on the industry. This naturally raised the question what caused the success rate to be so low? And major reasons for low success rate is that a product must meet many often conflicting parameters to reach commercialization. Traditional methods for selecting molecules and addressing multiple parameters are very limited as a result early development usually optimize only a few parameters, one parameter at a time, creating a major bottleneck to commercial success. Overcoming this challenge present a significant strategic opportunity. Today, advancing computational technologies allowed for the simultaneous optimization of multiple parameters with the potential to greatly improve development efficiency and success rate. That brings us to ChemPass AI, the cutting-edge tech-engine developed here at Evogene, built to transform the way we design small molecules that are precisely tailored to specific target proteins. What makes our approach truly unique is not just the molecules we design, but the intelligence behind them, each molecule must overcome a complex web of scientific, regulatory and commercial challenges. To become real product, a molecule has to do more than just work, it must excel across multiple dimensions simultaneously. And that's exactly what ChemPass AI was built to achieve. Our engine designed molecules that meet three critical requirements: high potency, molecules that strongly and effectively modulate their target protein; novelty, expanding into novel chemical space, ensuring the creation of strong, defensible intellectual property; and multiparameter excellence, molecules that perform across the many requirements needed for the real-world commercial success. With ChemPass AI, we are not just designing molecules, we are designing the next generation of breakthrough products, closing the gap between innovation and market impact. That's the power and the promise of ChemPass AI. We are advancing a multiyear development program continuously adding new capabilities to our generative AI tech-engine. As a result, the number of parameters we can address keeps growing and the precision of the molecules designed to meet the required criteria continues to improve. The more the system is used, the smarter and more accurate it becomes. To accelerate ChemPass AI development process, we are collaborating with major technology companies such as Google Cloud as disclosed in May this year, and we intend to continue doing so. Additionally, we intend to explore the possibility of making certain parts of our technology accessible to researchers through such companies, which have a broad market reach. Of course, we will be happy to update you on these developments in the future. Our vision comes to life through the technology we have developed. Now I'd like to present the implementation of our technology through our agriculture and pharma activities. Starting with agriculture, a field we entered back in 2018 through the establishment of our subsidiary, AgPlenus. Since then, AgPlenus has achieved significant milestones, including strategic collaborations with leading industry players such as Bayer and Corteva. Agriculture is a huge global market valued in 2024 at $79 billion, including three main segments: herbicides, insecticides and fungicides. A single product in this space can generate anywhere from hundreds of millions to billions of dollars in sales annually. The industry is in great need of new products, yet developing them comes with significant challenges, an increase in pest resistance and regulatory requirements, an urgent need for new mode of action and the decreased rate in discovery of new pesticides due to lack of innovation. To address the challenges of developing new products in ag-chemistry, revolutionary technologies are needed. Computational chemistry can drive real-world impact in agriculture. And this is the mission of AgPlenus, Evogene's wholly owned subsidiary. AgPlenus discovered and optimized candidate for crop-protection products and has a robust product development pipeline through collaborations with leading global agriculture companies as well as internally founded programs. We are very proud of AgPlenus' achievements reflected in its strategic collaboration with two world-leading companies, Bayer and Corteva. Both collaborations focused on developing new herbicides, each targeting a different protein that represent a novel mode of action. This innovation is essential to addressing the growing resistance of pest to existing solutions. The plant images shown in this slide clearly demonstrates the effect of the small molecules being advanced through those collaborations. AgPlenus is also advancing independent projects within its internal pipeline. Its main focus today is on developing fungicide candidates against Septoria, a fungus causing major damage to field crops, especially wheat. AgPlenus already has several small molecules showing very promising results in lab test, which are now moving to greenhouse trials to test their performance on plants. Looking ahead, AgPlenus plans to further strengthen and expand its collaboration with existing partners, establish new partnerships, leveraging AgPlenus' pipeline innovations and broaden the scope of programs within its internal development portfolio. These initiatives are expected to generate cash inflows for the company through upfront payment, R&D reimbursement and as our products advance through development, milestone payment and potential royalties. We look forward to providing further update on both collaborative efforts and internal pipeline progress. Now I will continue with our efforts to capture the value of our tech engine, ChemPass AI, in the pharma industry, focusing on the market segment of drugs based on small molecules. While small molecules-based drugs such a lucrative opportunity, and why do we believe now is the right time to leverage our technology for it. Small molecule-based drugs represent nearly 60% of the global pharmaceutical market, valued at approximately $780 billion. Even more exciting is the current momentum of AI designed small molecules that are advancing through various companies' pipelines. More than 60 new candidates with an expected annual growth rate exceeding 150%. This rapid expansion is expected to drive the AI drug discovery market to nearly $190 billion by 2034. As I previously mentioned, the traditional process of developing drug based on a small molecule is expensive, lengthy and has a low success rate. This slide illustrates the high numbers of failure that occur during the transition from one stage of clinical trial to the next. We expect that the smart use of our tech engines, ChemPass AI, will lead to the initiation of clinical trials for a highly active, innovative small molecules, which most importantly, meet the maximum number of the defined drugs key parameters. As a result, we expect the probability of successfully progressing from one development stage to the next to improve, and the number of candidates that complete the development process and became successful commercial product will increase significantly. To capture the value of ChemPass AI offering in pharma, our business strategy is designed to maximize potential while minimizing risk. We hope to partner with leaders in pharma, biotech companies and academia that bring domain-specific knowledge, forming collaboration agreements. Through this strategic alliance, we aim to co-develop innovative products. The expected upside for Evogene stems from R&D fees, milestone payment and revenue sharing mechanism of the end product. In August, our Pharma division announced a collaboration with Professor Ehud Gazit of Tel Aviv University to develop new therapeutics for metabolic disease linked to the self-assembly of small metabolites such as tyrosinemia and gout. The partnership combines Evogene's ChemPass AI generative design platform with Professor Gazit expertise in molecular self-assembly to discover and optimize novel small molecules that can inhibit harmful metabolite aggregation. This collaboration aims to accelerate the development of first-in-class therapies that addresses the underlying molecular causes of accumulated metabolic disease offering new hope to patients worldwide. This collaboration exemplifies the type of strategic partnership we are pursuing, leveraging Evogene's advanced computational capabilities alongside existing scientific knowledge to create meaningful synergies that can drive breakthrough discoveries in drug development. Over the coming year, we expect to announce additional collaborations of this nature, further strengthening Evogene's position in this field and enhancing recognition of our unique technological edge. We believe such partnership will provide the validation and visibility needed to enable broader and more complex collaboration with leading biotech and pharmaceutical companies, opening new growth opportunities for Evogene. We look forward to providing future updates on our collaborative efforts. To summarize Evogene's strategy, we are using ChemPass AI, which is at the core of our offering and our main competitive advantage to drive real-world innovation for two strategic markets. Pharma for the development of small molecule-based drugs, agriculture for the development of crop protection chemicals. To realize this vision, we operate through Pharma division focused on pharmaceutical applications and through our wholly owned subsidiaries, AgPlenus, focused on ag-chemical solutions. Each develops its product either in collaboration with leading global companies or independently. In the near future, we expect the following: Continuing to strengthen and expand ChemPass AI and maintaining our technological edge, signing additional collaboration agreement with biotech and later on with pharma partners for small molecule drug development, and expanding collaboration with existing and new leading ag-chem companies while growing AgPlenus' internal crop protection pipeline. With this, I conclude my part, and I will now hand the call to our CFO, Yaron Eldad, to present the financial results. Yaron Eldad: Thank you, Ofer. The financial results for the first 9 months of 2025 and the capital gain of Lavie Bio, a subsidiary of Evogene, are presented as a single line item in Evogene's consolidated P&L statement for the first 9 months of 2025. Its results are included under the line titled: income or loss from discontinued operations. This accounting treatment reflects the classification of Lavie Bio's operations and its capital gain as discontinued following the sale of the majority of its activities to ICL which was completed in July 2025. During the first half of 2025, Evogene implemented a cost reduction plan, most of which was completed by the end of the second quarter. The impact of these reductions is reflected in the first 9 months results. As of September 30, 2025, Evogene held cash, cash equivalents and short-term bank deposits of approximately $16 million. The consolidated cash usage during the third quarter of 2025, excluding the cash generated from the sale of the majority of Lavie Bio's assets and the sale of MicroBoost AI for Ag to ICL was approximately $3.5 million. Excluding Lavie Bio and Biomica, Evogene and its other subsidiaries used approximately $2.3 million in cash during the third quarter of 2025. Revenues for the 9 months of 2025 were approximately $3.5 million, compared to approximately $4 million on the same period the previous year, reflecting a decrease of approximately $0.5 million. The decrease was primarily driven by lower revenue recognized from AgPlenus' activity, which included onetime payment from Bayer during the first quarter of 2024. And revenues recognized from the collaboration agreement with Corteva, partially offset by an increase in seed sales generated by Casterra during the first quarter of 2025. Revenues for the third quarter of 2025 were approximately $300,000, a decrease compared to approximately $1.7 million in the same period last year. The decrease was mainly due to reduced seed sales generated by Casterra during the third quarter of 2025. Research and development expenses, net of non-refundable grants, for the 9 months of 2025 were approximately $6.2 million, a decrease of approximately $3.6 million compared to $9.8 million in the 9 months of 2024. The decrease was primarily due to reduced R&D expenses in Biomica, and the cessation of Canonic's operation at the beginning of 2024. In the third quarter of 2025, R&D expenses were approximately $1.4 million, down from approximately $3.3 million in the same period of 2024. This decrease is mainly attributed to decreased expenses in Biomica. Sales and marketing expenses for the 9 months of 2025 were approximately $1.2 million, a decrease of approximately $400,000 compared to approximately $1.6 million in the same period last year. The decrease was mainly due to reduction in Evogene, AgPlenus and Biomica personnel costs. Sales and marketing expenses for the third quarter of 2025 were approximately $400,000, reflecting a slight decrease of approximately $100,000 compared to approximately $500,000 in the third quarter of 2024. General and administrative expenses for the 9 months of 2025, decreased to approximately $3.4 million from approximately $5.7 million in the same period last year. This decrease is mainly attributable to expenses recorded during the 9 months period of 2024, and related to a provision for doubtful debt for one of Casterra's seed suppliers as well as transaction costs associated with Evogene's fundraising in August 2024. General and administrative expenses for the third quarter of 2025 decreased to approximately $1.1 million compared to approximately $2.8 million in the same period of the previous year, primarily due to decreased expenses in Casterra and Evogene as mentioned above. Other income of approximately $200,000 was recorded in the first quarter of 2025 as part of the accounting treatment related to a sublease agreement. The decision to cease Canonic's operation in the first half of 2024 resulted in other expenses of approximately $500,000, primarily due to impairment of fixed assets recorded in the first quarter of 2024. The operating loss for the 9 months of 2025 was approximately $8.8 million, a significant decrease from approximately $15.3 million in the same period of the previous year, mainly due to the decreased operating expenses, partially offset by the decreased revenues as mentioned above. The operating loss for the third quarter of 2025 was approximately $2.7 million, a decrease from approximately $5.9 million in the same period of the previous year, primarily due to the decreased operating expenses, partially offset by decreased revenues as mentioned above. Financing income net for the 9 months of 2025 was approximately $744,000 compared to financing expenses net, of $448,000 in the same period of the previous year. The increase in financing income is mainly associated with accounting treatment of pre-funded warrants and warrants issued in August 2024 fundraising. As a result, during the 9 months of 2025, the company recorded financial income, net, related to pre-funded warrants and warrants of approximately $674,000, as compared to financing expenses, net, of approximately $881,000 in the same period of 2024. Financing income net, for the third quarter of 2025 was approximately $12,000, compared to financing expenses net of approximately $821,000 in the same period of the previous year. The increase in financing income is mainly associated with accounting treatment of pre-funded warrants and warrants issued in August '24, fundraising as mentioned above. Income from discontinued operations net, for the 9 months of 2025, was approximately $5.7 million, compared to a loss of approximately $2.2 million in the same period of 2024. For the third quarter of 2025, income from discontinued operations net, was approximately $7.9 million, compared to a loss of approximately $1.5 million in the quarter of the previous year. This amount primarily reflect the financial results of Lavie Bio and expenses related to the development and maintenance of MicroBoost AI for Ag, which are presented as a single-line item in the consolidated statement of profit and loss. Following the sale of the majority of Lavie Bio's assets as well as Evogene's MicroBoost AI for Ag to ICL, the company recognized a gain on sale of approximately $6.4 million which is also included in the income or loss from discontinued operations net, for the 9 months and 3 months period ended September 2025. All prior period amounts have been reclassified to conform to this presentation. The net loss for the 9 months of 2025 was approximately $2.5 million, compared to approximately $18 million in the same period last year. The $15.5 million decrease in net loss was primarily due to decreased operating expenses, income derived from discontinued operations due to the asset sale to ICL net, and increased financial income net, partially offset by reduced revenues. The net income for the third quarter of 2025 was approximately $5.2 million, compared to a net loss of approximately $8.2 million in the same period last year. This improvement was primarily due to income derived from discontinued operations net, due to the asset sale to ICL, decreased operating expenses and increased financing income net, partially offset by reduced revenues net, as mentioned above. Operator? Operator: [Operator Instructions] The first question, has the levels of interest in AI ChemPass increased post the recent NVIDIA and Eli Lilly AI drug discovery partnership. Also, could you please elaborate why Evogene's proprietary database should garner similar interest from others in pharma and technology industries? Ofer Haviv: Thank you for this question. This is Ofer. So I think that the announcement coming from NVIDIA and Eli Lilly definitely increase the interest and the traffic in shares in companies that are related to AI activity for the pharma industry. But I have to say that, I think that we didn't need even this announcement to generate interest. I think this is one of the hottest areas these days in the pharma world. And I think that this is really just the beginning of this new area of activity, and it's here to stay. With respect to Evogene, and I think that we are operating something very unique. I can share with you that we participate in a conference in Europe last month, and we see increased interest in what we are presenting to potential partners. It's -- I think we are already 1 year in this area of presenting our ChemPass technology for the pharma industry, and we see increasing interest in what we are doing. And we shouldn't forget that in the ag industry, we already have a significant collaboration agreement with Bio and Corteva, which you can imagine that they validate our technology before they engage in this collaboration agreement. What is unique about Evogene, from my perspective, this multiparameter approach, it's one. Then the second is that in Evogene, the people that are working in the computational -- ag part -- in computational division, they have a PhD degree in genomics. And this is the type of people that can design for scratch an AI tech-engine, and this is what is called foundation model. And we did it together with the Google team and we succeed to create a very unique dedicated AI engine that from the beginning, it was designed for a small molecule discovery and optimization. This is something that is not existing in other places. And in addition, the way that we are utilizing our technology, while we integrate every piece of information coming from our partners, it also puts us in a very different position compared to other companies because we don't believe in a one-size-fit-all approach, where you're developing the specific technology and you are using it for all the company, the same way. In our case, we modified the technology for each partner according to the specific need of the specific -in a program we are engaged. So yes, it might take a little bit longer, but the performance of what we deliver is expected to be much higher than the approach of one-size-fit-all. So I think that our technology is offering something different. And as time is going by, and we have more and more meetings with potential partners, our belief is getting stronger and stronger that we are coming with something which other company is not offering these days. Operator: The next question, how close are you to unlocking partners with AI ChemPass? Ofer Haviv: So as I mentioned, we see an increase of interest in what we are offering. If the meetings that we participate -- in the conference, we participate in the early years and the beginning of the year, we returned with a small number of potential candidates. Now it's much -- the list of potential candidates has increased significantly. And based on this, I believe that we hopefully will start to announce on more additional collaboration agreement with biotech companies at beginning of next year. And we'll start to hear more and more on new collaborations. And hopefully, with -- starting with small biotech companies, maybe even some -- or maybe academic institution, but later on, it will be midsized biotech companies. And in our target at the end of the day is also to engage with pharma company with a significant collaboration agreement. But this will take a little bit more time. But as I said, small biotech companies will start to -- hopefully to be able to announce such collaboration at the beginning of next year. Operator: The next question. Last quarter, you spoke to doing more IR to drive awareness to the company, but very little seems to be done. What's the IR strategy going forward? And can we rely on it being implemented in short order? Ofer Haviv: It's an interesting question because we just now discuss here this -- our approach in presenting the company strategy in this analyst call was the right one because it's taken a little bit longer than what we expected. But I think that -- but we all agree that the answer to this question is yes. And how is connected to the question that was just now raised. I think from this analyst call, now we present the first time, our -- the new presentation in an analyst call, where we are describing Evogene in the new structure, focusing on ChemPass AI, the utilization of this technology in the ag and in the pharma and the collaboration that we engaged. And from here on, this will be the main messaging the company would like to share with investors. Yes, we, of course, we will continue to talk about our subsidiary, Casterra, but the main focus will be on what I just now described. And we are now -- and we are planning to initiate roadshows and participate in conferences next year, not necessarily just IR meeting with investors, but also meeting with -- in professional event. And I think that starting from -- actually from -- even from December, we are planning that Evogene and the new story of Evogene will be out there. And hopefully, we'll start to see more and more events, IR events that we will be involved. Operator: The next question, could you highlight upcoming catalysts over the coming 6 to 12 months? Specifically, when could we expect the first partnership? Ofer Haviv: So I think, I partially addressed this question. From my perspective, we can envision three type of press releases related to the Evogene new strategy, new collaborations in the Pharma division, meaning that additional biotech companies will use our technology to discover and optimize small molecules for the specific targets. Then expansion of the existing collaboration or new collaboration in the Ag division. I'm talking here, of course, about AgPlenus. And third, and this is something that I think is quite important for us to mention, exactly as we engage with Google in building an important piece in our tech engine, I'm expecting and hoping that there will be additional announcements like this one with companies like Google, the same size of Google or also maybe with Google. And I think that our belief is that we definitely should accelerate the development of ChemPass AI through collaboration with company like Google, in order to keep our competitive advantage in the future as well. Operator: The next question. What type of revenue level can we expect for castor seeds in Q4 and for 2026? Ofer Haviv: We can't disclose this information. What I can say is that about Casterra, they are now talking with companies, strategic companies in the field of castor oil, companies that can really have a significant effect on the company revenue in the future. When this discussion will materialize, of course, we will share this information with our investors. But I think this is a good news that even in the past, we were talking about specifically one partner that we already disclosed its name, ENI. But I think that today, we believe that there is additional opportunity for companies that can have the same effect on Casterra that we are now talking with them. And there is more than one like this. So when this discussion will materialize into agreement, of course, we'll be more than happy to share this information with our investors. Operator: The next question. How excited are you about AI ChemPass compared to all your other times at Evogene? Ofer Haviv: I think that this is a very interesting question. I think that for many, many years, Evogene was focusing mainly on the ag sector. And I think that we succeed to go through some significant technology breakthrough. But from different reasons, and I don't want to get into it, the ag sector don't give you a financial trend to such an achievement from different reasons. I think the pharma, the situation is different, and I think that, first, the fact that we are focusing on the pharma industry, yes, we are still in the ag industry with respect to AgPlenus, but our main focus is going to be on the pharma industry. So I think this is the right decision for Evogene. In addition, the type of people that are working here in Evogene is people that hold a PhD degree. And this is very important, when you're talking about AI, because if you really want to be a player in AI, with all the respect to first degree or second degree, it's not enough. You need to have a much broader understanding in computational science in order to be -- to act as a player in AI industry. So I truly believe that we have the right people for the right challenge. And again, based on initial validation we conduct here in Evogene, based on the discussion we conduct now in the last bio conference. I would like to say the following, if we will succeed to mimic the same success Evogene demonstrate in the ag industry. If we succeed to do so in the pharma industry, our company will be something that everybody will be proud to participate in our journey. We have been there. We succeed to work with all the world -- all the big companies in the pharma industry -- in the Ag industry. I hope that we'll be able to do exactly the same, but this time, the financial rewards will come after the efforts that we are going to invest. Operator: There are no further questions at this time. Mr. Haviv, would you like to make a concluding statement? Ofer Haviv: Yes, I would like to thank everybody in participating in this analyst call. For me, it was a very unique presentation, where we present for the first time, the new Evogene story, with the new presentation. And I really hope that in the next analyst call, we will have much more to share with you, along the guidelines that I just now described. Operator: Thank you. This concludes Evogene's Second -- Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Bank Hapoalim Third Quarter of 2025 Results Conference Call. For your convenience, this call will be accompanied by a PowerPoint presentation. May we suggest if you have not yet done so, that you access the presentation on the bank's website, www.bankhapoalim.com by clicking on Financial Information on the homepage and then click on the Third Quarter 2025 Report Presentation. [Operator Instructions] As a reminder, this conference is being recorded, November 20, 2025. With us on the line today are Mr. Ram Gev, CFO; Mr. Victor Bahar, Chief Economist; and Ms. Tamar Koblenz, Head of Investor Relations. I would like to remind everyone that forward-looking statements for the respected company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risk and product and technology development and the effect of the company's accounting policies as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. Mr. Gev, would you like to begin? Ram Gev: Good afternoon to you all, and thank you for joining us today. I'm happy to review the bank's 2025 third quarter results with the highest in the sector quarterly and cumulative net profit. Let's start with Slide 3. This morning, we reported a 16.1% return on equity for the 9 months with net profit of ILS 7.3 billion, both excluding ILS 380 million income from the insurance reimbursement, 8.1% credit growth year-to-date and a profit distribution of 50% of third quarter net profit through cash dividends and share buybacks. These metrics demonstrate that we continue to be well on track to meet our 2025 financial targets. In fact, we are currently exceeding the targets, resulted from higher-than-expected growth and a more favorable macro environment than the market forecasted at the time of the target publication. Not less important is the fact that these results were achieved while we continue to strengthen our balance sheet, build buffers and maintain the high quality of the credit book. The CET1 capital ratio is 12.05%. The allowance ratio is 1.74%. LCR is comfortably above target at 124% and the NPL ratio has declined further to 0.49%. On Slide 4, we see the development of profitability over time. On a quarterly basis, net profit was ILS 2.8 billion and return on equity is 17.6%. Excluding the aforementioned income from insurance, net profit was ILS 2.4 billion and return on equity is 15.2%. EPS came in at ILS 2.1 or ILS 1.81 on an adjusted basis. Next, let's talk about our credit book. Our credit portfolio increased 11.4% in the last 12 months, of which 8.1% since the beginning of the year and 2.2% in the last quarter. Growth was recorded across all segments and in various economic sectors. This is a reflection of our ability as a leading bank to translate the strength of the Israeli economy into growth in the bank's activity. Slide 7 presents our financing income. Income from regular financing activity grew moderately this quarter compared to the previous quarter due to the growth in activity, which was mitigated by the slightly lower CPI. Non-regular financing activities saw a decrease due to, among other things, to customer benefits granted in line with the Bank of Israel voluntary program, which took effect on April 1. In the third quarter, the expense for benefits recorded in financing income was higher than in the previous quarter due to the bank's initiative to grant its customers 2 shares of the bank as part of the benefit program. Our margins stayed strong and grew year-on-year. The financial margin for the first 9 months of 2025 increased to 2.77% versus 2.71% last year. In fact, Bank Hapoalim has the highest financial margin in the sector and is the only one to present growth in margins in 2025. On fees, the positive trend continues across all types of fees as our business activity continues to expand. The slight reduction in fees versus last quarter is attributed to onetime income from international credit card organizations booked in the second quarter. The significant growth in fees is well demonstrated in the 11.4% increase during the 9 months period. Moving to present our disciplined cost management. Operating and other expenses are lower versus all comparable periods. The growth in income, coupled with the decline in costs as a result of cost restrained efforts brought the cost/income ratio to a very low level of 30.6% for the quarter and 32.7% excluding the onetime income. The cost/income ratio for the 9 months period is impressive as well, 32.7% as reported and 33.4% adjusted. Moving on to discuss provision for credit losses and the quality of our book on Slide 10 and 11. Provision for credit losses amounted to ILS 347 million or 0.29% of our credit book, driven completely by the collective allowance and net automatic charge-offs. The increase in the collective allowance reflects our prudent approach and is due to the growth of the credit portfolio and the continued uncertainty in the economic environment. On credit quality metrics, on the left-hand side, we see the NPLs continue to grow, now at 0.49%, while the NPL coverage ratio continues to rise, now more than triple the NPLs as we continue to increase the collective allowance. On the right-hand side, the allowance to loan ratio remained high at 1.74%. Over 95% of the total allowance is collective. Our deposit base continued to grow 3.6% in the last 12 months. Retail deposits decreased in the last year, but still represent 54% of total deposits. Liquidity ratios, LCR and NSFR continue to be well above the minimum requirement. Now let's move to present our capital position, which continues to benefit from strong organic generation capabilities, 11.5% in the last 12 months and the CET1 capital ratio rose to 12.05%. I'm moving to Slide 14. Total distribution in the quarter continues to be 50% of net profit, 40% as dividend and 10% in share buybacks. Total profit distributed and declared is ILS 1.38 billion in respect of the third quarter, of which ILS 1.1 billion of cash dividend or ILS 0.84 per share. After successfully completing our previous ILS 1 billion share buyback, the Board approved a new plan for a similar amount starting today. Moving to Slide 15 for a brief update on Bit, our unique innovative asset. The number of active customers continues to rise, now reaching 3.45 million users with an average monthly P2P transactions volume of ILS 2.4 billion. Recently, we introduced an exciting new offering, the ability to create savings pockets within the app, allowing customers to deposit up to ILS 20,000 and benefit from 4% interest. Before we review the macroeconomic slides and sum up the call, the important reminder on our financial targets for 2025 and 2026 is on Slide 16. The key assumptions for these targets are detailed in the 2024 financial report. I'm moving to Slide 17 on the macroeconomic environment. We have seen a substantial increase in economic activity in the third quarter with GDP growing at an annualized rate of 12.4%. Private consumption, exports and investments all grew at a rapid pace, more than compensating for the trough caused by the war with Iran in the second quarter. Looking ahead, we still believe that growth will remain high in the coming year, driven primarily by an increase in investments in housing, the rehabilitation of frontier villages and infrastructure. As the war ended, the risk premium declined to levels that prevailed in the first half of 2023 and the shekel appreciated sharply. Inflation has decreased to a year-on-year rate of 2.5% and markets are now pricing less than 2% inflation over the next 12 months. Under these circumstances, we believe that interest rate cuts are imminent, even though medium- and long-term inflation concerns persist as the labor market remains tight and wage inflation is high. I'm moving to Slide 18 to summarize. We delivered strong 9 months results, well on track to meeting our financial targets. ROE of 17.6% in the third quarter or 15.2% adjusted for the income from insurance, cost/income ratio of 30.6% and 32.7% adjusted. Financing income and margins continue to be strong, driven by the growth in activity and assets rollover. The strong growth in credit was broad-based across segments and economic sectors. Credit quality continues to be strong with NPL ratio of only 0.49% and allowance to NPL ratio of 313%. Our capital is organically and substantially growing. This quarter, we declared a 50% profit distribution, including the first tranche of a new share buyback plan. With that said, let's open the call for your questions. Back to you, operator. Operator: [Operator Instructions] The first question is from Chris Reimer. Chris Reimer: Can you hear me okay? Operator: Yes, we can hear you. Chris Reimer: One on regulatory risk. There has been some headlines about increasing tax rate on banks and separately by the Finance Minister to add a potential tax for mortgages subsidation. Does the bank have any take on these ideas? Ram Gev: Yes. Chris, thank you for the question. We see from time to time some regulatory initiatives. Some of them are continuing to further legislation, but a lot of them are not continuing. We look and when we analyze them, part of them are pretty populistic. You mentioned the one about subsidizing mortgages, et cetera. Those are initiatives in fairly early stages. We are reviewing and monitoring it. But I think what's most important is the position of the Bank of Israel that post these suggestions. So I think the track record that show that populistic initiative didn't go further to actual laws, that's the important element. And we think it will be reasonable to assume it will be the same with that. Obviously, there are some other legislation that may continue and be in the form of law, but that's the reason why we are reviewing every, let's say, initiative. Chris Reimer: Got it. Got it. That's helpful to know. Considering -- just looking at operating expenses, considering your upcoming move of the headquarters, how should we be looking at expenses going into next year? Ram Gev: Okay. You mentioned our project on centralizing our headquarters. The project continues well. And actually, we are about to finalize the project and start moving about a year from now. So it mainly affect operating costs from 2027 and on. Another major effect that it will have is the ability to sell our current buildings, some of them in major central location and create some material capital gains. But that will be in 2027 and on as well. Operator: The next question is from Priya Rathod. Priya Rathod: Just 2 from me. So the first is on capital. I saw that you increased your internal capital target to 11%. Could you just give a bit more color on the reasoning behind increasing this? And did this have any influence on your decision to stick with the 50% payout ratio? Because obviously, we've seen this quarter that a couple of your peers have raised the payout ratio to 75%. So any color on that would be really useful. Secondly is on your coverage ratio. You're like in excess of 300%. What would you need to see or what hurdles would you need to overcome to potentially release some of those provisions going forward? Ram Gev: Priya, thank you for the questions. As you have seen, the entire banking sector actually has updated its internal capital targets upon approval of the third quarter financial statements. This follows a periodic dialogue that the supervisor of banks conduct with each of the banks. And this year, in addition to the usual consideration and an element of the current economic and geopolitical environment, which in the view of the Bank of Israel still contains a degree of uncertainty, this element was also taken into account. And in light of these factors as well as the surplus capital within the system, the banks have revised their internal targets. Bank Hapoalim's Board of Directors has decided, like you mentioned, to set the minimum internal capital target at 11%. This is the outcome of the ongoing dialogue with each bank, taking into consideration the specific characteristics and what I mentioned about the geopolitical uncertainty. Obviously, the Board of Directors, while deciding about the distribution took into account the internal target. And the Board of Directors decided that given the current surpluses, the desired capital buffers and our significant growth targets, maintaining a 50% distribution rate is the right approach going forward. So that's about capital distribution. About collective allowance, and you mentioned right, we have very high-quality loan portfolio. And it's reflected in all aspects, very low NPLs, very low write-offs level and nearly 0 for the quarter, for example, individual provision. And indeed, we have conservative approach, and we accumulated buffers during the war. And actually, this quarter as well, we continued building the buffers. So we have the highest buffers in the industry. You mentioned allowance to credit ratio, we have 1.74% ratio. It's 20 basis points above the second one in the industry. And the reason is very simple behind our approach. We are indeed in a ceasefire situation, and we are optimistic, very optimistic about the Israeli economy, but uncertainty is still there. And we think that it's too early to release or reverse the buffers like other banks did. And having those buffers allowing us to be best prepared in the sector for 2026 in each scenario. If the pessimistic scenario will happen, we are best immunized for that. And if the optimistic scenario will happen, then we are prepared for 2026 better than others as well. I think that the entry to 2026, everyone will have more information and more certainty about the stability of the ceasefire, about the stability of the lower level of risk in other fronts and the growth of the Israel economy. So we think that we will benefit from our approach. Operator: The next question, can you please give us some color on your call decision approach to the Tier seconds callable next year and how you plan to approach the refinancing local versus international markets? Ram Gev: Yes. Thank you for the question. As for the Tier 2 CoCo bonds dollar, obviously, we can't say now what we will do. But I think we can learn -- you can learn from our track record. Usually, we use this call option, and we understand the investor expectations and that you need very unique circumstances in order not to use this call option. But the best evidence for how we look at that is our track record. Operator: [Operator Instructions] The next question is a follow-up a question from Priya Rathod. Priya Rathod: Just a quick on your deposits. I saw this quarter that the deposits from private individuals fell year-on-year and also on a quarterly basis. What are the drivers behind that fall this quarter, please? Ram Gev: Okay. Thank you, Priya. You're talking about money market funds and change in deposits. This reflects customer awareness to different alternative to investments and to deposits. We are happy with the awareness of the customers, and this reflects the -- what they choose how to manage their funds. From our perspective, we have very good levels of liquidity, and we are balancing growth in that area with profitability. So the very high flexibility we have, for example, you can look at the funding rate from capital markets is relatively low for Bank Hapoalim. So we rely on deposits, and that's enabled us to be flexible, keep disciplined pricing and manage the growth. Operator: There are no further questions at this time. This concludes the Bank Hapoalim Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
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: Ladies and gentlemen, good day, and welcome to ZKH Group Limited Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jin Li, Head of Investor Relations. Please go ahead. Jin Li: Good morning, and welcome to our third quarter earnings conference call. With me are Mr. Eric Chen, our Founder, Chairman and CEO; and Max Lai, our CFO. Today's discussion may include forward-looking statements. Related factors are described in our today's press release. And we will also discuss certain non-GAAP financial measures for comparison purpose only. Please refer to the earnings release for definitions of these measures and a reconciliation of GAAP to non-GAAP results. With that, I will turn the call over to Eric. Eric, please go ahead. Long Chen: [Interpreted] Hello, everyone. Thank you for joining the Third Quarter 2025 Earnings Conference Call for ZKH Group. In the third quarter, thanks to our team's concerted efforts, we are pleased to see signs of stabilization and recovery in our business following nearly four quarters of proactive business optimization and adjustment. In the third quarter, the number of transacting customers exceeded 70,000, reaching a new quarterly high and strengthening the foundation for future growth. Both GMV and the number of transacting customers among industry key accounts and regional SME customers continue to grow year-over-year. The company's gross margin continued its upward trend. As a result, our third quarter GMV, revenue and gross profit largely recovered to their prior year levels. From an order flow perspective, average weekday order value rose from approximately RMB 37 million in July to approximately RMB 52 million November to date, representing an improvement of over 40%. Compared to the previous year, this level has also grown to about -- grown by about 20%. We expect this positive momentum in average weekday order value to continue through the remainder of the year. Taken together, these advancements underscore that we are firmly back on a growth trajectory. In the third quarter, our total operating expenses were down by 14% year-over-year to approximately RMB 420 million. Overall, our profitability meaningfully improved during the quarter. Operating loss, net loss and adjusted net loss all narrowed significantly. Our adjusted net loss was down by approximately 78% year-over-year to just RMB 14 million. Our adjusted net loss margin also improved to 0.6%. Moreover, we once again achieved monthly breakeven in September, and we are on track to deliver quarterly profitability in the fourth quarter. In terms of cash flow, we generated net cash of approximately RMB 100 million from operating activities for the third quarter, primarily driven by the substantial narrowing of losses and continued optimization of working capital management, including accounts receivable and accounts payable. Our business development is underpinned by the ongoing advancement, refinement, and application of our product capabilities in AI technologies. In the third quarter, we continued to make strides in both areas, propelling business growth, while enhancing operational efficiency. As a professional one-stop MRO procurement service platform, the breadth and depth of our product offerings are fundamental to our growth. We strategically operate 32 product lines, each with a tailored approach. Some product lines are highly specialized with an emphasis on curation, while others prioritize expanding product variety and supplier base. In the third quarter, we added over 2.3 million sellable SKUs across categories such as chemical reagents, machining and transmission, bringing our total sellable SKUs to more than 19 million. We also onboarded over 1,200 new suppliers, primarily OEMs, further enriching our product offerings and solidifying our core advantage as a one-stop procurement platform. Our private label products are a key strategic initiative to provide our customers with high value-for-money offerings, enhancing our overall product competitiveness. In the third quarter, we launched over 600 new private label SKUs, spanning categories such as security-related products, personal protective equipment, tools, and material handling and storage products. The GMV of our private label products maintained double-digit growth, outpacing the company's overall growth rate. Looking ahead, we plan to steadily increase our private label products contribution to total GMV from around 8% today to approximately 30%. We will continue to focus on professional and industrial-grade MRO categories, that are -- that is spare parts, chemicals and manufacturing parts. These areas serve as key differentiators and value drivers that set us apart from our competitors. For product lines where we have distinct advantages, such as our chemical product line of industrial lubricants and adhesives, we have developed a robust and reliable supply chain comprised of 13 specialized chemical warehouses, three of which are dedicated to hazardous materials and an in-house fleet for distribution and delivery. We will continue to enhance our integrated capabilities from product selection to last-mile delivery and on-site service, further reinforcing our competitive moat. In the third quarter, our chemical product line achieved double-digit year-over-year GMV growth. In the AI realm, we are continuing to advance our AI infrastructure across both the data and application layers, focusing on intelligent business processes and data governance to systematically improve our sales and operational efficiency. We have already deeply integrated AI across various business scenarios including material cataloging and management, product recommendation, sales conversion, data standardization and workflow automation. AI has emerged as an increasingly important driver of cost reduction, efficiency improvement, business growth, R&D productivity and data asset enhancement. At the opening of the 8th China International Import Expo in November, we officially launched Expert Linglong, our proprietary AI large model and intelligent agent suite, specifically designed and developed for the MRO industry vertical. Expert Linglong marked a significant milestone for ZKH in empowering the entire MRO supply chain with AI. Our AI Smart Workbench, one of Expert Linglong's core applications enables automation across 45 business process scenarios, such as creating orders or issuing invoices with a single prompt. It has significantly reduced cross-system, manual operations and enhanced process efficiency, platform-wide synergy and workforce productivity. Measured by order volume processed per employee, in the third quarter, our customer service productivity increased by 42% year-over-year, while procurement productivity increased by 52%. Moreover, AI has become the key engine for capturing customer needs and improving supply-demand matching efficiency. Our ProductRecom Agent continues to improve product recommendation accuracy generating over RMB 100 million in new incremental sales revenue since its launch in the fourth quarter of 2024 through the end of the third quarter this year. Our AI tools also excel in complex business scenarios. For example, processing a 300-line customer inquiry traditionally takes 3 hours. By combining AI with expert experience, this task can now be completed in 30 seconds with 98% accuracy. Since the start of the year, we have utilized AI to optimize our product classification models and system rules boosting the platform's automated product classification rate from 11% to 31%. This not only reduces manual intervention, but also increases product onboarding efficiency and improves the accuracy of matching customer needs. Moving forward, we will continue to develop our self-service AI-driven procurement agent to speed up responses and further elevate customer experience. Our Expert Linglong large model is also empowering upgrades across our R&D system. Our R&D teams have widely adopted AI coding tools with over 15% of our code now being generated by AI, significantly improving development efficiency. Looking ahead, the Expert Linglong large model will remain at the core of our AI development, driving deeper technological empowerment across our product, supply chain and last-mile delivery capabilities. We believe that AI is more than the tool. It is a key force reshaping the MRO supply chain ecosystem. In summary, the third quarter was highly productive. We drove steady progress in all of our business segments, in line with our strategic road map, building stronger growth momentum across the board. Looking ahead, we remain committed to advancing our development goals of product excellence, AI-driven growth and profitability improvement, delivering long-term value to our customers and shareholders. Now I will turn the call over to our CFO, Max Lai, to present our financial results. Thank you, everyone. Chun Chiu Lai: Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I'm pleased to walk you through our robust financial performance, driven by revenue recovery, enhanced profitability metrics and possible operating cash flow. Let me begin with the top line. Both GMV and revenues returned to approximately last year's levels, with GMV down 2.3% year-over-year to RMB 2.62 billion and total revenues up 2.1% to RMB 2.33 billion. This performance indicates that the headwinds from our business optimization initiatives has largely cycled through, providing greater visibility for renewed top line growth in the quarters ahead. Notably, the number of transacting customers exceed 70,000 reaching a new quarterly high and private label GMV grew 16.7% year-over-year, outpacing the overall business and reaching 8.2% of total GMV. Turning to business quality. Our gross margin remained healthy at 16.8% compared with 17% a year ago. On a GMV basis, our gross margin continued to improve, expanding by 41.5 basis points year-over-year to 14.9%. Specifically, gross margin for our product sales 1P model increased by 11.2 basis points to 16.2 percentage on ZKH Platform and 223.8 basis points to 7.7% on the GBP Platform. Additionally, we take our take rate of Marketplace model rose by 47.5 basis points to 13.1% year-over-year. These gains were mainly driven by our optimized procurement costs and a high contribution from our private label products, which typically deliver high margins. On operational efficiency, our disciplined focus on streamlining the costs and enhancing productivity continue to yield tangible results. Total operating expenses decreased 14.4% year-over-year to RMB 493.8 million, representing 18.1% of net revenues, a significant improvement from 21.6% in the prior year period. Breaking this down, fulfillment expenses were RMB 90.4 million down 9.8% year-over-year, reflecting lower employee benefits and warehouse rental costs. Sales and marketing expenses declined 13.2% to RMB 145.9 million primarily driven by lower employee benefits and travel expenses. R&D expenses decreased 19% to RMB 40.3 million mainly attributable to lower employee benefits. And general and administration expenses were RMB 145.8 million, down 17% year-over-year, driven by lower employee benefits expenses and lower credit loss allowances. Efficiency gains underpinned margin improvements and a substantial reduction in losses. Operating loss narrowed 69.3% to RMB 32.3 million, with margin improving to negative 1.4% from negative 4.6%. Non-GAAP EBITDA improved to a loss of RMB 8.5 million from RMB 62.8 million, with margin improving to negative 0.4% from negative 2.8%. Adjusted net loss narrowed to RMB 14.1 million from RMB 66.2 million and margin improved to negative 0.6% from negative 2.9%. As of 30 September 2025, our cash position remained strong at RMB 1.9 billion. Net cash generated from operating activity was RMB 105.5 million compared with net cash used in operating activity of RMB 160.5 million in the same period of 2024. To conclude, our first quarter results demonstrate clear signs of stabilization and recovery, underpinned by a more balanced customer mix, a higher-margin product portfolio driven by private label growth and a structural efficiency gain from AI-enabled process optimization and strengthened supply chain capabilities. Looking ahead, we expect to capitalize on this momentum through disciplined investment in AI and data capabilities, continuous enhancement of our product and supply chain capabilities and focused execution while advancing our international expansion. We remain focused on top line growth, further margin expansion and loss reduction on our path towards sustainable profitability. Thank you. And I would like to now open the call for Q&A. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from Xiaodan Zhang with CICC. Xiaodan Zhang: [Foreign Language] So, according to publicly available information, JD Industrial is preparing for an IPO in Hong Kong. So could management share your views on the competitive landscape of MRO market in China? Long Chen: [Interpreted] So I believe this JD MRO looking to get listed is a very good thing for ZKH and for the industry at large. Because it's very good in terms of spreading this idea of doing one stop purchasing on e-commerce platforms. And it's definitely an opportunity that our times have afforded us. China being the #1 manufacturer in the world is actually big enough for leading MRO companies to exist. And these MRO companies cannot only serve Chinese manufacturers, but also benefit global ones. And in the MRO space, we have seen different kinds of players, including those players traditionally engaged in supplying office supplies. As ZKH, we started out in serving and selling chemicals and industrial-grade MROs. So, we are really specialized -- we specialize in selling spare parts, chemicals and manufactured goods. And we have built an innovation center in Taichung. This goes to show how we are committed to be deeply involved and integrating our services. And so, in terms of R&D, testing, product selection and comparison, and we would like to use the specialty of ours to help our customers better. We have also built our own warehouses and last-mile delivery capabilities. So, this supply chain capability can not only serve the whole of China, but also the rest of the world. And in terms of the competitive landscape, I would say, over the years, things have really stabilized and as leaders in the space, our advantages are becoming increasingly marked. And the fact that we are able to have acquired lots and lots of SMEs goes to show that there has been a great improvement to our supply chain capabilities. So basically, at the end of the day, we are committed and focused on beefing up and enhancing our supply chain capabilities in the MRO space. That was my answer to your question. Thank you. Operator: Are you ready for your next question? The next question comes from Leo Chiang with Deutsche Bank. Leo Chiang: [Foreign Language] Let me translate myself. Management just mentioned in the prepared remarks that the company will commit to advancing development goals of profitability improvement. What are the reasons the company has not been profitable so far? And how does the company consider and balance between profitability and the mid- to long-term development investment? Long Chen: [Interpreted] So, we got lots of investment and funding along our journey. As a start-up -- start-ups have different phases, right? In early days, we were more focused on the health of our cash flow. So, more of the funds were used and spent on infrastructure build-out and the build-out of our core capabilities and the competencies. So, we were suffering losses primarily due to these investments that we made in order to beef up our core competencies. But I believe we are entering a new phase now. This is a phase marked by profitability, and we're going to use some of the profits and spend the profits to further build our core competencies. Now that we are profitable, one thing that is clear is we are having an increasingly strong operating leverage. Specifically, our expense ratio keeps dropping, while our fulfillment gross margin keeps rising. And our profitability is getting better. And this is very much in line with our original plan for our development. In terms of specific profit and losses, '21, we made a loss of RMB 910 million due to the loss and loss of investments that we made. 2022, we made a loss of RMB 630 million. '23 losses were RMB 290 million. '24, RMB 160 million. '25, we saw losses greatly narrowed and in Q4, we are very likely to turn a profit. So we are pretty certain that our GMV growth year-over-year could reach 15% to 20% per year going forward. In terms of how we're going to go about striking a balance between profitability and long-term growth, I think, it comes down a lot to control of expenses. So, we will continue to improve our efficiency and control our expenses as well as enhancing our capabilities of customer acquisition. We will also keep investing in our core competencies, while ensuring profitability. So these core competencies include R&D when it comes to AI, R&D when it comes to product capabilities and our overseas business expansion. So, we will not only make sure that our profitability is sustainable, but also we will enhance it while ensuring long-term growth. Operator: The next question comes from Ruchen Tang with CITIC. Ruchen Tang: [Foreign Language] So, let me quickly translate the question first. So, looking for -- looking out on your latest developments and the future plans for overseas expansion, could you talk us a little bit about how you think about developing your business in the States versus serving Chinese companies as they go abroad? Long Chen: [Interpreted] Overall, when it comes to going abroad, there's two parts. One is serving Chinese companies as they go abroad as there's lots and lots of Chinese companies that are currently taking their business globally. Also, we're going to develop business in the U.S. Mainland and Europe, we're actually already actively doing that. But after a period of testing things out, we have made some adjustments as well. So firstly, we still highly value Chinese companies going abroad. And because investments there on our part are pretty limited, and the certainty of this business is very high. So in Q3, for example, we have already finished the MRO purchasing and delivery for some of our customers for quite a few Chinese customers rather in Thailand, Malaysia, Indonesia and Mexico, for their local factories. And we have finished things like product certification, customers' clearance, et cetera. As for our business in the U.S., we believe that's going to be a mid- to long-term play. So because it's going to take longer time in terms of product prep getting to market, so we decided to control -- we have decided to control our investment pace and cadence in the U.S. And overall, we believe our overseas business will achieve breakeven in the whole of 2026. So that was actually all of my answer to this question. Operator: And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. Chun Chiu Lai: Thank you once again for joining us today. You can find the webcast of today's call on ir.zkh.com. If you have any further questions, please feel free to contact us. Our contact information can be found in today's press release. Thank you, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Friederike Thyssen: Good morning, and welcome to NFON's Third Quarter and 9 Months 2025 Earnings Call. Thank you for taking the time to join us today. My name is Friederike Thyssen, Vice President, Investor Relations and Sustainability at NFON, and I'll be your host for this session, which we are holding together with NuWays. Today's presentation will be led by our management team: Andreas Wesselmann, our CEO; and Alexander Beck, our CFO. They will take you through the key operationals, the strategic and financial development of the first 9 months 2025. As usual, we published our quarterly financial statement and our full investor presentation earlier this morning. You can find both, as well as the corporate news, on our NFON website under Investor Relations. The presentation will follow a clear structure. We'll start with the business highlights, then move on to the financial review, our outlook and guidance. And finally, we start the Q&A session. Please note that questions can only be asked live during the Q&A at the end of the presentation. [Operator Instructions] Thank you for understanding, and thank you in advance for your contribution. And now I will hand over to Andreas Wesselmann to start the presentation. Over to you, Andreas. Andreas Wesselmann: Yes. Thank you, Friederike. It's a pleasure to be here today for my first quarterly call as CEO of NFON. Many of you know me from my previous role as CTO, where I was already deeply involved in defining the NFON Next 2027 strategy. And as a consequence, stepping into the CEO role doesn't mean changing direction, but rather expanding the perspective, bringing strategy, product technology and market even closer together to turn the ideas into tangible results faster and more consistently. So my focus is clear. We want to accelerate NFON's transformation as an innovative growth company, driven by customer value and operational excellence and leveraging the latest AI technology. The course we have set with NFON Next 2027 is the right one. And our task now is to execute it with speed and discipline. And with that, I'm happy to introduce my colleague and our new CFO, Alexander Beck. Rather than me describing his background, I think he can do that best himself. Alexander? Alexander Beck: Yes. Thank you, Andreas. Also from my side, I'm very happy to join today's call for the first time as part of the NFON team. In the first 7 weeks since I have joined, I have had the chance to get to know people, products and the culture of the company. And what impressed me most is the energy and the commitment across the organization. This is really a genuine drive to move things forward together. A few words about myself. I bring around 20 years of international experience across several sectors like retail, like fast-moving consumer goods like software and also technology. In previous roles, I have led and developed finance organizations and supported businesses during phases of international expansion, growth, profitable growth and also transformational restructuring. From a financial perspective, I see NFON in a solid position. Profitability has been restored. Cash flow is positive and our financial base is stable. The strategy is clear, well communicated and is being consistently implemented across the company. What I particularly value is how strongly the teams identify with our strategic priorities and how focused the execution is. At the same time, we are aware of the challenges. Revenue growth has been slower than we would like and the commercialization of new products take time. But the direction is right and the fundamentals are strong. So overall, I'm very pleased to be here and I see a company that combines the right mindset, the right technology and the right talent to build sustainable value in the years ahead. With this, for the moment, back to you, Andreas. Andreas Wesselmann: Yes. Thank you, Alexander. Now let's take a closer look at the key highlights of the last month. So the last month showed tangible progress and growing momentum. We strengthened our market presence, we refined our brand positioning and further shaped NFON's perception as an innovative leader in intelligent communication. Let's start with Bits & Pretzels, one of Europe's leading founders' festival where NFON participated for the first time. We presented the company with a clear, technology-driven identity that reflects who we are today, an innovative growth company, combining communication expertise with AI-driven intelligence. More than 250 people joined our expert sessions and over 90 tech leaders took part in our CIO Summit talk, where we explored and explained how AI can make communication more human, efficient and secure. Another highlight was our executive dinner in Munich, held under the theme, From Europe with Intelligence. This event brought together decision-makers from business, technology and media to discuss how AI is reshaping communication and leadership. It also marked the live debut of Nia FrontDesk, our newest AI solution, which was received with strong interest and very positive feedback from customers, partners and analysts. It captured exactly what NFON stands for, turning innovation into real-world value. And finally, we received strong industry recognition. NFON was named Manufacturer of the Year and our EVP AI & Innovation, Jana Richter, was recognized as IT Woman of the Year. These awards underline our credibility as a European AI-driven technology company, one that combines innovation with responsibility, diversity and technical excellence. Altogether, these milestones show that we are executing our strategy with focus and consistency. Under NFON Next 2027, we are positioning NFON as an innovative growth company that drives AI-powered business communication from Europe for Europe, combining innovation, customer value and efficiency. And this brings us directly to one of the most exciting examples of this development. The NFON intelligent assistant, Nia FrontDesk. Nia FrontDesk is a practical intelligent assistant for reception and service areas that help organizations manage incoming calls, messages, visitor interactions, et cetera, more efficiently. The solution automates routine tasks such as call routing, scheduling and information requests, while always allowing a seamless handover to human colleagues with personal contact, if it's needed. What makes Nia FrontDesk stand out is its combination of NFON's communication platform with conversational AI. It's fully integrated, is GDPR-compliant and built on European infrastructure, which is an increasingly important differentiator for many of our customers who value digital sovereignty and data protection. The first reactions from partners and customers have been very positive. We see particular interest from sectors such as health care, education and public administration, areas with high service intensity and recurring communication needs. These organizations face increasing pressure to improve efficiency, while maintaining personal service quality, and Nia FrontDesk exactly addresses this. Its ease of use and measurable time savings help improve service availability and customer experience, delivering a clear return on investment. From a business perspective, Nia FrontDesk expands our portfolio beyond traditional voice services. It opens new cross and upselling opportunities within our installed base and helps us to enter new customer segments, particularly in sectors with high service intensity. Nia FrontDesk is about customer satisfaction and increased productivity. It's about making communication smarter, more human and more efficient. It shows how innovation, when done right, can improve customer experience, employee satisfaction and business performance. For us, Nia FrontDesk is more than a product launch. It's a proof point of our innovation strategy. And over the coming quarters, we will continue to expand the AI solution portfolio as we go, always focused on real customer benefit and profitable growth. To walk you through the details of our Q3 financial performance, I'll hand over to Alexander. Alexander Beck: Yes. Thank you, Andreas. So let's turn to the key financial figures for the first 9 months of 2025. In this period, we achieved a solid top line growth and stable profitability despite a continued cautious market environment and investment climate, particularly among small and medium-sized enterprises. Our total revenue increased by 2.7% to EUR 66 million, while adjusted EBITDA amounted to EUR 8.7 million, 3.5% below the prior year level. This performance shows that we are able to maintain profitability while continuing to invest in our strategic priorities, including AI and product innovation, including partner enablement and also sales effectiveness. At the same time, we remain realistic about the challenges. Revenue growth in the core SME business has been slower than anticipated, reflecting both uncertainty and extended decision cycles. The commercialization of new products also takes time, which is normal at this stage. Overall, the fundamentals are solid. Our cash position remains strong, and our strategy is clear. I'm confident that NFON has the right mindset, the right technology and the right team to translate these foundations into sustainable growth. Let's now take a closer look to the developments behind these figures in the following slides. In the first 9 months of 2025, NFON delivered moderate top line growth. The total revenue of EUR 66 million. This development was mainly supported by the continued strong performance of botario, which contributed positively through its project businesses. Our recurring revenues, the backbone of our business, rose by 1.9% to EUR 61.8 million, maintaining a high share of 93.6% of total revenues. Nonrecurring revenues developed even stronger, up by 15.3% to EUR 4.2 million, mainly driven by project implementation and again, service revenues from botario. At the same time, our seat base declined slightly by 2.6% to 648,000, reflecting a still cautious investment sentiment in our core markets. Despite this, our blended ARPU remained stable, increased slightly to EUR 9.92, supported by price adjustments and consistent customer usage levels. Overall, this combination underlines a resilient recurring revenue model and the stabilizing effect of portfolio diversification through botario. Turning to our profitability and cost structure. Material expenses declined by 6.3% to EUR 9.1 million, primarily due to lower hardware volumes and a more favorable cost mix. As a result of this, our gross profit increased by 4.3% to EUR 56.9 million. The material cost ratio improved to 13.8% versus 15.1% the year before, supported by a higher share of margin accretive project revenues. At the same time, our operating expenses rose moderately by 4.1% to EUR 22 million, mainly reflecting higher marketing activities, partner commissions and advisory costs are related to strategic initiatives. Overall, the adjusted OpEx ratio remained broadly stable at 33%, demonstrating our ongoing focus on cost discipline and operational efficiency, but also investing into strategic areas. Personnel expenses. Personnel expenses increased by 9.9% to EUR 28.2 million. This development primarily reflects the integration of botario and targeted staffing in product development, sales and AI-driven innovations. The average number of employees rose to 427 compared to 415 in the prior year. We made adjustments of EUR 0.9 million, mainly related to restructuring costs in management, sales and marketing. After these adjustments, personnel expenses were in line with expectations, consistent with our strategy to strengthen capabilities for innovation and customer value creation. In terms of profitability, EBITDA decreased slightly to EUR 7.7 million. After adjustments, EBITDA amounted to EUR 8.7 million, down 3.5% from EUR 9.1 million the year before. This decline was expected and reflects planned operating expense investments in personnel and infrastructure to support our AI-related initiatives and the ongoing execution of our strategy, NFON Next 2027. Adjustments totaled EUR 1.1 million, primarily related to restructuring measures and IT harmonization. As a result, the adjusted EBITDA margin came in at 3.2%, maintaining a solid profitability level while ensuring we continue to invest in our future growth. Looking at the cash flow and liquidity. Operating cash flow came in at EUR 4.9 million compared with EUR 5.1 million in the year before. This slight decline mainly reflects timing effects in receivables and provisions. Investing cash flow amounted to minus EUR 4.7 million, driven by higher capitalized development costs and earn-out payments of EUR 1.9 million related to the botario acquisition. Financing cash flow stood at minus EUR 1.7 million compared with plus EUR 4.8 million a year ago as the prior year period included loan inflows to finance the acquisition. At the end of September, this cash and cash equivalents totaled EUR 11.4 million, and this underlines our solid liquidity position and provide sufficient flexibility to fund both day-to-day operations and our ongoing strategic initiatives under NFON Next 2027. As already shown in the half year results, this slide summarizes the broader market environment and our key strategic priorities. It continues to provide the right framework for navigating the current conditions, steering NFON towards sustainable growth. But the macroeconomic environment remains challenging. Inflation, geopolitical uncertainty and budget caution, particularly among SMEs, continue to weigh on investment decisions and prolonged sales cycles, especially in communication infrastructure and digital transformation projects. At the same time, AI-driven innovation is reshaping the market. Many companies are still assessing how AI can be embedded into their operations. This extends decision-making, but also creates key opportunities. Across Europe, stricter compliance standards and the growing debate on data sovereignty continue to drive demand for secure GDPR-compliant solutions. NFON's position as an independent European provider with development, hosting and infrastructure entirely in Europe remains a key differentiator. Building on this foundation, we are executing the measures introduced earlier this year, which directly support our strategic priorities. And these are improving operational efficiency, strengthening the channel enablement, maintaining a market growth focus and driving profitability. We are seeing early signs that our initiatives are taking hold, also the momentum is developing more slowly than we would like. As we progress through the fourth quarter, our focus remains on disciplined execution, cost control and efficiency gains, while continuing also to invest selectively in growth areas such as agentic AI. So let's turn to the next slide for the details. As a part of our regular forecast update, we have reviewed our full year expectations based on the performance in the first 9 months. Given the continued investment restraint in part of the market and revenue trend that remained below expectations in Q3, we have slightly adjusted our guidance for the full year. We now expect total revenue to grow between 1% and 2.5% and adjusted EBITDA to range between EUR 11.5 million and EUR 12.5 million. This outlook already takes into account the ongoing macroeconomic caution, extended decision-making cycles among SMEs and the delayed recovery in investment activity in our core markets. At the same time, the measures implemented earlier this year, particularly pricing, cost control channel enablement, are delivering the expected effects and continue to support our profitability. Our midterm ambition for 2027 remains unchanged. Overall, we focus on innovation and efficiency, keeping our financial discipline strong so that growth remains healthy and sustainable. And with this, I will hand back to Friederike to open the Q&A session. Friederike Thyssen: Yes. Thank you very much, Alexander and also Andreas for the presentation and the detailed insight. We will now open the line for questions. [Operator Instructions] So we're now looking forward for your questions. First line in row is John Karidis. John Karidis: So it's John Karidis from Deutsche Bank. I know this has been a very tough quarter for NFON. And because of this, I wonder if you would be happy to tell us how many seats you ended the period with -- in Germany specifically? I know that in the first half, the seat loss was roughly split equally between Germany and the U.K. But I'd be sort of very interested in the number in Germany. And any other additional color you can give us, please, about the areas where you saw the most pressure? Alexander Beck: Thank you very much, John. Yes. So the seat growth, you're right. We lost seats in the first -- in Q3. Our total seat base declined slightly by 2.6%, around total 648,000 compared to 665,000 in the prior year period. So this was mainly the result of a lower order intake compared with last year, while our churn rate is also important, remains stable at 0.5% [ hard ] churn per month, the same level of quarter 3 2024. The stable churn aligns the high quality our products and services have and the resilience of our recurring revenue base in a challenging environment. However, growth in new seats came in below expectations, that's right and below last year's increase, reflecting both the more cautious investment climate and the expanding decision making cycles. The German numbers, I do not have exactly here, but I can tell you roughly, in Germany, we have around about 470,000 seats. And in U.K., we are about 73,000 seats. Friederike Thyssen: Okay. Next in line, Stéphane. Stéphane Beyazian: I've got 2, 3 questions, if that's possible. The first one would be, can you tell us a little more on how many more staff do you plan to hire and when you think you will start to see some stabilization on your staff costs? The second one is a follow-up on the number of clients. I was just wondering whether you are also seeing, let's say, do you think overall, it's a market, as you suggest, or also perhaps some competition that is more aggressive in cloud telephony? And I was just curious to know if there are any names of competitors you would highlight as being very pushy right now in the market? And finally, as a third question, if I may. Do you think now that it's quite likely that 2026, we should also see, let's say, the impact that we've seen in the third quarter carrying over into 2026 and therefore, potentially revenues and EBITDA could be down in 2026? Andreas Wesselmann: Thanks a lot, Stéphane, for your questions. Let me try to answer them in one shot and then after that, please let me know if some questions remain open. So the first question was about the hiring. There you can see along the numbers that we also adopted our growth in personnel expenses by the reduced top line so that we always stay in the same quote, and this is the same planning as we go forward. For the number of clients, maybe I'll just give the example of Nia FrontDesk that I outlined and why I think that's so important is -- the first time that we really combined the botario AI platform with our core voice platform in a very tight and integrated fashion. And just to share some numbers there with you, for the first 4 weeks after the launch, we see it as essentially our fastest-growing adoption of all products that we saw in the last years. So we already have a mid-double-digit number of sold licenses here, and we have very, very positive feedback. So that's, for us, the confirmation of our portfolio. And why is that important also looking forward? Because it shows that we have different revenue streams going forward that we are going to materialize. So one is that these capabilities integrated in our business, telephony, which we call AI Essentials or FrontDesk, help us to up and cross-sell existing customers and it makes our existing offering more attractive. That's one thing. On the other hand side, we see that these voicebots and the agentic AI capabilities, so to speak, get more from the botario side of the portfolio also help us in combined up and cross-sell in the contact center business, and that the botario portfolio offers us access to new customers and partners also in enterprise AI projects. So having that said, we are confident that in '26, we will get back to a growth strategy because in addition to the products, there are 2 other things I would like to mention. We also introduced in October a new way how we can sell easily with a new modular license model, we sometimes internally refer to as T-shirt sizes. This makes it easier to sell. Think of that as a kind of a self-service, and it's immediately available for deployment and getting it running. And the other important part is that we support our partners also in their transformation. So to enable them on the existing solutions, also expand to new partners and expand our solution portfolio with the existing and new partners. And therefore, also our partner program, Nexus, which we will unveil in more breadth and depth in January next year, will support us to have that. Overall, and your question was also about how we see the market. We see the market that the core cloud telephony market is essentially more or less stagnating. Why is that the case? If you take a look, for example, at some numbers in Germany, we had in August, the highest number of companies that needed to file insolvency in the last 10 years. If you take a look at the overall economic numbers, Germany and Austria, for example, unfortunately, they rank lowest within Europe, which is plus -- 85-plus percentage points of our business, as you know. And there is another thing that you should not underestimate. So this whole AI disruption, as I framed it, causes also some additional uncertainties, which causes a delay in decisions. We do not see that it's a question if you go with us in the solutions or not, it's a question of when do you do that, and you just need some more room to discuss with the partners and explain. So that's maybe -- overall, I hope that answered your question. Stéphane Beyazian: It does. If I may just to follow up a little bit and apologies for taking a bit of time here. I was just wondering if you think that adoption of AI could also, in a way, reduce a little bit demand from some of your clients as they may be replacing some of their staff? I'm thinking of call centers, for instance also, and reducing the number of seats potentially. Andreas Wesselmann: We see it the other way around. We see it as a strengthening. We see that from the tightly integrated AI capabilities. For example, in the cloud telephony, it makes the offering more attractive. So there, we have possibilities to increase the ARPU and to expand the number of seats that we have. That is one dimension. And we see great and interesting effects in cross-selling opportunities of the contact center solution and the agentic voicebots we have in the botario solution, which we can then sell to the same customer. So we see it more not as taking away from existing business, but accelerating and strengthening the different pillars of our solutions portfolio. Friederike Thyssen: Okay. Next line, [ Maximillian Pasco ]. We can't hear you. Now we can hear you. Unknown Analyst: Sorry for that. I have a 2-part question. Do you anticipate a normalization in customer investment patterns, potentially supported by your progress in AI? And as a result, could you -- could this provide greater visibility for 2026? Andreas Wesselmann: Yes. Maybe I'll start with that. So your first part of the question was about the investment normalization. This is certainly a trend that we see. We see a delay. And as I said before, we do not see that people decide against an investment. So in that sense, taking the first insights in the fourth quarter and looking forward, we see an investment normalization in the course of the year '26 despite the not so easy overall economic conditions. And exactly what '26 will mean, we will unveil at the beginning of the year when we then have the forecast for the year '26. Friederike Thyssen: Does that answer your question, [ Maximillian ]? Unknown Analyst: Yes. Friederike Thyssen: Next in line, Ross Jobber. Rosslyn Jobber: Can you hear me okay? Friederike Thyssen: Yes. Rosslyn Jobber: Perfect. I'm interested in the trends over the next year or 2 in some of the costs, which at the moment are high, but which hopefully are going to fall, things like consulting costs, IT harmonization costs and also capitalized development costs. Can you say a little bit more about where you would expect those to go over the next 1, 2, 3 years? Alexander Beck: Yes. Ross, thanks for your question. So in general, we are cautious when we talk about cost development. On the other side, we also want to invest into our strategic areas. You mentioned right now, a couple of them like consultancy costs, like other costs, we already tried now in Q3 and Q4 to bring these costs down. But on the other side, we are also going to -- as I said before, we are also going to invest into growth areas. So for next year, -- we are, in the moment, we are in the process to put our budget together and to finish the planning and we will communicate this at the beginning of next year. But overall, I think I can already say -- yes, we will continue our path. We try to eliminate costs, which are not necessary any longer. We try to gain efficiencies, especially in the things you mentioned. And on the other side, we try to invest as much as we need, as much as we can, as much as we want in order to grow in our strategic growing areas. So this is overall, the part for the next years. I hope this -- this is not very precise for the next 3 years, Ross, but I hope this gives you at least the color of where we want to go. Friederike Thyssen: Okay. I see Stéphane is still raising the hand? Stéphane Beyazian: Sorry, I'm all right. Friederike Thyssen: Yes, no probs. But Ross, you can unmute yourself. Rosslyn Jobber: Yes. Sorry, I got more questions. I just wanted to make way for others. Can you say whether or not the AI functionality is changing the procurement process amongst customers? I mean you've talked about uncertainty based on the macroeconomic environment and how maybe it's taking longer for customers to decide whether to buy. Does the fact that you're adding a lot of kind of enhanced customer experience change the sort of people who are getting involved in that procurement decision at your clients? Is that also a factor or not? Andreas Wesselmann: Yes. Thanks, Ross, for asking the question. Let me maybe start with -- we have one part of the solution that if you want to buy a click integrates with existing business telephony. And that's important because we want that the same people that currently administer and are responsible for the existing solutions with a very seamless path can activate them. So in the example of the Nia FrontDesk that I outlined, you can imagine that you go to the administration part you are used to. And then you just choose, I want this front desk capability, I want this as a language. And this is the content it should be based on and then you go. And this is really important because especially the SME customers can simply not afford to invest, take time in AI projects or consultancies or hire people themselves. So this, I think we are in a unique position by tightly integrating that for the existing market. If you go to the other segment of our offer, if I talk about enterprise AI projects and large customers and large partners, this is then a different approach, and you also meet different buying centers. And there, the telephony is not the leading capability, but the leading capability is on how you optimize your customer service, how you automate your processes, how do you integrate in the existing business processes and then offer a solution that can cover, if you want, the breadth from voicebots via contact centers to then the underlying cloud telephony. So that maybe gives you an overview about how we currently see the variety of the go-to-market activities. Rosslyn Jobber: Great. And can I just check one statistic? Did you -- am I right in thinking you said that churn for the 9 months is unchanged from a year ago at 0.5%? Did I hear that correctly? Unknown Executive: Yes, Ross. That's right. Friederike Thyssen: Okay. No further questions so far. Stéphane, go ahead. Stéphane Beyazian: There are no more questions. Let me ask just a follow-up. I was just wondering whether you're already seeing let's say, in the fourth quarter, a little bit better commercial momentum or if you think that those impacts will continue into Q4 on your customer base? Andreas Wesselmann: Yes. Thanks, Stéphane, for asking that question as well. Let me maybe get back to the Nia FrontDesk example which we launched at the mid of October. So there, as I outlined, we see already very fast-growing adoption in licenses, et cetera, which makes us very positive. But the reality is also that based on our recurring revenue model, this only has minor impact on the fourth quarter and then the total numbers. Why? Also we came to the conclusion as we outlined today. But that makes us confident looking forward to '26 and beyond that we start with a good foundation in those years and laid the foundation in this year for accelerated growth in the next year. Details to be shared in the first quarter next year. Friederike Thyssen: Good. So then no further questions. Let me ask a little -- last time. Are there any final questions from your side? So please raise your hand. If this is not the case, -- and it seems not to be the case. Thank you, again, for your time, for your interest and also from my side. And now I'll hand back to Andreas for a short closing statement. Andreas, back to you. Andreas Wesselmann: Yes. Thanks, Friederike. A big thank you from my side to all of you joining the first earnings call in that combination with Alexander and myself, thanks for asking questions -- and the very constructive and right questions and already looking forward to talking to you soon. Have a nice day. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Subsea 7 Q3 2025 Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Katherine Tonks. Please go ahead. Katherine Tonks: Welcome, everyone. Thank you for joining us. With me on the call today are John Evans, our CEO; Mark Foley, our CFO; and Stuart Fitzgerald, CEO of Seaway 7. The results press release is available to download on our website, along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report or in today's quarterly press release. I'll now turn it over to John. John Evans: Thank you, Katherine, and good afternoon, everyone. I will start with a summary of the quarter before passing over to Mark for more details of the financial results. Turning to Slide 3. Subsea 7 delivered third quarter adjusted EBITDA of $407 million, representing 27% growth year-on-year, and a margin of 22%. The increase in our profitability reflects strong project execution as well as the continued high-grading of our backlog. As Mark will discuss, we now expect to exceed our prior guidance for 2025 and to deliver continued momentum into 2026. Order intake was high in the quarter, at $3.8 billion, resulting in a book-to-bill of 2.1x for the quarter and 1.4x for the first 9 months of the year. Our backlog reached a record high, close to $14 billion. Slide 4 shows the backlogs of both Subsea and Conventional and Renewables, which continue to increase in quality as we completed work won before 2022 and shift our focus to contracts with more favorable terms. We have a combined backlog for execution in 2026 of $6 billion, giving us over 80% visibility on next year's revenue. And now I'll pass over to Mark to run through the financial results. Mark Foley: Thank you, John, and good afternoon, everyone. I'll provide selective commentary on group, Subsea and Conventional and Renewables' financial performance in the third quarter before turning to the cash flow and financial guidance for 2025 and 2026. Slide 5 summarizes the group's revenue and adjusted EBITDA results for the third quarter, set in the context of recent quarterly performance. In the third quarter, revenue was $1.8 billion, in line with the high levels reported in the same quarter of the prior year. Adjusted EBITDA of $407 million, increased by 27% compared with the prior year period. And margin expanded by 460 basis points, to 22%. Net income was $109 million following depreciation and amortization of $175 million, net foreign exchange losses of $38 million, which were driven by noncash embedded derivatives. Net finance costs of $12 million. And taxation of $73 million. I'll cover the salient points concerning business unit performance in the next few slides. Slide 6 presents the key metrics for Subsea and Conventional. Revenue in the third quarter was $1.5 billion, representing growth of 6% year-on-year as high activity levels continued in Brazil, Türkiye and Norway. Adjusted EBITDA was $368 million, equating to a margin of 24%, an increase of 680 basis points from the same quarter last year. The margin improvement was underpinned by strong execution performance and high vessel utilization as well as the continued rebalancing of our portfolio towards projects with improved risk and reward characteristics. The results of Subsea and Conventional include an $11 million net income contribution from OneSubsea, in line with our expectations. Net operating income was $228 million, nearly 80% higher than the prior year period, equating to a net operating income margin of 15.1%. Selected Renewables performance metrics are shown on Slide 7. Revenue in the third quarter was $302 million, a reduction of 19% when compared with the high levels reported in the prior year period, which were driven by elevated activity in Taiwan, while in line with the second quarter of 2025. Activity progressed during the quarter at Dogger Bank C and East Anglia THREE in the U.K and at Revolution in the U.S. after a delayed start. Adjusted EBITDA was $52 million, equating to a margin of 17%, up 70 basis points from the same quarter last year. Net operating income was $21 million, representing a margin of 7%. Slide 8 shows the cash bridge for the third quarter. Net cash generated from operating activities was $283 million, which included an expected unfavorable movement in working capital of $82 million. Capital expenditure was $47 million, mainly associated with maintenance on vessels and equipment. Net cash used in financing activities was $123 million, which included lease payments of $79 million. At the end of the quarter, cash and cash equivalents increased by $132 million, to $546 million. Net debt was $505 million, including lease liabilities of $421 million, equating to a modest net debt to last 12 months adjusted EBITDA of 0.4x. The group had liquidity of $1.1 billion on the 30th of September. On the 6th of November, the company paid the second and last of its SEK 6.5 per share dividends to shareholders. Shareholders' returns this year represented solely by dividends amounted to approximately $376 million. To conclude the financials, we turn to Slide 7 -- sorry, Slide 9. We have refined certain guidance metrics for 2025. I will highlight the following favorable notable revisions. The upper and lower ends of revenue guidance have been narrowed by $100 million as we now expect revenue to be between $6.9 billion and $7.1 billion in the full year 2025. Given strong results in the first 9 months of the year, combined with high visibility and confidence in our execution performance, we have increased our guidance for adjusted EBITDA margin in 2025 to be between 20% and 21% from between 18% to 20%. We have also reduced our guidance for capital expenditure to a range from $300 million to $320 million. This reflects our continued focus on capital discipline as well as a rephasing of some cash capital expenditure from this year into 2026. Today, as is customary for Subsea 7 at the third quarter, we introduced initial guidance for next year. In 2026, we expect the group to continue to deliver growth in revenue and adjusted EBITDA. We anticipate revenue to be within a range from $7 billion to $7.4 billion with an adjusted EBITDA margin of approximately 22%. Capital expenditure is forecast to be between $350 million and $380 million, which includes rephasing of some capital expenditure from 2025, as mentioned some moments ago. Our confidence in this guidance is underpinned by the quality of our backlog which gives us over 80% visibility on revenue as well as the continued high tendering activity and the attractiveness of the prospects pipeline. I will now pass you back to John. John Evans: Thank you, Mark. On the next 2 slides, we have a couple of highlights from our portfolio of technology-led solutions. On Slide 10, we'll take a look at 4insights, developed by our 4Subsea business in Norway. 4insight is software that combines real-time data from vessels and weather feeds and uses advanced algorithms to automate operating decisions on board. The result is an extension of the windows of operability of our vessels and increased performance in project delivery through a reduction in the cost and schedule risks associated with waiting on weather. By automating the decision-making process, 4insight also enhances collaboration between marine and project crews and maximizes the efficiency of our operations. The software has been rolled out across part of our fleet and has received excellent feedback from our offshore and onshore teams. In 2025 to date, it has added 35 days of operation to Seven Vega, an uplift of over 10% compared to our standard planning assumptions. Our second highlight slide focuses on our unique bundle pipeline technology. Last quarter, we touched on this when we discussed our activity at Yggdrasil in Norway, which included the launch of a large bundle during the summer. By combining active heating, flow lines and the control systems into one towable bundle, we reduce the complexity of the Subsea architecture and offer a cost-effective alternative to traditional models. The solution requires the use of our proprietary lining as well as highly specialized welding from our team in Wick in Scotland. Subsea 7 is the only contractor with a proven track record of delivering production system bundles with over 90 installations to date. Repeat orders from clients, including Aker BP, BP, Chevron, Equinor and Shell, are a testament to the success of this unique solution and more broadly to the innovative solutions offered by Subsea 7's advanced engineering and fabrication capabilities. Now on to a review of our prospects on Slide 12 and 13. In Subsea, tendering activities remain high across our key regions with a combined prospect value of around $21 billion. Most of the projects on this map are long-cycle deepwater developments with favorable economics. Many carry strategic significance to both the operators and their host nations. They will be sanctioned based on a view of commodity prices beyond the next 5 years, sheltering them from the change in spot price of oil and gas. Overall, we are confident in the long-term outlook of our Subsea business with demand for our technology-led solutions expected to remain at high levels. On next slide, we have a summary of the fixed offshore wind projects that could bid in the U.K.'s Allocation Round 7, AR7. Whilst the maximum strike price of GBP 113 per megawatt hour was well received, the recently announced budget for AR7 was lower than hopeful by the industry. As I said last quarter, the U.K. is the largest single market in global offshore wind sector outside China. And with a number of other markets showing slower-than-anticipated growth, the ultimate outcome of the AR7 process will be a key driver for the medium-term momentum in the industry. Subsea 7 continues to support a number of key clients to optimize the AR7 developments whilst remaining selective in the contracts we pursue to safeguard our future profitability. To conclude, we'll turn to our final slide on Page 14. Subsea 7 finished the third quarter of 2025 with a record backlog of firm orders valued at nearly $14 billion. We've increased our guidance for 2025 and our guidance for continued growth in 2026 demonstrates our confidence in the outlook. Looking further ahead, we have a high conviction in the resilience of deepwater Subsea market and combined with a differentiated offering and a strong track record of delivery, this positions Subsea 7 for success. And with that, we'll be happy to take your questions. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Sebastian Erskine from Rothschild & Co Redburn. Sebastian Erskine: Congratulations on the results today and great to see the backlog at a record level. I'd like to just follow up on the Renewables business. So I guess we can expect a seasonal uplift in Renewables margins in 4Q, which is consistent with the new guide. But how should we think about the original kind of 14% to 16% EBITDA margin guidance into '26? And I guess linked to this, I mean, you mentioned it in the prepared remarks, but could you provide an update on the time lines associated with Allocation Round 7 as there appears to be some stalling progress? So yes, it would be great to get your thinking on that. John Evans: I'll ask Stuart to answer both those questions, please. Stuart Fitzgerald: Yes. So I can answer on the guidance first. So we're maintaining that guidance going forward into 2026. Also, worthwhile to comment about backlog position in terms of visibility through '26 and into '27 is particularly strong. Then on to the Allocation Round 7. So submissions from the developers in terms of the different projects that they put into the allocation round has been happening over the last week. So that milestone is essentially complete as we understand it, and the results of that to be announced around mid-January. So the next key milestone in the time line here is a mid-January announcement of outcomes. But the submissions to the best of our knowledge, are now made. Sebastian Erskine: Appreciate that, Stuart. And just if I can put another question, and I appreciate -- difficult one on the merger. We've seen the admission of kind of several interested third parties into the Brazilian antitrust process. Can you give us an update on that process and when we might expect to hear some ruling from CADE, if you're able to shed any light on that? And any other updates on the kind of geographies that you're submitting to, that would be helpful. John Evans: Yes, I'll take those. As we've said many times on these calls, we won't be giving a sort of blow-by-blow account here, but let's stand back. When we announced the merger, initially with the signing of the MoU at the end of February, we targeted the second half of 2026, full completion. The CADE process is following the steps that we had expected it to follow. We make our submissions. Interested parties then identify themselves as interested parties. There is also a wider market consultation, including suppliers, our peers and our clients, and that process is underway. We will then have an opportunity to discuss with CADE our responses to the different topics that are raised. And then CADE will go into their review process next year. So we continue to believe that the time line for the merger and the critical path is through CADE and Brazil, should allow us to complete by the second half of 2026. Operator: We will take our next question. The next question comes from the line of Victoria McCulloch from RBC. Victoria McCulloch: Starting as well on Renewables. Can you just talk about the contribution for 2026? I appreciate you don't give it specifically, but on the basis of Stuart's commentary, should we then see the driver for the growth coming from the Subsea and Conventional business? And then, John, maybe a bit sort of larger sort of picture -- views. Can you give us a bit of color about how you've seen the tendering pipeline and engagement with your customers over the last 3 months? It remains a fairly unpredictable macro environment, but it would be interesting to hear the conversations you're having with the engagement you have with customers. John Evans: Yes. Just to take the Renewables, Stuart was clear that we are comfortable with a guidance range of 14% to 16% EBITDA in Renewables in 2026. And as he says, he has a high coverage of work already on the books. So again, I don't think we will give any further information on that, Victoria, but we're comfortable that we have a good position in Renewables in '26, and as Stuart alluded to, also going into 2027. So for us, it's more about what it is in '28 and '29, and AR7 will be part of understanding that in the first quarter of next year. Coming to client interactions, I was down in Brazil at Rio OTC about 3 weeks ago. We've had a number of client discussions, which, as you'd expect, continue. We're seeing very little change in our clients' views. They are clear that they've got a number of large Subsea projects out there for bid or to be bid. The dialogue is all around timing of their bids, timing of their projects, what early commitments do they need to make, vessels availability. It's the traditional questions that we get in a busy market, Victoria. In Brazil, discussions with Petrobras. We expect to see the Petrobras' 5-year plan, announced in the next week or so, continued focus on Subsea projects being the main engine and the main driver for Petrobras. So their conversations are clear. A lot of other clients are about some big opportunities that they see. We're bidding work in Namibia. We're bidding work in Mozambique. And these were countries that weren't on our radar screen a couple of years ago. And down in Türkiye, in the first week in December. And again, that's about our ships are going in to do Phase 2. As you're aware, we picked up Phase 3, but there are other phases of Sakarya to come as well. And we continue to work with Equinor as planned on the developments of Wisting and Bay du Nord. The 2 big developments, one in the north of Norway, one in Canada. And they're quietly going on exactly as we had planned with Equinor that we'd be working with them, looking at multiple different scenarios. So long story short, we're not seeing a real change. And the other thing that we touched on in the last quarter was the pleasant surprise to see a number of new projects coming into Norway. The project with ConocoPhillips, which we expect to get sanctioned here at the end of the year. So there are very creative projects out there with a number of clients, and we remain confident. The only geography where that is not the case is the U.K., but I think everybody is clear that unless something changes in next month's budget, probably the U.K. is a bit out of sorts with the rest of the world. Victoria McCulloch: And maybe just a follow-up on that is, it was interesting to hear, obviously, you've shown us a lots about the pipeline bundles that you've done for Yggdrasil, for Aker BP and how that's optimizing the CapEx and OpEx for your customer. I guess, how much, I guess, new ideas in AI are customers looking for and sort of new wins from that? Because I guess, AI is such a massive theme globally, but how much of that is part of conversations in terms of they're trying to get economics better because of AI? John Evans: Yes. Our clients are always interested. Yggdrasil is an interesting example that we're using every single technology Subsea 7 has got, that huge greenfield development. We've got bundles in there. We've got traditional relay in there. We've got heated pipelines. We've got cool pipelines in the system. We've got everything in there. So that's why the customers come to us, is that we have a full toolkit, a full technology capability. If we come on to 4insight. 4insight is a form of AI technology that uses real-time data, analyzes huge volumes of data to give our offshore crews clarity as to what's going to happen in the next 24 hours and how they should think about whether we continue into the good weather, or do we stop, do we start and such like. Historically, that's all been done in a very static mode. Before we go offshore, we plan different scenarios. We take the scenarios out there. We have a book which tells us what we can and can't do. And if we're inside the parameters, we can work if we're outside the parameters. What 4insight has been is, say, let's take the actual parameters we got here and the actual parameters forecast and what you've had in the last 24 hours and exactly which way the weather is hitting the ship directionally and such like and can we continue pipeline. And again, as I said in my prepared remarks, we are finding some significant improvements. So it's a combination of the portfolio of technologies we've got, a real productivity to also just challenge the norms. We're also doing quite a bit of work with some of the regulators and some of the certifying authorities on how we run our DP vessels. dynamic position, rules were written in the 1980s when fuel was free. Nobody worried about emissions. And therefore, today, we are now finding different ways to run these ships, but we need the codes to change to do that. That allows us to improve our fuel efficiency, which our clients pay for, also reduces our emissions, but we need the codes to change to reflect that what was good in the '80s doesn't necessarily have to follow in the 2025 that we're in. So there's a lot of great things happening, Victoria, a lot of great engagement with our clients and with it, with every client on those type of technologies. So it's a good place that the industry is in. And as we know, deepwater subsea is one of the lowest cost per barrels lifted of any form of oil or gas out there. So I think we're in the right place at the right time. Operator: We will take our next question, and the question comes from the line of Kevin Roger from Kepler Cheuvreux. Kevin Roger: The first one is maybe in 2 way because when I look at the backlog execution for 2026, you are telling us that roughly your visibility is up by 13%, but the top line guidance imply only 3% growth in '26 versus '25. So can you give us a bit of color on that why the backlog for execution is up 13%, but the top line guidance is up by 3%? Is it related to the fleet utilization rate that is at the end already fully booked? Just to understand the rationale around the top line. And the second one, John, you roughly mentioned it, big project from Equinor for 2026. There has been some noise notably this morning saying that Equinor is currently hitting the market for fabrication tools. So just to understand on your side, would it be a kind of full scope, or then it will be phase by phase, meaning that for '26, it will be more than $1 billion as you have identified the projects in the pipeline or a smaller phase because that's going to be done in different phases? John Evans: Yes. The backlog in 2026, I guess, which just reflects the fact that we're in a very busy market, and clients have committed to us earlier. We have a finite capacity, which is why the revenue doesn't grow as much. We would expect, of course, next year to have 100% backlog by the end of the year. So it's more of a timing question, Kevin. A lot of our clients have engaged with us early, and that's been going for a number of years now, making commitments to make sure that they have capacity available as they go into '26 and '27. So it's just a timing disconnect more than anything, not a fundamental issue. This quarter, we're running at 87% utilization. We're getting towards the highest end of what we can do, and we've discussed that a number of times on this call. The key to us is post-merger is to reduce the amount of transits between projects and such like. That's one of the real attractions for a number of our clients, is that there are more days available if you don't move these assets around. But at the moment, we've got the fleet that we've got. We know very well where they're going to be placed next year. So I don't see it as a disconnect. The revenue will be the revenue in the range that we've given. And the backlog is just higher than we would normally expect. But equally, in my memory, when the market gets busy, people secure their assets earlier. Taking your second question, Bay du Nord is a project that for us is done seasonally over multiple seasons, and we won't be offshore until later on this decade, and that's always been the case. And because of the weather conditions out there, we can do about 100 days per year. So it's a multiyear project. And next year, we'll continue to be in this work mode that we're in, which is working with Equinor on the field layouts and allowing them to go through their different decision gates, DG2 and DG3 that they need to go through. So for us, Bay du Nord has continued working with them in the mode that we've been in for a couple of years. And so they will make their key decisions, I suspect, in '27 when they have all their information about their fabrication, their local content as well as the SURF packages. What I would say, I think there's been good work between the SIA and Equinor over a couple of years, and there's been some very interesting thinking about how to phase the project and how it comes together. So coming back to your initial question, Kevin, it was always a phased project because the weather conditions out there and the remoteness of that part of the Atlantic offshore, Canada means that you have to do 100-day slots per year out there. And it's just how you sequence it and how you develop the wells and the reservoir that goes with it is the key to probably unlocking the economics in that field. Operator: Your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: First one, thinking about your guidance, how much would you say the lower figure this year is driven by activity that might have been -- might have slipped into 2026? And if you can perhaps share with us what sort of activity that is? And then thinking about 2026, is this a reasonable level for us to think about your capital needs over the long term? Or is there any nonrecurring factor in the 2026 figures that we have? And then second one, thinking about Brazil. Earlier this year, there was a headline saying that Petrobras was keen to do a long-term lease of a vessel to do the installation of rigid pipes in the [ Pre-Salt ] itself. Do you feel like this is a live discussion? Are they actively looking to do that? Or do you feel like that was just a headline that didn't really evolve over the course of the year? John Evans: I guess the question -- the first question asking about the sort of guidance between this year and next year on revenue and such like. You're very familiar with our projects. They work on a percentage of completeness at the end of -- completion at the end of each year. It varies big projects, a couple of percentage have quite a large influence on dollars. There's nothing to be concerned about. It's just how the different sequences of our projects are coming into play. In terms of 2026, as I answered Kevin previously, we're reasonably clear on how it will fit together. We've given you a range of revenues that we are comfortable with giving the market here, a high level of visibility as to how that fits and even the work that isn't in the backlog yet, we're pretty clear in our minds how that will sort of come together. And of course, as we've done consistently, if things change, we will give the market an update on each quarter as we see changes. Lastly, Petrobras are talking to the market about potentially the long-term lease of a rigid pipelay ship. Interesting enough, we had a contract many years ago, in 2012 to 2017, to do exactly the same, which was called hybrid steel, which was a contract that Subsea 7 had with Petrobras. So I'm old enough to know what those looks like, and we've done it before. Again, when Petrobras comes to the market, we will respond, and we'd be interested in that. But you just need to remember that the time scale is probably 4 or 5 major projects that need a pipelay each. So again, if they go down this path -- and I do understand. We've been speaking to them. This is about the timing of the arrivals of the FPSO, and the challenges of how you run different projects with different time scales with different arrivals of FPSOs. So maybe the hangoffs of the riser with a vessel more akin to a PLSV, which is more of a day rate contract where they can control it that way. So I understand fully the logic. It makes a lot of sense, and we will certainly be interested in the opportunity set should that come to the market next year. Guilherme Levy: The first one, sorry, I was actually just referring to your new CapEx guidance. So yes, just thinking about your 2026 CapEx guidance, is there any reason why 2027 should be materially different from that? Mark Foley: It really is a function of the vessels that have to go through their obligatory dry docking. So as you know, depending on where they are in the cycle, our CapEx increases and decreases. The majority of our CapEx is directed towards vessels and equipment. So I think we provided updated guidance for this year, slightly lower, driven by really strict capital discipline within the organization as well as a late phasing, a displacement of certain cash, capital expenditure into 2026 and then an amount that we've guided to for next year. So again, it will vary year-on-year depending upon the requirements of the vessels as well as the opportunities that we see in terms of growth, capital expenditure around minor modifications, around supplementary additions to equipment, et cetera. So hopefully, that provides some additional color. Operator: Your next question comes from the line of Alejandra Magana from JPMorgan. Alejandra Magana: On your SURF and Conventional margin strength, can you give us a sense of how much of the uplift reflects execution outperformance versus the roll-off of older, lower-margin projects? And how much reflects structurally better commercial terms or pricing power on more recent awards? And as the 2026 backlog converts, how do these contracts differ commercially from the ones you've executed this year? John Evans: Okay. I won't go into the margin mix. As I said in my prepared remarks, it's a bit of everything. We are taking less projects, taken before 2022 into the portfolio this year, and there are none of those as we get into next year. As we discussed very openly on this market, each project is bid individually and therefore, then there is a mixture of margins in each of the different projects. Sometimes some projects suit us because the availability of equipment, timing and clients' decision-making, potential delays in other projects. So again, there's quite a complex mix in that. And lastly, as we've discussed, we've had very good execution throughout this year, and I'm very pleased with the execution that we've got. So when all these things come together, we get a very good margin in the business. But we won't discuss the segregation of those items. As we go into 2026, again, it's about the stack of projects that we've got in there. There is nothing pre-'22 in the mix. So it's the packages of work that we brought in over the last 3 years at the various stages that give us the margin that we expect to see next year. And so we have given you clarity through the guidance as to what revenue range, and we expect to be at around 22% next year EBITDA on the portfolio that we've got. And just to close out on that, we're reasonably confident in that because we've got over 80% of that margin already in the books. And as I touched on earlier, I'm reasonably sure I know how the remaining 20% will fit. The remaining 20% part of that is elements such as call-off agreements we have with a number of clients where we're already under contract. We know what the margin is, but we haven't received the call offers yet. So confidence level is pretty high here. And we'll just get into '26 and let it run and see how it goes from there. Alejandra Magana: Very clear. And then on the new Brazil PLSV contracts, can you give us a sense of how the new rates compare with prior agreements? Do you expect a step-up in PLSV earnings over the next few years? John Evans: Yes. So they were bid a year ago. That is information where if you go through the press releases that we've released and our competitors have released, it's all public information. You can -- you know that each contract is roughly 1,000 days. So they were better than we had for certain, and all 4 PLSVs are now on the new contracts. Just last week, the fourth of our PLSVs went on their new agreements. So next year, part of the uplift in our margin is around the fact that the mix of work that we've got next year, as we discussed earlier, is a better mix. So the PLSVs are public domain information. So if you go back and dig through those, you can work the figures out from where we were and where we are now. Operator: [Operator Instructions]. Your next question comes from the line of Erik Aspen Fossa from SB1 Markets. Erik Aspen Fossa: I have 2 questions at least. First for you, John. I think the understanding so far has been that we should expect a slight increase in activity from '25 to '26. And I'm just wondering how we should think about this into 2027 on a stand-alone basis for Subsea 7? Is there still room for further increases, for example, through fleet optimization and other such things? Or are we kind of plateauing now in terms of how much you can do with the fleet that you have? John Evans: Okay, Eric, I think what's interesting for us is that we have a very strong backlog for '27. If you just look at the data we got $3.8 billion of backlog for 2027, which is a very good place for us to be looking this far ahead. There are some changes that we're doing next year. It's also about how we upgrade the margins in our projects. There has been some work that we've been doing, for example, on some Jones Act work that we won't continue next year. So we'll return those chartered vessels to the owners because we can't get the margins that we expect. We've returned the Champion in the Middle East. And so for us, it's also about just being very, very selective about which assets we deploy, how we deploy them and the returns that we get, and the risks that we take to earn those returns. So there is room for improvement. There's always room. But now it's about taking the asset base that we've got, as Mark said, being pretty brutal about what it's doing, where it's working, what it's returning for us. So you will see some changes in the fleet next year, some -- actually reductions in the size of our fleet next year whilst we're increasing the revenue. That's our task at the moment, is to maximize what we have in the cycles that we work in, Eric. Erik Aspen Fossa: I think you also sort of started to answer my second question, and that was on the lease costs that decreased, slightly now this quarter. And I'm just wondering how we should view that into 2026, should it come down because of what you actually just explained now, John? Mark Foley: Yes, Eric. We will see a directional downward movement in lease liability cash impact in 2026 as a result of releasing some of the lease vessels that we have in the portfolio today. As you know, out of the 41 vessels, we have 11 leased vessels, and some of those will be going back at the end of the charter period to the owners. Erik Aspen Fossa: Was that just the Jones Act vessels, or are there any other vessels? Mark Foley: All the vessels fleet, Eric. John Evans: Yes. So I discussed the Champion, it was leased, and that was in the Middle East. That has already come back. There will be a couple of Jones Act vessels going back, and there will be at least one -- further one going back, but we're not ready to include that at the moment. But that's the direction of travel, as Mark is saying, that we're working our way through, making sure that if we bring additional tonnage in, first of all, is it adding value in the portfolio and can we -- what we're trying to do here is to grow the revenue, but also make sure we maintain the margin. So that's what this fine-tuning that we're doing is about. But that also brings our lease obligation line down, which again, I know has a lot of high focus in the market as well. Erik Aspen Fossa: Just lastly, could you give some sort of indication on kind of the level that we could think about next year on the lease payments? Mark Foley: It will be notably lower than we have incurred so far this year, Eric. I think we've spoken about it every quarter. We'll probably just be under $300 million cash out this year, principal plus interest, and we've given a flavor of the vessels that, all other things being equal, we'll leave the fleet. I'll allow you to apply your assumptions in terms of what that means around impact -- favorable impact to cash. Operator: This concludes today's question-and-answer session. I'll now hand back to John Evans for closing remarks. John Evans: Well, thank you very much for joining us. We have an interesting story to tell, and we appreciate your continued support and the questions that you ask and the papers that you publish about Subsea 7. We have a very good year ahead of us, I believe, in 2026. We tried to frame that for you and try to give you information to allow you to model it and look ahead. And we continue to be in some very positive discussions. Stuart has also been very open about the opportunity sets in Renewables in '28 and '29, which will become clearer in Q1 next year. So hopefully, when we meet with our Q4 results at the end of February, early March time, we will be able to give you more updates on how we see AR7 and what that means for Seaway 7. So as ever, thank you very much for your support and your questions, and we shall see you again soon. Thank you. Goodbye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Marc Ronchetti: Good morning, and welcome to our Half Year '26 Results Presentation. I'm pleased to be here to present a really strong set of results for the 6-month period, results which clearly demonstrate the enduring strength of our sustainable growth model and most importantly, the exceptional talent and commitment of our teams across the group. And I'd like to start by thanking everyone at Halma for their individual contributions that enable us to deliver consistent growth and positive impact. Carole will provide more insight into our financial performance shortly. But first, let me start with the highlights. As I said, it's great to report another set of record half year results, and I'm really pleased to see these results underpinned by strong organic growth. And fantastic to see the strong performance across all three sectors in addition to the premium growth of our Photonics business. We've also delivered a very strong margin performance and continued high returns on capital, and this supporting further substantial investment in the significant opportunities we see for future growth. And these results put us on track to deliver our 23rd consecutive year of record profit. Delivery of this financial performance demonstrates the power of our sustainable growth model, a model which has supported strong compounding growth and returns over decades, and a model which when combined with the opportunities we see in our markets, underpins my confidence in our continued long-term success. The strength of our model lies in the way that each of the elements are interlinked, aligned and complement each other. Together, they remain critical to the delivery of our performance, both in the short and long term, a topic which I'll come back to later in the presentation. But first, let me hand you over to Carole for more details on our financial performance. Carole Cran: Thank you, Marc. And a very warm welcome to everyone on the call. I'll be taking you through some of the detail behind this excellent set of results. First, let me give you the highlights. For me, these results are a great demonstration of what the Halma model can deliver. First, strong growth. We reported headline revenue growth of 15% and EBIT grew 27%. Excluding a one-off benefit in E&A that we've already flagged in our trading update, revenue grew 14% and EBIT 23%. And we delivered an exceptionally strong first half margin of 22.3%, up 160 basis points. I'll give you more detail of the drivers of this increase in the sector reviews. A fantastic performance, and as you will see, driven by organic growth broadly spread across our sectors. At the same time, we've continued to make substantial strategic investments to support our future growth. We've invested GBP 300 million in the first half, including nearly GBP 60 million in R&D, around GBP 130 million in acquisitions, and over GBP 100 million in CapEx and working capital to support growth in a number of our companies. While this investment resulted in cash conversion being below our KPI at 79%, we expect it to be more in line with our 90% KPI at the full year. All in all, a substantial level of investment, reflecting the significant growth opportunities our companies see in their markets and our confidence in continuing to deliver strong growth and returns. The strength of our financial model means that we've been able to make these investments while maintaining a strong balance sheet and delivering high returns. Net debt to EBITDA is essentially unchanged since the year-end at just over 1x, and returns have increased significantly, up 190 basis points to 16.2%, a very strong performance. All of this supporting a further increase in our dividend, putting us on track to deliver our 47th year of dividend increases of 5% or more. Now let's look at our revenue growth in more detail. This slide bridges the year-on-year revenue growth of 15.2%. Organic revenue growth was very strong at 16.7%. This reflected healthy growth broadly spread across all three sectors and a continued benefit from premium growth in Photonics, which accounted for around half of the organic growth. Most of the growth was volume driven with price increases averaging between 1% and 2%. There was a modest contribution from acquisitions of 1.6%, reflecting the number of deals completed in the last year. This acquisition contribution was partly offset by the disposal of AAI, which we sold in July. As a reminder, AAI's revenue last year was approximately GBP 42 million, so there will be a larger effect in the second half. There was also a translational currency headwind of 3.2%, primarily due to the weaker U.S. dollar. Based on latest currency rates, we expect a similar headwind for the year as a whole. Finally, the one-off benefit was equivalent to 0.9% growth. Excluding this, reported revenue growth was strong at 14.3%. Let's now move from revenue to profit and margins. EBIT was up 22.8%, excluding the one-off and a very healthy 22.7% on an organic basis. This was ahead of revenue growth and reflects margin expansion across all three sectors. Acquisitions contributed 3.1%, again, ahead of revenue, reflecting the quality of the businesses we have bought, while disposals were also accretive to margins. The currency headwind was similar to revenue at 3.4% and the one-off benefit of 3.9% completes the bridge. Moving on to the sector commentaries, starting with Safety. It was great to see further momentum in Safety following 2 years of double-digit growth. On an organic basis, revenue grew 6%, led by strength in the Public Safety and Worker Safety subsectors. This was partly offset by a mixed performance in the other two subsectors given some specific end market trends and customer project delays, notably in the U.S. Profit grew 16%, reflecting a 280 basis point margin increase to 27%. This is a historic high for the sector and was driven by four main factors: the sector's continued revenue growth; favorable portfolio and product mix; strong operational delivery and benefits from accretive acquisitions; and disposals. Our safety companies continue to invest at a good level to support their future growth, with R&D spend increasing by 11% to 6.1% of revenue. Turning next to Environmental & Analysis. This slide shows E&A's performance excluding the one-off. There's a slide in the appendix, which shows performance including it. The sector delivered an exceptionally strong organic revenue and profit growth of 36% and 38%, respectively. And it's really pleasing to see this driven by growth across all subsectors. Strength in Water Analysis & Treatment was driven by water infrastructure demand in both the U.S. and U.K. A strong performance in Environmental Monitoring reflected growth in U.S. gas detection and gas management in Asia Pacific. And in Optical Analysis, we saw continued premium growth in Photonics, reflecting increased demand from our long-standing hyperscaler customer. The profit increase of 38% on an organic basis included a 90 basis point increase in margin to 23.6%, driven by growth in all subsectors and continued cost discipline. At the same time, it was pleasing to see a good level of investment with R&D up 7%. Adjusting for Photonics, where development is part of the revenue we earn, R&D for the sector is at a healthy level at over 6% of revenue. And finally, it was good to see a strong 4.3% contribution from acquisitions, including Brownline and Minicam's bolt-on Hathorn. Now let's turn to Healthcare, which delivered a stronger performance compared to last year, reflecting good execution against a background of steady recovery in health care markets. This was supported by improving customer confidence and demand for solutions, which improve our customers' efficiency given increasing health burdens and rising patient backlogs. This resulted in good levels of organic growth in both Therapeutic Solutions and Healthcare Assessment, which together account for over 90% of the sector's revenue. Therapeutic Solutions saw strong performance in a number of surgical and respiratory device companies, although this was partly offset by continued softness in eye health therapeutics in Europe. Growth in Healthcare Assessment was broad-based with most companies in the subsector delivering solid organic growth. Sector profit was 10% higher and on a reported basis, up 8% organically. Margin increased 50 basis points to 21.3%, reflecting benefits from stronger revenue growth and improved pricing and mix. Our health care companies remain well invested with R&D at 5.4% of sales. Finally, there was a good contribution from acquisitions, reflecting the quality of businesses we recently acquired such as Lamidey Noury. I'll now talk about our cash flow and the balance sheet and how we've allocated capital during the first 6 months. The cash-generative nature of our companies means that we've been able to make a substantial investment to support our future growth while maintaining a strong financial position. Our first capital allocation priority is organic investment to support our long-term growth, represented here by investment through R&D and CapEx of GBP 93 million. Our financial strength means that we have also been able to support a number of our companies in making strategic investments in working capital. This resulted in a larger-than-usual outflow of GBP 75 million. Together with higher CapEx investment, this was the driver behind our lower cash conversion in the half, and we expect it to drive a stronger position at the full year. Our second priority is continued value-enhancing acquisitions, where we invested a net GBP 148 million. And our third is a progressive return to shareholders through the dividend, with GBP 53 million returned in this first half. In total, we've invested over GBP 300 million in the half to support future growth, both organically and through acquisitions. And our leverage has remained almost unchanged at just over 1x net debt to EBITDA. So before I look at our financial KPIs, let me briefly describe the M&A investments we've made this half year. First, Brownline, which is a fantastic purpose-aligned acquisition, which extends our strength in the trenchless technology market. Its location services deliver pinpoint accuracy underground for operators of horizontal directional drilling equipment. This is increasingly vital as utilities and data providers look to improve resilience and safety by burying their pipelines and cables. At the same time, they also want to reduce the surface disruption of digging trenches while safely navigating increasingly congested underground spaces. Brownline's best-in-class technology and deep technical know-how make a great addition to Halma. Next, Nu Perspectives, a small but strategic acquisition for our eye health assessment company, Keeler, enhancing its capability in cryogenic technology. This reflects a broader trend across Halma of our companies using bolt-ons to expand into adjacent markets and deepen their presence in existing nations. We also remain disciplined in managing our portfolio. The disposal of AAI reflects our commitment to continually assess our portfolio for strategic fit and to ensure each company contributes to our long-term ambitions for growth and returns. Looking forward, I'm confident we'll make further progress in 2026. We have a healthy pipeline of acquisitions and a good mix of deals by size and type, both bolt-ons and stand-alone acquisitions. Now let's turn to our performance against our financial KPIs. It's clear that this half year represents a strong performance by any measure, driven by broad-based growth and strong returns across all three sectors, combined with premium growth from our Photonics business. We are substantially ahead of our targets for organic revenue and profit growth, and delivered margins and returns well into the upper quartile of our target ranges. And while acquisition profit and cash conversion were below our KPIs, this principally reflects the dynamics in this specific half year. Over the longer term, our performance is ahead of our targets. So all in all, a very pleasing half year, but one that I'm aware comes from an unusual combination of broad positive momentum in both revenue and margins across all three sectors. Taking a longer-term perspective, this half year provides another proof point of what the Halma model can deliver. And these KPIs frame our ambition to deliver strong and compounding growth and returns over the longer term and further extend our strong track record against our targets. Moving on to my last slide on full year guidance. The strength of our first half performance across our portfolio, together with our current expectations for the remainder of the year means we have upgraded our full year guidance for the second time this year. While our companies continue to experience varied conditions in their end markets and the economic and geopolitical environment remains uncertain, we've made a good start to the second half of the year. For the year as a whole, we now expect to deliver mid-teens percentage organic constant currency revenue growth, including a continued benefit from premium growth in Photonics and an adjusted EBIT margin of around 22%. I'll now hand you back to Marc. Marc Ronchetti: Thanks, Carole. Fantastic to see the excellent performance against our financial KPIs and the further upgrade in our full year guidance. In this section, I wanted to take a step back from the results themselves and provide insight into the role of our sustainable growth model in driving our continued success. It's a model which has always been key to our past success, including in the first half of this year, and it underpins our ability to deliver compounding growth and high returns over the long term. You'll recognize the core elements of our sustainable growth model. In June at our full year results, I looked back over the last 50 years and shared how our model has been tested and proven to be resilient in a wide range of environments. And this enabling us to continue to scale through many different geopolitical events, economic cycles, technological advancements and changing market dynamics. And while our model continues to evolve, its fundamental elements remain at its core. Today, I want to highlight how our model enables one of Halma's most important characteristics, our ability to combine a long-term view with short-term agility. At Halma, we're guided by our clear and ambitious purpose and powered by long-term growth drivers that underpin our markets. And this enables us to think in decades and take a long-term view for determining the talent and capabilities we need or for the organizational model required to scale and when we're choosing the markets and opportunities in which to invest. If I take our markets as an example, we invest in markets with resilient, often regulatory-driven growth drivers that extend over decades. And our disciplined approach targets niches with high barriers to entry, strong societal benefit and sustainable demand, markets and niches where we enable our customers to tackle some of the biggest challenges we face today, better health care for everyone, clean air, clean water and how to keep us safe in our cities and in the places where we work. All of these fundamental challenges, which are intensifying, supporting our growth and returns for decades and giving us the confidence to invest ahead of the opportunity that's in front of us. And thinking in decades also enables us to continuously scan the horizon to identify long-term trends and reshape our portfolio to align with those evolving markets and technologies. And at the same time, our decentralized model and the quality of our leaders means that we're able to seize new opportunities. Agility is embedded in Halma's DNA. It enables us to respond quickly to fast-changing challenges and opportunities without losing sight of our long-term goals. Our model puts our companies close to their customers and their end market. And this gives our entrepreneurial leaders who are not dependent on other parts of the organization, the freedom to innovate and adapt rapidly to changing market conditions. This means that while maintaining their core long-term focus, they can also look for opportunities to apply their deep technical expertise to those faster-growing end markets for a period of time. Let me just bring that to life. Crowcon is applying its gas detection expertise into battery energy storage, detecting hazardous gases to protect these systems that provide critical backup power for sectors like health care. Sentric is applying its industrial interlock technology to keep assets and people safe in the fast-growing data center space. And Alicat's proven ability to apply its flow and pressure control expertise to many different fast-growing end markets. Just a few examples of how our companies are always looking to capture emerging additional growth opportunities. And this combination of long-term thinking and short-term agility is a powerful combination. Let's look a little bit closer at how we can maintain our agility as we continue to scale. And this is why we insist on talented entrepreneurial leaders with the ambition to act quickly and to innovate. Our structure enables fast decision-making. And by having our companies close to our customers, they can anticipate and adapt their changing needs. And this focus on the long term alongside the importance of agility means that we're constantly balancing seemingly contradictory requirements at the group sector and the company level. At Halma, we see these as complementary. It's not either/or, we call it yes/and. It's embedded in our DNA and our sustainable growth model. It's part of our culture and a source of our strength. Our leaders have the autonomy to grow their business in the way that's right for them, and they are held accountable for delivering that growth. Our leaders are focused on delivering this year's results, and they're focused on where the growth is going to come from 5 years from now. Our companies have the agility and speed of SMEs, and they get the benefits of being part of a global group. And it's this ability to combine the long-term and short-term agility that enables us to capture those fast-growing emerging opportunities with pace and invest ahead for future growth. And it's this same approach that we're adopting through this period of premium growth in Photonics, a great example of everything that I've just said. When we first acquired the company in 2011, our long-term view recognize Photonics as an enabler of technologies across many end markets. We could also see how the company was showing exceptional agility in capturing growth opportunities by accessing new faster-growing markets, a consequence of great leaders and deep technical expertise. And one of these opportunities has led to a period of over 10 years of working closely with their hyperscaler customer. They're using their substantial application knowledge to support their customer with the development of a relatively small but critical component of a wider solution in data centers. Our model allows us to maximize the opportunity with the customer while remaining focused on the continued delivery of our group strategy of sustainable compounding growth and returns. And this outstanding delivery in the short term through excellent local execution allows us also to reinvest for the long term to enable future organic and acquisition growth. Investments in innovative R&D at our companies in building out our teams for scalability, in our M&A capability and in the addition of great value-added acquisitions such as Brownline. As we heard from Carole, Brownline, another great example of a fantastic acquisition underpinned by long-term growth drivers. Urbanization, the need for resilient infrastructure, including water, electrification and the rollout of fiber and data networks. And this combination of a long-term view and short-term agility is critical in the continued delivery of our strategy. Being invested in niche markets underpinned by long-term growth drivers and having that org model and culture that gives us the ability to operate with agility is a fantastic start point. However, it's our talent that is the enabler and the multiplier. We structure for growth and agility, but it requires leaders and a culture that can realize it. It's our entrepreneurial and ambitious leaders that maximize our potential. And the criticality and therefore, the focus on talent isn't new. It's been there since the beginning, embedded into Halma by our founders, David Barber and Mike Arthur. In fact, it remains such a critical element of our model that we brought together all our MDs and presidents for our Accelerate event last month. And we spent 2 days solely focused on how we, as a leadership team, can all become even better at spotting and developing talent to help maximize Halma's potential. A truly inspiring event and a demonstration of how our great individual leaders benefit from the power of our network. But don't take it from me, let's hear from some of our leaders on why talent is so important to their businesses. [Presentation] Marc Ronchetti: Some fantastic comments from our leaders in the video, illustrating just how important talent is at every level of our business, both Alex and Alan capturing why talent is critical to seizing those faster-growing opportunities. Robert picking up on the importance of accountability driving that ownership mentality, and Natalya on why we've been able to attract and retain fantastic talent and the ability for them to make an outsized impact at Halma. As you heard from the video, we create a culture where leaders can thrive. This is what enables us to keep scaling and maintain our culture as we grow. And it's why we continue to invest in our people and our capabilities to support our future growth. For example, we've grown our M&A teams, and we've added two new Divisional Chief Executive roles over the last year. Our DCEs are critical to our growth. They're responsible for acquiring new companies and then they chair those companies once they join the group. So the strengthening of both of these teams gives us greater capabilities to find more companies and the ability to continue scaling. We also continue to invest in our development programs and our graduate scheme, the Catalyst Program, both critical in enabling us to grow and develop our own future leaders, ensuring that we maintain our culture as we continue to scale. And it's really pleasing to see those investments bearing fruit. For example, we heard from Alan in the video, who's one of three company MDs that have come through our Catalyst Program. Also the continued strength of our organic growth, a direct result of our continuous investment in R&D and the acquisition of Brownline, a result of the targeted investment in setting up a dedicated E&A sector M&A team when we transitioned to our three sector structure 4 years ago. So bringing it all together, Carole described the strength of our performance in the first half of 2026, another record result delivered in varied markets. You've heard how this continued success is enabled by our sustainable growth model, a model which enables us to take a long-term view, staying focused on and investing in capability needs and structural growth drivers, and a model which gives us that agility to capture emerging opportunities and mitigate risks. It's a model amplified by the exceptional talent at Halma, accountable to deliver long-term sustainable growth and empowered to act with agility to capture those short-term opportunities. A model that continues to deliver consistent, sustainable and compounding growth and returns. And a model that underpins my confidence in our ability to continue to deliver for decades to come. And that's the end of the presentation. And now we have time for some questions. Marc Ronchetti: As ever, there's two ways that you can ask your questions. You can either raise your hand using the tool at the bottom of your screen, and I'll invite you to ask your question verbally, or you can type the question which Carole and I will read out and then answer. So Bruno, let's come to you first. Unknown Analyst: The first question is just on the strong growth seen in E&A this half. And it relates to -- I guess, the growth in Photonics was good to see. But what was more surprising for us actually was the very strong implied growth in E&A outside of Photonics, which we calculate to be roughly around 17% to 18% on an estimated organic basis. Could you maybe just speak to the drivers of that a little bit more? So why was gas detection so strong in the U.S. and gas management solutions so strong in APAC and also the water infrastructure market? Marc Ronchetti: Yes. Great. Thanks, Bruno. As you say, really pleasing to see that broad spread growth, not only in the E&A sector, but across the whole group. I think that really is the story of these results in this 6-month period. Picking up on the specifics of your question, again, really pleased to see growth across all subsectors within Environmental & Analysis. As you say, Optical Analysis, very strong with that exceptional growth from Photonics. Beyond that, spectroscopy was mixed. We saw some recovery in certain end markets around semiconductors, personal electronics and other OEM customers, but slightly weaker in areas such as biopharma. But again, no real read across there. It's a really small part and pretty specialist in terms of what we're doing. Within Water Analysis & Treatment, yes, great to see the strength of the performance in Water Analysis. That was driven really by water infrastructure demand in the U.S. and the U.K. We also saw a recovery in water testing and disinfection. So again, there's still a bit of uncertainty certainly in the U.K. as we transition through the AMP cycles, but good to see the recovery come back and that underpin of the demand. And then finally, to your point in Environmental Monitoring, strong across both Environmental Monitoring and gas detection and analysis. We've seen that really, as you say, notably in the U.S.A. There is a little bit here just in terms of the specific companies have got a few more projects in them. So there's a bit of phasing in terms of the number of the projects, but growth across all regions in gas analysis. So net-net, a really strong performance. Always worth just remembering within that, it is a 6-month period and some of those are a little bit more project-based. But strong underlying growth and also actually pretty unique to have all of the subsectors moving forward in the same 6-month period. But net-net, really pleased with the wider performance. Unknown Analyst: That's very clear. And I guess just a follow-up on Photonics. And I know you're limited in terms of what -- but I was wondering if you could help us understand the driver of acceleration in the half a little bit more. So more specifically, are volumes for Photonics simply scaling up with CapEx or investment like your customer? Or is it more complex than that and you're perhaps taking share of CapEx wallet at the same time? And then finally, maybe a little bit on how you expect this relationship to evolve in the coming years. Is the base case that you just, again, simply scale with investment at your customer? Or is it more complex than that? Is there a replacement angle that we should factor in or again, share gains in terms of customer wallet? Just some thoughts around that would be super useful. Marc Ronchetti: Yes, I'll sort of pick up on the specifics. But I think before I do that, I mean, there's no doubt going to be a few questions on Photonics. As I said at the outset there, I think the big message from today is the wider performance of the group, really pleased in terms of what we've delivered. I guess for me, we're now here executing what we said we were going to do sort of 6, 9, 12 months ago, and that is we're maximizing the opportunity in front of us. So a phenomenal job by the team in the company in terms of execution and really scaling what is complex manufacturing. We're then continuing to deliver a strong performance in the rest of the portfolio and then using this period of premium growth to reinvest for future growth. So really good to see that coming through. To your point then more specifically, we're going to get some questions on Photonics. So it's probably worth me just giving a few reminders, setting a bit of background and then coming back to your specific questions. Firstly, as a reminder. As you say, we have got customer confidentiality to work through here. So I'll be a little bit guarded. I think we have been increasing our disclosures, but we've got to be careful and adherent to the confidentiality. Again, as a reminder, a business we acquired back in 2011, around GBP 4 million of revenue at that point. And as I said in the presentation, we've recognize that Photonics had many use cases. We've recognized the quality of the team and the technical expertise. And our org design means that they've had the autonomy to look for those opportunities. And then within the business, and we've talked about it before, the drivers of success and their core characteristics are largely the same as many other companies, if not all the companies in the group. So they've got that agile and entrepreneurial talent, still the founders, in fact, in this instance. They're very close to the customer. In fact, it's an embedded relationship. We work closely with all parts of the team with the customer, including the R&D team, and that's a relationship that's been embedded for over 10 years. And as I say, we've got significant technical skills. We're solving a really complex problem, and it's highly complex manufacturing of what is a small but critical component. So a bit of a reminder there in terms of the background. I've talked to how we're managing it in the group. I guess taking a view at the wider market, which will feed in a little bit to your point in terms of how do you scale is it linked to CapEx. There's no doubt there's lots of commentary and a wide range of views across a number of topics in and around AI, in particular, whether that's valuations, economics of investment, timing and scale of investment. And there's no doubt there's a lot of investment going in and around and a lot of interest in and around AI. I guess we look through the short term there. And if you think about the adoption of AI, in particular, whether that's in our daily lives at home or at work through productivity, automation, innovation, all of that continues to happen. I think it's been referred to as transformative technology in the last week or so. And there's no doubt that we're aligned to that point around compute demand accelerating. So if you've got an underlying demand for compute, then underneath that, that shift is going to require infrastructure and investment. And that's where data warehouses come through. So again, I'm sure lots of different views as there are out there around the absolute scale and timing of that build-out. But fundamentally, as I say, there needs to be a foundation in an infrastructure. And I guess if you take a more specific focus on data centers, there's that real focus at the minute on speed, on latency and more and more now on efficiency and energy consumption. So it's likely that Photonics can play a role in solving some of those problems. So net-net, and we can talk about kind of short-term forecast and all of those things, regardless of absolute scale, regardless of precise timing, we still see that medium-term demand in terms of the operations. All of that said, we mustn't forget that it is a very dynamic market. Whether that's the technology, whether that's the demand cycles. And specifically, again, as a reminder, for our business, we are operating on that 10-year relationship. It's PO-based. We've got sort of 6, 12 months of visibility, but fundamentally, not a contract in place because of that embedded nature, because of the strength of the relationship. So a lot of information there, but hopefully, it just means that everyone on the call is in the same place. Coming back then to your specific questions. As you know, we've been working with the customer for over 10 years. It's iterative in terms of the innovation. We continue to innovate with them. And we grow with them, to your point. So their CapEx investment, what they're investing, we're investing with the customer. In terms of the potential for replacement and upgrade, absolutely, that remains potential in fast-moving innovation, fast-moving technology. We haven't seen that as yet. But clearly, as you take a much longer-term view, there is that opportunity potentially. But again, I'd just come back to that thought around the dynamism in the market, the shifts in technology, et cetera. But certainly, as we sit here today, I think the team are doing a fantastic job locally of executing. And I think the rest of the group are doing an excellent job in terms of continuing to deliver that long-term growth and compounding returns. Unknown Analyst: Very much appreciate it. Maybe just a final one on Safety and the very strong margin that we saw in the first half. And I appreciate that a 6-month window is narrow when it comes to assessing profit margins. But I guess, could you just help us a little bit more with unpacking just why the margin was so strong? Were there any mix elements or anything else that we should be aware of? And just a little bit around how we should be thinking about the trajectory of the safety margin from here? Carole Cran: Bruno, Carole here. I hope you're well. Yes, I mean, as you say, I mean, first and foremost, across all three sectors, a brilliant job in the 6 months and great execution across the piece. As you rightly point out, it is a 6-month period. And so we would never be suggesting that you take 6 months as sort of inferring longer-term trends. And I think it's worth saying as well, it is actually quite unique that we have all three sectors growing with margin progression in a 6-month period. To your specific point on Safety, I mean, as ever in these explanations, there's a number of factors and variables. I mean, as you know, Safety has come off the back of 2 years of double-digit growth. So there's continued momentum through the top line. There is a bit, as you alluded to around, product and portfolio mix in there. And I suppose as we look forward, taking those points. While Safety is well invested, the reality is that you don't grow at that rate without having to then step up your investment further to make sure that you can sustain that growth. So as we look forward into the second half and beyond that, that's our thought process. And as we've said many times before, we're not in the business of chasing the margins higher. It's more that combination of keeping the margin strong whilst keeping the top line moving, too. So a couple of small examples for Safety. You heard Marc talk about two new DCEs in the group. One of those is Safety. You've heard Marc reference investment in M&A. Again, that's the sort of thing that Funmi and the team are thinking about. So as you look forward, think about the need for that additional investment. And I think also worth saying and not something that we major on because it's not a big spend for us, but CapEx-wise, one of the bigger CapEx investments this year is in one of our biggest safety companies where because they've been growing strongly, they're needing to expand their facilities. So that same thought process and logic applies to some of our other safety companies, too. Marc Ronchetti: Thanks, Bruno. So just looking at the list. Jonathan, we'll come to you, Jonathan Hurn. Jonathan Hurn: First question is just coming back to Photonics, Marc and some of the comment or one of the comments you made there just in terms of the visibility. Obviously, you have visibility on the revenue, I think you alluded to through the second half of this year. Can you just talk about the revenue visibility into your next fiscal year? How much of it or how much visibility do you have on '27? And then also just maybe sort of following up on Photonics. Just in terms of the customer exposure, obviously, you've got one key hyperscaler customer. Have you made or are there any efforts within the Photonics business to widen that exposure, maybe get some more customers on board? Essentially, that's the first question. I know it's got certainly two parts. Marc Ronchetti: Carole, do you want to pick up on the first point, and then I'll do the strategy on customers? Carole Cran: Yes, absolutely. Jonathan, I mean you've heard us reference, if we just take half 2 '26 first in terms of the visibility on Photonics. So we've spoken about the premium in the first half being about 8 percentage points of the group growth, and we're expecting similar for the second half. I mean beyond that, you heard Marc obviously articulate and remind everyone the whole position with this customer and how dynamic the market is. And whilst we do get a forward view from the customer for the next 12 months, I think it's fair to say that we would -- we consider that to be directional. And so I suppose coming back to Marc's description clearly, we'll guide for the whole group next June. But the way that I would sort of encourage you to think about the Photonics opportunity at the moment is that we would envisage it being a tailwind going into FY '27. Marc Ronchetti: Thanks, Carole. And Jonathan, just picking up on that point around the customer. As you say, we've got that strong long-term relationship. At this moment in time, strategically, we think it's the right thing to continue with that relationship from a commercial viability perspective. As I say, it's more than just that transactional relationship, that embedded nature and insight from the R&D side, we believe, is a good place to be. That said, both within the individual company, but also the sector in the group, clearly, we're looking at other opportunities to diversify. The reality is with the team and the scaling up, I mean, that is just a phenomenal job in the amount of time that takes -- that's proving difficult locally, but they have set up separate teams, and they'll continue to look. And then as you've heard today, we're doing a great job at the E&A sector of wider areas to look out. We saw Brownline coming in, and then the wider group continuing to grow. So as I say, strategically, today, it's maintained, that customer relationship, but options are always open as we go forward, and we're looking for other opportunities. Jonathan Hurn: Great. Very clear. If I could just ask a second question, just on Healthcare, please. First part of it was just on Life Science. Obviously, a smaller part, probably sort of 10% of the division, but it's the one area that's struggling. Just your views there, when do you start to think that will recover? Do you think that's potentially going to come through in H2? And the second part was just on the margin really. Obviously, we're a long way from the peak in that. Can you just give us a feel for how you think that sort of margin develops for Healthcare going forward, please? Marc Ronchetti: Yes, I'll pick up the first point around Life Sciences. As you say, it is a relatively -- well, it is a small part of the group, relatively small part of the Healthcare portfolio. And particularly, what we're doing there is mainly around specialist pumps, valves and manifolds. We've seen a mixed performance. We've actually seen pretty strong growth in the U.K. and Mainland Europe and then offset by a decline in wider Asia Pacific. But again, it's difficult to read anything into that fundamentally. I wouldn't do a read across anywhere in terms of other businesses in this arena. The reality is, again, we're starting to see a recovery. We're starting to see a bit of confidence in customers. I think we're through the destocking, but we're not at the stage that I'd want to say we were back to normal levels of demand just yet. Carole, if you pick up on that? Carole Cran: Yes, sure. And then on the margin point, actually just picking up what Marc said there, Jonathan. So we're characterizing it as a continued recovery. And there's still some uncertainty clearly in some of the markets. So Steve Brown, our sector CEO and the team are doing a great job and in particular, in the more challenging period sort of last sort of couple of years or so have been quite measured in terms of investment, although not underinvesting. So I suppose in the mix of making sure that we're investing into the recovery and the growth, we would expect to see the margins continue to move forward back towards historic levels. But I think you should think of it as progressively getting towards that point. Marc Ronchetti: Thanks, Jonathan. Just looking at the list. So, if we now go to Christian. Christian Hinderaker: I want to start on Photonics, perhaps unsurprisingly. And apologies if this is a naive question, but you've mapped the macro. As we think about the actual product set, how do we think about useful life of what you sell? And is it a fair assumption to assume that effectively any of your sales are really greenfield data expansion rather than, say, upgrades in existing facilities? Marc Ronchetti: Yes. I've got to be a little bit careful here, Christian, in terms of the confidentiality. I'll just come back to the point that I made to -- I think it was Jonathan's question. At this moment in time, we believe that a lot of that demand is CapEx and build-out. But we do believe that haven't seen it yet, but just by natural instance of the pace of change and the increase in innovation, there may be a replacement cycle. But as I say, we're not seeing that yet, and this is a dynamic market. So I certainly wouldn't want to pin any future definite guidance on that at all. Christian Hinderaker: And maybe pivoting to the Safety business. I was interested in your regional growth commentary there, marginal growth in the U.S., which compared to good growth in the U.K. and it seems strongest growth in Mainland Europe. Curious what's driving that distinction. It seems to be a bit at odds with maybe broader macro trends. Carole Cran: Christian, Carole here. Yes, I mean, I think as you probably heard us say before, we don't particularly sort of focus on the explanations around the geographies. And you have heard us reference the particular strength in public sector and worker safety. So that's really what you're seeing coming through the geographies. So nothing that we would consider to be structural, I suppose. And yes, I mean, really sort of one of our bigger business, bigger safety businesses is doing particularly well, which is benefiting the European numbers. And then in the U.S., for example, we talk about the other two subsectors being a little bit softer in Infrastructure Safety and Fire Safety. Some of that is in the comps where there was a couple of bigger projects last year. So I suppose in the round and I guess the genesis of your question about whether there's something more structural by geography, then no, we're not seeing any discernible trends that would indicate that. Marc Ronchetti: Christian, I'd see you've got a written question. So maybe we just pick that one up as well. And if I just read that out to the Brownline acquisition sits among the top 3 deals by size over the last 20 years. Does this reflect an appetite to do more medium-sized acquisitions? Secondly, when we think about those M&A ambitions, does the increased concentration of sales from Photonics affect your preferences across the segments? So I guess if I just pick up the second part of that first, not necessarily. We're open for business across all of our sectors, all geographies. So it isn't that we're looking to avoid certain areas or double down in certain areas. We're looking for those opportunities much through the lens as we always do with that disciplined approach that we have to M&A. From a deal size perspective, I guess the reality is as we continue to grow, we do get a higher level of confidence in our ability to bring value to larger companies. So those businesses at the top end of our portfolio around sort of that GBP 30 million, GBP 40 million, GBP 50 million of EBIT, they're still growing at the same rate as the rest of the group. So we've got confidence that we can bring value to those businesses. All of that said, with our aspiration at 7.5% each year on M&A, take that on GBP 0.5 billion, we're looking to acquire GBP 40 million next year, double that in 5 years, double again. It's a long, long time before you have to do anything transformative. So I think we've got the opportunity, we've got the appetite. I think we've -- as we've seen before, we've got the opportunity to do even more bolt-ons as our companies get bigger by size and they use bolt-ons to deliver their own growth strategies. But at the same time, we've got that confidence to do bigger deals than maybe we have done historically. But I don't see it as a significant shift in strategy, it's much more aligned to us being clear on the value we bring and having confidence in those future cash flows. No worries. Thanks, Christian. So is there anyone else just on the call? Dylan, I can see you've got your hand up. Dylan, on mute maybe. Dylan Jones: Apologies for that. Can you hear me now? Marc Ronchetti: Yes, perfect. Dylan Jones: Just another follow-up on Photonics and obviously, being appreciative of the fact that you're limited somewhat to what you can say. But I'm just wondering if there -- along with product sales, there's also opportunities for service and maintenance sort of post sale, particularly with this hyperscaler sort of customer in the aftermarket that could potentially sort of help smooth the growth trajectory over time. Obviously, I understand that the market dynamics are incredibly favorable and they look favorable for the foreseeable future and perhaps getting a little bit or perhaps a little bit early to be thinking about this. But just sort of wondering what levers are within that Photonics business' control to sort of deliver a sort of steady return or normalized sort of growth rate in the longer time, sort of avoiding that sort of sharp drop off, if you will? Marc Ronchetti: Yes. I think, unfortunately, what we're talking about here, Dylan, is kind of hypothetical in what is a very dynamic market. I guess I would just come back to three points there to think through. One is just the embedded nature in the long-term relationship. Two is the real -- and I just cannot undercommunicate the real expertise that we have in our company in terms of the use of photonics and the application in solving the problems. And then finally, I think coming back to that point I made earlier, if you think about kind of the need for increased speed, the need for increased energy efficiency, there's quite a bit of commentary out there that Photonics potentially has a role to play. So you put those things together, and I think you come back with hypothetically, but I certainly wouldn't want to be sitting here today making a call for something 10, 15, 20 years out. Dylan Jones: No, I appreciate that. And one last question. I think you sort of guided for, obviously, the step-up in CapEx. You kind of alluded to there's a bit sort of going on in Safety, but also the sort of corporate cost line, I think you've guided to be just a little bit higher. Should we sort of think about that as the sort of recent investment in the M&A capabilities? Or is there some other investment going on in the sort of corporate cost line? Carole Cran: Dylan, I'll take those. Yes, and I'll pick up actually on your CapEx point as well, which is well made. Yes. So we've moved our CapEx guidance up by about GBP 5 million. So the majority of that actually relates to Brownline, which is obviously a good news story because it means that the prospects are good, and it's something that we envisaged in completing the deal. So that addresses the CapEx increase. And then on the central costs, they tend to run around 2% of revenue and the slight increase is a bit of a mixture of things actually, a little bit more into the central costs that support M&A. So for example, we support centrally the integration activity of new acquisitions and also more specialist areas around tax advice and those sorts of costs. And then the broader sort of theme of technology, also make sure that we're well invested in the center around areas like AI that Marc has obviously been talking about and what that can mean for us as a group, and also the ever-present investment that is required in things like cybersecurity. So hopefully, that gives you a flavor of what's driving those. Marc Ronchetti: Thanks, Carole. That nicely answered a written question from Rory as well. But Rory, put your hand up if it didn't cover it, but I think it did. So I think we've got time certainly for one more question. Bruno, is your hand up for a new question? Or is that a legacy of having the first question? You're on mute as well, I think. Unknown Analyst: Just a follow-up question really around reinvestment in the group. I was wondering how you think about reinvestment during a period of premium growth in one area and allocation across the portfolio of the group. So do areas outside of Photonics essentially disproportionately benefit during this period? And so does your confidence of strong growth in, say, Safety and Healthcare actually start to increase as you look towards the following years? Or is it that your investment plans remain largely unchanged regardless of where the premium growth is occurring? Marc Ronchetti: Yes. It's a good question. I think the philosophy, certainly from an R&D expenditure is it's largely unchanged. That's very much bottom up. We've never restricted capital to the individual business. It's our #1 capital allocation priority in terms of R&D spend. So that doesn't necessarily change. We're not saying no to businesses. There's an opportunity there to invest. I do think to the point that Carole just alluded to, there's a bit of investment that we can do in the M&A teams. There's a bit of investment that we can do in the sector teams. And of course, the other opportunity, as we've talked to many times, is the opportunity to accelerate M&A, which, again, you make those investments, we cannot lose the discipline. So I think net-net, absolutely, that's part of our strategy, how do we reinvest through this period of premium growth to give us that future compounding growth. But I don't think it is specifically to the point in R&D per se. It will be more around M&A and anything that we can do at the sector level because, as I say, the R&D is very much bottom up and open for everybody. Unknown Analyst: Got it. That's very clear. And just a small, I guess, clarification. When we speak around orders growing year-over-year and positive book-to-bill, does that hold for, I guess, Photonics and also outside of Photonics? Carole Cran: Yes, it does, Bruno. Marc Ronchetti: Excellent. Thanks, Bruno. And thank you all. I don't see any other written questions, and I don't see any hands up. So many thanks, and have a great morning, and we will speak to you soon.
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.
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.
Whitney Notaro: Goad high because there's always gonna be another mountain is the climb. Good afternoon, ladies and gentlemen. I would like to welcome everyone to The Gap, Inc. Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. For those analysts who wish to participate in the question and answer, press star one to enter the Q&A queue. As a reminder, please limit your questions to one per participant. If anyone should require assistance during the call, I would now like to introduce your host, Whitney Notaro, head of investor relations. Good afternoon, everyone. Welcome to The Gap, Inc.'s third quarter fiscal 2025 earnings conference call. Whitney Notaro: Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings release. The risk factors described in the company's annual report on Form 10-Ks filed with the Securities and Exchange Commission on 03/18/2025, reports on Form 10-Q filed with the Securities and Exchange Commission on 05/30/2025, and 08/29/2025, and other filings with the Securities and Exchange Commission. All of which are available on gapinc.com. These forward-looking statements are based on information as of today, 11/20/2025, and we assume no obligation to publicly update or revise our forward-looking statements. Our latest earnings release and the accompanying materials available on gapinc.com also include descriptions and reconciliations of financial measures not consistent with generally accepted accounting principles. All market share data referenced today will be from Surcana's U.S. Apparel Consumer Service for the twelve months ending October 2025 unless otherwise stated. Joining me on the call today are Chief Executive Officer, Richard Dickson, and Chief Financial Officer, Katrina O'Connell. With that, I'll turn the call over to Richard. Richard Dickson: Thanks, Whitney, and good afternoon, everyone. We are very pleased to report third quarter results for The Gap, Inc. that exceeded our expectations across multiple measures, including net sales, gross margin, and operating margin. We've done this by executing our strategic priorities with precision and consistency. The reinvigoration of our iconic brands continues to gain strength. Our playbook, rooted in purpose, powered by creativity, and executed with excellence, is working. And it's bringing consistency to how we operate and clarity to how we win. The momentum in the business is clear. From product design to storytelling. From store execution to digital engagement, the result is a company that's becoming more agile and performing with increasing confidence. On today's call, as usual, I'll provide an update on our third quarter performance and progress in the context of our four strategic priorities. Then Katrina will walk you through our detailed financial results and our financial outlook, after which we will open the call for questions. Let's start with financial and operational rigor. The Gap, Inc. comparable sales were up 5% versus last year. The highest quarterly comp in over four years. We were pleased to see our three largest brands Old Navy, Gap, and Banana Republic posting strong positive comps in the third quarter. Demonstrating the resilience of our portfolio despite a challenging quarter for Athleta. We delivered an operating margin of 8.5%, which benefited from growth in AUR as customers responded well to our brand offerings. We continued to strengthen our balance sheet, ending the quarter with strong cash balances of approximately $2.5 billion. Turning to our next strategic priority, driving relevance and revenue by executing on our brand reinvigoration playbook. This playbook, when applied with relentless repetition, creates a powerful flywheel which has resulted in seven consecutive quarters of comp growth for our portfolio. Our largest brand, Old Navy, had an incredibly strong quarter. Reflecting the brand's strength, consistency, and continued momentum. Comparable sales were up 6% with the brand gaining market share over the last two years. Customers responded to the compelling value proposition resulting in healthy growth in average unit retail and notably across all income cohorts. Which is encouraging despite widely reported macroeconomic pressure on the low-income consumer. Old Navy's consistent performance is being delivered by trend-right products, our strategic pursuit of category leadership, and compelling storytelling. The quarter began with a robust back-to-school season, reinforcing its leadership position in kids and baby in the U.S. Denim posted its highest third-quarter volume in years, growth across the family. Women's and girls showed particular strength driven by trend-right styles like barrel, wide leg, and baggy fits. Active delivered impressive double-digit growth in the quarter with strength across the family. This demonstrates the strong customer response to the brand's distinctive value proposition in the active market and innovation including new franchises, like Bounce Fleece. Today, Old Navy is the number five active apparel brand in the U.S., and the number four brand in the women's active space. As we begin to drive more growth through strategic partnerships that amplify our brand relevance, our latest Disney collaboration kicked off the holiday season with our Jingle Jammies collection, which is exceeding our expectations. Driving excitement across the family and fueling strong performance in the broader sleep category. Another great example is our first designer collaboration with American design legend, Anna Sui. The collection brought high fashion design to a broader audience staying true to Old Navy's democratic and accessible brand promise. The campaign featured rising Gen Z artist Pink Pantheris, and resonated across platforms. In September, we announced plans for a strategic expansion into the beauty category with a phased launch starting with Old Navy. As one of the fastest growing, most resilient retail categories in the U.S., and customer insights that reinforce strong interest in the category, we see a clear and meaningful opportunity to grow in beauty. We recently expanded Old Navy's beauty in 150 stores with select stores offering dedicated shop-in-shops and beauty associates. We intend to use this pilot to inform a thoughtful, scaling strategy that will take us from seeding 2026 to accelerating growth in the years that follow. Old Navy's third-quarter performance reflects the strength of the team's work which is clearly resonating. This brand continues to delight consumers and consistently deliver positive comps while reinforcing Old Navy's position as a brand that defines value, style, and accessibility in American fashion. This gives us confidence as we move into Q4 and beyond. Now let's turn to Gap. Gap delivered another standout quarter. Reinforcing the reliability of its execution and the compounded strength of our namesake brand. Comparable sales were up 7% on top of a 3% comp last year. Marking the eighth consecutive quarter of positive comps. With growth in average unit retail consideration, organic impressions, and new customers. A clear signal that Gap's momentum is real, repeatable, and resonating. The quarter was fueled by broad-based strength in denim, the centerpiece of our viral campaign Better in Denim. Featuring global group Cat's Eye. This campaign demonstrated the power of the playbook in action featuring trend-right product amplified by culturally relevant storytelling. With more than 8 billion impressions, and 500 million views, Better in Denim culminated in a global cultural takeover. And has become one of the brand's most successful campaigns to date. Generating significant traffic and double-digit growth in denim. The results speak for themselves. Gap continues to accelerate attracting a younger, highly engaged consumer, particularly Gen Z, is discovering us while reinforcing loyalty with our core consumer. As Gap brand equity and relevance continues to build, the iconic Gap Arch logo hoodie is a great example of the brand reclaiming its place in the cultural conversation. During the quarter, we marked the thirtieth anniversary of the Gap hoodie. With our first-ever Hoodie Day. It was a moment that energized our teams, drove connection with consumers, and contributed to the notable strength in fleece. During the quarter. Our recent collaboration with Sandy Liang was another highlight. Delivering strong results and continuing to position Gap as a platform for creative partnerships that drive relevance and new customer acquisition. For holiday, the brand is leaning into CashSoft, where you'll see continued innovation with extensions into new silhouettes, on-trend sets, and vibrant colorways. Earlier this month, we launched our highly anticipated Give Your Gift holiday campaign. A continuation of our effort to bridge the gap across generations through music, creativity, and culture, featuring emerging artist Sienna Spyro. Gap's execution of the playbook has been fantastic. And it's been exciting to see the brand building on their success quarter after quarter while continuing to drive distinction and relevance. It's a brand that knows who it is, where it's going, and how to win. And we're looking forward to carrying that momentum into the holiday season. At Banana Republic, we continue to make steady progress. The work to strengthen its positioning leaning into its heritage is paying off. Comparable sales were up 4% in the quarter. Reflecting meaningful traction as the brand's reinvigoration takes hold. Growth was driven by continued progress in the harmonization between men's and women's. Men's elevated fashion designs featuring distinctive text and fabrications continue to perform well. And we've seen notable improvement in women's as fit and product refinement are resonating. Particularly in dresses and wovens. Building on the success of the brand's prior campaigns, the response to Banana Republic's fall campaign with David Corn Sweat, was strong. Breaking brand engagement records and fueling growth while expanding cultural reach, and resonance. For the holiday season, Banana Republic is leaning into its distinctive position as the modern, explorer brand. Our new campaign, shot in the stunning landscape of Ireland, captures this essence well. With our beautiful product featured in our travel-oriented storytelling brought to life through dynamic destination-rich content. This approach is driving stronger brand affinity, and proving to be highly impactful with our customers. Overall, Banana Republic's third-quarter results reflect meaningful progress and continued momentum. I'm optimistic the brand is well-positioned as we head into the holiday season. Shifting to Athleta, Maggie Gauger, brand president, has begun to make an impact in her first ninety days. She's taking quick and thoughtful action to begin to reorient the brand. This includes reorganizing the talent structure to align with her vision. The team is doing the right work. Acting with speed and urgency to drive progress but this reset will take time. Our focus is on positioning Athleta for long-term success and returning it to its rightful place as a premium aspirational brand. The brand is at the beginning of its reinvigoration journey. We aren't chasing quick fixes, We are taking a deliberate approach to position the brand for the long term. We're confident that the consistent application of our brand reinvigoration playbook anchored in purpose and heritage will guide Athleta forward. This is about returning to what made the brand great to begin with. While reestablishing our clear and distinctive position in the active market. We're encouraged by the steps Maggie and the team have already taken and we look forward to the continued impact of their leadership as Athleta's reinvigoration takes shape. As we head into the holiday season, our supply chain continues to power strategic advantages. The scale of our global network, across sourcing, logistics, and fulfillment gives us the flexibility and resilience to operate with confidence. Our long-standing vendor partnerships and diversified sourcing footprint are enabling us to move with speed, and deliver newness at the pace of demand. We've introduced new automation and AI capabilities across our omni, fulfillment network. From robotic unloaders to advanced storage and retrieval systems. Which have increased productivity by nearly 30%. Compared to just a few years ago. This enables us to meet peak demand with greater speed, agility, and precision. With a fleet of about 2,500 stores globally, and the largest specialty apparel e-commerce business in the U.S., we're positioned to serve our customers wherever and however they choose to shop this holiday season. Across The Gap, Inc., our teams are inspired and energized by the work we're doing. And you can feel it. The work we're doing together to drive the business continues to ignite real energy inside the company. Creating a culture that's united, motivated, and focused on execution. This is the culture that is carrying us into the holiday season. Where our collective focus is clear: win with the consumer. Deliver with excellence. And keep building on the progress we've made together. In the fourth quarter, we remain focused on executing with excellence. Our Q3 and quarter-to-date performance positions us well for the holiday selling season and gives us the confidence to update our full-year outlook. Increasing net sales growth to the high end of our prior range and raising our operating margin. We look forward to finishing the year strong and creating a clear runway to the next phase of our transformation as we move into 2026 building momentum. I'll now turn the call to Katrina for a closer look at our financials. Katrina O'Connell: Thank you, Richard, and thanks everyone for joining us this afternoon. We delivered exceptional third-quarter results. Surpassing our expectations across multiple key metrics. Our strategy is working, growing brand relevance combined with operational and financial discipline, drove our highest quarterly comparable sales performance in over four years, up 5%. We saw strong performance across the back-to-school and early holiday periods. Underscoring the increasing resonance of our brands with consumers. With the Playbook now in its second year, we're beginning to see a flywheel of growth take hold at Old Navy and Gap. With Banana Republic gaining traction. We exceeded our gross margin expectations with strong flow through to our operating margin in the quarter. Driven by rigor in the fundamentals. Average unit retail or AUR grew again this quarter. Reflecting our compelling product offering and the disciplined execution across our teams. Our brand momentum combined with our strategic supply chain actions enabled a significant portion of the tariff impact on our margins to be mitigated. With the strength of our third-quarter results and our quarter-to-date performance in mind, we are raising our full-year 2025 gross margin and operating margin outlook. With full-year 2025 net sales growth now expected to be at the high end of our prior guidance range. I'll take you through the details of our outlook shortly. We are entering the final stages of fixing the fundamentals. Consistent progress on our strategic priorities has strengthened our position. As we move into 2026. Where we will focus on building momentum, and creating new growth opportunities. Now turning to third-quarter results. Net sales of $3.9 billion were up 3% year over year. Exceeding our expectations. With comparable sales up 5%. By brand, starting with Old Navy, net sales were $2.3 billion, up 5% versus last year with comparable sales up 6%. It's exciting to see the brand winning in strategic categories like denim, active, and kids and baby. Supported by strong execution of culturally relevant marketing and partnerships. Turning to Gap brand. Net sales of $951 million were up 6% versus last year, and comparable sales were up 7%. Relentless consistent execution of the reinvigoration playbook is fueling sustained momentum for the brand. Clearly reflected in the Better in Denim campaign. Banana Republic net sales of $464 million were down 1% year over year with comparable sales up 4%. Our foundational work on the brand from elevated product to culturally relevant storytelling is resonating with consumers. And drove the second consecutive quarter of solid performance. Athleta net sales of $257 million decreased 11% versus last year and comparable sales were down 11%. We're focused on applying the playbook with rigor, beginning with the fundamentals as we work to reset the brand for the long term. And while we're eager for results, we are executing a phased plan that will take time. Let's continue to the balance of the P&L. Gross margin of 42.4% declined 30 basis points from last year, but exceeded our expectations. As anticipated, tariffs pressured overall margin levels. However, lower discounting resulted in increased AUR growth driven by the consumer's response to our relevant product and storytelling. Compared to last year, merchandise margins were down 70 basis points due to the estimated 190 basis point impact of tariffs. This implies roughly 120 basis points of underlying margin expansion. Rod leveraged 40 basis points in the quarter. SG&A increased to $1.3 billion primarily due to the quarterly timing of incentive compensation and continued strategic investments. SG&A as a percentage of net sales was 33.9% deleveraging 50 basis points versus last year. Third-quarter operating margin of 8.5% was down 80 basis points compared to last year. Which includes an estimated 190 basis points of tariff impact. This implies roughly 110 basis points of underlying margin expansion. Earnings per share in the quarter were $0.62 a decrease of 14% versus last year's earnings per share of $0.72 primarily due to the impact of tariffs. Now turning to the balance sheet and cash flow. End of quarter inventory levels were up 5% year over year primarily attributable to higher costs due to tariffs. Our disciplined inventory management resulted in slightly negative unit inventory and we believe we ended the quarter with the right inventory composition. We continue to be rigorous in our approach to inventory for the balance of the year. As we shared on our second-quarter call, we've tightened the way we purchase unit inventory to ensure maximum flexibility for various demand scenarios. And to enable us to be more responsive to consumer demand. We expect to operate in line with our inventory principle of unit purchases positioned below sales. The last two years have been about fixing the fundamentals. Which includes strengthening the balance sheet. We ended Q3 with cash, cash equivalents, and short-term investments of $2.5 billion, an increase of 13% from last year. Net cash from operating activities was $607 million year to date. And our free cash flow of $280 million year to date demonstrates the rigor we have put into managing the business. Capital expenditures were $327 million year to date. With regard to returning cash to shareholders, in the third quarter we paid $62 million to shareholders in the form of dividends. And the board recently approved a fourth-quarter dividend of 16.5 cents per share. Year to date, we have repurchased 7 million shares for $152 million achieving our goal of offsetting dilution. And while we've achieved our goal, as always, we remain opportunistic. Now turning to our outlook for fiscal 2025. I am pleased with the strength of our Q3 results. And solid quarter-to-date performance. Which are giving us the confidence to update our fiscal 2025 outlook. We've been operating against a dynamic backdrop for the last few years, and we're expecting the same for the fourth quarter. Our outlook assumes a relatively consistent macro environment, but acknowledges the potential for increasing uncertainties related to consumer behavior, in global economic and geopolitical conditions. As a result, we continue to take a balanced view with our guidance and remain focused on controlling the controllables. Starting with full-year 2025 net sales, we are increasing our outlook to the high end of our prior guidance range. And now expect net sales growth of 1.7% to 2% year over year. Our outlook assumes ongoing strength at Old Navy, Gap, and Banana Republic. And a longer recovery at Athleta. Moving to gross margin. With our strong Q3 performance, we are raising our full-year gross margin outlook. We now expect deleverage of about 50 basis points year over year driven by an unchanged estimated annual net tariff impact of approximately 100 to 110 basis points. Excluding the impact of tariffs, this would imply underlying gross margin expansion of approximately 50 to 60 basis points versus last year. Turning to SG&A, we continue to expect SG&A to leverage slightly for the full year. As discussed on last quarter's call, we are driving continuous improvement in the cost structure of the company this year. As we rigorously drive $150 million in cost savings in our core operations, through efficiency and effectiveness, We remain committed to reinvesting a portion of the $150 million into future growth projects. Including beauty and accessories, as we pursue the long-term success of the company. A portion of these savings will also offset continued inflation. Now we'll turn to fiscal 2025 operating margin. We now expect an operating margin of about 7.2% for the full year, an increase from our prior guidance range of 6.7% to 7%. This continues to include the estimated net tariff impact of approximately 100 to 110 basis points. Excluding the impact of tariffs, this would imply meaningful underlying operating margin expansion of 80 to 90 basis points versus last year. Our income tax rate outlook for the year has increased to approximately 28%. And primarily reflects the impact of changes in the amount and mix of our geographic earnings. This increase of one point versus our prior outlook of 27% represents an approximate $0.03 headwind to EPS. Looking to 2026, as we shared on our second-quarter call, we do not expect the annualization of tariffs in 2026 to cause further operating income declines. And we now expect the majority of the mitigation to come from adjustments to our sourcing, manufacturing, and assortments. With the balance driven by targeted pricing. We continue to be mindful of price elasticity and remain focused on maintaining the overall value proposition for our customers. And while pricing is a lever to manage AUR, it's one of many we've been using to manage margin over time. Other levers include assortment mix, full-price sell-through, promotions, and inventory management. Our third-quarter AUR performance and the momentum of our brands gives me confidence that our AUR growth plans are achievable. There will be a timing dynamic to the tariff impact on gross margin in 2026, we estimate a Q1 net tariff impact similar to Q4 followed by meaningful benefits from our mitigation efforts in Q2. The back half of 2026 should turn to a tailwind as our actions build and we lap most of this year's tariff impact. In closing, our Q3 results reflect strong execution of our reinvigoration playbook. Driving consistency and growth across our largest brands. Continued cost discipline is enabling reinvestment, in strategic growth opportunities, while our scale and supply chain strength support ongoing tariff mitigation. When we perform with excellence, it builds confidence. Confidence fuels execution. Execution drives growth. This flywheel is the engine of our momentum. As we look to deliver this holiday season, we remain focused on operational excellence and advancing our ambition to become a high-performing company that delivers sustainable, profitable growth. And long-term value for our shareholders. I'd like to thank the team for their commitment to excellence and delivering results in support of our transformation journey. With that, we'll open up the line for questions. Operator? Richard Dickson: Thank you. Whitney Notaro: And we'll now begin the question and answer session. Operator: If you would like to withdraw your question, simply press 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, it is 1 if you would like to join the queue. And our first question comes from the line of Alexandra Ann Straton with Morgan Stanley. Your line is open. Great. Congrats on a nice quarter. Maybe for Richard or Katrina, can you just dig in a little bit more on what drove such a strong comp acceleration at the Gap banner? And also how you think about sustainable comp level for that business over time? And then maybe for Katrina, just what surprised the upside of your initial expectations on gross margin? Curious if tariffs played a role and how you think about steady state on that line item from here? Thanks a lot. Richard Dickson: Alex, thank you. First off, I think it's clear our strategy is working and it is showing up in the momentum that we're seeing in our results. All three of our largest brands exceeding expectations. You know, they'd be up 6%, the Banana Republic up 4%, and Gap delivered another standout quarter with a strong comp of 7% and that's on top of 3% last year, and it represents the eighth consecutive quarter of positive comps for us. You know, this consistency is setting new records for the brand, and it's reinforcing our confidence in its long-term growth trajectory. Driven by compelling product assortments, partnerships, and marketing have really resulted in growth across all income cohorts. We have seen more high-income consumers choosing Gap, and we really do believe that with the strong competitive position that we've taken premium and value, and the fact that we're bridging the generation gap, it's a really exciting time to see Gap continuing to accelerate. We have been attracting a younger highly engaged consumer, particularly with Gen Z. As they discover the brand. And it's reinforcing loyalty with our core consumer. So the performance in the quarter, which, as you know, was fueled by our broad-based strength in denim, the centerpiece of our viral campaign, Better in Denim, featuring the global group, Cat's Eye, did incredibly well. I mean, we generated more than 8 billion impressions, I think we had over 500 million views. It was the denim story everybody wanted to be part of. We increased our ranking in the denim category. Gap is now the number six adult denim brand in the U.S. Up from eight last year. Collaborations are continuing to drive relevance and revenue with our latest collaboration this quarter with Sandy Liang, which was incredibly successful again attracting new younger customers to the brand. And it's exciting to see the brand just continuing to build on their success quarter after quarter. And we're looking forward to carrying that momentum into the holiday season and beyond. Katrina O'Connell: As it relates to growth more oh, sorry. I'm gonna finish up, Alex, for you on gross margin. So for gross margin in the quarter, we did exceed our expectations in gross margin. By over 100 basis points, and that was actually driven by an in-line expectation as it relates to tariffs. So tariffs of 190 basis points were as expected. But the outperformance in the quarter really came from standout performance, particularly at Old Navy and Gap. And better than expected AURs as consumers really responded to our product and storytelling, which enabled us to have lower discounting in the quarter. Richard Dickson: Thanks, Alex. Operator: And our next question comes from the line of Robert Drbul with BTIG. Your line is open. Hi, good afternoon. Richard Dickson: I was just wondering if you could expand a bit more on Robert Drbul: AUR trends, how you're managing AUR trends and I guess just the growth plans that you've spoken about as you look forward maybe Q4, but even into '26? Thanks. Richard Dickson: Thanks, Bob. We approach pricing as we always have. I mean, we consider all the various inputs. While maintaining our overall value proposition for consumers. And in Q3, as our brands continue to gain more relevance and the rigor that we put around inventory management as that becomes more foundational, we are increasing our price elasticity, and we've been driving higher sell-through at full price. We did take select pricing in three in select categories denim, which saw double-digit growth, and the strength of our execution is really resonating with customers, and we saw growth, as I mentioned, across all income cohorts. The sales were driven by both units and AUR. We had overall AUR improving versus last year. We saw, particularly strength in Old Navy and Gap with customers that were really responding well to our style, the quality, and the value which we continue to advance. Banana Republic AURs also, were strong. This is resulting in less discounting better regular price sell-through, and giving us confidence that we can continue to drive AUR growth as we enter the fourth quarter. Operator: And our next question comes from the line of Matthew Robert Boss with JPMorgan. Your line is open. Matthew Robert Boss: Thanks and congrats on a really nice quarter. Thanks, Matthew. So Richard, could you speak could you speak to drivers of the top line inflection that you saw at Old Navy this quarter? Any change in momentum, early holiday? And relative to the consistency that you've now clearly shown at the Gap concept, I guess, how do you see Old Navy differentiated as it relates to the market share opportunity for that brand? And then Katrina, just given actions that you've taken to the cost structure, how best to think about annual operating income dollar growth if low single-digit top line was the baseline multiyear moving forward? Richard Dickson: Matthew, thank you for the question. And thrilled to talk about Old Navy. We had an incredibly strong quarter. Comps up were 6%, with the brand consistently gaining market share over the last two years. It is the number one specialty apparel brand in the U.S., and the performance this quarter really speaks to the brand's strength, consistency, and continued momentum. Customers are responding to what Old Navy does best. We give great style at great value. We saw healthy growth across all income cohorts. In AUR, it was driven by trend-right product, which, again, was amplified by compelling creative and better storytelling for our brands. We've been winning in the categories that we've been pursuing with intent. And we've shared those along the way, kids and baby, denim, and active have all been driving the momentum. Active in particular was a standout in the quarter. We delivered double-digit growth and I believe it's underscoring the power of our value proposition and innovation. Differentiation, as it relates to the market share opportunities that we see, we look at partnerships. Disney's partnership with us. We just presented Jingle Jammies, which was an incredible presentation across the family. It exceeded expectations. We just also introduced Anna Sui's collaboration with us, which was particularly meaningful as the first designer collaboration where we're bringing high fashion to a broader audience. All of this while we're, just beginning to expand the brand into beauty, which of course is early days, but we see incredibly high potential opportunity for Old Navy. For that category and the broader portfolio over time. So look, I'm thrilled with Old Navy's consistency in the quarter performance. And I actually am particularly excited about our holiday offering. At giftable price points and we are ready to execute with excellence. Katrina O'Connell: And then, Matt, as it relates to your other question, I would say as you called out, you know, we've done a lot of restructuring over the last few years. And then this year, we previewed that we're saving about $150 million in our cost structure. We are reinvesting a portion of that into future growth opportunities because we want to be able to seed this next phase, which we're saying is building momentum that we hope over time leads to accelerated growth. So balancing the savings with what we think are important investments for the long term, What I would say is this year, the operating margin that we've guided to of about 7.2% is really only modest deleverage compared to last year, and that's while absorbing 100 to 110 basis points of operating excuse me, of tariff impact which does show the way we are managing the business with rigor both through cost and margin improvements. As we look forward, we've also said that in 2026, we don't expect the annualization of tariffs to cause further operating income declines as we work hard to mitigate those costs. Once tariffs are fully reflected in the base, we do believe the consistency in our core combined with top-line benefit related to the high potential growth opportunities that we're seeding in '26 should provide sales growth that benefits operating income over time. So more to come on what that algorithm turns out to be. But we feel good about the work we've been doing, and we're certainly pleased with our results. Matthew Robert Boss: Thanks, Matthew. Operator: Pardon me. Our next question comes from the line of Brooke Roche with Goldman Sachs. Your line is open. Good afternoon and thank you for taking our question. Richard, how do you feel about the store fleet today? Across brands and banners? Are there any investments that need to be made to fuel the momentum from a shopping experience perspective? And what does that mean regarding store fleet transformation, whether that's remodels or changes in store count as you look ahead into 2026? Richard Dickson: Brooke, thanks for that question. Stores are a really important way for customers to experience our brand. I mean, they bring our product storytelling, and service to life in a way that digital just can't. With a company operating a fleet of about 2,500 stores, we are always optimizing our retail footprint. We're closing underperforming stores, we're repositioning some locations, that are more relevant to our customers. And we evaluate new store openings. As you know, over the last several years, we've closed about 350 stores that were unprofitable. Last year, we closed about 56 stores across our portfolio. We expect to close, approximately another 35 in fiscal 2025. With the majority of those closures being specific to Banana Republic. I believe we're at a pivotal point right now where the fleet is really well positioned and we've been testing new formats and experiences. Gap Flatiron in New York has been functioning for about a year with great learnings that we've started to expand across our Gap fleet with denim shops, new refresh shop here in San Francisco, and a variety of others that are on plan. Banana Republic specifically in SoHo, and other locations that we've been refreshing with some great results and, of course, Old Navy and Athleta up at bat. We continue to evaluate these tests and their performance, and, are getting more and more confidence in the revenue and relevance and the strong returns that they've been driving we've begun to, invest rationally and selectively in the areas that we think will drive the that we're looking for. And we will continue to keep everybody posted as we look to the combination of repositioning our stores, refreshing must-win stores, and again, looking to start to open up new stores where it makes sense strategically. Operator: Thanks so much. Thanks, Brooke. And our next question comes from the line of Adrienne Yih with Barclays. Your line is open. Good afternoon. Congratulations. Great to see the progress. At the right time. Richard, my question for you is sort of a little bit higher level since you've come. There's such a focus on product and marketing, the combination of a flywheel effect to those. How is the appointment of design and creative specifically that pose in and change the complexion of creative thinking throughout the organization? And then the marketing piece of it, how has that kind of a how does that complement kind of the product in creating that flywheel? Richard Dickson: Thank you, Adrienne, for the question. Off, let's just mention Zach. He's been an incredible addition to our leadership team. It's been almost two years ago now that he's joined and has brought significant impact on many creative aspects I would say both inside the company and beyond. Our objective collectively with Zach and by elevating the creative conversation across our brands highlighting design and product as an incredibly important attribute to all of our brands. Has been working. I mean, we've been culturally creating moments curated moments where our brands and our products have taken center stage. Not only to some extent on the runway, but on Main Street. And we're attracting talent as well to our portfolio that might not have considered a place like The Gap, Inc. Or our brands prior. When we talk about marketing, which I also am pleased to talk about, You know, we know marketing is a much more complex function today than it was in the past. And as you know, we've been working really hard at driving new narratives that put our brands back into the cultural conversation. And it's our job to be everywhere that our consumer is with the right creative messaging. I think it's obvious we're performing, while we transform. We're driving digital dialogue messages with social media as the number one platform for our consumers. Influencer content is among the most common product discovery methods. Amongst Gen Z and millennials, which we've been performing incredibly well with. We actually recently launched a cross-brand content creator and social media advocacy program last month, which you might have seen. We now also have a presence on TikTok as a shop. And many more. And these methodologies are proving really impactful but they also require holiday high higher quality accelerated amounts of creative. And lastly, you know, we can't help it but mention again Cat's Eye is a great example of that. I mean, 8 billion impressions, 500 million views. This was a true cultural takeover. And I think it's another proof point in our playbook. And we believe we've got the means and the experiences and the brands to continue to be more effective and be more efficient in our spend as we've proven this methodology is working, and it will continue to propel us into the future. Operator: And our next question comes from the line of Dana Lauren Telsey with Telsey Group. Your line is open. Hi, good afternoon everyone and congratulations on a nice the nice progress. Christina, one for you, one for Richard. As you think about the tariff mitigation strategies, which seem to be effective, the pricing adjustments have seemed to become less and less. Is that the right impression? And how are you thinking about pricing going forward? And then Richard, the acceleration in store sales is impressive. In your view of the consumer overall, how are you thinking about the consumer? Does it differ by brand lower and higher income customer? Whether it's Gen Z, millennial, or baby boomer? How do you think the current feeling is and the added towards merchandising how do you think of consumer demand? Thank you. Richard Dickson: Dana, thanks for the question. I think I'm going to jump in here and take consumer first. And then Katrina can follow-up with tariff mitigation answers. First, I think it's really important to share, we're seeing consistency and strength in our customer behavior. As I mentioned, we're really proud that we're winning with all income cohorts. And you could see it with the strong differentiation within our portfolio. Together, we see equal growth across low, middle, and high. And it's evidenced by our two largest brands, Old Navy and Gap. Now, there is external data that points to of course, the macro pressure on the low-income consumer but our customers are finding our price value our product, our styles, It's breaking through the competitive landscape, and we're winning. We're also doing this Dana, with less discounting, We've got better regular price sell-through. Increased AUR, which is really indicating that our product is resonating. I think you can see it when you go into our stores. We're just telling better merchant-driven stories, and it is supported by incredibly relevant marketing. We're also excited to see that the high-income consumer is discovering our fashion quality, and value. And we think that is also being driven by the relevant narrative that we've been creating in the marketplace. So when I step back and I look at our portfolio competitively, I think our portfolio appeals to a wide range of consumers. It gives us greater flexibility. In today's environment. When we look at our portfolio today versus even a few years ago, we are a much stronger portfolio of brands today. We're resonating with consumers, and it's our job on a day-to-day basis to create great product with great style and quality, exceptional value, And I think we will prevail in any marketplace if we stay consistent and true to that narrative. Over to you, Katrina, tariffs. Katrina O'Connell: Sure. So as it relates to tariffs, we did do a slight amount of pricing in the quarter, but we really honestly, Dana, approach pricing as we always do. We look at all the various inputs. Really with an eye to maintaining the overall value proposition for our consumers. So we did take select pricing in select consumers. Categories. I think denim is a really good example at Gap where given the strength, we were able to take slight pricing and see double-digit growth in sales in spite of that. The strength of our execution is Richard said, really is resonating with our consumers. And as Richard said, you know, we saw sales come from both units and AUR in the quarter. I would say the bigger driver of the outperformance in the quarter and what we're seeing is less discounting and better regular price sell-through. And I think as Richard said earlier, that really gives us the confidence that we can keep driving AUR growth as we enter the holiday season. Dana Lauren Telsey: Thanks, Dana. Operator: And our next question comes from the line of Lorraine Hutchinson with Bank of America. Your line is open. Thank you. Good afternoon. Just switching gears to Athleta for a minute. How do you feel about the level and content of the inventory there? And do you have a timeline for when you think that sales could begin to stabilize? Richard Dickson: Lorraine, thank you for that question. We're not hiding from Athleta. It's a very important brand on our portfolio. We have been disappointed in the trend. But Maggie, our brand president, has hit the ground running in her first ninety days. And she's balancing near-term priorities with of course, the longer-term reinvigoration objectives that we have for the brand. As I mentioned, she's been building her leadership team to align with her vision, and she is truly setting the foundation for the brand's next chapter. A lot of work, happening, editing the assortment, studying the consumer, evaluating our retail footprint, and of course, the overall customer experience. This is a reset year for Athleta. And our focus is gonna be on positioning the brand for long-term success. And returning it to a rightful place as a premium purpose-driven aspirational brand. We do believe Maggie and the team are taking the right steps and we remain confident that Athleta will emerge as a brand that really does matter even more to women through product, trend, and storytelling, We understand there's a lot of work to do, but we believe we've got the right leader in place to do it. And we look forward to continuing to update you as more news unfolds. And maybe what I'd add, Lorraine, on inventory is Katrina O'Connell: you know, as we assessed Athleta in the second quarter, sort of the trend in the business, we did make some choices to lower inventory levels overall. And so we have aligned inventory for Athleta to this lower sales trend as we head in you know, for Q3 and as we head into Q4. So, you know, we feel good about the levels and quality of inventory at Athleta. And we'll remain pretty prudent as it relates to Athleta until we start to see the product and the marketing get back to where we would expect it to be for this brand. Lorraine Hutchinson: Thanks, Lorraine. Operator: And our next question comes from the line of Paul Lejuez with Citigroup. Your line is open. Paul Lejuez: Hey, thanks guys. Just to go back to the unit comments, I'm curious which brand you saw the greatest increases in units And then I'm also curious, on the inventory versus unit gap that you mentioned, what will that look like at the end of the year, the finish up fourth quarter and then into the first half? Of 2026. Thanks. Katrina O'Connell: Paul, I'm going to take the first one, but we had a lot of trouble hearing your second question, so apologies on that one. We're going to ask you to repeat it. As it relates to units, you know, we were really pleased to see that as our brands are gaining relevance, combined with the rigor that we're putting into the business that we're seeing our elasticity improve, and we're getting higher sell-throughs at regular price. When we look at the units in the quarter, I would say units were aligned with where we see outperformance in the business, particularly at Old Navy and Gap. And we also saw AURs there as well. But I'm going to ask you to repeat again the second part because we couldn't hear you. Paul Lejuez: Sure. Sorry, Regina. So the inventory dollars versus unit gap that you spoke of this quarter, Curious what that looks like at the end of 4Q and then into the first half of next year? Oh, thanks. Sorry about that. So we continue to keep our units below sales as we try to keep within our principles of keeping inventory tight. We want to keep maximum flexibility so that we can respond in season to various demand scenarios and be responsive to consumer demand. So as we think about end-of-quarter inventory I would expect it to be similar to how we just ended Q3. Katrina O'Connell: Thanks, Paul. Thanks, Paul. Operator: And our next question comes from the line of Cory Tarlow with Jefferies. Your line is open. Cory Tarlow: Great. Thanks so much for taking my question. Richard, I wanted to ask about the power of partnerships. And the reason being is I don't think that there's a retailer in the mall today that has done more partnerships in the time span that you've been at Gap to expand the aperture for the brand and to build as you say, relevance and revenue. And I was curious about what you think strategically this means for the business ahead And then the follow-up to this is how have the consumers responded to these improvements in the brand in the way that you've been able to, say, remove promos on categories like denim at Gap. Richard Dickson: Okay. Corey, thank you for the question. First off, I think it has been a credit to the brands and teams that have followed the methodology that we shared with our playbook. And as part of the playbook, and when we look at cultural relevance, collaborations help a brand drive relevance. It broadens its customer base and continues the drumbeat between its larger partnerships and releases. So it keeps topical, in the context of the amount that we do and the timing that we do do them. Now, have to really be authentic. It's not just a collaboration. It's a well-thought-out strategic partnership. To date, Gap brand, as you mentioned, we've launched over 13 collaborations. It continues to drive enormous excitement and attract new audiences to us. And they're very precise, and they need to be. They need to be win-win. And most importantly, they need to be authentic to the consumer. The collaborations that we've been doing, as I mentioned, are attracting new generations to Gap. But it's also at the same time, reinforcing the brand to those who love us for years. This is to some extent, a balance of art and science. The latest, collaboration this quarter with Gap brand with, Sandy Liang in the third quarter. It drove incredible engagement and overall basket. You asked about consumers responding in relation to it, how it affects our business. I mean, more than 25% of the customers who shop these collaborations were new to Gap. And of those, who shopped the collaborations, 20% shop beyond the collab. So we see the attraction that these, collaborations, when done right, are generating in for the brand. And then we by offering and showing other product, we're now establishing broader, bigger house files and more exciting, relationships with our consumers. We just launched the Anna Sui collection with Old Navy, which is the first designer collaboration in Old Navy. Incredible success. Similar engagement of really well-thought-out precise partnership. And we believe, a sign of things to come. So again, laddering up, it's great credit to the teams across the brands for driving the playbook executing it with excellence, and really creating win-win collaborations for the consumer and our business. Operator: And our final question comes from the line of Michael Binetti with Evercore ISI. Your line is open. Michael Binetti: Hey, guys. It's Carson on for Michael. Katrina, probably a question for you. Appreciate the color on the wraparound effect of tariffs into 2026. If we set tariffs aside, you had really nice underlying gross margin expansion in the third quarter. The guidance implies pretty similar for the fourth quarter, Carson: How much of that underlying expansion is from AUR versus other drivers? Because I think I've heard several times today confidence in the AUR plan. So if that's a leading driver, is it safe to carry those impacts over into the next few quarters? Thanks. Katrina O'Connell: For the question. So the way I would answer that is our margin strength in Q3 came from a combination of favorability in commodities, aided by some supply chain leverage that we got as well as strength in AUR. As we look to Q4, what you'll see is that the tariff impact to Q4 is similar to what we just experienced in Q3. And we're also still seeing the commodity benefits. But in Q4, we're trying to sort of stay balanced in our outlook. And so right now, what we have in is roughly similar promotions year over year. So that we have room to compete in any environment. And so we'll obviously aspire to do better. But the upside that we saw in AUR from Q3 is not currently assumed in Q4. Operator: And ladies and gentlemen, concludes our question and answer session. I will now turn the conference back over to Mr. Richard Dickson for closing remarks. Richard Dickson: Thank you, operator. This was an exceptional quarter, and I'm really proud of this talented team that continues to deliver quarter after quarter. As we look to finish the year strong, our team is fired up and our focus is clear. Continue to execute with excellence and win with the customer this holiday. Thank you for joining us today. For those of you who celebrate wishing you a happy Thanksgiving, and we look forward to seeing you in our stores this holiday season. Thanks all. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Please stand by. Good day, everyone, and welcome to the Copart, Inc. First Quarter Fiscal 2026 Earnings Call. Just a reminder, today's conference is being recorded. Before turning the call over to management, I will share Copart's safe harbor statement. The company's comments today include forward-looking statements within the meaning of the federal securities laws, including management's current views with respect to trends, opportunities, and uncertainties in the company's industry. These forward-looking statements involve substantial uncertainties. For more detail on the risks associated with the company's business, we refer you to the section titled Risk Factors in the company's annual report on Form 10 for the year ended 07/31/2025, and each of the company's subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today, and the company has no obligation to update or revise any forward-looking statements. I will now turn the call over to the company's CEO, Jeff Liaw. Welcome, and thank you for joining us. Jeff Liaw: For our first quarter fiscal year 2026 earnings call. I'll begin with some brief remarks on trends in our insurance business, our progress in growing our non-insurance vehicle business, and then a short discussion of the key drivers behind our auction returns before passing the call to Leah to review our first quarter financial results. We'll then take a few questions. First, on our insurance business. Our global insurance units for 2026 declined 8.4% or a 5.6% decline, excluding catastrophic volumes from a year ago. Our U.S. insurance units declined 9.5% for the same period and 7.3% excluding catastrophic activity as well. The underlying drivers of these trends are consistent with what we have discussed in prior quarters. It's a combination of market share evolution among insurance carriers themselves, soft claims counts as a result of consumer retrenchment in their auto insurance purchasing behavior offset by rising total loss frequency. On that last point, total loss frequency has continued its long-term upward trend consistent with nearly the entirety of the history of our company and our industry. In the U.S. for the calendar year 2025 through September, total loss frequency was 22.6%, an increase of 80 basis points or so year over year according to CCC. We continue to sustain and expand what we believe to be our advantage in generating best-in-class auction returns for our insurance clients. Even including the highly inflationary 2021, 2022 COVID era, when semiconductor shortages further increased vehicle prices, we are achieving all-time high average selling prices for our U.S. insurance carriers. In fact, for the quarter, our global insurance ASPs increased 6.8%, our U.S. insurance ASP increased 8.4%. We know from public data and disclosures that our ASPs grew at a rate that eclipsed that of the Manheim Used Vehicle Value Index and grew at a rate more than threefold that of service providers similar to us. I'll talk in greater detail in my comments shortly on the underlying drivers of this performance. On the question of claims frequency, on our last call, we talked about this subject and its near-term effects on our business. According to ISS Fast Track, paid claims frequency for collision coverage for the second calendar quarter 2025 compared to the same period last year was down 7.5%. And in fact, earned car years for that same period were down 4.1%. At the same time, vehicles in operation for the second calendar quarter 2025 actually increased 1.4%. And we see further data in the underlying activity that shows miles driven continue to remain robust and growing. We understand from many of our insurance partners in the industry that consumers are responding to late-cycle insurance rate increases by reducing the scope of their coverage or foregoing it altogether. As a result of that consumer retrenchment, more vehicles that historically would have entered the insurance company-mediated total loss process now do not. Over the long term, however, the penetration rate of auto insurance coverage and collision coverage specifically appear to be cyclical. I'll now turn our attention to Copart's non-insurance wholesale business. As we've talked about on prior calls, it's really rising total loss frequency in our insurance vehicles, which enable our ongoing progress in this arena as well. Rising total loss frequency means that an increasing portion of the cars that we sell on behalf of the insurance industry are actually cars that will be repaired and drivable again, both in the U.S. and overseas. As we draw buyers of those types of vehicles to our platform, they are increasingly the right fit as well for sellers such as rental car companies, financial institutions, corporate fleets, and the like. We've also contributed to this flywheel effect by building purpose-built enhancements for commercial sellers as well. With guidance from our Blue Car Advisory Board, a host of industry leaders from the aforementioned industries, we have built specialized systems for receiving and inspection, condition reporting, and arbitration. All designed to meet the unique expectations and unique needs of those types of partners. The single most important lever we have in achieving commercial outcomes, excellent commercial outcomes for our sellers, is our fundamental auction liquidity. In comparison to many other pathways disposition for these sellers, we offer an always-on digital global marketplace that is committed to finding the highest and best use for that vehicle, anywhere it might be. That brings us to our last topic, which is the question of auction returns at Copart and why we believe the underlying indicators show that this advantage is not just a durable one, but in fact, is expanding. We proposed five core indicators for the auction liquidity that has long distinguished us in the insurance industry. We believe that auction liquidity and returns have been a pronounced advantage for us since we became the first online-only salvage auction marketplace in 2003. But I'll focus in particular on the post-COVID post-semiconductor period since 2022. The first indicator of the health of a marketplace is the portion of its sales that are achieved via pure sale auction. Even in 2022, a strong majority of our insurance units were sold on a pure sale basis, but the mix has increased today to comprise a strong super majority of insurance units sold. Our consignors know that with an always-on global digital marketplace, they will trust the platform to find the highest and best value for a vehicle based on the attendance of any given auction or Copart. And in fact, for the typical institutional carriers, they hold only unique exotic vehicles on occasion to be managed with reserve prices and such. The second indicator for a strong marketplace like ours is international participation in our auction. Global demand leads to more bidders, more competition, and higher price and better price. And again, since 2022, against the backdrop of global economic uncertainty, tariffs, and so forth, the share of our U.S. vehicles and auction value that have been purchased by international buyers has continued to grow. In 2026, international buyers have purchased vehicles that are 38% higher in value than comparable U.S. buyers by comparison. We believe that these are long-term durable trends as population growth and mobility demand growth outside the United States, outside the UK, Canada, and so forth continues to outpace what we were experiencing firsthand in our origin markets. The third indicator we would propose would be the unique bidders per auction. We sometimes face the question as to whether a marketplace like ours can ever experience saturation. That is, the unit volume can grow so much that it eclipses the buyer base's ability to absorb it. I would argue that most historical marketplace analyses in other industries would say quite the opposite. Liquidity begets liquidity. And in fact, since 2022, our unique bidders per auction instance have grown steadily to today's all-time highs. As well. The fourth indicator we look at is to assess preliminary bid activity. Our live auction technology is distinctive, and its ability to dynamically draw full and fair prices, preliminary bids are also one indicator of auction health. I.e., the quantity of proxy bids submitted before the auction even begins. And in fact, preliminary bids as a portion preliminary bids per lot auction instance have increased steadily since 2022 as well. And finally, the one measure that much of the insurance industry uses is gross returns. I.e., selling price for a salvage vehicle divided by its ACV pre-accident value. This is a single simple metric that the industry commonly uses. And since 2022, again, our U.S. insurance returns have increased substantially. And are, in fact, at an all-time high watermark during my own personal ten-year journey here at Copart. Taken together, we believe that higher pure sale rates, expanding international demand, greater bidder participation, stronger pre-auction engagement, and rising gross returns collectively attest to our principal competitive advantage with our consignors. And that is delivering full and fair prices according to the global marketplace. They, in turn, are the hard-won results of our aggressive investments in storage capacity, technology, and people for years and decades. They're also the best long-term indicators of the strength of our business. And with that, I'll turn it over to our CFO, Leah Stearns, and then we'll take your questions thereafter. Leah Stearns: Thank you, Jeff, and good afternoon to everyone on the call. I'll begin by walking through our financial results for the quarter, beginning with our consolidated performance, followed by a review of our U.S. and International segment performance. For the first quarter, total global units sold decreased 6.7% with fee units decreasing 6.3%. During the prior year period, Copart responded to several catastrophic events around the world from Hurricanes Helene and Milton to catastrophic flooding in the Middle East, Germany, and Brazil. These events, which did not recur this year, impacted our reported year-over-year unit growth. Normalizing for the impact of these cat events, our global units sold decreased 4.6%. Global insurance units declined 8.1%, or 5.6% adjusted for cat. Global non-insurance units declined 1.5%. For the first quarter, consolidated revenue grew just under 1% year over year, or 2.9%, excluding cat, to $1.16 billion, with service revenue increasing just under 1% and purchased vehicle sales increasing nearly 2%. Our fee revenue per unit increased over 7% during the quarter, which was primarily driven by growth in our average selling prices, which have increased 8.5% from the prior year period. Global gross profit increased 4.9% or 3.7% excluding CAT, to $537 million. Gross profit per fee unit increased 12.3% and purchase unit gross profit decreased 3% to $22 million from the prior year period. Gross margin improved 184 basis points to 46.5%, reflecting the nonrecurrence of one-time expenses related to our cat response. Operating income rose 6%, 4.5% excluding cat, to $431 million while net income was $404 million, up 11.5% versus last year. Earnings per diluted share increased 10.8% to $0.41. This was driven by revenue growth, margin expansion, and the continued growth in interest income we've earned due to our growing cash balance. Turning to our U.S. Segment. In the first quarter, total units sold declined 7.9%, or 5.2% excluding cat and direct buy units. U.S. insurance volumes declined 9.5% or 7.3% excluding cat. Our insurance unit volume trends are consistent with the industry themes Jeff described a few moments ago. Our U.S. non-insurance business continues to perform well, led by dealer unit sales, which increased 5.3%. Commercial consignment units, which are marketed through our blue car channel, down just over 1%, which was primarily a result of timing related to the sale of rental units as our fleet and bank and finance seller volumes continue to grow. We continue to focus on driving higher value units through our marketplace, and have developed a more profitable channel for Copart to manage lower value units through, which we have branded direct buy. These are units which Copart would have previously purchased through its Copart Direct, cash for cars business unit and instead now is earning a referral fee to connect a junk buyer to the individual seller. As a result, the units are not part of Copart's inventory, and we do not incur costs associated with the processing handling of the unit. Normalizing for this shift, U.S. purchase units increased 6.2% from the prior year period, compared to a decline of 19.2% on a reported basis. U.S. purchased vehicle sales, which is primarily comprised of our Copart direct units, increased 10.9%, which reflects the lower unit volume being offset by substantially higher average sale prices, which increased over 50% from the prior year period. From an operational perspective, we continue to drive forward initiatives with are reducing our overall cycle time. This includes managing title procurement on behalf of our insurance customers, which has grown at a double-digit rate over the past year, simultaneously reducing aged inventory at our facilities. In addition, as non-insurance units are contributing a greater percentage of our overall unit volumes, we naturally have a greater proportion of units which have substantially shorter cycle times being processed through our facility. During the quarter, in the U.S., our cycle times have decreased by 9% from the prior year period. And these improvements, while these improvements in cycle time are decreasing inventory levels, they are increasing the overall processing capacity of our existing facilities. As of the end of the quarter, these trends were the main driver of our U.S. inventory decline of just over 17% from the year-ago period. While U.S. assignments declined 9.5%, or low single-digit comp excluding CAT. We also continue to invest in Purple Wave, our online equipment auction platform. Purple Wave's GTV growth of over 10% over the last twelve months continues to outperform the broader industry and reflects strong buyer engagement in our expansion markets, growth in our enterprise accounts, and sustained demand in the heavy equipment category. The market continues to experience the impact of broad uncertainty, is causing customers to delay decisions around equipment purchases and sales as they contemplate the impact of the broader macro and geopolitical environment. From a U.S. segment perspective, total revenue increased 0.5% to 2.3% excluding cat, which reflects the decline in unit volume offset by an increase in revenue per unit. On a per unit basis, U.S. fee revenue increased 7.5%, reflecting the positive impact of higher average selling prices, including our U.S. insurance ASPs, which have increased 8.4% from the year-ago period. U.S. gross profit increased 3.7%, to $464 million, and U.S. gross profit per fee unit increased 13.2%, supporting an increase in our U.S. segment gross margin to 48.7%. As a result, U.S. segment operating income was $375 million, up 5.6% year over year, reflecting strong execution and continued cost control, even against a backdrop of lower insurance volumes in the prior year cat. U.S. segment operating margin was 39.4%, reflecting a nearly 200 basis point increase from the prior year period. In our International segment, total units sold declined by less than 1%, or grew 4.5%, excluding the cat units in the prior year. International insurance units increased less than 1% or 8.3% excluding CATs. And international non-insurance units declined 2.2%. We continue to see strong insurance growth across our diversified international footprint, including in the U.K. and Canada. International revenue increased 1.6% or 5.7% excluding CAT year over year, an increase to $2 million. International service revenues increased 7.9% or 13.9%, excluding CABP, which primarily reflects higher international fee revenue per unit, which increased 8.1%. Our average selling price for international insurance units declined 2.4% from a year-ago period. Purchased vehicle revenue declined 9.4%, which reflects the impact of a few of our insurance customers who have migrated from a purchase contract to a consignment contract structure. Gross profit for the International segment grew 13%, and operating income was $56 million, a 27.5% operating margin, which continues to expand even as we invest in yard capacity, technology, and logistics infrastructure to support our long-term international growth. Turning to our balance sheet, Copart remains in an exceptionally strong position. We ended the quarter with liquidity of approximately $6.5 billion, including cash and cash equivalents of $5.2 billion and no debt. We continue to generate robust free cash flow supported by disciplined capital allocation into assets, which position us to efficiently support our growth to serve both insurance and non-insurance clients, also delivering strong operational efficiency. With that, we thank you, and we'll open up the call for your questions. Operator: And the first question comes from the line of Bob Labick with CJS Securities. Please proceed. Bob Labick: Thank you for taking our questions. So, hey, so I you don't talk about specific clients accounts and things that, but I'm having a little trouble reconciling the, I guess, larger than expected decline in unit volumes. And I if there's any way you could talk about because the trend changed both versus expectations and versus what we've been seeing. And at the same time, the explanations are similar to previous trends, the U.S. insurance less collision coverage and then share shifts between the carriers, those trends have been happening for a little while now. So maybe help us understand what the kind of inflection in the changes. Is there any like actual market share shift between carriers as opposed to from you to a competitor or your competitor etcetera? Or any we can think about this, the change in the speed of unit change? If that makes sense? I don't think so, Bob, that would be Jeff Liaw: I think it is the factors you just described, which is principally that insurance coverage itself has changed, right. I think notably to see earned car years down 4% and change while literally vehicles and operation and miles driven are up I think speaks to the underlying activity. So our unit trends, I don't think is substantially different If you can envision literally 4% of policies no longer having coverage of any kind, And then some other portion migrating down the value chain, so to speak from collision coverage to liability only or what have you? I don't think it's far-fetched to extrapolate from that to the kinds of unit trends that we're seeing in our business. Bob Labick: Okay, great. And then slightly different question, just trying to think forward. Total loss frequency, I know it was up 80 basis points year over year, but it's been like modestly flattish for the last four quarters or so. And I know one year through Copart's Lens is like a minute for the rest of us, meaning it's too short to register a matter. But that said, what do you think has caused the kind of the pause and the expansion over the last four quarters of total loss frequency? What are you seeing beneath the hood, so to speak, for decisions at carriers Can it be as simple as one carrier's gaining share and they generally have it lower total loss frequency rate and that's impacting it? Or what could be driving this? And what do you think it takes to get that to grow again? Jeff Liaw: Yes. I think your first observation is the very correct one. Which is that measured in the kinds of investment cycles through which we have to manage our business, because the nature of our business is such that investments in anything, tech, land, people, etcetera, requires years of conviction. And we have that conviction space, meaning over a good horizon. You know this story, I think, maybe most of the folks listening to the call already do as well. The total loss frequency in recently as 1990 was 5%, 1980 was 4% and today's 22% and change. So it's up 80 basis points versus a year ago. Think Bob already that even the data in any given quarter often gets corrected. The same way that the Bureau of Labor Statistics will later revise unemployment looking backwards. Because you now know more cars were actually totaled that were in the repair chain or cars intended be totaled were actually owner retained. So I think reading a whole lot into 80 basis points versus 130 or versus plus 30, I think is more noise than it is signal. Think anything is fundamentally changed in the commercial logic that the industry will use going forward. I think we believe as much as we ever have total loss frequency as a matter of time different analysts will draw different conclusions on that front. But we'll reach 25% and we'll reach 30%. Because it's actually not I think the intuition people struggle with is that they think what it means is you're abandoning a car. Right? You're not fixing it, you're giving up on it. And that's fundamentally not true. For the marginal car, you're not choosing not to repair it, you're choosing to let somebody else manage it who has a different cost base, a different regulatory regime, and different economic calculus than you do as a U.S. Massachusetts insurance carrier. So, the last comment I'd make Bob is, there's also probably unprecedented volatility in some of these input variables, right, in the form of tariffs parts prices, shop utilization, I think has been quite bit more volatile over the course of the past three years than it has been probably at any point in your career or mine? So there have been shocks to the system of that sort and how those exactly unfold in any given month or quarter or year is harder to speak to, but our long-term conviction remains the same. Bob Labick: Okay, super. I'll get back in queue and others ask questions. Thank you. Operator: The next question comes from the line of Craig Kennison with Baird. Please proceed. Craig Kennison: Hey, good afternoon. Thanks for taking my questions. A follow-up sort of a similar line of questions, but Jeff, are you confident that this broader trend in accident claims, which are down, is more of a cyclical phenomenon tied to this increase in uninsured motorists? Or is there any evidence that ADAS technology is finally starting to move the needle? Jeff Liaw: Yes, it's a good question, Craig. And would tell you that safety technologies very much have moved the needle. And have done so for forty years. So if you go over decades of history and divide police-reported crashes or fatalities, which are often published a little bit further in arrears. And divide that by vehicle miles traveled. You'll find that it declined forever. Right, very steadily very slightly, but very constantly with one historical blip in the 2013, twenty fourteen, fifteen timeframe, I may have my years off by one year or the other. When smartphone adoption and the more addictive apps really began achieving adoption levels that previously not been seen. So that caused a blip and upward increase in accident with the same numerators and denominators. Otherwise over the course of long-run history, it has declined. Been more than offset by total loss frequency. That's the importance of Bob's question from a moment ago. It's always been dwarfed by that, right? Accident frequency has increased has decreased but not nearly enough to offset the fivefold, 5.5 fold increase. Total loss frequency over that same forty-five-year horizon. I think the algebra is such that it's it's even if there were excellent technologies that were being released now that would altogether arrest vehicles from colliding. The algebra is such with annual shipments into the existing fleet that it still takes decades to turn the fleet over. So I don't think you could see something in a year's time that would reflect a fundamental change in vehicle mix and ADAS penetration. Craig Kennison: Thanks. And then just following up on something you said earlier, Jeff, but what happens to those cars that are involved in a severe accident, are not covered by insurance, and are those vehicles you're able to capture on your platform somehow? Jeff Liaw: Greg, the answer to that is yes. I think somewhat less efficiently, right? So we have a consumer business and cash cars that sources vehicles directly from consumers. While you and others on this call certainly recognize the Copart brand name, we are not yet a household consumer name. So we have a different business that purchases those cars from consumers. So they don't sell on a consignment basis to us. They sell the cars to us directly. And those are often the types of cars that our Cash For Cars platform will acquire, because those are vehicles that are much less easily traded into dealers to buy the next car. So, are a natural outlet for those cars. But as you might imagine, it's a far less efficient pathway for that kind of sourcing of vehicles than is a long-standing institutional relationship with a major insurance carrier. Craig Kennison: Makes sense. Thank you, Jeff. Jeff Liaw: Yes. Thanks, Rick. Operator: The next question comes from the line of Chris Bottiglieri with BNP Paribas. Please proceed. Chris Bottiglieri: Hey guys, thanks for taking the question. I have two for me. What does it delve into the 38% disparity between international U.S. bidders? Are you saying that international bidders that on average 38% more than domestic vehicles in the same vehicle, If that's the case, would think with your international mix versus your peer that 38% price differential in a $5,000 vehicle would be pretty insurmountable. Given the average fee is only $1,000. Just curious how you think about that. Advantage you have on international mix, why it's not leading to it almost seems irrational not to use you at that point since parity is up there. Just curious how you think about the backdrop a little bit? Leah Stearns: So the sorry, Chris. The impact that Jeff is alluding to is that the on average, international buyers the ASP of the vehicles that they purchase 38% higher than the average ASP of buyers from the U.S. And so their inclination is to pursue lighter damage, higher value vehicles and that trend has persisted over that timeframe. So we continue to see them be more focused on those borderline total losses and repairable vehicles. Chris Bottiglieri: Got you. And do you have stats on the question I asked? You have a sense for how much more international bidders bid on the same vehicle than domestic? Have you ever parsed anything that way? Jeff Liaw: That becomes I mean, of course, that's a function of literally a microeconomic question per auction instance. Right, almost by definition, if the institutional buyer wins the vehicle, and that speaks for approximately half of our U.S. auction value is going to an international buyer. Or they are the push bidder they're the second high bidder, which helps to dictate the which dictates the ultimate sale price of the vehicle. That is a strong majority of the vehicles that we sell today. So they are there. They do drive value upwards and very meaningfully so. To your question from a moment ago, make sure you understood the algebra precisely, it is literally that the average car bought by international buyer 38% more valuable than the average car bought by domestic buyer. That is largely because, yes, they favor the higher end You can imagine that if you are incurring the freight costs to move a car from here to Poland, it has to be worth your while, right? You're not moving a $400 vehicle that's mostly just its metal right? That will never be worthwhile to move halfway across the world. And so by definition, you're buying cars that are valuable enough, you can add and capture enough value downstream. Chris Bottiglieri: Gotcha. Okay. And then, unrelated big picture question. If I kind of zoom out, you're gross PP in land is up 155% since 2019. Your volumes are up about 30, let's call it, since then. So just curious how you think about capacity investment, not only for 2026 and beyond, like obviously, that is a ton of capacity no matter how you cut the data. The last six years. How do you, like, you know, what do do from here given how much you've already grown capacity? Leah Stearns: Sure, Chris. I mean, I think some of the assets that we've acquired over the last several years have been for events, particularly around hurricanes in the U.S. And those may operate at a lower average utilization than the average Copart facility. So taking those out of the mix, think we continue to have certain areas of the country where we continue to have capacity needs or projected capacity needs over the next five to ten years. I would say the population or the size of that list is much smaller today than what it was. Clearly five years ago. And so we'll continue to a disciplined manner, allocate capital into assets that fit that classification in terms of our capacity needs. And we do also continuously look for ways to bring down our logistics costs to the extent that we can another node to the overall network that can materially bring down the distance that we need to tow units into our facilities. That's another consideration for us to make. But I would say certainly the list of areas of the country where we do have needs over the next five to ten years is shorter than it was five years ago. Chris Bottiglieri: That's good. Thank you. Operator: The next question comes from the line of Bret Jordan with Jefferies. Please proceed. Bret Jordan: Hey guys. Sort of going back to one of the early questions, I guess around share and obviously the optics given Progressive having gained share within the insurance business, you either need your partners to gain share from Progressive or you need to gain Progressive volume. Is there any outlook for that either? Are you any indication that you see that some of the insurers that you do business with are becoming relatively more competitive with Progressive or is there an outlook for picking up some of that volume given your higher ASPs? Jeff Liaw: Yes. Those are totally reasonable questions. As you know, we don't comment on individual accounts. I would say that the insurance industry itself has proven over the long haul very dynamic. With different players gaining and losing share episodically over many years, right. So, we have observed that trend. There certainly have been some long-term secular gainers as well, progressive being one of them. But it generally generally over the very long haul, we do see a very dynamic picture in that regard. Right, both quote for and against us in that sense. Assuming a static set of accounts. But as for the prospects of winning or losing any individual accounts, as you've heard at great length today, overwhelming focus is on delivering excellent gross and net returns and we trust that the rest of it will take care of itself over the long haul. Bret Jordan: Do the optics of the share improve as you lap Did Progressive pick up share that if the market stabilizes at least the year over year compares become more favorable? Or is there share continuing to trend up? Jeff Liaw: Yes, probably a better question or analysis of their data than of ours. But I would point you in their direction. Probably not positioned to comment in great detail on their relative market share growth in comparison to the industry overall. Obviously, they have outgrown the market over the course of the past few years and in general over many, many years. But as for what happens from here on out, we have some visibility, frankly not better than what you and a good analyst would figure out in a hurry. Bret Jordan: Okay. A quick housekeeping for Lee. The non-insurance CDS versus Blue Card, if you give us sort of a of size rough estimate sort of versus each other CDS large than Blue Car or Blue Car larger than CDS just we can get a feeling for measuring these growth rates. Leah Stearns: Sure. No. So CDS is is larger continues to be larger. It's been growing while blue car has been growing at a very healthy clip, it still remains a larger unit business unit for us. In the first quarter. And potential Jeff Liaw: breadth of both is huge in terms of the total volume mediated by dealers and by institutions of the sort that we described earlier today. Bret Jordan: Yes, the TAM is larger than salvage, it? Right. Yes. Yes. Operator: Thank you. The next question comes from the line of Jeff Licht with Stephens. Please proceed. Jeff Licht: Good evening, Jeff and Leah. Thanks for taking the question. Apologize for the background noise. I'm stuck in the airport. Jeff, I was wondering if you could just maybe opine a little bit if you look at the factors that would kind of drive the business going forward, we have vehicle depreciation now picking up. That's probably picks up a little more with lease returns. So the cost of replacing could go down, whereas on the flip side, you've got parts inflation that's up 4%, 5%. CCC did talk about the cost of repair not growing quite that much. And then obviously, you've got insurance rates appear to be coming down in certain instances and obviously they get the combined ratio at all time, you know, all-time lows, you know, those all kind of point towards total loss frequency picking up and and then the issue with the uninsured and less insured? Do you kind of view that? You know, I obviously should view that as a a tailwind maybe picking up in your business? Jeff Liaw: Got it. Let me try to address them one by one. I think when you say vehicle depreciation, just mean softness in general in the used car market. Possibly on the horizon. All else equal, that is a supportive factor for volume for our business. A soft market means that the economics of total loss all else equal are less costly to the insurance carriers than it otherwise would be. Right? They're writing a check for $16,000 instead of $17,000 to total the vehicle, it would on a margin drive more volume to us. It probably also means though The U.S. Market can be divorced somewhat from the international market, do overlap in some regards. But it could also be to somewhat softer selling prices for us. Which of course has the opposite effect. So you can imagine more unit volume, lesser unit economics if it were to happen to a meaningful degree. Your second question about the parts prices and repair costs and others tracking that. That's been the million-dollar question of this era in light of the various tariff regimes proposed implemented unwound and otherwise. Is what is the total landed cost of a given repair. We do think there's still fundamentally inflation there, not just because the like for like part has inflated relative to where it was before, but also because of vehicle complexity, also because there are more sensors on the perimeter a car that are increasingly difficult to repair. That drives more cars certainly to total us as well. And for another day, we can talk about how so many of those complex parts and modules actually aren't necessarily fundamental to the operation of the card itself, which makes that card acutely valuable to South America, Eastern Europe, Africa and the like. And then the last question you asked was about the potential softening in insurance rates as well that would be supportive of our business as well. That would cause the cyclical phenomenon described earlier about under insurance or foregoing insurance presumably to reverse, increases or enhances the affordability of insurance policies and the more cars that are effectively covered by one of our clients or one of the folks in the industry, the more cars that are processed in an accident through their funnels, so to speak. Jeff Licht: Just a quick follow-up. I'm wondering with respect to the whole car business and the non-damaged whole car business and dealer to dealer have you have any more kind of evolved or thoughts in terms of how you guys may address that market vis a vis organic versus acquisition? Jeff Liaw: Yes. It's a fair question. Think you're aware probably from having followed us for a while. Our default approach is always organic, right. We prefer to build on the backs of the liquidity we have, the technology, the facilities, the people, the capabilities we've built over decades that is often the best most harmonious way to build a business within Copart. That said, from time to time, we have made strategic moves as well. We acquired National Power Sports Auctions some years ago a big investment in Purple Wave to step into the yellow or heavy equipment space as well. Those arrows are both in the quiver. To date, we've been satisfied with the levers available to us to build organically. Piggybacking largely off of the liquidity we've talked about at great length on this call. But could there be an acquisition that is compelling enough to pursue, we would always look at it as we always have. Jeff Licht: Great. Well, thanks for taking my question and best of luck on the next Thanks, Jeff. Operator: And the next question comes from the line of John Healy with Northcoast Research. Please proceed. John Healy: Thanks for taking my question. Jeff, I'd love to get your thoughts just on where you think we are in the continuum of premium to the consumer from the insurance industry? Do you view 'twenty six as a year where the consumer might still feel some headwinds there? Or as you look at insurance industry profitability and what goes on to the prices that are offered in terms of the different ratios. Think that they're kind of mandated to abide by. Mean, how do you see that kind of playing out in terms of the repairable claim equation for 2026? Jeff Liaw: Yes. And John, that is both a great question and probably the wrong one. For us, meaning if you just imagine the tapestry of variables that will dictate that outcome, it's some combination of the general consumer sentiments in turn a function of unemployment, wage growth, etcetera. Inflation in a whole wide variety of different baskets goods and services and then inflationary and then insurance rates themselves, right. So it is there are so many moving parts there that offering my own prognostications is probably just reckless conjecture at this point. Point. It does seem like there are insurance carriers committed to growing and growing again. Some of them have talked more publicly about that as well that they've been whipsawed in their defense. It's not that not that long ago in 2020, insurance carriers were issuing policy credits, because so many people weren't driving accident frequencies way down They feared the churn that would come from folks who are sitting at home and not driving again. So they issued credits They literally were giving money back to consumers. They woke up a year later, ACV spiked, parts prices spiked, labor wage rates went crazy, the repair costs spiked, they suddenly found themselves underwater. They retrenched, they pursued rate relief, they they made all the operational decisions you might in that environment. Now some are, of course, asking the question, have we overcorrected? Are we now foregoing growth of too much so in pursuit of combined ratios and so forth? That is such a dynamic puzzle that you're better off pursuing those avenues rather than asking us. We have a view but it's indirect enough that I think it's better to ask them. John Healy: Understood. So maybe switching gears to something unique to you guys. The cash on the balance sheet at record levels, the multiple on the shares right now are very close to the multiples that you last time bought stock back. Just given all of the noise in the ecosystem, what are the reasons for maybe not being active on the buyback front maybe over the next six to twelve months? Would there be gating factors? Or do you just view the economic outlook is too uncertain? Or kind of what are your thoughts there? Thanks. Leah Stearns: So John on that, I would just say, I think generally, you can expect that Copart will continue to focus on deploying capital when we see areas that we believe will create meaningful long-term value. For the business and for our shareholders. And we will continue to do that. That's our responsibility from a management perspective and our Board. So today, we think about opportunities to reinvest back into the business, our first priority remains being to drive as much expansion as possible for the business. Through investments, whether it's in CapEx or M and A. We'll continue to evaluate opportunities to do that and drive long-term growth of the business. And then to your point, to the extent that we have a view that long-term a valuation perspective, there's an opportunity to create meaningful value. We'll we've historically used the share repurchase program through a couple of different means, open market purchase purchases, tenders, etcetera. That that would be our lever to return capital to shareholders. And nothing has changed on that front. Jeff Liaw: Hey, John, a slightly finer point to it. I think the fear it wasn't that long ago, I suppose a decade and change ago that I was investor myself. And one of the fears for a given company and accumulating too much cash or too strong a balance sheet is that they would in turn become reckless with their capital. And that I think the evidence is there that there's very little risk of that at Copart. We still treat each dollar as though it's as precious as the last and our P and L should reflect that. And our capital spending and our M and A activities should reflect that as well, meaning the standards for what we will invest capital in have not changed in the ten years I've been here. I don't think they changed in the twenty years before I got here either. So we will treat that cash as though it is dear to us as it is anyone, right. We understand how important it is to our shareholders. So we'll do the right thing with it. And as we articulated, we know it ultimately belongs to shareholders and we have bought shares back in the past. That's always been the mechanism by which we return cash to shareholders. There for sure will come a day if we do that again. And exactly as to how, when and where think we always defer, we always suggest that that's a conversation for another day. John Healy: Understood. Thank you, guys. Operator: Thank you. This concludes the question and answer session. I'd like to turn the call back over to Jeff Liaw for closing remarks. Jeff Liaw: Thanks everybody. We'll talk to you in a quarter. Have a good holiday. Operator: This concludes today's conference. You may disconnect your lines at this time. And enjoy the rest of your day.
Agata Wiktorow-Sobczuk: Good afternoon, ladies and gentlemen. Welcome to the earnings call for the third quarter of 2025 of Polsat Plus Group. Can we please move on to the next slide. We will begin with the presentation of our results delivered by Andrzej Abramczuk, President of the Management Board; Maciej Stec, Vice President for Strategy; and Katarzyna Ostap-Tomann, Chief Financial Officer and ESG Officer. [Operator Instructions] With that, let's move on to the presentation. Andrzej, the floor is yours. Andrzej Abramczuk: Good afternoon, ladies and gentlemen, and welcome on the conference regard of the results for the third quarter of 2025. Thank you for joining us today. Here is our agenda. First, I will share the key highlights of the quarter. Next, we will review operating and financial results in detail. Finally, we will summarize and move to the Q&A session. Let's begin with the key highlights for the quarter. Let's start from the telco segment. In the B2C and B2B service segment, our new multiplay offer is performing above expectations. Since its launch in June, 11% of our customer base has already migrated to this offer. Additionally, bundles with the 3 or more services are gaining strong momentum, sales have nearly tripled. Average revenue per user also showed consistent growth, up 4% year-on-year. Turning to the Media segment. This was an exceptional quarter for the sport. We broadcast the Volleyball Nations League and the World Championship, and we strengthened our portfolio with premium rights, including Formula 1, Bundesliga, UEFA Conference League and European League. This investment strengthened our position and driven audience engagement. However, the concentration of major sport events in the one quarter results in the visible increase in content cost. Looking ahead, we secured exclusive right in Poland for WTA tour tennis from 2027 until 2031, a great addition to our support offering. In the Green Energy segment, we are coming to an end to develop investments. The Drzezewo wind farm has been completed and the commercial launch is planned for early 2026. Also, in the third quarter, we carried out our major maintenance on one of biomass unit. The energy market remains challenging with low energy price. Let's take a quick look at the number. In the third quarter, revenue was PLN 3.4 billion and EBITDA amount PLN 766 million. ARPU per B2C customer exceeded PLN 80, up 4%. Our multiplay customer base surpassed 3 million and continue to grow, supported by the success of our multiplay strategy. Like I said, our reach programming and sport offer are very popular with the viewers. And in the third quarter, audience share rose to 22.7%, up 1 percentage point. Green energy production reached 237 gigawatts and was lower year-on-year due to the scheduled maintenance of the biomass unit. Overall, this quarter delivered solid operating performance, especially in B2C, B2B and media, but at the same time, we faced certain challenges. Let's now to the more detailed review of our operating results. Maciej, over to you. Maciej Stec: Thank you, Andrzej. I'm pleased to share the operating results from each of our business segments. I'll begin with the Media segment, focusing on both television and online performance. Could we move to the next slide, please? In the third quarter of 2025, our viewership figures and position in the advertising market remains strong. Polsat, our main channel, was the market leader with a 7.3% audience share, while our thematic channels collectively reached 15.5%. Altogether, TV Polsat Group achieved a total audience share of 22.7%, marking a 1 percentage point increase compared to last year. The TV advertising and sponsorship market in Poland was slightly softer in the third quarter, declining by 2.6% year-on-year. The reason behind this is that last year, there were major sporting events that took place in Europe, the Olympic Games in Paris and the UEFA Euro championships in Germany. Our advertising revenue followed a similar trend. However, in real terms, this was only PLN 8 million lower than in Q3 2024. As a result, our market share remained stable at 27.6% in Q3. Let's move to the next slide, please. Given the seasonal nature of the media business, it's important to assess our results over a longer period. Over the first 9 months of 2025, we delivered strong audience figures. Our group's total audience share rose to 22.4% year-on-year with our main channel Polsat accounting for 7.4% and our thematic channels contributing 15.1%. These achievements are in line with our long-term strategy. Turning to the advertising market for the first 3 quarters of 2025, the sectors performed as we had anticipated with growth rates in the low single digits. We outperformed the market, increasing our advertising revenue by 1.7% to PLN 981 million, which resulted in a market share of 28.2% for the 9-month period. Let's move on to the next slide. We consistently maintain a very strong position in the Polish online media market according to media panel data. In the third quarter, Polsat-Interia Group was the clear leader among Internet publishers in Poland, achieving the highest average monthly number of users, 20.5 million and a total of 2 billion page views during the quarter. What's important, Polsat-Interia Group is also a market leader in the mobile category, holding the top spot for 3 consecutive months in Q3 of 2025. These results demonstrate the strength and stability of our digital platforms, and we will continue to strengthen our position in the online media segment. Can I get the next slide, please? Our autumn programming schedule delivered strong results, combining popular entertainment formats with major sports events. Flagship shows such as Dancing with the Stars, newly acquired format of Millionaires, Your New Home, Your Face Sounds Familiar, attracted large audiences, while premium sports broadcast further strengthened our position. This quarter, we broadcast several exceptional sporting events. Notably, we earned matches of the Volleyball Nations League, including 12 games held in Poland, where our national team won the competition. We also covered the men's and women's Volleyball World Championships in the Philippines in August, September, where our men's team won the Bronze Medal. These Volleyball events are a vital part of our programming, supporting viewership and confirming our leadership in sports broadcasting. However, they also led to higher one-off content costs during the third quarter. Additionally, we have recently expanded our sports rights portfolio, acquiring rights to major events such as Formula 1, Bundesliga and the UEFA Conference and Europa Leagues. These investments contributed to higher content costs, especially when compared to last year when our cost base was lower as we no longer held the rights to the UEFA Champions League. Overall, as a result of these initiatives, our audience share rose to 22.7%, confirming the effectiveness of our programming strategy and the strength of our diversified content portfolio. However, this quarter's results were affected by increased content costs. Next slide, please. Let's now look at the B2C and B2B services segment and its performance in Q3 2025. Next slide, please. We continue to see strong performance in our multiplay offering, supported by the new offer introduced in June 2025. As Andrzej has already highlighted, customer interest in our new multiplay packages is very high, and we are successfully moving customers to this offer. At the end of the third quarter, more than 3 million customers were using our multiplay services, representing 53% of our total customer base. Over the past year, we grew the multiplay base by 41,000 customers, again, thanks to the continued effective upselling of our services. Our multiplay customers account to 11 million RGUs and increased over 1.1 million year-on-year. This growth was also driven by the new multiplay offering and strong demand for bundles consisting of 3 and more services. Importantly, churn remains low at 7.4%, which reflects the strength of our multiplay strategy and the value it brings to our customers. Let's move to the next slide, please. Our strong multiplay performance is closely linked to the overall growth of our contract services portfolio. In the third quarter, we delivered more than 13.3 million contract services, representing a 2% increase compared to the previous year. Mobile telephony continued to be a key driver of growth with 195,000 more services provided than last year. We also observed as a key driver, demand for Internet services, adding 207,000 mobile and fixed connections year-on-year. The pay TV base continues to face pressure, but this is partly offset by the growing adoption of IPTV and OTT solutions, which help us maintain a competitive position in the pay TV segment. Next slide, please. As a result of our consistent long-term execution of the multiplay strategy, we continue to see growth in ARPU per B2C customer. In the third quarter, ARPU increased by 4% year-on-year and reached PLN 80.3. This progress was driven by solid sales of mobile and Internet services as well as the consistent execution of our multiplay approach. I would like to highlight that for the first time, our average revenue per customer has exceeded PLN 80. This is a clear evidence of the effectiveness of our strategy. We are also observing a constant rise in the number of services used by each customer with an average of 2.36 RGUs per customers at the end of the third quarter. This result demonstrates our successful upselling and bundling efforts. As Andrzej mentioned earlier, sales of packages with 3 or more services have almost tripled since we introduced the new multiplay offer in June. This not only shows strong customer interest in our new offer, but also proves that there is further potential to increase the saturation of our customer base with additional services in the future. Let's move to the next slide, please. In the prepaid segment, we maintain a high stable base of 2.41 million services despite operating in a highly competitive and challenging market environment, which I underline quarter-by-quarter. ARPU in this segment increased by 3.4% year-on-year, reaching PLN 18.4. This growth was supported in part by the launch of new and attractive pay TV packages on Polsat Box Go, Polsat Lovers, Premium and Premium Sport priced at PLN 20, PLN 30 and PLN 50, respectively. Each package builds on the previous one, offering flexible access to up to 180 TV channels, including 24 premium sports channels, a wide range of exclusive sports broadcast and a rich VOD library. I'm confident that this new offering, together with our continued efforts to increase the value of prepaid customers will help us further grow prepaid ARPU even in the face of the market challenges. Next slide, please. In the B2B segment, we continue to maintain a stable customer base of around 68,000. I would like to underline that the B2B market is very demanding, and we operate in a highly competitive environment. Our main objective in this area as in all other segments is to increase customer value. ARPU per B2B customer increased by 2.1% year-on-year, reaching almost PLN 1,550 per month. This growth demonstrates our commitment to providing high-quality services tailored to the specific needs of our clients and to building strong long-term relationships with our business customers, which ensures continued resilience in this segment. Next slide, please. Let us now turn our attention to the Green Energy business. The next slide, please. In the Green Energy segment, production in the third quarter was 21% lower year-on-year, amounting to 237 gigawatt hours. This decrease was mainly due to scheduled major maintenance on one of our biomass units, which continued throughout the quarter and significantly reduced output. Such maintenance is routine, occurring every 8, 10 years with the other units expected to undergo similar work in around 5 years. Despite this temporary reduction, total green energy generation for the first 9 months of the year increased by 15% year-on-year, reaching 830 gigawatt hours. This growth was driven by the expansion of our wind energy capacity and our largest wind farm, Drzezewo has now been completed and is currently generating energy as part of its technical commissioning. It's worth mentioning that energy production in the first 9 months of 2025 was noticeably affected by weaker weather conditions. Nevertheless, wind energy continued to be the main driver of growth. Production from wind sources increased by 56% year-on-year in the third quarter and by 73% for the 9-month period, reflecting the positive impact of our new capacity. Can I have the next slide, please? EBITDA in the Green Energy segment amounted to PLN 175 million for the first 9 months of 2025, representing a 14% decrease year-on-year. In the third quarter, EBITDA stood at PLN 52 million, 37% lower than the previous year. This decline was primarily the result of scheduled major maintenance work on the biomass unit, which significantly reduced production during the quarter. And the comparison to last year is impacted also by an exceptionally strong base driven by higher contracted prices and more favorable supply terms for biomass energy. Ongoing low market energy prices also continued to affect profitability. The completion of the Drzezewo wind farm doubled our installed wind capacity to 289 megawatts. With this project, we have reached our target capacity in wind energy, combined with stable energy prices going forward, this positions us to strengthen EBITDA in the coming period. This milestone marks the final stage of our investment program in renewables. Ladies and gentlemen, before I hand over to Kacha, I would like to very briefly summarize our operating performance across segments in the past quarter. In Q3 2025, our Media segment achieved excellent viewership results with a 22.4% audience share in 9 months of 2025. We maintained a strong position in the advertising market with a 28.2% market share and ad revenue growing by 1.7%. The third quarter, the financial results of the Media segment was affected by higher one-off content costs due to new sports rights and major volleyball events. In the B2C and B2B services segment, multiplay continues to drive growth. Over 3 million customers now use multiplay services and ARPU per B2C customer exceeded PLN 80 for the first time. The commercial momentum of our multiplay offer is very good, supporting our operating results in the coming quarters. Prepaid and B2B segments remain resilient with growing ARPU supported by attractive offers and tailored solutions. In green energy, we completed the Drzezewo wind farm, reaching our target wind capacity and finalizing our renewable investment pipeline. The operating and financial results of this segment were heavily impacted this quarter by the renovation of the biomass unit, which is a one-off event. I expect that going forward, EBITDA will improve on the back of higher wind capacity, providing that energy price remain at least stable. Still, I would like to signal that reaching our strategic EBITDA goal in 2026 is going to be challenging, and I would rather anticipate a result in approximate PLN 400 million next year. That said, please remember that our renewable energy projects are long-term, 30 years investment, and this is how they should be analyzed. Kacha, please, come on, the floor is yours. Katarzyna Ostap-Tomann: Thank you. Good afternoon, everyone. Can I have the next slide, please? Before moving to a detailed discussion of financial results, I want to emphasize what Andrzej and Maciej have already mentioned. In the third quarter, we faced several one-off events. In the Media segment, we had higher costs from the new sports rights and major volleyball events. In the Green Energy segment, we carried out a major overhaul of one of our biomass units. These factors had a clear impact on our Q3 results. Revenue declined by 4.1% to PLN 3.4 billion. Adjusted EBITDA reached PLN 766 million, primarily impacted by higher content costs this quarter. We closed the quarter with a net profit of PLN 57 million. Free cash flow for the last 12 months adjusted for green energy investments was PLN 860 million at the end of Q3. I would like to signal that in the full year 2025, Free cash flow may be around PLN 600 million to PLN 700 million. Net debt-to-EBITDA stood at 3.54x, slightly lower than at the end of 2024. However, I expect this ratio to rise in Q4 or Q1 2026 due to the upcoming payment for the renewal of the 900 megahertz frequency reservation pending the regulator's decision. Can I have the next slide, please? Here, you can see a detailed breakdown of revenue and EBITDA by segment. Revenue was significantly impacted by lower results in the Green Energy segment, driven by several factors. First, we recorded lower energy sales due to weaker market prices, reduced production volumes caused by the biomass unit maintenance and a strong comparative base in Q3 2024 when we had exceptionally favorable biomass energy contracts. Second, there were no revenues from hydrogen bus deliveries in this quarter as these are scheduled for Q4. Revenue from buses is recognized on the same principle as in the real estate at the time of delivery to the customer. These revenues will fluctuate depending on the delivery schedule. In the B2C and B2B services segment, the main reason for the revenue decline was weaker equipment sales. This reflects a general market trend as customers replace phones less frequently, which reduces overall device sales. Turning to EBITDA. The impact of content cost in the Media segment is clear. This quarter includes cost of new sports rights, which Maciej presented in detail and significant costs related to global prestigious volleyball events, which were compared against at a very low base last year when Champions League costs were no longer present. I want to stress that a large part of these costs related to volleyball events are one-off and will not repeat in the coming quarters. EBITDA in B2C and B2B services was affected by lower margins on equipment sales and higher costs, including network and employee-related expenses influenced by last year's inflation and increases in the minimum wage. Maciej has already discussed the reason for the EBITDA decline in the Green Energy segment. Next slide, please. Our adjusted free cash flow after interest and development CapEx in the Green Energy segment was PLN 860 million over the last 12 months, which I consider a very good result. Interest costs remain a key factor that puts pressure on free cash flow. We are already seeing savings on interest costs due to the interest rate cuts, but please remember that these reductions are reflected in our results with some delay and will continue to lower our debt servicing costs in 2026. I also want to highlight telco frequency reservation payments. PLN 645 million relates to the renewal of the 2,600 megahertz band in Q4 last year and the 700 megahertz block. We are still waiting for the regulators' decision on the terms for extending the 900 megahertz reservation. After that, we do not expect further renewals for several years. Finally, development CapEx in green energy is gradually declining as we are now at the final stage of these investments. Next slide, please. On this slide, we show the breakdown of capital expenditures by business segment. In the TMT area, which includes both B2C and B2B services and the Media segment, we operate under a CapEx-lite model. The CapEx to revenue ratio stood at 8% in both the third quarter and 9 months of 2025. CapEx in this segment mainly relates to Netia's fixed network and IT. As mentioned earlier, development CapEx in the Green Energy segment is almost completed. In Q3, CapEx in this segment was PLN 113 million and PLN 420 million for the first 9 months. I still expect elevated spending in Q4 due to the settlement for the execution of the Drzezewo wind farm, after which our development investments are essentially over. Can we go to the next slide, please? My final slide, as usual, covers the group's debt. As mentioned earlier, net debt-to-EBITDA ratio, excluding project financing, was 3.54x, including all group debt together with investment loans for renewable energy projects, the ratio was 4.03x. The debt structure and maturity profile remain unchanged. In Q1 2026, we resumed scheduled principal repayments on the term loan maturing in 2028. The bonds mature in 2030. Please note the weighted average interest cost, 7.3% based on the repo and the balance sheet date. This rate is steadily declining with interest rate cuts. Recall please that at the end of 2024, we reported 8.3% and this will have a positive impact on our free cash flow going forward. That's all from me today. It was a challenging quarter financially, but I want to emphasize that much of the pressure came from one-off factors that will not repeat in the coming quarters. Thank you for your attention. And now I hand over to Andrzej. Andrzej Abramczuk: Thank you, Kacha and Maciej. Our results to the third quarter in line with our expectations and were under impact of the several one-off events. Firstly, the Media segment was higher costs related to the sports right and secondly, in the green energy, scheduled maintenance of biomass unit reduced production. On the positive side, our new multiplay offer continue to perform very well. It supports ARPU growth and will driven retail revenue in the coming period. We also had a strong start at the autumn programming schedule, combined with robust sport offering, this delivered excellent viewership has strengthened our position in the advertising market. Finally, we completed the Drzezewo wind farm, this doubled our installed wind capacity and marked the end of capital-intensive investment phase in renewable energy. This brings us to the end of the presentation, and we will now take your questions. Thank you. Agata Wiktorow-Sobczuk: Thank you very much. We have a couple of questions that you have posted in the Q&A panel. So thank you for those questions. And I will read them as they were posted. The first 2 comes from Nora from Erste. I have 2 questions, please. Could you please elaborate on the technical costs? Will these continue to rise after the third quarter of 2025 due to network rollout expenses? If so, approximately until when? Katarzyna Ostap-Tomann: As far as the technical costs are concerned, it's not only the rollout cost, rollout expense that we have there. We also have wholesale network access, which is -- which we use for our fixed line in Plus. So this is -- basically, these are the 2 components of the rising rollout cost -- the rising technical costs. As far as rollout is concerned, it will rise during 2026, definitely because we are expanding our 5G network. Agata Wiktorow-Sobczuk: And second question, what is your expectation for EBITDA in 2026? Do you expect positive year-on-year dynamics in retail? Katarzyna Ostap-Tomann: As far as EBITDA for 2026 is concerned, we are finishing at the moment our budget. So I won't be able to give you the specific details of what we expect for the consolidated EBITDA. We'll do everything that we can to have positive dynamics in the TMT segment. Agata Wiktorow-Sobczuk: The next question comes from Bojan from ODDO BHF. Could you please provide a bit more details on your additional financing you've taken during the third quarter, type of debt volume, interest rate tenure? Katarzyna Ostap-Tomann: So we're talking of the financing of Drzezewo wind farm, which was completed in August. It was a term loan with the consortium of 3 Polish financial institutions. It was PLN 874 million plus revolving loan of PLN 56 million and a small amount for recuring VAT. It's taken for 15 years at a variable rate. Agata Wiktorow-Sobczuk: Three questions from Ali from HSBC. Can you talk about the multiplay additions? How much of this is new customers versus the existing subscriber base? And can you comment on the margin dilution impact from multiplay and how you offset or think about this? Maciej Stec: Okay. When we talk about multiplay additions, in fact, it doesn't matter because it's included in our ARPU, which we report because you have dilution inside and growth also inside. So our ARPU in third quarter of 2025 increased by 4%. And first time, it was more than PLN 80. When you take a look at our new offering, it's more concentrated on total check per subscriber because in our new offering, you choose 2 services out of 4 basic services and you pay PLN 80. Then you add another service for PLN 30. So in fact, it's a very simple offering, which builds the ARPU and you can easily upgrade your offering. So first check is PLN 80. Next check is PLN 110. For 4 services, it's PLN 140. That's what we mentioned in the presentation. With new offering, we observed that we have more contracts done for 3 and more services. And in fact, it's 3 and 4 services. We observed in our offering -- in our data now that we triple such a transaction. So in fact, it's included in our ARPU, so you can develop your model according our ARPU easily. Agata Wiktorow-Sobczuk: If energy prices were to remain at current low levels, what kind of EBITDA would the division generate in '26, '27 versus previous expectation, PLN 500 million. Katarzyna Ostap-Tomann: It would be more or less PLN 400 million with the current prices. Agata Wiktorow-Sobczuk: Margins in B2B and B2C continue to be challenging, revenues decline and inflationary cost growth. Could you give us any color on how you expect that to evolve over the next couple of years? Katarzyna Ostap-Tomann: As far as the B2B and B2C margins for the foreseeable period are concerned, they are obviously challenging. But as Board of Directors, we do everything in our capacity in order to maintain the margins for the foreseeable future. Maciej Stec: And that's what I presented in the B2C and B2B segment. When you take a look at the offering, so 53% of our base has 2 or more services. It means that 47% has only 1 service, which is important. So we can -- we have space here just to grow. But the second is more important when you take a look at saturation of RGUs per our multiplay subscribers is only 2.36 in the third quarter of 2025. In basic offering, we have 4 services and additional services, we have 3 or 4 more. So in total, we have 6 to 8 services just to sell to the households. So there is very big space and very big potential just to grow, especially with this new offering, which I explained previously, it was like that first, you pay PLN 80, PLN 110, PLN 140, PLN 170, PLN 200. So you can operate for the whole family and even your friends. So this is very easy just to upgrade our offering and you can choose your services in a flexible way. Agata Wiktorow-Sobczuk: A follow-up from Nora. One more question, please. Does the reduction in recurring EBITDA in the Green Energy segment to PLN 400 million in 2026 also apply to subsequent years? Katarzyna Ostap-Tomann: Look, it depends on the cost of energy. Actually, I'm sorry to say that I'm not a fortune teller to tell what the prices of energy will be in the subsequent years. The only thing I can tell you if the prices will maintain the level from today, I estimate future EBITDA is PLN 400 million. This is pure mathematics. Maciej Stec: Yes. And this is for 2026 because we have outlook for 2026 because now we are contracting 2026 now. 2027 will be contracted on the base of next year energy pricing, and this is important how it operates. So you need to understand there is a delay with our revenues in this segment. Agata Wiktorow-Sobczuk: And a question from [indiscernible]. Should we expect adjusted EBITDA to decline in the fourth quarter of 2025? What level of free cash flow should we expect in 2026? Katarzyna Ostap-Tomann: As far as EBITDA is concerned for the whole 2025, the comparable EBITDA will be a bit lower than 2024. So that's more or less my estimation. As far as the free cash flow is concerned, it really depends on the working capital and mainly this depends on the cost of capital. So for 2026 at the moment, I won't be able to give you an estimate. Agata Wiktorow-Sobczuk: And a follow-up from Bojan. Could you please give us a bit more clarity on workforce costs till the year-end and also implications for 2026? Katarzyna Ostap-Tomann: In 2025, we have suffered an increase in workforce costs. This was partly to -- mainly this was due to the factors that we do not control. The increase on the minimum wage, that's the first thing. The other thing is still the press of inflation or impact of inflation on the workforce cost. So basically, what we expect in 2026 is lowering -- I mean, not lowering workforce cost, but lowering the increase. So the impact will not be so high in 2026 because we see both inflation and the press on the wages a bit lessening right now in the fourth quarter. Agata Wiktorow-Sobczuk: That was the last question that we have. So thank you from my side for joining, and I will pass over to Andrzej. Andrzej Abramczuk: Thank you, Agata. Thank you, Kacha and Maciej. Ladies and gentlemen, thank you very much for the participation in our quarterly conference. And let's see when we presented our yearly results. Thank you. Katarzyna Ostap-Tomann: Thank you. Maciej Stec: Thank you very much. Bye.
Operator: Good day and welcome to Youdao Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of Youdao. Please go ahead. Jeffrey Wang: Thank you, operator. Please note the discussion today will contain forward-looking statements to the future performance of the company, which are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions and other factors, some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain company filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update these forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For the definitions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2025 third quarter financial results release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will also be available on Youdao's corporate website at ir.youdao.com. Joining us today on the call from Youdao's senior management are Dr. Feng Zhou, our Chief Executive Officer; Mr. Lei Jin, our President; Mr. Peng Su, our Senior VP; and Mr. Wayne Li, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction. Feng Zhou: Thank you, Jeffrey. Thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are based on renminbi, unless otherwise stated. In the third quarter, our strategically prioritized businesses Youdao Lingshi and online marketing services delivered a strong momentum, supporting our long-term growth trajectory. Net revenues reached RMB 1.6 billion, up 3.6% year-over-year. Operating profit was RMB 28.3 million, a decline of 73.7% year-over-year, primarily due to 2 factors. First, following the significant operating profit improvement in the first half of the year, we increased investments in Youdao Lingshi our online marketing services in Q3 to accelerate medium to long-term expansion. Second, we faced a high comparison base from the same period last year due to a one-off impact from the STEAM courses. Our restructuring of the Learning Services segment is now complete. For the first 9 months of the year, Operating profit reached RMB 161.1 million, representing a substantial 149.2% year-over-year increase and highlighting the meaningful progress we have made in enhancing our profitability. Notably, we have now achieved operating profit for 5 consecutive quarters, first in our history. From a cash flow perspective, operating cash outflow for the quarter was RMB 58.6 million, an improvement of 31.4% year-over-year. Next, I will delve into the major developments across our businesses. Revenues from the Learning Services segment were RMB 643.1 million, down 16.2% year-over-year. Reflecting our disciplined and strategic approach to customer acquisition as we focus on growing the Lingshi business. Within the Learning Services segment, net revenues from digital content services were RMB 425.9 million during the quarter. And our achievements in digital learning have gained international recognition Youdao was included in the 2026 GSV 150, a list that highlights the world's most transformational growth companies in digital learning and workforce skills, selected from more than 3,000 global companies. Turning to Youdao Lingshi, one of our key strategic businesses. We made solid progress during the quarter by diversifying its customer acquisition channels. Lingshi accelerated achieved over 40% year-over-year growth in gross billings. More recently, retention rate has exceeded 75%, up from over 70% in the fourth quarter of last year. In addition, as part of our broader commitment to cultivate innovative talent, we collaborated with the Yau Mathematical Sciences Center at Tsinghua University, [Foreign Language] providing technical support to a platform designed to identify and support mathematically gifted students. The system is currently being piloted in top-tier schools, with a national rollout planned following further refinements. In terms of our programming courses, we introduced an AI tutor for live programming classes in the third quarter, featuring a life-like avatar and supporting both text and voice interactions. The AI tutor helps answer students' questions in real time, significantly enhancing the overall learning experience. With ongoing product upgrades, gross billings for our programming courses increased by more than 30% year-over-year in Q3. Additionally, we continued our deep collaboration with the China Computer Federation, CCF and are honored to have become a golden partner. On the apps side, total sales of our AI-driven subscription services reached a new record of approximately RMB 100 million in the third quarter representing over 40% year-over-year growth. We launched our Confucius 3 translation model, which supports real-time bidirectional translation across 38 languages and offers advanced multi-model capabilities. Despite its compact parameter size, Confucius 3 translation delivers translation quality that surpasses some larger general purpose models. In August, our Confucius 3 series LLM was among the first to receive the highest level Trusted AI Education Large Language Model certification from the China Academy of Information and Communications technology. Regarding product development, we introduced a major upgrade to our flagship Youdao Dictionary app, Youdao Dictionary 11, delivering a truly AI native experience that has been met with widespread user acclaim. A key highlight is the fully redesigned AI simultaneous interpretation feature, powered by industry-leading noise reduction technology and our proprietary turn detection algorithm. It achieves top-tier voice translation accuracy with exceptionally low latency. The feature also received a one-click summarization of translated content and automatically generates mind maps, significantly improving user efficiency across both learning and work scenarios. These enhancements have been well received, driving over 200% year-over-year growth in sales of the AI simultaneous interpretation feature during the third quarter. To date, more than 20 million users have engaged with this capability. We have launched a new AI audio and video translation product, Youdao Anydub. In the third quarter, to automate multi-lingual production of content such as TV shows, marketing videos and more. It leverages our proprietary adaptive voice cloning technology to learn a speaker's local characteristics and generate natural fluent and emotionally rich dubbing. The system delivers optimal translation results by holistically considering key factors, including voice, speaker identity and even video scene transitions. To produce dubbing that is more accurate, contextually aligned and precisely suited the creators intended purpose. Turning to our online marketing services segment. Growth accelerated in the third quarter. Net revenues reached RMB 739.7 million, a new record and an increase of 51.1% year-over-year. The strong performance was primarily driven by increased demand from the NetEase Group and overseas markets, which was driven by our continued investments in AI technology. Gross margin for the segment was 25.4% in Q3, moderated roughly 10 percentage points year-over-year, but largely stable sequentially. Remaining within our long-term target range of 25% to 35%. We continue to rapidly expand our new client base during the quarter to support future growth. Advertising revenues from the gaming industry mainly contributed from NetEase grew by over 50% year-over-year. We assisted NetEase games with a growing number of programmatic advertising and influencer marketing campaigns. For example, in promoting the blockbuster title Where Winds Meet. We executed a comprehensive integrated marketing strategy that generated over 500 million video views and more than 21.4 million live streaming exposures. Looking ahead, we plan to further deepen our collaboration with the NetEase Group and other game clients to unlock additional synergies. Our overseas advertising business also delivered strong momentum with revenues growing by more than 100% year-over-year. We are pleased that our BYD WonderLife Global Influencers Co-Creation campaign received the Brands & Creators award at the YouTube Works Awards China. Looking ahead, we plan to further deepen our collaboration with Google and with global advertisers to better support Chinese companies in expanding their global presence. We continue to drive improved advertising performance by our AI Ad Placement Optimizer. It is an end-to-end AI-powered agentic solution covering demand analysis, strategy formulation, data analytics and innovative optimization. In addition, I am thrilled to share that we will launch AI Ad Placement Optimizer Version 2 by the end of this year. Please stay tuned. Moving to our Smart Devices segment. Net revenues were RMB 245.8 million during the quarter, down 22.1% year-over-year. This reflects our strategic decision to exercise greater discipline in marketing expenditures. Focusing on strengthening the segment's operational health, as a result, we saw year-over-year improvement in the segment fundamentals during the third quarter. Product-wise, we launched a new tutoring pen, Youdao Space X which offers precise scanning for long-form and multi-graphic prompts. AI-powered video explanations for academic problems and an AI-based mistake ledger. These features empower students to learn and review subjects more effectively and efficiently. Our dictionary pen and tutoring pens were also featured at the World AI conference receiving strong exposure to new audiences and coverage from multiple media outlets. Looking ahead, we will continue executing on our AI strategy. With a focus on deepening the application of and innovating with our large language model Confucius. Across both our learning and advertising businesses to consistently create value for our customers. Financially, we will maintain the suppling operations and remain confident in achieving the full year targets set at the beginning of the year, including robust year-over-year operating profit growth and reaching annual operational cash flow breakeven for the first time. With that, I will hand over to Su Peng for a deeper dive into our financial results. Thank you. Peng Su: Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from the third quarter of 2025. We encourage you to read through our press release issued earlier today for further details. For third quarter total net revenue of RMB 1.6 billion or USD 228.8 million, representing a 3.6% increase from the same period of 2024. Net revenue from our learning services were RMB 643.1 million or USD 90.3 million, representing a 16.2% decrease from the same period of 2024. So the year-over-year decrease was primarily attributable to our decision to take a disciplined, strategic approach to customer acquisitions, which places a greater emphasis to a high ROI, return on investment engagements. We believe this strategy has enhanced the overall resilience and operational efficiency of our business despite the short-term revenue decline. Net revenue from our smart devices were RMB 245.8 million or USD 34.5 million, representing a 22.1% decrease from the same period of 2024. Our net revenue from our online marketing services were RMB 739.7 million, or USD 103.9 million, representing a 51.1% increase from the same period of 2024. The year-over-year increase was primarily driven by the increased demand from the NetEase Group and overseas markets, which was driven by our continued investment in AI technology. For the third quarter, our total gross profit was RMB 687.9 million or USD 96.6 million, representing a 12.9% decrease from the same period of 2024. Gross margin for learning services was 58.5% versus the quarter of 2025 compared with 62.1% for the same period of 2024. Gross margin for smart devices was 50.3% for the third quarter of 2025 compared with 42.8% for the same period of 2024. Gross margin for online marketing services was 25.4% for the third quarter 2025 compared with 36.3% for the same period of 2024. For the third quarter, we reduced our total operating expense to RMB 659.6 million or USD 92.7 million compared with RMB 682.2 million for the same period of the last year. Looking at our expenses in more detail. Sales and marketing expense declined to RMB 487.7 million, compared with RMB 519.6 million in the third quarter of 2024. Research and developing expense were RMB 127.8 million compared with RMB 119.6 million in the quarter of 2024. Our operating income margin was 1.7% in the third quarter of 2025 compared with 6.8% for the same period of last year. For the third quarter of 2025, our net income attributable to ordinary shareholders was RMB 0.1 million or USD near to 0 compared with RMB 86.3 million for the same period of last year. Non-GAAP net income attributable to the ordinary shareholders for the third quarter was RMB 9.2 million or USD 1.3 million compared with RMB 88.7 million for the same period of last year. Basic and diluted net income per ADS attributable to ordinary shareholders for the third quarter of 2025 was near 0. Non-GAAP basic net income per ADS attributable to the ordinary shareholders for the third quarter was RMB 0.08 or USD 0.01. Our net cash used in the operating activity was RMB 58.6 million or USD 8.2 million for the third quarter. Looking at our balance sheet as of September 30, 2025 our contract liabilities, which mainly consists of the deferred revenue generated from our learning services were RMB 751.1 million or USD 105.5 million compared with [RMB 961 million] as of December 31, 2024. At the end of the period, our cash, cash equivalents, current and non-current restricted cash and short-term investment totaled RMB 557.7 million or USD 78.3 million. This concludes our prepared remarks. Thank you for your attention. We will now like to open to your questions. Operator, please go ahead. Operator: [Operator Instructions] First question is from Brian Gong, Citi. Brian Gong: A very quick question for our strategies ahead. So our online marketing services are growing rapidly kind of showing a different trend versus learning services. From a strategic perspective, the online market services become more important than learning services in the future? Feng Zhou: Brian, so right now, we are experiencing higher growth for ads compared with learning services. In the long term, we actually see great opportunities on both areas. So let me explain that for you. So the strong expansion of our marketing services over the past 3 years have been mostly driven by First, our advanced ad tech and AI capabilities, then customers trained to transition from traditional ads to performance ads and finally, opportunity of overseas ads. Since the advertising revenue first exceeded RMB 200 million in the single quarter in Q4 2022. It has reached a record high of over RMB $700 million this quarter, so representing a year-over-year increase of more than 50%. So as we've discussed several times on this call, we believe our advertising business is still in the early days. The application of generative AI and agentic AI in online advertising is only just beginning. We see 2025 as the first when generative and agentic AI will be put to work on ads at scale. So we launched our Youdao Magic Box ad creative platform in Q1 and our AI Ad Placement Optimizer and add automation agents in Q2. These AI-driven improvements in delivering the ads have strengthened the customer satisfaction already, which in turn encourages advertisers to allocate larger budgets to our platform accelerating our growth from customer expansion perspective. We continue to see substantial opportunities across online games, e-commerce, overseas, online games, overseas electronics and through our deepening collaboration with partners such as Google and TikTok. So with all these reasons, we believe these will all drive strong revenue growth for the coming years, hopefully. So on the other side, we also see very good growth opportunities in our learning services business. This part of our business, as you probably know, has undergone quite significant changes over the past 2 years, largely because we actually believe there is tremendous long-term potential in to see AI-driven online services. So AI is a decade-long growth trajectory and capturing it require us to build and scale truly AI native services and application, and that's what we've been doing. So on AI-driven subscription services, so this part, we began sharing our progress since last year, and the trajectory is very promising. So total sales of AI-driven subscription services amounted to approximately RMB 50 million in the first quarter of last year, if you remember. So it took us only 6 quarters to double that figure, reaching approximately RMB 100 million this quarter. So we are actively developing new features, applications and agents to support future expansion. A lot of agents are running inside our companies to improve our business efficiency. So we see ample product optimization opportunities ahead and expect the growth to continue. In the Digital Content segment, the learning content. We have fully completed the restructuring and have sharpened our focus on the Lingshi business. In Q3, Youdao Lingshi delivered over 40% year-over-year growth in gross billings and demonstrated strong user stickiness and retention rate exceeds 75%. So adding all that up, in the near term, we expect -- actually, we expect net revenues from the entire learning services segment to return to year-over-year growth. So in summary, we remain firmly committed to driving growth across both our learning and advertising businesses. By continuing to serve our customers better and also leveraging AI technologies better. Yes. Operator: Next question is from Linda Huang, Macquarie. Linda Huang: Can you hear me? Feng Zhou: Yes. Yes. We can hear you. Linda Huang: So my question is regarding for the online advertisement, because since the second quarter this year, we noticed that the gross margin below -- I think, below 30%, maybe around like 25%. So I just want to know that, does the manager have any plan or like a time line, we can return back to the above 30%? And what will we need to do to make sure that the margin can recover? So that's for online marketing. Feng Zhou: I'll answer this briefly before Jin Lei provides more details. We always operated with a long-term view and aim to increase the value we create for advertisers. We think that's most important. So in Q3, we saw strong opportunities to grow the customer base. So we chose to engage and onboard more customers, and that is reflected in the revenue growth. You can see very, very quick revenue growth. On the flip side of that, we are -- so we basically gave up some short-term gross margin as new customers are less profitable, and sometimes even we operate at a loss for a particular important customers. So that is actually also true, I believe, for the learning side of the business, I just wanted to mention in Q3. So we invested in hiring more personnel for expanding audience through across business in Q3 also for future growth. So we believe this kind of investments are very good investments, and we have a solid and profitable unit economics. We ensure we have that. And we think investments like these are going to translate to growth and profitability in the coming quarters. Lei Jin: This is Jin Lei. Regarding the gross margin of our online marketing services business, the major parts are adopting the performance-based advertising pricing model and the gross method of revenue recognition, which necessitate balance between delivering value to our clients and sustain our own healthy long-term development. Against this backdrop, we consider gross margin within the range from 25% to 35% to be a reasonable target. Our current objective is to drive an improvement in gross margin, which we aim to achieve through several key initiatives. But we plan to broaden the application of the Magic Box creative production platform throughout the [AD] creation process. Compared to menu creation production, Magic Box reduced production cost by approximately 70%, while improving production efficiency. By leveraging our end-to-end data chain to identify and analyze high-performing creatives, we can scale the application, better serve our clients and enhance overall delivery efficiency. Second, we will continue to optimize and upgrade our data management platform, DMP and the programmatic delivery system. This includes expanding data dimensions and mining underlying data characteristics to improve audience and traffic insights. Those enhancements will enable more systematic and process the identification of targeted audiences leading to higher advertising delivery efficient effectiveness. Third, we will capitalize our robust AI capabilities to further integrate the AI-driven creative production with the advertising delivery process by closely linking those functions with the data capabilities of our DMP, we aim to establish an automatic closed-loop system that boosts overall operational efficiency of our online marketing services. Operator: Next question is from Brenda Zhao, CICC. Liping Zhao: My question is also related to the profit margin because we see the operating profit experienced a year-over-year decline in the third quarter, what is the potential for rebound to year-over-year growth in fourth quarter? Peng Su: Thank you, Brenda. This is upon. I will handle the question first. And I think at the beginning of this year, we set the 2 full year financial goals. The first is to achieve the rapid year-over-year improvement in operating profit. And secondly, to achieve the breakeven in full year operating cash flow. And if you see the performance of the Youdao in the half of this year, especially in the operating profit in this year, in the first half of 2025, I mean, it's much better than that in the last year, same time, improving from the RMB 40 million loss to the RMB 130 million gain. So I think that provides more flexibility for us to make more investments in the second quarter of the 2025. We stepped in the investment in the Youdao Lingshi in advertising the customer acquisition. We are maintaining the profitability. And also, we start to spend marketing dollars to acquire potential clients for the advertisement business. And from the third quarter as the Dr. Zhou mentioned before in our earnings call and Youdao Lingshi deliver over 40% year-over-year GMV growth and increased retention rate to the 75% -- over the 75%. And also, and we achieved about revenue of the advertisement growth over 50% in the Q3 in the 2025 and also the new clients account for over 30% of the total clients. So I think that will create a great momentum and fundamentals for our business in the Q4 and next year. And for our fourth quarter's priorities. And the same time, I just tried to explain in more details regarding the one-off impacts of our we call the learning service business and in the Dr. Zhou mentioned before. And in the last year, STEAM courses still account for the meaningful percentage of our revenue from our learning services. And at same time since summer, we shrink a lot significantly for the investment and in the -- for the STEAM Courses for the customer acquisitions. But still deliver significant revenues in the Q3. That definitely have impact of our profitability in the last year. That means the kind of the high base in that we mentioned before. So I think that is one-off impact only for this year. So our fourth quarter's priority is to secure the rapid operating profit improvement from the full year perspective online at the start of the year. In the meantime, we will continue to invest in our core business, Youdao Lingshi AI apps and as well as the online marketing services as we access the macro environment and our growth opportunities. Through this focused approach, we aim to deliver greater values to expanding user base. Our medium- to long-term focus is on executing on AI native strategy, excelling the deployment of our large language model computers in learning and advertising scenarios. Central to these efforts is enhancing our sustained profitability. We are also constantly evaluating the quality of our user services. Since its launching 3 years ago, our AI interactive services of Youdao Lingshi has integrated AI across the multi scenarios, including the users' learning assessments, personalized learning path recommendation, QA sessions, assignment granting and as well as the college application consulting. This has enhanced the learning efficiency and outcome for users, gathering best positive feedback as the highest gross margin business within our Learning Services segment and following the recent restructuring of this segments, Youdao Lingshi expect to account for the growth growing share of segment revenue. This in turn expect to continue to improve the profitability of the learning services segment in the long run. Regarding the online marketing services, as noted previously, AI contributed to enhanced the delivery and operational efficiency in area, including the ad creative production, data mining, programmatic delivery and also attribution analysis. These advancements deliver in midterm and long-term profitability improvement of the segments. I think I hope that answers your question? Liping Zhao: That's very helpful. Operator: Next question is from Bo Zhan, Huatai. Bo Zhan: My question is, given the cumulative net operating cash outflow recorded in the first 3 quarters, should we expect any change to the full year breakeven target? Yongwei Li: Thank you for the questions. This is Wayne. Our team has great importance on the performance of our operating cash flow. And we already got remarkable improvements in optimizing our operating cash flow performance in recent years. For 2025, we set a target to achieve full years cash flow breakeven, and we remain very confident to achieve this target. At the same time, I would like to emphasize that reaching the breakeven point is only a near-term milestone. Our long-term objectives definitely is to deliver even healthy performance in operating cash flow through profitability enhancement, disciplined credit management and optimize working capital practice. As you mentioned, for the first 9 months this year, cumulative net operating cash flow amounted to RMB 129 million. However, it reflects over [40%] significant improvement on a year-over-year basis. In addition, our quarter cash flow performance helped obvious seasonal features, which are driven by certain seasonal factors. For example, Q1 is typically annual bonus payment period due to the Lunar New Year. And Q3 is traditionally peak user acquisition period. During which operating cash flow typically registered net outflow due to the marketing investment. In contrast, Q2 and Q4 are retention-driven seasons and generally demonstrated stronger cash flow performance. So we expect the fourth quarter usually generates a good operating cash inflow. To provide context, as you know, we achieve an operating cash inflow of RMB 158 million in Q4 last year. As previously highlighted, our restructuring in learning services have been completed. Youdao Lingshi particularly has demand robust retention momentum in Q4. Maintaining a retention rate above 75%. Additionally, another prepaid service, our AI-driven subscription services, Q3 sales from this business has accelerated growth to over 40% year-over-year, which also positively support our cash flow position. On the other hand, the expansion of our advertising business potentially brings certain collection dynamics, which potentially slow down the cash inflow from our customers. For example, online marketing services typically provide a certain [collection] to our premium clients. Through results from the 3 quarters, we are satisfied for the performance of our cash collections and the [collection] well managed. Taking into account the distinct seasonality of our operations, the significant year-over-year cash flow improvement in the first 3 quarters and the potential strong retention performance of from Youdao Lingshi in Q4, we maintain the confidence in achieving our full year operating cash flow breakeven target. Thank you. Operator: That concludes our question-and-answer session. I would like to turn the conference back over to management for any additional or closing remarks. Jeffrey Wang: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Youdao directly or reach out to Piacente Financial Communications in China or the U.S. Have a nice day. Operator: Ladies and gentlemen thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Good afternoon, ladies and gentlemen. I would like to welcome everyone to the Gap Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host, Whitney Notaro, Head of Investor Relations. Whitney Notaro: Good afternoon, everyone. Welcome to Gap Inc.'s Third Quarter Fiscal 2025 Earnings Conference Call. Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings release, the risk factors described in the company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2025, quarterly reports on Form 10-Q filed with the Securities and Exchange Commission on May 30, 2025, and August 29, 2025, and other filings with the Securities and Exchange Commission, all of which are available on gapinc.com. These forward-looking statements are based on information as of today, November 20, 2025, and we assume no obligation to publicly update or revise our forward-looking statements. Our latest earnings release and the accompanying materials available on gapinc.com also include descriptions and reconciliations of financial measures not consistent with generally accepted accounting principles. All market share data referenced today will be from Circana's U.S. Apparel consumer service for the 12 months ending October 2025, unless otherwise stated. Joining me on the call today are Chief Executive Officer, Richard Dickson; and Chief Financial Officer, Katrina O'Connell. With that, I'll turn the call over to Richard. Richard Dickson: Thanks, Whitney, and good afternoon, everyone. We are very pleased to report third quarter results for Gap Inc. that exceeded our expectations across multiple measures, including net sales, gross margin and operating margin. We've done this by executing our strategic priorities with precision and consistency. The reinvigoration of our iconic brands continues to gain strength. Our playbook rooted in purpose, powered by creativity and executed with excellence is working. And it's bringing consistency to how we operate and clarity to how we win. The momentum in the business is clear from product design to storytelling, from store execution to digital engagement. The result is a company that's becoming more agile and performing with increasing confidence. On today's call, as usual, I'll provide an update on our third quarter performance and progress in the context of our 4 strategic priorities. Then Katrina will walk you through our detailed financial results and our financial outlook, after which we will open the call for questions. Let's start with financial and operational rigor. Gap Inc. comparable sales were up 5% versus last year, the highest quarterly comp in over 4 years. We were pleased to see our 3 largest brands, Old Navy, Gap and Banana Republic, posting strong positive comps in the third quarter, demonstrating the resilience of our portfolio despite a challenging quarter for Athleta. We delivered operating margin of 8.5%, which benefited from growth in AUR as customers responded well to our brand offerings. We continue to strengthen our balance sheet, ending the quarter with strong cash balances of approximately $2.5 billion. Turning to our next strategic priority, driving relevance and revenue by executing on our brand reinvigoration playbook. This playbook when applied with relentless repetition creates a powerful flywheel, which has resulted in 7 consecutive quarters of comp growth for our portfolio. Our largest brand, Old Navy, had an incredibly strong quarter, reflecting the brand's strength, consistency and continued momentum. Comparable sales were up 6% with the brand consistently gaining market share over the last 2 years. Customers responded to the compelling value proposition, resulting in healthy growth in average unit retail and notably across all income cohorts, which is encouraging despite widely reported macroeconomic pressure on the low-income consumer. Old Navy's consistent performance is being delivered by trend-right products, our strategic pursuit of category leadership and compelling storytelling. The quarter began with a robust back-to-school season, reinforcing its leadership position in kids and baby in the U.S. denim posted its highest third quarter volume in years with growth across the family. Women's and girls' showed particular strength driven by trend-right styles like barrel, wide leg and baggie fits. Active delivered impressive double-digit growth in the quarter with strength across the family. This demonstrates the strong customer response to the brand's distinctive value proposition in the active market and innovation, including new franchises like Bounce fleece. Today, Old Navy is the #5 active apparel brand in the U.S. and the #4 brand in the women's active space. As we begin to drive more growth through strategic partnerships that amplify our brand relevance, our latest Disney collaboration kicked off the holiday season with our Jingle Jammies collection, which is exceeding our expectations, driving excitement across the family and fueling strong performance in the broader sleep category. Another great example is our first designer collaboration with American Design Legend, Anna Sui. The collection brought high-fashion design to a broader audience, staying true to Old Navy's democratic and accessible brand promise. The campaign featured rising Gen Z artist, PinkPantheress and resonated across platforms. In September, we announced plans for a strategic expansion into the beauty category with a phased launch starting with Old Navy. As one of the fastest-growing, most resilient retail categories in the U.S. and customer insights that reinforce strong interest in the category, we see a clear and meaningful opportunity to grow in beauty. We recently expanded Old Navy's Beauty collection in 150 stores with select stores offering dedicated shop-in-shops and Beauty Associates. We intend to use this pilot to inform a thoughtful scaling strategy that will take us from seeding in 2026 to accelerating growth in the years that follow. Old Navy's third quarter performance reflects the strength of the team's work, which is clearly resonating. This brand continues to delight consumers and consistently deliver positive comps while reinforcing Old Navy's position as a brand that defines value, style and accessibility in American fashion. This gives us confidence as we move into Q4 and beyond. Now let's turn to Gap. Gap delivered another standout quarter, reinforcing the reliability of its execution and the compounded strength of our namesake brand. Comparable sales were up 7% on top of 3% comp last year, marking the eighth consecutive quarter of positive comps with growth in average unit retail, consideration, organic impressions and new customers, a clear signal that Gap's momentum is real, repeatable and resonating. The quarter was fueled by broad-based strength in denim, the centerpiece of our viral campaign, Better in Denim, featuring global group, Katseye. This campaign demonstrated the power of the playbook in action, featuring trend-right product, amplified by culturally relevant storytelling. With more than 8 billion impressions and 500 million views, Better in Denim culminated in a global cultural takeover and has become one of the brand's most successful campaigns to date, generating significant traffic and double-digit growth in denim. The results speak for themselves. Gap continues to accelerate, attracting a younger, highly engaged consumer, particularly Gen Z, who is discovering us while reinforcing loyalty with our core consumer. As Gap brand equity and relevance continues to build, the iconic Gap Arch logo hoodie is a great example of the brand reclaiming its place in the cultural conversation. During the quarter, we marked the 30th anniversary of the Gap hoodie with our first-ever Hoodie Day. It was a moment that energized our teams, drove connection with consumers and contributed to the notable strength in Fleece during the quarter. Our recent collaboration with Sandy Liang was another highlight, delivering strong results and continuing to position Gap as a platform for creative partnerships that drive relevance and new customer acquisition. For holiday, the brand is leaning into CashSoft, where you'll see continued innovation with extensions into new silhouettes, on-trend sets and vibrant colorways. Earlier this month, we launched our highly anticipated Give Your Gift Holiday campaign, a continuation of our effort to bridge the gap across generations through music, creativity and culture, featuring emerging artist, Sienna Spiro. Gap's execution of the playbook has been fantastic, and it's been exciting to see the brand building on their success quarter after quarter while continuing to drive distinction and relevance. It's a brand that knows who it is, where it's going and how to win, and we're looking forward to carrying that momentum into the holiday season. At Banana Republic, we continue to make steady progress. The work to strengthen its positioning, leaning into its heritage is paying off. Comparable sales were up 4% in the quarter, reflecting meaningful traction as the brand's reinvigoration takes hold. Growth was driven by continued progress in the harmonization between men's and women's. Men's elevated fashion designs featuring distinctive textures and fabrications continue to perform well. And we've seen notable improvement in women's as fit and product refinement are resonating, particularly in dresses and wovens. Building on the success of the brand's prior campaigns, the response to Banana Republic's fall campaign with David Corenswet was strong, breaking brand engagement records and fueling growth while expanding cultural reach and resonance. For the holiday season, Banana Republic is leaning into its distinctive position as the modern explorer brand. Our new campaign shot in the stunning landscape of Ireland, captures this essence well with our beautiful product featured in our travel-oriented storytelling brought to life through dynamic destination-rich content. This approach is driving stronger brand affinity and proving to be highly impactful with our customers. Overall, Banana Republic's third quarter results reflect meaningful progress and continued momentum. I'm optimistic the brand is well positioned as we head into the holiday season. Shifting to Athleta. Maggie Gauger, Brand President, has begun to make an impact in her first 90 days. She's taking quick and thoughtful action to begin to reorient the brand. This includes reorganizing the talent structure to align with her vision. The team is doing the right work, acting with speed and urgency to drive progress, but this reset will take time. Our focus is on positioning Athleta for long-term success and returning it to its rightful place as a premium aspirational brand. The brand is at the beginning of its reinvigoration journey. We aren't chasing quick fixes. We are taking a deliberate approach to position the brand for the long term. We're confident that the consistent application of our brand reinvigoration playbook anchored in purpose and heritage will guide Athleta forward. This is about returning to what made the brand great to begin with while reestablishing our clear and distinctive position in the active market. We're encouraged by the steps Maggie and the team have already taken, and we look forward to the continued impact of their leadership as Athleta's reinvigoration takes shape. As we head into the holiday season, our supply chain continues to power strategic advantages. The scale of our global network across sourcing, logistics and fulfillment gives us the flexibility and resilience to operate with confidence. Our long-standing vendor partnerships and diversified sourcing footprint are enabling us to move with speed and deliver newness at the pace of demand. We've introduced new automation and AI capabilities across our omni fulfillment network from robotic unloaders to advanced storage and retrieval systems, which have increased productivity by nearly 30% compared to just a few years ago. This enables us to meet peak demand with greater speed, agility and precision. With a fleet of about 2,500 stores globally and the largest specialty apparel e-commerce business in the U.S., we're positioned to serve our customers wherever and however they choose to shop this holiday season. Across Gap Inc., our teams are inspired and energized by the work we're doing, and you can feel it. The work we're doing together to drive the business continues to ignite real energy inside the company, creating a culture that's united, motivated and focused on execution. This is the culture that is carrying us into the holiday season, where our collective focus is clear: win with the consumer, deliver with excellence and keep building on the progress we've made together. In the fourth quarter, we remain focused on executing with excellence. Our Q3 and quarter-to-date performance positions us well for the holiday selling season and gives us the confidence to update our full year outlook, increasing net sales growth to the high end of our prior range and raising our operating margin. We look forward to finishing the year strong and creating a clear runway to the next phase of our transformation as we move into 2026, building momentum. I'll now turn the call to Katrina for a closer look at our financials. Katrina O'Connell: Thank you, Richard, and thanks, everyone, for joining us this afternoon. We delivered exceptional third quarter results, surpassing our expectations across multiple key metrics. Our strategy is working, growing brand relevance combined with operational and financial discipline drove our highest quarterly comparable sales performance in over 4 years, up 5%. We saw strong performance across the back-to-school and early holiday periods, underscoring the increasing resonance of our brands with consumers. With the playbook now in its second year, we're beginning to see a flywheel of growth take hold at Old Navy and Gap, with Banana Republic gaining traction. We exceeded our gross margin expectations with strong flow-through to our operating margin in the quarter, driven by rigor in the fundamentals. Average unit retail or AUR grew again this quarter, reflecting our compelling product offering and the disciplined execution across our teams. Our brand momentum, combined with our strategic supply chain actions, enabled a significant portion of the tariff impact on our margins to be mitigated. With the strength of our third quarter results and our quarter-to-date performance in mind, we are raising our full year 2025 gross margin and operating margin outlook with full year 2025 net sales growth now expected to be at the high end of our prior guidance range. I'll take you through the details of our outlook shortly. We are entering the final stages of fixing the fundamentals. Consistent progress on our strategic priorities has strengthened our position as we move into 2026, where we will focus on building momentum and creating new growth opportunities. Now turning to third quarter results. Net sales of $3.9 billion were up 3% year-over-year, exceeding our expectations with comparable sales up 5%. By brand, starting with Old Navy, net sales were $2.3 billion, up 5% versus last year, with comparable sales up 6%. It's exciting to see the brand winning in strategic categories like denim, active and kids and baby, supported by strong execution of culturally relevant marketing and partnerships. Turning to Gap brand. Net sales of $951 million were up 6% versus last year and comparable sales were up 7%. Relentless consistent execution of the reinvigoration playbook is fueling sustained momentum for the brand, clearly reflected in the Better in Denim campaign. Banana Republic net sales of $464 million were down 1% year-over-year with comparable sales up 4%. Our foundational work on the brand from elevated product to culturally relevant storytelling is resonating with consumers and drove the second consecutive quarter of solid performance. Athleta net sales of $257 million, decreased 11% versus last year and comparable sales were down 11%. We're focused on applying the playbook with rigor, beginning with the fundamentals as we work to reset the brand for the long term. And while we're eager for results, we are executing a phased plan that will take time. Let's continue to the balance of the P&L. Gross margin of 42.4% declined 30 basis points from last year, but exceeded our expectations. As anticipated, tariffs pressured overall margin levels. However, lower discounting resulted in increased AUR growth driven by the consumers' response to our relevant product and storytelling. Compared to last year, merchandise margins were down 70 basis points due to the estimated 190 basis point impact of tariffs. This implies roughly 120 basis points of underlying margin expansion. ROD leveraged 40 basis points in the quarter. SG&A increased to $1.3 billion, primarily due to the quarterly timing of incentive compensation and continued strategic investments. SG&A as a percentage of net sales was 33.9%, de-leveraging 50 basis points versus last year. Third quarter operating margin of 8.5% was down 80 basis points compared to last year, which includes an estimated 190 basis points of tariff impact. This implies roughly 110 basis points of underlying margin expansion. Earnings per share in the quarter were $0.62, a decrease of 14% versus last year's earnings per share of $0.72, primarily due to the impact of tariffs. Now turning to the balance sheet and cash flow. End of quarter inventory levels were up 5% year-over-year, primarily attributable to higher costs due to tariffs. Our disciplined inventory management resulted in slightly negative unit inventories, and we believe we ended the quarter with the right inventory composition. We continue to be rigorous in our approach to inventory for the balance of the year. As we shared on our second quarter call, we've tightened the way we purchase unit inventory to ensure maximum flexibility for various demand scenarios and to enable us to be more responsive to consumer demand. We expect to operate in line with our inventory principle of unit purchases positioned below sales. The last 2 years have been about fixing the fundamentals, which includes strengthening the balance sheet. We ended Q3 with cash, cash equivalents and short-term investments of $2.5 billion, an increase of 13% from last year. Net cash from operating activities was $607 million year-to-date, and our free cash flow of $280 million year-to-date demonstrates the rigor we have put into managing the business. Capital expenditures were $327 million year-to-date. With regard to returning cash to shareholders, in the third quarter, we paid $62 million to shareholders in the form of dividends, and the Board recently approved a fourth quarter dividend of $0.165 per share. Year-to-date, we have repurchased 7 million shares for approximately $152 million, achieving our goal of offsetting dilution. And while we've achieved our goal, as always, we remain opportunistic. Now turning to our outlook for fiscal 2025. I am pleased with the strength of our Q3 results and solid quarter-to-date performance, which are giving us the confidence to update our fiscal 2025 outlook. We've been operating against a dynamic backdrop for the last few years, and we're expecting the same for the fourth quarter. Our outlook assumes a relatively consistent macroeconomic environment, but acknowledges the potential for increasing uncertainties related to consumer behavior and global economic and geopolitical conditions. As a result, we continue to take a balanced view with our guidance and remain focused on controlling the controllables. Starting with full year 2025 net sales, we are increasing our outlook to the high end of our prior guidance range and now expect net sales growth of 1.7% to 2% year-over-year. Our outlook assumes ongoing strength at Old Navy, Gap and Banana Republic and a longer recovery at Athleta. Moving to gross margin. With our strong Q3 performance, we are raising our full year gross margin outlook. We now expect deleverage of about 50 basis points year-over-year, driven by an unchanged estimated annual net tariff impact of approximately 100 to 110 basis points. Excluding the impact of tariffs, this would imply underlying gross margin expansion of approximately 50 to 60 basis points versus last year. Turning to SG&A. We continue to expect SG&A to leverage slightly for the full year. As discussed on last quarter's call, we are driving continuous improvement in the cost structure of the company this year as we rigorously drive $150 million in cost savings in our core operations through efficiency and effectiveness. We remain committed to reinvesting a portion of the $150 million into future growth projects, including beauty and accessories as we pursue the long-term success of the company. A portion of these savings will also offset continued inflation. Now I'll turn to fiscal 2025 operating margin. We now expect an operating margin of about 7.2% for the full year, an increase from our prior guidance range of 6.7% to 7%. This continues to include the estimated net tariff impact of approximately 100 to 110 basis points. Excluding the impact of tariffs, this would imply meaningful underlying operating margin expansion of 80 to 90 basis points versus last year. Our income tax rate outlook for the year has increased to approximately 28% and primarily reflects the impact of changes in the amount and mix of our geographic earnings. This increase of 1 point versus our prior outlook of 27% represents an approximate $0.03 headwind to EPS. Looking to 2026, as we shared on our second quarter call, we do not expect the annualization of tariffs in 2026 to cause further operating income declines. And we now expect the majority of the mitigation to come from adjustments to our sourcing, manufacturing and assortments with the balance driven by targeted pricing. We continue to be mindful of price elasticity and remain focused on maintaining the overall value proposition for our customers. And while pricing is a lever to manage AUR, it's one of many we've been using to manage margin over time. Other levers include assortment mix, full price sell-through, promotions and inventory management. Our third quarter AUR performance and the momentum of our brands gives me confidence that our AUR growth plans are achievable. There will be a timing dynamic to the tariff impact on gross margin in 2026. We estimate a Q1 net tariff impact similar to Q4, followed by meaningful benefits from our mitigation efforts in Q2. The back half of 2026 should turn to a tailwind as our actions build, and we lap most of this year's tariff impact. In closing, our Q3 results reflect strong execution of our reinvigoration playbook, driving consistency and growth across our largest brands. Continued cost discipline is enabling reinvestment in strategic growth opportunities, while our scale and supply chain strength support ongoing tariff mitigation. When we perform with excellence, it builds confidence. Confidence fuels execution. Execution drives growth. This flywheel is the engine of our momentum. As we look to deliver this holiday season, we remain focused on operational excellence and advancing our ambition to become a high-performing company that delivers sustainable, profitable growth and long-term value for our shareholders. I'd like to thank the team for their commitment to excellence and delivering results in support of our transformation journey. With that, we'll open up the line for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Alex Straton with Morgan Stanley. Alexandra Straton: Great. Congrats on a nice quarter. Maybe for Richard or Katrina, can you just dig in a little bit more on what drove such a strong comp acceleration at the Gap banner? And also how you think about sustainable comp level for that business over time? And then maybe for Katrina, just what surprised the upside versus your initial expectations on gross margin? Curious if tariffs played a role and how you think about steady state on that line item from here? Richard Dickson: Alex, thank you. First off, I think it's clear our strategy is working, and it is showing up in the momentum that we're seeing in our results. All 3 of our largest brands exceeding expectations, Navy up 6%, Banana Republic up 4% and Gap delivered another standout quarter with a strong comp of 7% and that's on top of 3% last year, and it represents the eighth consecutive quarter of positive comps for us. This consistency is setting new records for the brand, and it's reinforcing our confidence in its long-term growth trajectory, driven by compelling product assortments, partnerships and marketing have really resulted in growth across all income cohorts. We have seen more high-income consumers choosing Gap. And we really do believe that with the strong competitive position that we've taken between premium and value and the fact that we're bridging the generation gap, it's a really exciting time to see Gap continuing to accelerate. We have been attracting a younger, highly engaged consumer, particularly with Gen Z as they discover the brand. And it's reinforcing loyalty with our core consumer. So the performance in the quarter, which, as you know, was fueled by our broad-based strength in denim, the centerpiece of our viral campaign, Better in Denim featuring the global group Katseye, did incredibly well. I mean we generated more than 8 billion impressions. I think we had over 500 million views. It was the denim story everybody wanted to be part of. We increased our ranking in the denim category. Gap is now the #6 adult denim brand in the U.S., up from 8 last year. Collaborations are continuing to drive relevance and revenue with our latest collaboration this quarter with Sandy Liang, which was incredibly successful, again, attracting new younger customers to the brand. And it's exciting to see the brand just continuing to build on their success quarter after quarter, and we're looking forward to carrying that momentum into the holiday season and beyond. Katrina O'Connell: As it relates to -- sorry, I'm going to finish up, Alex, for you on gross margin. So for gross margin in the quarter, we did exceed our expectations in gross margin by over 100 basis points, and that was actually driven by an in-line expectation as it relates to tariffs. So tariffs of 190 basis points were as expected. But the out-performance in the quarter really came from standout performance, particularly at Old Navy and Gap and better-than-expected AURs as consumers really responded to our product and storytelling, which enabled us to have lower discounting in the quarter. Operator: And our next question comes from the line of Bob Drbul with BTIG. Robert Drbul: I was just wondering if you could expand a bit more on AUR trends, how you're managing AUR trends? And I guess just the growth plans that you've spoken about as you look forward maybe Q4, but even into '26. Richard Dickson: Thanks, Bob. We approach pricing as we always have. I mean we consider all the various inputs while maintaining our overall value proposition for consumers. And in Q3, as our brands continue to gain more relevance and the rigor that we put around inventory management, as that becomes more foundational, we are increasing our price elasticity, and we've been driving higher sell-through at full price. We did take select pricing in Q3 in select categories, denim, which saw double-digit growth and the strength of our execution is really resonating with customers, and we saw growth, as I mentioned, across all income cohorts. The sales were driven by both units and AUR. We had overall AUR improving versus last year. We saw particularly strength in Old Navy and Gap with customers that were really responding well to our style, the quality and the value, which we continue to advance. Banana Republic AURs also were strong. This is resulting in less discounting, better regular price sell-through, and it's giving us confidence that we can continue to drive AUR growth as we enter the fourth quarter. Operator: And our next question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: Congrats on a really nice quarter. So Richard, could you speak to drivers of the top line inflection that you saw at Old Navy this quarter? Any change in momentum, early holiday? And relative to the consistency that you've now clearly shown at the Gap concept, I guess, how do you see Old Navy differentiated as it relates to the market share opportunity for that brand? And then, Katrina, just given actions that you've taken to the cost structure, how best to think about annual operating income dollar growth if low single-digit top line was the baseline multiyear moving forward? Richard Dickson: Matthew, thank you for the question, and thrilled to talk about Old Navy. We had an incredibly strong quarter, comps up were 6% with the brand consistently gaining market share over the last 2 years. It is the #1 specialty apparel brand in the U.S. And the performance this quarter really speaks to the brand's strength, consistency and continued momentum. Customers are responding to what Old Navy does best. We give great style at great value. We saw healthy growth across all income cohorts in AUR, it was driven by trend-right product, which, again, was amplified by compelling creative and better storytelling for our brands. We've been winning in the categories that we've been strategically pursuing with intent. And we've shared those along the way. Kids and baby, denim and active have all been driving the momentum. Active in particular, was a standout in the quarter. We delivered double-digit growth. And I believe it's underscoring the power of our value proposition and innovation. Differentiation as it relates to the market share opportunities that we see, we look at partnerships, Disney's partnership with us. We just presented Jingle Jammies, which was an incredible presentation across the family. It exceeded expectations. We just also introduced Anna Sui's collaboration with us, which was particularly meaningful as the first designer collaboration where we're bringing high fashion to a broader audience. All of this, while we're just beginning to expand the brand into Beauty, which, of course, is early days, but we see incredibly high potential opportunity for Old Navy for that category and the broader portfolio over time. So look, I'm thrilled with Old Navy's consistency in the quarter performance. And I actually am particularly excited about our holiday offering at giftable price points, and we are ready to execute with excellence. Katrina O'Connell: And then, Matt, as it relates to your other question, I would say, as you called out, we've done a lot of restructuring over the last few years. And then this year, we previewed that we're saving about $150 million in our cost structure. We are reinvesting a portion of that into future growth opportunities because we want to be able to seed this next phase, which we're saying is building momentum that we hope over time leads to accelerated growth. So balancing the savings with what we think are important investments for the long term. What I would say is this year, the operating margin that we've guided to of about 7.2% is really only modest deleverage compared to last year, and that's while absorbing 100 to 110 basis points of operating -- excuse me, of tariff impact, which does show the way we are managing the business with rigor, both through cost and margin improvements. As we look forward, we've also said that in 2026, we don't expect the annualization of tariffs to cause further operating income declines as we work hard to mitigate those costs. Once tariffs are fully reflected in the base, we do believe the consistency in our core, combined with top line benefit related to the high potential growth opportunities that we're seeding in '26 should provide sales growth that benefits operating income over time. So more to come on what that algorithm turns out to be, but we feel good about the work we've been doing, and we're certainly pleased with our results. Operator: Our next question comes from the line of Brooke Roach with Goldman Sachs. Brooke Roach: Richard, how do you feel about the store fleet today across brands and banners? Are there any investments that need to be made to fuel the momentum from a shopping experience perspective? And what does that mean regarding store fleet transformation, whether that's remodels or changes in store count as you look ahead into 2026? Richard Dickson: Brooke, thanks for that question. Stores are a really important way for customers to experience our brand. I mean they bring our product, storytelling and service to life in a way that digital just can't. With a company operating a fleet of about 2,500 stores, we are always optimizing our retail footprint. We're closing underperforming stores. We're repositioning some locations that are more relevant to our customers, and we evaluate new store openings. As you know, over the last several years, we've closed about 350 stores that were unprofitable. Last year, we closed about 56 stores across our portfolio. We expect to close approximately another 35 in fiscal '25 with the majority of those closures being specific to Banana Republic. I believe we're at a pivotal point right now where the fleet is really well positioned, and we've been testing new formats and experiences. Gap Flatiron in New York has been functioning for about a year with great learnings that we've started to expand across our Gap fleet with denim shops, new refresh shop here in San Francisco and a variety of others that are on plan. Banana Republic, specifically in SoHo and other locations that we've been refreshing with some great results and of course, Old Navy and Athleta up at [ bat. ] We continue to evaluate these tests and their performance and are getting more and more confidence in the revenue and relevance and the strong returns that they've been driving. We've begun to invest rationally and selectively in the areas that we think will drive the return that we're looking for. And we will continue to keep everybody posted as we look to the combination of repositioning our stores, refreshing must-win stores and again, looking to start to open up new stores where it makes sense strategically. Operator: And our next question comes from the line of Adrienne Yih with Barclays. Adrienne Yih-Tennant: Congratulations. Great to see the progress at the right time. Richard, my question for you is sort of a little bit higher level since you've come, there's such a focus on product and marketing, like the combination of the flywheel effect of those. How is the appointment of design and creative, specifically Zac Posen changed the complexion of creative thinking throughout the organization? And then the marketing piece of it, how has that kind of -- how does that complement kind of the product and creating that flywheel? Richard Dickson: Thank you, Adrienne, for the question. First off, let's just mention Zac. He's been an incredible addition to our leadership team. It's been almost 2 years ago now that he's joined and has brought significant impact on many creative aspects, I would say, both inside the company and beyond. Our objective collectively with Zac and by elevating the creative conversation across our brands, highlighting design and product as an incredibly important attribute to all of our brands has been working. I mean we've been culturally creating moments, curated moments where our brands and our products have taken center stage, not only to some extent on the runway, but on Main Street. And we're attracting talent as well to our portfolio that might not have considered a place like Gap Inc. or our brands prior. When we talk about marketing, which I also am pleased to talk about, we know marketing is a much more complex function today than it was in the past. And as you know, we've been working really hard at driving new narratives that put our brands back into the cultural conversation, and it's our job to be everywhere that our consumer is with the right creative messaging. I think it's obvious we're performing while we transform. We're driving digital dialogue messages with social media as the #1 platform for our consumers. Influencer content is among the most common product discovery methods amongst Gen Z and millennials, which we've been performing incredibly well with. We actually recently launched a cross-brand content creator and social media advocacy program last month, which you might have seen. We now also have a presence on TikTok as a shop and many more. And these methodologies are proving really impactful, but they also require higher quality accelerated amounts of creative. And lastly, we can't help but mention again, Katseye is a great example of that. I mean 8 billion impressions, 500 million views. This was a true cultural takeover. And I think it's another proof point in our playbook, and we believe we've got the means and the experiences and the brands to continue to be more effective and be more efficient in our spend as we've proven this methodology is working, and it will continue to propel us into the future. Operator: And our next question comes from the line of Dana Telsey with Telsey Group. Dana Telsey: Congratulations on the nice progress. Katrina, one for you, one for Richard. As you think about the tariff mitigation strategies, which seem to be effective, the pricing adjustments have seemed to become less and less. Is that the right impression? And how you're thinking about pricing going forward? And then, Richard, the acceleration in store sales is impressive. In your view of the consumer overall, how are you thinking about the consumer? Does it differ by brand, lower and higher income customer, whether it's Gen Z, millennial or baby boomer, how do you think the current feeling is in the attitudes towards merchandising? How do you think of consumer demand? Richard Dickson: Dana, thanks for the question. I think I'm going to jump in here and take consumer first, and then Katrina can follow up with tariff mitigation answers. First, I think it's really important to share, we're seeing consistency and strength in our customer behavior. As I mentioned, we're really proud that we're winning with all income cohorts. And you could see it with the strong differentiation within our portfolio. Together, we see equal growth across low, middle and high. And it's evidenced by our 2 largest brands, Old Navy and Gap. Now there is external data that points to, of course, the macro pressure on the low-income consumer, but our customers are finding our price value, our product, our styles. It's breaking through the competitive landscape, and we're winning. We're also doing this Dana, with less discounting. We've got better regular price sell-through, increased AUR, which is really indicating that our product is resonating. I think you could see it when you go into our stores, we're just telling better merchant-driven stories, and it is supported by incredibly relevant marketing. We're also excited to see that the high-income consumer is discovering our fashion, quality and value. And we think that is also being driven by the relevant narrative that we've been creating in the marketplace. So when I step back and I look at our portfolio competitively, I think our portfolio appeals to a wide range of consumers. It gives us greater flexibility in today's environment. When we look at our portfolio today versus even a few years ago, we are a much stronger portfolio of brands today. We're resonating with consumers. And it's our job on a day-to-day basis to create great product with great style and quality, exceptional value. And I think we will prevail in any marketplace if we stay consistent and true to that narrative. Over to you, Katrina, on tariffs. Katrina O'Connell: Sure. So as it relates to tariffs, we did do a slight amount of pricing in the quarter, but we really honestly, Dana, approach pricing as we always do. We look at all the various inputs really with an eye to maintaining the overall value proposition for our consumers. So we did take select pricing in select categories. I think denim is a really good example at Gap, where given the strength, we were able to take slight pricing and see double-digit growth in sales in spite of that. The strength of our execution, as Richard said, really is resonating with our consumers. And as Richard said, we saw sales come from both units and AUR in the quarter. I would say the bigger driver of the outperformance in the quarter and what we're seeing is less discounting and better regular price sell-through. And I think as Richard said earlier, that really gives us the confidence that we can keep driving AUR growth as we enter the holiday season. Operator: And our next question comes from the line of Lorraine Hutchinson with Bank of America. Lorraine Maikis: Just switching gears to Athleta for a minute. How do you feel about the level and content of the inventory there? And do you have a time line for when you think that sales could begin to stabilize? Richard Dickson: Lorraine, thank you for that question. We're not hiding from Athleta. It's a very important brand in our portfolio. We have been disappointed in the trend. But Maggie, our Brand President, has hit the ground running in her first 90 days, and she's balancing near-term priorities with, of course, the longer-term reinvigoration objectives that we have for the brand. As I mentioned, she's been building her leadership team to align with her vision, and she is truly setting the foundation for the brand's next chapter. A lot of work happening, editing the assortment, studying the consumer, evaluating our retail footprint and, of course, the overall customer experience. This is a reset year for Athleta, and our focus is going to be on positioning the brand for long-term success and returning it to a rightful place as a premium purpose-driven aspirational brand. We do believe Maggie and the team are taking the right steps, and we remain confident that Athleta will emerge as a brand that really does matter even more to women through product, trend and storytelling. We understand there's a lot of work to do, but we believe we've got the right leader in place to do it, and we look forward to continuing to update you as more news unfolds. Katrina O'Connell: And maybe what I'd add, Lorraine, on inventory is as we assessed Athleta in second quarter, given sort of the trend in the business, we did make some choices to lower inventory levels overall. And so we have aligned inventory for Athleta to this lower sales trend as we head in -- for Q3 and as we head into Q4. So we feel good about the levels and quality of inventory at Athleta, and we'll remain pretty prudent as it relates to Athleta until we start to see the product and the marketing get back to where we would expect it to be for this brand. Operator: And our next question comes from the line of Paul Lejuez with Citigroup. Paul Lejuez: Just to go back to the unit comments. Curious which brands you saw the greatest increases in units? And then I'm also curious on the inventory versus unit gap that you mentioned, what will that look like at the end of the year, the finish up fourth quarter and then into the first half of '26? Katrina O'Connell: Paul, I'm going to take the first one, but we had a lot of trouble hearing your second question. So apologies on that one. We're going to ask you to repeat it. As it relates to units, we were really pleased to see that as our brands are gaining relevance, combined with the rigor that we're putting into the business that we're seeing our elasticity improve, and we're getting higher sell-throughs at regular price. When we look at the units in the quarter, I would say units were aligned with where we see outperformance in the business, particularly at Old Navy and Gap, and we also saw AURs there as well. But I'm going to ask you to repeat again the second part because we couldn't hear you. Paul Lejuez: Sure. Sorry, Katrina. So the inventory dollars versus unit gap that you spoke of this quarter, curious what that looks like at the end of 4Q and then in the first half of next year. Katrina O'Connell: Oh, thanks. Sorry about that. So we continue to keep our units below sales as we try to keep within our principles of keeping inventory tight. We want to keep maximum flexibility so that we can respond in season to various demand scenarios. and be responsive to consumer demand. So as we think about end of quarter inventory, I would expect it to be similar to how we just ended Q3. Operator: And our next question comes from the line of Corey Tarlowe with Jefferies. Corey Tarlowe: Richard, I wanted to ask about the power of partnerships. And the reason being is I don't think that there's a retailer in the mall today that has done more partnerships in the time span that you've been at Gap to expand the aperture for the brand and to build, as you say, relevance in revenue. And I was curious about what you think strategically this means for the business ahead. And then the follow-up to this is how have the consumers responded to these improvements in the brand in the way that you've been able to say, remove promos on categories like denim at Gap? Richard Dickson: Okay. Corey, thank you for the question. First off, I think it has been a credit to the brands and teams that have followed the methodology that we shared with our playbook. And as part of the playbook and when we look at cultural relevance, collaborations help a brand drive relevance. It broadens its customer base and continues the drumbeat between its larger partnerships and releases. So it keeps topical in the context of the amount that we do and the timing that we do, do them. Now you have to really be authentic. It's not just a collaboration. It's a well-thought-out strategic partnership. To date, Gap brand, as you mentioned, we've launched over 13 collaborations. It continues to drive enormous excitement and attract new audiences to us. And they're very precise, and they need to be. They need to be win-win. And most importantly, they need to be authentic to the consumer. The collaborations that we've been doing, as I mentioned, are attracting new generations to Gap, but it's also, at the same time, reinforcing the brand to those who love us for years. This is, to some extent, a balance of art and science. The latest collaboration this quarter with Gap brand with Sandy Liang in the third quarter, it drove incredible engagement and overall basket. You asked about consumers responding in relation to it and how it affects our business. I mean more than 25% of the customers who shop these collaborations were new to Gap. And of those who shop the collaborations, 20% shop beyond the collab. So we see the attraction that these collaborations when done right, are generating for the brand. And then we -- by offering and showing other product, we're now establishing broader, bigger house files and more exciting relationships with our consumers. We just launched the Anna Sui collection with Old Navy, which is the first designer collaboration in Old Navy, incredible success, similar engagement, a really well thought out precise partnership, and we believe a sign of things to come. So again, laddering up. It's great credit to the teams across the brands for driving the playbook, executing it with excellence and really creating win-win collaborations for the consumer and our business. Operator: And our final question comes from the line of Michael Binetti with Evercore ISI. Unknown Analyst: It's [ Carson ] on for Michael. Katrina, probably a question for you. I appreciate the color on the wraparound effect of tariffs into 2026. But if we set tariffs aside, you had really nice underlying gross margin expansion in third quarter. The guidance implies pretty similar for fourth quarter. How much of that underlying expansion is from AUR versus other drivers? Because I think I've heard several times today, confidence in the AUR plan. So if that's a leading driver, is it safe to carry those impacts over into the next few quarters? Katrina O'Connell: Thanks for the question. So the way I would answer that is our margin strength in Q3 came from a combination of favorability in commodities, aided by some supply chain leverage that we got as well as strength in AUR. As we look to Q4, what you'll see is that the tariff impact to Q4 is similar to what we just experienced in Q3. And we're also still seeing the commodity benefits. But in Q4, we're trying to sort of stay balanced in our outlook. And so right now, what we have in is roughly similar promotions year-over-year so that we have room to compete in any environment. And so we'll obviously aspire to do better, but the upside that we saw in AUR from Q3 is not currently assumed in Q4. Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Mr. Richard Dickson for closing remarks. Richard Dickson: Thank you, operator. This was an exceptional quarter, and I'm really proud of this talented team that continues to deliver quarter after quarter. As we look to finish the year strong, our team is fired up and our focus is clear: continue to execute with excellence and win with the customer this holiday. Thank you for joining us today. For those of you who celebrate wishing you a happy Thanksgiving, and we look forward to seeing you in our stores this holiday season. Thanks all. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Nicholas Wiles: Good morning, everyone, and welcome to our interim results presentation this morning. We're going to adopt our usual format, starting with me giving an overview of our performance in the first half. Rob can then cover the financials, followed by an update on the delivery of our key growth projects and then a first half business review. Rob is going to update on our progress in working with Nile, on our long-term organizational framework. And then finally, an update on our outlook and the Q&A. And with that, turning really to the first half and an overview of actually our first half. And I think despite an uncertain market background, the performance of our underlying business has remained in line with our expectations. We've continued to grow our PayPoint core estate with new business in key areas such as housing, local authorities, government departments, FMC brand campaigns and in Love2shop business. I think progress has been good. We've accelerated growth in our digital payments platform. We've taken further actions to strengthen our card processing platform and its capabilities. And in parcels, we've strengthened further our key carrier relationships, all of which is very much consistent with the long-term objectives we set out for the business earlier this year. In the first half, we have encountered 2 specific challenges, which have impacted performance. Firstly, the financial terms of our new commercial contract with InPost Yodel have had a greater impact than we'd anticipated and with the additional volumes we would expect to come through not yet materializing, and that's rather been compounded by what's now the well-publicized disruption to parcel volumes and service in our network from the InPost Yodel internal network and operational harmonization plans. It's taken some good work and collaboration between the 2 businesses but it does now feel that we're through the worst of the operational disruption and we expect our volumes to recover through the course of November, which, as you know, is really a key trading period for the business. Secondly, in OBConnect, the first half of this year has seen slower growth than we had anticipated and some consolidation after a strong performance last year. I think this is largely due to the overall opportunities we'd hope to see from the verification of pay opportunity and uptake in Europe being rather disappointing with the team, I think, doing a really good job in response by pivoting the new business pipeline and opportunities to other areas alongside what we're doing in terms of discussions already underway with several jurisdictions and corporates to replicate the success of GetVerified in New Zealand. And while the OBConnect business will not grow at the rate we expected in the current year, I think it's fair to say the foundations and capabilities of this business remains strong and our growth in the second half will still be stronger than the performance we saw in the second half of last year. So I think overall, our confidence in the opportunities that OBConnect brings to our business is undiminished. Its technology platform and capabilities remain important to our long-term digital ambitions as a business. More positively, we've made significant progress in the first half in the successful delivery of several major projects, which are key to our long-term growth. We've launched bank local services with Lloyds Banking Group and with the expectation of further banks to join this service in the coming months. We've launched Royal Mail Shop and branding across the Collect+ network following the strategic investments in Collect+ by Royal Mail. And we've accelerated the Love2shop partnership with InComm Payments. Each of these projects required detailed planning and execution, and now the focus is very much shifting from the rollout to the actions required to accelerate consumer adoption. Turning now to our summary of the financial performance of the business. Overall, as I said already, a resilient performance across the key financial metrics. And by division, net growth in each business with the exception of Love2shop, where the impact of the anticipated changes we've made to our accounting treatment have resulted in some changes to the timing of revenue recognition on the expiry of cards which has resulted in a greater weighting to profit recognition in the second half. In terms of our growth plans, we should not let the specific challenges we've experienced in the first half deflect the business from the long-term growth plans we announced earlier this year. Delivering GBP 100 million underlying EBITDA remains a key financial milestone for the business. And while we're making meaningful progress towards this target in the current year, it is going to take a little longer to achieve. It was always an ambitious target to be delivering it in this financial year but it remains a key milestone for the business. We still believe a combination of our business mix today and the delivery of our key growth projects will deliver consistent net revenue growth in the range of 5% to 8%. And in the meantime, we're developing an organizational structure for the long term to support this accelerated growth. And maximizing returns to shareholders through strong and consistent earnings and cash generation. For the current year, we're on track to deliver more than GBP 90 million to shareholders through a combination of ordinary and special dividends and share buybacks. I'll now hand over to Rob, who will take you through the numbers. Rob Harding: Thank you, Nick, and good morning, everyone. I'll start with the key financial highlights. Net revenue of GBP 84.7 million is marginally up versus the prior half 1. There's a revenue breakdown on the following slide, which shows PayPoint segment revenues are up 2.9% but this is dampened by Love2shop revenues down 9.6%. As Nick said, this is timing in nature, and we fully expect this position to unwind in the second half to give year-on-year growth for the Love2shop segment. Underlying profit before tax of GBP 25.7 million is down 4.5% that being a combination of flat revenue plus a 2.3% increase in overall costs. And I'll cover the cost deltas in a few slides. Reported profit before tax of GBP 19.9 million is after GBP 5.8 million of deductions to underlying numbers, including GBP 2.6 million of amortization of acquired intangibles and GBP 3.2 million of exceptional items, of which GBP 2.6 million relates to legal costs in respect of claims against PayPoint and the remainder is reorganizational costs. Underlying EBITDA of GBP 37.3 million is broadly flat versus the prior half with GBP 1.2 million of lower profits being partly dampened by higher depreciation and amortization. On earnings per share, diluted underlying EPS of 26.7p is 2.6% down versus the prior half. And finally, on this slide, net debt is down 3.2% to GBP 84 million for the first half. And again, I'll cover this in more detail shortly. This slide breaks down the net revenue into a little bit more detail. As I mentioned previously, PayPoint segment revenue is up 2.9%, with e-commerce revenues of GBP 8.6 million, providing growth of 7.5%, and that's driven by transactional volumes increasing 20% to GBP 74.3 million. Payments and banking revenue grew 4.4%, and that's driven by the inclusion of GBP 1.9 million of revenue from OBConnect. And in shopping, growth in service fees of 8.4% to GBP 11.6 million was largely dampened by cards, which is a combination of both lower process volume and sites impacting revenue and ATMs revenue down, reflecting a reduced demand for cash across the economy. For Love2shop, 12 months ago, I explained the half 1 numbers included revenue brought forward from half 2 into half 1, and this was following changes to expiry dates on some of our products. For this year, we've made further changes to the expiry date of some of our products but these changes will benefit the second half year. And therefore, this revenue drop is all timing in nature. Overall, with billings growth of 4.6%, up versus the prior half 1, we expect year-on-year revenue growth for the full year. This slide is really a graphical view of the revenue growth I highlighted on the previous slide and how this revenue growth contributes to underlying profit. So from left to right on this chart, shopping revenue is up GBP 200,000, e-commerce revenues up GBP 600,000, payments and banking GBP 1.1 million and Love2shop revenues down GBP 1.8 million, which I've said is timing in nature. I'll cover costs on the following slide but these have increased GBP 1.3 million half-on-half. And therefore, on the right-hand side of this slide, these movements result in an overall profit of GBP 25.7 million. On costs, this slide breaks down the GBP 1.3 million increase that I mentioned, most notably is the inclusion of OBConnect costs of GBP 1.8 million following the majority stake we took in this business in the second half of last year. We've also seen additional depreciation and amortization of GBP 500,000 and GBP 500,000 in respect of financing costs. Offsetting these costs is a GBP 1.5 million reduction in people and overheads, which is the continuation of strong cost control discipline across the group. So these factors result in a GBP 1.3 million increase in costs of GBP 59 million. Next on cash generation. We had a GBP 24.2 million of cash generation from operating activities in the half which is down GBP 4.3 million versus the prior half of GBP 30.7 million, and that delta is primarily working capital in nature. Further down the cash flow statement, we have tax of GBP 4.6 million, CapEx of GBP 10.9 million, which has increased by GBP 1.5 million half-on-half as we continue to invest in systems' modernization, a GBP 10.4 million payment in respect of the legal settlement, a one-off payment to the pension scheme of GBP 1.5 million. And then we have the GBP 43.5 million cash in from the part disposal of Collect+, along with a GBP 13 million outflow for shares bought back in half 1 and GBP 13.9 million in respect of dividends. This gave an overall reduction to net debt of GBP 13.4 million for the period to GBP 84 million. Very briefly on balance sheet. Net assets for the group of GBP 102 million are GBP 4.7 million higher than the March year-end position. And the key drivers of the swings are obviously half 1 earnings of GBP 14.9 million, the proceeds of GBP 34.1 million net following the ID investment in Collect+. And we've actually used these proceeds to subsequently distribute a special dividend of 50p per share, and that resulted in GBP 34.5 million going out in the second half of this year. Alongside that, the 12 for 13 share consolidation reduced our share capital by circa 5.3 million shares. Other key balance sheet movements are the dividends paid of GBP 13.9 million and the share buyback of GBP 30 million. And similar to the prior half on the share buyback for accounting purposes, we've provided for the full GBP 30 million commitment in these balance sheet numbers. Lastly, before I pass back to Nick, on the left-hand side of this slide, we continue to invest in the business to drive future revenue streams and improve operational resilience and efficiency. We've increased the interim dividend by 2.1% to 19.8p, while targeting a cover of over 2x and along with the buyback targeting leverage ratio of 1.2 to 1.5x. For this financial year, the business is on course to generate over GBP 90 million of shareholder returns through a combination of the ordinary dividend, the special dividend and the GBP 30 million share buyback. On the right of this slide, we expect net debt to increase in the second half, driven by those ordinary and special dividends and the share buyback, plus up to GBP 25 million in respect of CapEx for the full year. And with the second half spend, we fully expect to stay within the target leverage ratio of 1.2 to 1.5x. I'll now pass you back to Nick. Nicholas Wiles: Rob, thank you. And now really turning to the progress in the delivery of our key growth projects in the first half. I think as a business, the standout achievement of the first half has been the launch of multiple projects, both enhance our consumer proposition and establish important partnerships that strengthen the long-term prospects for the business. Firstly, as I said, we've launched PayPoint BankLocal into our retailer network, enabling cash deposit or withdrawal with Lloyds Banking Group, the first of our high street banking partners. Secondly, we've launched Royal Mail Shops and a strategic investment into Collect+. And finally, we've taken further steps to accelerate our partnership between Love2shop and InComm Payments for the merchandising of the Love2shop gift card across multiple retail channels. Turning now in a bit more detail to each of these. On successful launch of BankLocal service in August, I think, was a major achievement for the business, involving a group-wide collaboration. Lloyds Banking Group are the first high street bank to use this service, enabling their customers through our network to deposit cash via both app and card. In terms of success to date, we've seen a rapid adoption of this service from Lloyds Banking customers with the strength of our network delivering genuine convenience for cash banking services. Consumer and press feedback has been positive. And as we've seen with other of our services, as the pattern of transactions becomes established, we see strong demand for the service outside traditional opening hours and a weekend. And in terms of what next, I think following the strong start and early adoption, our focus is now very much on further developing our cash banking services in the second half with the next phase of work focused on driving consumer awareness through a variety of channels, accelerating our SME banking solution and those plans [ succeedly ] can launch in Q2 of next year and engage further with other high street banks for our range of cash deposit solutions. Overall, we expect to make significant progress in the rollout of our cash banking services over the next 12 months. Turning now to Collect+. The investment by Royal Mail into Collect+ announced at the end of September was a really important strategic step in our partnership with Royal Mail. The partnership strengthens the positioning of Collect+ as the leading out-of-home network and will enable the future expansion of further Royal Mail services into the network. It will enable further investment in both our consumer service proposition and our retailer network support as the partnership adds to our existing carrier relationships as part of a carrier-agnostic network. The launch of Royal Mail Shop in the Collect+ network reflects our confidence in the strength of the Royal Mail brand and the opportunity to enable for consumers a broader Royal Mail services, including postage as well as collect, send and return parcels throughout a growing portion of the Collect+ network. The rollout of Royal Mail Shops is now really gathering pace with 3,000 stores already branded Royal Mail Shop, which, as I said already, enables a wider range of over-the-counter postal services, including stamps. And by the end of our financial year, this number would have increased to at least 8,000 sites. To support this, there is an extensive consumer marketing campaign already underway with more planned over peak and into 2026 as we increase consumer awareness, drive more footfall and volume into the network. And as we look into the second half, as I said already, it's important to ensure that we have at least 8,000 sites branded and live for the full Royal Mail over-the-counter service by our year-end. We need to be taking the necessary steps, again, as I said already, to increase consumer awareness and uptake of these services. and we do launch our self-service kiosk in the first quarter of next year. And I think this is a really important time to accelerate the pace of our partnership with Royal Mail and to accelerate the consumer adoption of these services through the Collect+/Royal Mail Shop network. And now turning to our continued progress with InComm. Our partnership with InComm established just over a year ago, has been a really important step in us delivering a strong new sales channel, enabling the sale of Love2shop physical gift cards through the major high street retailers. Sales through this channel have continued to grow strongly ahead of the peak sales period in the run-up to Christmas, and we benefited from a combination of growing consumer recognition of the brand and increasing availability of our cards through these additional high street retailers. We've also seen the benefit of further rolling out the Love2shop card into our PayPoint retailer network with growth through this channel from our refreshed merchandising now up by more than 50% during the course of this year. I think with the next stage of this multichannel approach being the launch of the Love2shop Digital Mastercard in the early part of next year, enabling spend via digital wallet in-store and online, the further expansion into more high street retailer gift card malls in 2026 and more gift pegs in each of these malls and also the launch of MBL brands such as Greggs into the InComm Payment mall itself. I think we can really see this partnership is now building strong momentum which is combining the merchandising expertise and distribution channels and the reach of InComm with an outstanding multi-redemption gift card product and product innovation from Love2shop. Now turning to our business review. And firstly, in shopping, we've seen continued growth in the first half in each of our product estates with the exception of the Handepay card estate and have shown growth and some solid financial performances from the underlying business areas. We've seen continued service fee growth. And while card merchanting net revenue and process value are marginally down, I don't think this fairly reflects the continued work to strengthen the operational foundation of this business. The improvements to the quality of our card proposition and the increased focus on profitability per merchant. We also saw another strong performance from our partnership with YouLend with funding advances up by over 50% in the period. In our FMCG activities, we continue to work with a growing number of consumer brands with 16 campaigns delivered in the first half, a strong pipeline of opportunities for the remainder of this year. And in our ATM business, after a challenging period, we're seeing early signs of our recovery plan delivering results as we better manage the ATM estate and use our data to optimize individual site performance. In e-commerce, overall, a positive half for Collect+ with both net revenue and parcel transactions showing growth in terms of really all the key call-outs. As I described earlier, we launched the first phase of Royal Mail Shop, branding into the network and enabled over-the-counter Royal Mail services in over 2,000 locations. And as I described earlier, we have encountered some operational challenges from the internal harmonization of InPost and Yodel which in the period has impacted both volumes and service in the second quarter. We think the action we've taken in partnership with InPost has now stabilized this and we expect volumes to recover during the key peak period. More broadly, we continue to work hard across the wider carrier portfolio to maximize volume and performance with each carrier and support consumer adoption of out-of-home as we continue to grow the Collect+ estate. In Payments and banking, the key theme in this business has been the continued growth in our digital and open banking activities. And with the growth we are now seeing, we expect to arrive at a point soon whereby digital revenue will exceed revenues from our cash payment channels. Specific highlights from the first half have been several important new business wins, particularly in housing from a strong and well-balanced overall new business pipeline, good work to strengthen further our relationships with our existing clients with a number of upselling initiatives and several important client wins for our open banking activities. Our first half digital revenue does include a latent contribution from our majority-owned OBConnect platform. And finally, in Love2shop, as Robert said already, the adoption of a more prudent accounting treatment in terms of the timing of revenue recognition from the expiry of cards which we announced, I think, at the time of the acquisition, has resulted in a timing impact to the headline performance of the business which will be unwound in the second half of the year. Operationally, the business continues to perform well. I've already described the progress in our partnership with InComm [Audio Gap] position for our peak trading period. In Park Christmas Savings, we expect to deliver a flat performance for the year after some good work through the year to support our agents and strengthen the saver proposition as we already turn our focus to the 2026 savings campaign. And in MBL, we've had an outstanding first half with a doubling of process value, which reflects the growing reach of this business and its brand partners. And with this, I'll now hand over to Rob to give you an update on our organizational framework project. Rob Harding: Thanks, Nick. In our FY '25 results, we announced a key target was establishing a framework to deliver greater automation and agility. We've now recently completed Phase 2 of this project, supported by now an independent consultant to identify how we can drive this automation agility across 3 key processes: onboarding, customer support, and billings & settlement. The outcomes from this phase are a clear articulation of the target future state for each of these 3 processes, including key outcomes for each, which you can see from this slide. For example, for customer support, we're driving customer self-service capability in response to high-volume, low-value calls. Additionally, for each process, we've set out the benefits from moving to the target future state with financial benefits such as an additional revenue or lower costs and other benefits, for example, improved customer service levels or satisfaction levels. Preliminary estimates have identified at least GBP 2 million of operational profit upside from moving to the desired future state with a potential to grow this figure further through the next phase of work. And this includes identifying technical solutions and external providers to support the shift to the target state, along with the costs associated with this transition. We expect this next phase of work to be completed in advance of our full year results announcing June '26, followed by implementation commencing early in FY '27. I'll now pass you back over to Nick to cover our outlook. Nicholas Wiles: Thanks, Rob. So turning to our outlook for the year. After a resilient first half performance and despite the impact of the 2 specific challenges that I've already described, the Board remains confident in both delivering further progress in the current year and achieving our medium-term financial goals. We're executing our key projects well, and we do expect these to have a meaningful impact on our long-term performance. In a number of areas, our focus has already shifted to coordinating plans to support the accelerated consumer adoption of these projects, and there's more to come in this area. Look, the current trading environment is not an easy one. Consumer confidence is weak and household budgets remain tight. However, as we enter our most important seasonal trading period for a number of our businesses, we are confident in the plans we've made to execute well and our early signs continue to be encouraging. We remain confident in the growth opportunities we have as a business and that we have a strong platform from which to deliver continued strong returns for shareholders. As we said already in the current year, we're on course to generate returns to shareholders of over GBP 90 million. through a combination of our ordinary dividend, special dividend and share buyback program. And today, we've announced -- declared an interim dividend of 19.8p, which is an increase of 2.1%, and which is consistent with our dividend policy. And with that, we're very happy to answer questions. Operator: [Operator Instructions] The first question comes from Michael Donnelly from Investec. Michael Donnelly: Can you hear me okay? Nicholas Wiles: Yes. Michael Donnelly: A couple for me, please. First of all, can you tell us a little bit more about what Nile are likely to be doing in the next phase. So that's what the expected costs. You've disclosed the costs in the first half, which is really useful. But the cost of benefits and the cost savings that are likely to come through from their work in '27, '28? And then secondly, thanks for the update on RM and IDS. Is it possible to talk a bit more granularly about the trajectory of RM volumes since the IDS investment? Or should we be modeling -- maybe forget second half this year and model a ramp-up more into '26 rather than seeing the benefits -- the volume benefits of the investment come through in the second half? Nicholas Wiles: Yes. Thanks, Michael. Rob, why don't you tackle Nile first, that would be helpful. Rob Harding: Yes. No, as I said, where we are today for each of those 3 key processes that I mentioned on the call, we've got a clear view of what the desired end state looks like and the benefits, and we've talked about 2 million plus worth of opportunities in terms of upside there. The next phase is really about going through the kind of selection process, external suppliers, vendors, et cetera, that will support that shift to that desired future state and the costs associated with that transition. And as a part of that, obviously, we'll be making sure that the business case stacks up, so we make sure that the size of the prize is obviously exceeding the investment required. So really, Michael, the next phase of this is all about identifying external providers technology to help us to move that desired future state and making sure the business case stacks up. And that will take us probably to the end of this financial year, and therefore, we should be getting ready to execute and implement in early of next year. But we're still going through that kind of selection of suppliers and business case development at this stage. Nicholas Wiles: And then just on the second of your questions, Mike. I mean I think the starting point for the Royal Mail investment, which I think we were clear about when we made the announcement on the 30th of September was that a combination of the special dividend, share consolidation and the ramp-up of volume would result actually in the transaction as a whole being earnings enhancing. But I think specific to your point around the ramp-up of volume, I think as we said already, we're growing the network and the rebranding of the network as quickly as we can. We're working really hard with Royal Mail to move as much volume into the network as quickly as possible. We're seeing that ramp-up take shape, particularly since the autumn. And I think the peak period is an important time to see that move further. But these things do take time. And I think we'll see a much more meaningful contribution from the Royal Mail volume when we get into the next financial year. So I think your core sort of premise that we will see a more meaningful impact from Royal Mail volume in the Collect+/Royal Mail Shop network next year. But I mean, the ramp-up is clearly meaningful, not least given the size of Royal Mail in terms of a carrier in the U.K. parcels market. Operator: The next question comes from Joe Brent from Panmure Liberum. Joe Brent: Three questions, if I may. Firstly, there's obviously lots to talk about, but I don't think you mentioned Lloyds Cardnet. Could you give us an update there? Secondly, in e-commerce, could you remind us where we are with the Chinese e-tailers? And thirdly, just following up on Michael's point on automation. It feels like the GBP 2 million will start to impact in FY '27, is that right? And could you maybe give us some indication of the scale of future savings there? Nicholas Wiles: Rob, do you want to start with the automation point, that would be great. Rob Harding: Yes. I think we said that we've got line of sight to at least GBP 2 million here. And I think the question becomes how quickly can we execute and what's the cost to execute. And I think really looking at the full year to give that clear view, I mean, I am hoping to accelerate as much of that benefit as possible in FY '27, [indiscernible] et cetera, we can't pinpoint with accuracy. So I think probably give us until the full year results to get real clarity in terms of if we're going to drop some benefits in, let's be really clear once we've gone through that selection process with external providers, the vendor solutions and gone through that business case development. But I say I'm anxious to accelerate, get any quick wins as possible into FY '27 and drive costs down. Joe Brent: Would the cost of that be treated as non-underlying or be taken above the line? Rob Harding: Yes. We've taken those to exceptionals. So within the kind of restructuring that I mentioned in the exceptionals for the first half, we had about GBP 500,000, GBP 600,000. So that's where we'll be treating the costs going forward. Nicholas Wiles: Cards business, I think, look, we've seen a small fall in the total size of the estate. And I don't think there's a particular reason for that. I think, look, it remains a competitive market. I think our card proposition, and I include Lloyd's Cardnet alongside the EVO proposition as part of that, I think it's stronger than it's ever been. And I think it's really competitive now in the marketplace. I think that our emphasis is increasingly switching from the number of retailers and the number of underlying merchants that we have to actually the quality of that business and importantly actually sort of the revenue that it generates. The acquiring business in the first half was down year-on-year by about 8% in terms of processed volume. And I think that reflects a combination of things, including, I think, a tough retail environment, particularly for our convenience sector. And I think that's probably been our weakest sector actually across our card book, and that's probably where it's been most competitive. I think as we look into the second half, I think we're expecting certainly our sales performance in the second half to improve. I think we've got a really strong proposition, as I said on the street. Our telesales team are performing very well. Our field team are certainly performing well. And I think we've had a number of new additions, new processes there, which I think will really deliver in the second half. So I feel quietly confident that we will continue to make progress in what clearly as we know very well, is a very competitive market. But ultimately, we need higher levels of consumer spend, and we haven't seen that in our estate in the first half. On the Chinese, look, it's a great question. And I think that the Chinese have been relatively slow to create out-of-home choice at the customer checkout for customers using the Chinese marketplaces. They have adopted the out-of-home for returns but we haven't seen them sort of adopt out-of-home at the pace that, for example, we've seen Vinted adopt out-of-home for their principal fulfillment for their own marketplace. We continue to work with the Chinese. And by that, I mean, sort of Shein, TikTok, Temu and ultimately, it's all down to price. And their conversations we're having directly with our carrier partners because we all want to work to move volume from to-door into the out-of-home network channels, whether that's working with InPost to get the choice of locker and PUDO or that's working with Royal Mail to offer the choice of actually the Royal Mail Shops. So I think there's more work to do there. There's clearly a major opportunity because cross-border volume is going to be increasingly important to us, but we haven't yet seen that adoption in the consumer checkout in the way that we need. And that's going to be an opportunity for us into the next year. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Nick Wiles for any closing remarks. Nicholas Wiles: Look, thank you. Thank you very much, everybody, for joining us this morning. As I say, it's been a robust performance in the first half, some major opportunities to unfold during the second half, and we look forward to updating you later in the year. So thank you. Have a good day.
Operator: Ladies and gentlemen, my name is Colby, and I will be your conference operator today. At this time, I would like to welcome you to the Veeva Systems Inc. Fiscal 2026 Third Quarter 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 withdraw your question at any time, simply press star, one again. I'd now like to turn the call over to Gunnar Hansen of Investor Relations. Please go ahead. Gunnar Hansen: Good afternoon. Welcome to Veeva Systems Inc.'s fiscal 2026 third quarter earnings conference call for the quarter ended October 31, 2025. As a reminder, we posted prepared remarks on Veeva's Investor Relations website just after 1 PM Pacific today. We hope you have had a chance to read them before the call. Today's call will be used primarily for Q&A. With me today for Q&A are Peter Gassner, our Chief Executive Officer, Paul Shawah, EVP Strategy, and Brian Van Wagener, our Chief Financial Officer. During this call, we may make forward-looking statements regarding trends or strategies and the anticipated performance of the business, including guidance regarding future financial results. These forward-looking statements will be based on our current views and expectations and are subject to various risks and uncertainties. Our actual results may differ materially. Please refer to the risks listed in our earnings release and the risk factors included in our most recent filing on Form 10-Q. Forward-looking statements made during the call are being made as of today, November 20, 2025, based on the facts available to us today. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Veeva Systems Inc. disclaims any obligation to update or revise any forward-looking statements. We may discuss our guidance on today's call, but we will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. On the call, we may also discuss our non-GAAP metrics that we believe aid in the understanding of our financial results. A reconciliation to comparable GAAP metrics can be found in today's earnings release and in the supplemental investor presentation, both of which are available on our website. With that, thank you for joining us, and I'll turn the call over to Peter. Peter Gassner: Thank you, Gunnar, and welcome everyone to the call. We had an excellent Q3 with strength across the business and results above our guidance. Total revenue in the quarter was $811 million, and non-GAAP operating income was $365 million. Veeva AI is a major initiative for Veeva Systems Inc., and we are making excellent progress. We think Veeva AI can be significant for customers, the industry, and Veeva Systems Inc. We are also executing well and delivering significant innovation across all product areas, including Vault CRM, Crossix, clinical, and safety. We'll now open up the call to your questions. Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Saket Kalia with Barclays. Your line is open. Saket Kalia: Okay, great. Hey guys, thanks for taking my questions here. And appreciate the prepared remarks that were posted. Brian, maybe I'd love to start with you and maybe just hit one of the points in the prepared remarks kind of head-on. Where I think we said that 14 of 14 top 20 customers are expected to migrate to Vault CRM, and so six are potentially opting for other solutions. Now there's clearly the potential for a win back, as we said, but maybe the first question is, how do you sort of think about the size of the revenue that might be at risk from those six customers on the CRM side? And how do you think about the timeline of that potentially, you know, kind of transitioning? Brian Van Wagener: Saket, I'm not going to size it, and there is potential for a win back as you said, but maybe taking a step back, CRM is about 20% of total revenue today, down from about 25% two years ago. And that's because other product areas have been growing. In the shorter term, these are multiyear projects that we understand will take a long time to execute. But no impact is expected this year and likely nothing material for next year either. Longer term, we don't expect any impact on our 2030 goals. It's a diverse business, and that means there's a lot of paths to get there, and we're still on track. Saket Kalia: Got it. Got it. That's super helpful, actually. Peter, maybe for you, on the other side of the business, I'd love to talk about R&D a little bit with you. Of course, one of your competitors talked about winning back a top 20 on the EDC side. I was wondering just since we're all together, can you just talk about that? And maybe just comment on kind of the state of the union in that EDC market in terms of the competitive landscape and your pipeline for further market share gains? Peter Gassner: Yeah. We did have one customer that said they were gonna go back to their previous provider. Now they're still a broad clinical customer for us, and even in the EDC area. So we'll just have to see how that goes. That's not a trend I see. I think we're still trending very well in clinical, and we have a number of opportunities in the pipeline for EDC both with large sponsors and with CROs because most customers are looking for an integrated solution across clinical operations and clinical data because it just makes sense. That's how you drive efficiency, and efficiency is the name of the game. This particular customer has more of an integrated architecture of their own. For example, they have a custom CTMS solution and a variety of other things. So at this point, it was a sort of a more a decision that was something that we don't see repeating in other places. Now, and also the thing that I'm very excited about is our innovation in clinical, our generation innovation in clinical that we have in the kitchen. That will help the life sciences companies bridge between sponsors and all the way out into clinical research sites. And also really help in patient recruiting over time. So the future is very bright in clinical. This one, honestly, a bit of an aberration. Operator: Your next question comes from the line of Joe Vruwink with Baird. Your line is open. Joe Vruwink: Great. Thanks for taking my questions. I wanted to dig a bit more into the CRM topic. Obviously, attrition carries an implication on revenue over time, but I sit here today, and I think commercial subscription revenues have been raised by about $60 million year to date. And then every Vault CRM customer you're retaining now has the opportunity to add service center and marketing automation and Veeva AI. So how should we think about all of that netting together? And, I mean, is it the case where, ultimately, you're netting out and there's an increment here? I think the market is focusing on kind of a lost value to Saket's question, but how to think about the offsets in the equation over the next five years? Peter Gassner: Yeah. Hey, Joe. So, you're absolutely right. I think there's been a lot of focus on, you know, what there is to lose. I think there's a lot of potential in what we've created, the innovation that we delivered. In some of the areas that you mentioned, like service center and marketing and patient CRM and some of the new products. But then also in AI. So, yes, each customer that we retain, we have the potential to sell a lot of these products and new innovations. And I expect that over time, those customers will adopt more broadly the CRM suite, all the add-ons that are part of that. We're starting to see some of that happen already with some of the customers who've committed to Vault CRM starting to add additional products on. So that's really good. I think we'll also have the potential to win some of these customers. We've talked about that in detail. So, yeah, I feel good about the upside as much as there is some potential attrition from some of the customers that we've got and decided to do something different. Joe Vruwink: Yeah. And this is Peter. I'll just add in. We've focused on the top 20 because that's how we do some things when we talk to the 400 customers. So it's pretty distributed in what we do. So our CRM business is very healthy, our win rate and our conversion rate is very, very strong and stronger in the smaller market because not the smaller customers, they don't have this appetite for a custom build. It's just not the risk they want to take or what they want to do, and they get a lot of other products to Veeva. Also, on a side note, while we did have 20 of the top 20 customers, 20 of the top 20 were our customers in some fashion for CRM. Two of them were mainly IQVIA customers. So, you know, that's not to say that we're not gonna gain some new customers here. Right? And that can be significant as well. Bottom line is what you should take away is, during the business is healthy, and it is an important part of Veeva Systems Inc., but it's not the major, it's not the largest part of Veeva Systems Inc. anymore. That's for sure. Joe Vruwink: Okay. That's great color. Thank you both. Maybe one on Veeva AI. You know, you had a few summits within the last quarter. I think you've also been making rounds on forums gathering feedback from your customers. I guess what stood out to you both in terms of, I'll say, reception, but then also maybe any pushback or things where you walk away and you have more, you know, you need to work on, you know, coming out of this initial experience with AI? Peter Gassner: Well, I think our customers are, you know, they're looking for practical solutions now. Right? They're looking for solutions that can add value, you know, rapidly sort of getting out of this experimentation phase. And they want to use partners where partners can help them. They want to use Microsoft where Microsoft can help them. They want to use Entropic where Entropic can help them. And they know where Veeva Systems Inc. can help them is helping to automate industry-specific applications with AI. That deep domain knowledge and the business process consulting around it. So how do you enable insight generation in CRM through your field team by the use of compliant free text? Okay. That's a very specific thing. How do you dramatically increase the efficiency of safety case processing for adverse events? Okay. That's very specific. So that's what they're looking to us for, and that's what we deliver. That's what we specialize in. In terms of what they would like, they're, you know, just like everybody else. We can, you know, can this be robust and proven and working tomorrow? You know, for all cases. And so they just want us to go faster, but there's really rampant alignment on directions. Veeva Systems Inc. is setting out to do exactly what they want Veeva Systems Inc. to do. We just have to get there. And the customers also have to be able to adopt and do that change management work. Which is, that's not easy either. That's not gonna happen overnight. That's one of our advantages is we have a great business consulting team. So we have that integrated together. Our product team, our selling team, and our business consulting team deliver AI value. That's gonna be more holistic than others, and that's how you're gonna have to do it in industry-specific solutions. The customers are not gonna want to knit together consulting over here and software over there and AI over here. They're not gonna want to do that over the long term. Operator: Your next question comes from the line of Brian Peterson with Raymond James. Your line is open. Brian Peterson: Thanks for taking the question. Peter, maybe a follow-up to your last answer. But as we think about AI and how that will impact your products going forward, do you think that we'll see more of a monetization in terms of commercial where we've already kind of seen some of that today, maybe more broadly in software? But I'm curious, what do you think that opportunity could be in R&D where it seems to be more of an opportunity of innovation? Any color on how to think about that opportunity from AI? Peter Gassner: I think it'll be not exactly, but broadly, you know, even across the board. So, with some areas, a bit more than others. Safety, I think it's a big opportunity to reduce the amount of labor needed also in certain areas of the clinical. In commercial, it's more about insight generation and market advantage. And in terms of, you know, faster insights. In regulatory, it's, again, it's about speed. So the value is probably similar across all areas, but the way it's gonna be implemented is differently. So I'm just gonna focus on insight and agility. Some is gonna focus on, hey, humans don't need to do that particular work anymore. Brian Peterson: Got it. And maybe, Paul, a follow-up for you. I think there's been some debate broadly on AI and how that may impact sales reps or like how efficient sales reps could be. Like, as you talk to some of your customers, like, how are they thinking about the size of their sales force with the implementation of AI? Like what do you think that looks like going forward? Thanks, guys. Paul Shawah: I mean, we have seen some of the reductions that have played out over the past couple of years that we have talked about. We've kind of predicted roughly about 10%. It ended up being a little bit less than that. The way to think about it is the customers that they're calling on, the HCPs, the number of doctors hasn't fundamentally changed. You still need people. You need a base level of sales reps to build those relationships, cover those doctors, deliver the information, the service that they need. So I think the industry is cautious and thoughtful about making significant changes or adjustments. So I think there is a lot of potential for productivity gains and effectiveness gains, but I think it will likely be stable. At least for the next couple of years. We're not hearing of any, you know, AI-related reductions. It's more related to specific, you know, ramping up for launches or ramping down because of a pipeline challenge. But I think that's normal course of business. Operator: Your next question comes from the line of Alexey Bogalis with JPMorgan. Your line is open. Alexey Bogalis: Hello, everyone. Thank you for letting me ask a question. Peter, I have my first question. Maybe I appreciate the comments you made in prepared remarks that you have not observed material change to customer buying behaviors, but could you double click on the demand environment and financial health of the pharma end market? Peter Gassner: Right. Yeah. So the industry overall is pretty healthy. We've had a bit of chaos in the environment with tariffs and other things and certainly conflict, but the industry has gotten, I guess, used to that. And so I'm seeing no changes in the end market. Then the science is still rapidly evolving. Right? So there are many, many uncured diseases that are seriously affecting people's quality of life. You know. And, you know, the death of a child or a young parent. Right? That happens. And the industry is working hard to be able to cure some of those things. And there's demand for that. So I'm pretty optimistic about the industry overall, and pretty steady right now. Alexey Bogalis: Thank you, Peter. And a very quick follow-up on the comments. First, congrats with another commitment for Vault CRM. So you suggested that you're looking to win another four out of the remaining six undecided. Do you have any verbal indications from those clients already? Peter Gassner: No. I, you know, I wouldn't get—we'll probably let you know when we've been notified. We'll let you know in general, but we won't get into the, you know, fine-tune of that. Okay. You know, we have some things that we think and we have some things that we think we think, but, you know, we won't get any more fine-grained than that. Operator: Your next question comes from the line of Ken Wong with Oppenheimer. Your line is open. Ken Wong: Thanks for taking my question. This first one for Paul. Crossix again called out as a pocket of strength. Any way to help put a little context around it? Was that consistent with Q2? Just starting to normalize, level off? How should we think about the kind of the Crossix dynamic? Paul Shawah: Yeah. It was in line with our expectations. You've seen nice outperformance of Crossix in the first couple of quarters of the year, and we expected that to continue to play out. The measurement business is very stable. And we've continued to perform well there. And then audiences, which can be a little bit more variable, has also delivered really nicely. So yes, Crossix continues to be a nice growth driver. And we expect it to be that. Although there may be some variability, we expect that to be a nice driver over the next several years. Ken Wong: Perfect. And then Brian, 115 customers live on Vault CRM, including, you know, I think some top twenties, kind of in the motions. How should we think about when you might see some gross margin tailwind as you start to work off of the Salesforce royalties? What's the right time frame for something like that? Brian Van Wagener: There are some puts and takes in the short to midterm there, Ken. So you recall that in the next couple of years, as we have other customers going through their migration, there are some customers where we have both the Veeva CRM on Salesforce royalties and the AWS hosting costs. So we'll see some customers rolling off, some that have a mix. So I would say a modest headwind actually over the next year or two. But pretty immaterial in the grand scheme of things. You can see that the gross margins on subscriptions were essentially stable, slightly up year over year. So not a significant impact over the next couple of years, and then it starts to roll off a few years from now. Operator: Your next question comes from Stan Berenshteyn with Wells Fargo Securities LLC. Your line is open. Stan Berenshteyn: Yes, hi. Thanks for taking my questions. Well, first, a follow-up on Crossix. I'm just curious, given the regulatory focus on direct-to-consumer advertising, have you seen any changes in where audience targeting is happening on the platforms? Is it changing at all? Peter Gassner: Yeah. Stan, I would say—and I can take that one for her. I think the thing that when I was listening about Crossix to know is that digital overall, digital marketing spending is going up. Both in consumer and in HCP because there's better digital avenues to reach people. And you're seeing that with things like open evidence and proximity's new AI offering. Right? So there's increasing effective use of that channel. And then with Crossix specifically, what's going on is as that channel gets more important, measurement and audiences and optimization get more and more important. That's one thing. And Crossix is becoming more of a standard. So there's really a compounding effect of the excellence that we're developing in Crossix. You know, Crossix will be, you know, that's gonna be a well-growing business for us. You know, you should think of that as a well-growing business for the foreseeable future. You know, three, four, five years type of thing. This is—we put some serious innovation in Crossix over the past years. We've invested heavily in the data network. Because that's a data network that we share with Compass. Compass and Crossix share that data network. So it's—they're just becoming more important, not less important. The other—you'll see maybe regulations around consumer TV ads. But overall, digital is growing. It's a very effective means to meet people, and you need to measure and optimize that. And that's what Crossix does. Stan Berenshteyn: Very helpful. Thank you. And maybe a quick follow-up on your sales pipeline. I'm curious, a couple of comments here. First, I think historically, Peter, you called out safety and regulatory as potentially having a little bit less of a predictable sales cycle, maybe a bit longer than usual. Any changes there from customers in the sales pipeline on those products? And then maybe related to this, I'm just curious are you seeing anything coming from the IQVIA partnership? Any clients potentially coming through that pipeline? Thanks. Peter Gassner: Yeah. For safety and regulatory, especially in the large companies. Those are usually long sales cycles. Customers know they're making ten-year decisions plus. So these are very serious ones. So I don't see any change there. We have a lot of momentum in the safety area. That's one thing I would say. And then the AI and safety can kind of be a game changer as well. So that might drive a little faster adoption there. And in terms of IQVIA, it's been great having that partnership. So, you know, revenue impact takes a while to see on these partnerships. But the positive customer experience is really heartening. I think it's, you know, giving IQVIA the current a little spring in their step, this partnership with Veeva Systems Inc. is certainly giving Veeva Systems Inc. a spring in our step. This partnership with IQVIA is a very positive macro-level trend for the business, especially on the commercial side. Two big macro-level positive trends for us on the commercial side, or three, are this increasing investment in digital and AI. You see Crossix taking advantage of that, and you'll see other things from Veeva Systems Inc. over time. Right? Where a lot of our revenue and our future things will come as it relates to digital. The IQVIA partnership, making the interop more easier. That will help our data business. That will help our software business. And then the freedom that we're getting to develop our solutions without having to worry about the Salesforce platform and the limitations. All of these things are really gonna be unleashing us on the commercial side. And then for IQVIA on the clinical side, that's been great too. Just more customer confidence in Veeva Systems Inc. and IQVIA can bring solutions to our joint customers. Operator: Your next question comes from the line of Dylan Becker with William Blair. Your line is open. Dylan Becker: Hey, gentlemen. I appreciate it. Maybe, Peter, starting with you too, if we kind of think about the service strength you entered at this as it relates to business consulting, but maybe the need for change management that you're seeing and kind of the strong services outlook, how that or how you maybe think about the implications of that maybe driving more kind of wall-to-wall broad-based platform in the future, the role that business consulting can play in driving kind of the broader platform momentum over time, whether that's commercial or R&D? Peter Gassner: Yeah. If you look at Veeva Systems Inc. at a very high level, you know, where we started, pharmaceutical CRM. Built on salesforce.com. Myself, and my neighbor in our front yard. You know, my, you know, our front yard, which we joined. So there's two people and one product. Right? We have 7,000 people and a lot of products. The way—and now we have software that basically reports directly to me. We have the data business. Reports to me. We have a consulting business. And that consulting business reports to me. So that's how we're building the industry cloud for life sciences. These three working together, which is a lot of skills we have and capabilities we have to have in Veeva Systems Inc. We have to be an excellent consulting company. We have to be an excellent data company. We have to be an excellent software company. And we have to manage the interplay of those three things. But that's what our customers want. They would rather have Veeva Systems Inc. be the general contractor and fit this together. Sometimes I would talk to customers and I would say, well, if Veeva Systems Inc. has 100 things, the nice thing is you might buy one thing today, but you can be assured that that one thing five years from now will fit into all the other Veeva Systems Inc. things that you have. Versus if you buy 100 things from 100 different vendors, those 100 things are moving in 100 different directions, and you'll be replacing pieces and parts forever. So that's what we're bringing, a more comprehensive solution across data software and the consulting, the operating models. So that fits together for life sciences. I guess that's why I think sometimes people underestimate what we'll end up doing for life sciences. It's a pretty significant thing, and it's not anything that any other vendor has ever tried to do for an industry so far. So that's why we're pretty excited about what we're doing. Dylan Becker: Certainly. That makes sense. And maybe you just got teased, this, and so I'd be remiss if I didn't kind of double click on the momentum and safety. I know you called out another top 20 customer, and I think another top 20 go live there alongside the fact that it's maybe the opportunity that's most ripe for labor disruption, I guess. I know these are still long-term decisions, but how do you think about kind of the innovation you're delivering to the safety space and how met with receptivity from a decisioning perspective as you have kind of more of these proof points and validation points at market? Thank you. Peter Gassner: I think safety is really excited about our architecture and how we're doing not only the core safety processing, but the AI that sits on top of that. And the analytics go along with it, the analytical application. So people think that's good. People are very hesitant to change their safety systems. It's such a core system, and it's been so complex. So we're still in the early customer phase of that. I'm hopeful that in, you know, we'll get into the middle majority phase here in a couple of years, and then we'll have the late adopter phase. I'm just very optimistic on it. But gosh, people don't change these things very, very fast. They just don't. Because it's such a critical area, and there's not a lot of push from above the safety teams. Because it's such a critical area, and they've got it. So, you know, we just have to wait for the right time, and then every project has to be successful on that. That's really what we're focused on. It's probably surprising. It would be surprising to many people how complex a global drug safety system is. When you're coordinating with all the health authorities around the world, all the constantly changing regulations. I mean, just to give you an example, there's a lot of special functionality for vaccines. That you need and over-the-counter medicines, you know, each therapeutic area has its own things, and each country has its own thing. So it's complex. We spent, I guess, it's getting close to, what, eight years or so building this thing now. So, that's a real competitive moat. Operator: Your next question comes from Tyler Radke with Citi. Your line is open. Tyler Radke: Yes. Thank you very much for taking the question. Peter, just going back to the top CRM, 20 customers there. You referenced that this was, like, kind of a unique customer kind of one-off example. I was wondering if you could just sort of elaborate on it. Is this something specific to their negotiations or discounts that they'd be getting with another vendor? If you could just sort of talk through that and then maybe the time frame on when you think you could win them back. Peter Gassner: Yeah. I think, you know, when we say customers, specific situations in a very large, there will be individual people, and there'll be dynamics in between people. And there'll be how those people feel and where their cultural alignment is. You know? Sometimes logic is only part of it. So that's what I was referring to. There's no particular pattern there. It's just customer-specific, you know, humans. Right? And some, like, would just say, I just want to try something new. Right? I just want to try something new. We may think that's logical or not logical. Right? Some people want to go with something that's proven. And some people would just want to try something new. So you got all those kinds of dynamics going on. Then in terms of the win backs, you know, you never know when that happens. Usually, it comes with, honestly, executive turnover. Right? An executive turnover. Somebody has a different idea. Also, it can come sometimes, you know, vendor not delivering. You know, the current solution not delivering or project failure, and then it can come in a hurry. It might come in one year. It might come in ten years. You know? But in general, these will be more of a custom build type of thing with Salesforce. And those, you know, on the outside, those could have a ten-year lifespan. But they might only have a one-year lifespan. So just have to see how that goes. I do have a lot of confidence that the building is really—it hasn't proven to be the way forward for most things over the years. And so that's what gives me a lot of comfort. But, again, I don't want to over-index on that. We're just talking about these top twenties for transparency. Our CRM business is very healthy. You know, we're winning some top twenties that we didn't have. We're losing some that we had, and we may win them back. But overall, you know, the business is good. Tyler Radke: Yeah. And for sure, over 100 customers live is a good proof point. Maybe, Brian, just on the margin side, it looks like hiring ticked up again a little bit this quarter relative to kind of the trends we saw last year. Help us just understand, you know, where those heads are focused and then anything you would call out in terms of how to think about margin expansion into next year? Brian Van Wagener: Yes, absolutely. So the two main areas that we're hiring are in our product and then in our services team. You heard us speak to some of the services hiring coming out of Q2 with the large class for our college development program. So we're continuing to invest in the services business, both core professional services and business consulting, continuing to invest in the product. And there was some impact on the services margin in particular in this quarter. But we're really pleased with the overall performance of the business. And as those new hires start to ramp and build the projects, that will wind itself down over time. Operator: Your next question comes from the line of Charles Rhyee with TD Cowen. Your line is open. Charles Rhyee: Yeah. Thanks for taking the question. Peter, obviously, we're continuing to, you know, get these wins in Development Cloud. We started start-up and study training. For these clients, you know, I guess in Development Cloud, among the top 20 biopharma, what's the average number of these Development Cloud products do they have on average? And where would you see as the tipping point? Because if I recall a couple of years back, you know, there's an announcement that Merck was gonna move to sort of a full deep environment over time. Just to get a sense of what you would consider someone being sort of a full Veeva on the development on the R&D side? Like, what does that look like? Peter Gassner: Yeah. And as it relates to Merck, there was a strategic partnership we announced. There was not really that they would use Veeva Systems Inc. everywhere, but a strategic partnership that we announced. Now, in terms of Development Cloud, I, you know, I don't have any particular figures to share with you in terms of percentages or number of applications. It depends on the area. So in the ETMF area, we actually have 20 out of the top 20. Now that have selected us. That's really important. We can use that standardization to drive AI and industry standardization and help the industry and help the regulators. That's, you know, that's going on there. And then newer areas such as RTSM for the randomization and trial supplies management. We don't have any top 20 that has selected us for an enterprise standard yet. Or an ECOA, you know, nobody yet because those are quite new and safety, just a few. So it just depends. We have a lot of, you know, we have definitely more opportunities to go in Development Cloud than we've consumed now. So surprisingly, it's still in the early days of Development Cloud for two reasons. One is these are super important systems that take time. You can't change them out all at once. You put them in most of them, and you keep them for fifteen years. The other is we're adding more applications. So RTSM is new. ECOA is new. The whole area of quality control limbs is brand new. We just had our first early adopter in the top 20 for two manufacturing sites. So it's a lot more to do. I guess it's still early, surprisingly. These things take time. Charles Rhyee: That's helpful. Thank you. And just a follow-up there. Someone had asked earlier about, you know, one of your competitors kind of won back an EDC client, but, you know, what does the overall competitive landscape look like currently? Because it seems like one of your other main competitors in development in R&D seems to be focused a little bit elsewhere in healthcare. Just curious how you're seeing the overall competitive landscape kind of shaping up currently. Thanks. Peter Gassner: Yeah. We certainly have competitors in each area. You know, there's competitors specific to randomization and trial supply management. There's competitors specific to regulatory and clinical operations and EDC. But we don't really have a competitor that's trying to do an overall Development Cloud like we're doing. So I feel like we just have to execute really well, excellence in each area, concentrate on our integrations, and leverage our account partnership. So we have to compete with ourselves. To push ourselves for excellence, for humbleness, for great hiring. The advantage that we have is we have a core platform that's used across all these applications. So we can really invest in the platform. And there's commonality in the platform. And we have first-mover advantage. We had this idea back in early 2012. And, you know, and so you have a lot of core capabilities around it. If you are a competition as ourselves, we have to execute and continue to improve and stay humble. Operator: Ladies and gentlemen, due to time allotted for questions, please ask to limit yourself to one question. Thank you. Next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is open. Craig Hettenbach: Yes. Thank you. On Crossix, before the acceleration this year, I think the business has grown roughly kind of low to mid-teens. You talked about some of the drivers that are driving growth above that. Do you think in the next couple of years it reverts back to kind of that mid-teens level? Or do you think some of these drivers can kind of sustain stronger growth in the next few years? Brian Van Wagener: Hey, Craig. This is Brian. Overall, we are really pleased with the progress of Crossix. Growth has been very healthy there for the full year to date. It's a large market with a long runway for growth. Both in the measurement business and in the Audiences business. We're not going to break out a specific long-range growth rate for each to grow, and it's executing very well right now. Product area, but we think there's still plenty of room for that business. Operator: Your next question comes from the line of David Hynes with Canaccord Genuity. Your line is open. David Hynes: Hey, guys. Thank you for taking the question. Paul, maybe you could talk a little bit about how you're balancing go-to-market initiatives on the commercial side of the business and maybe how you see it evolving over time. I mean, obviously, Crossix is doing really well. I have to think CRM migration is kind of front and center of your mind right now, especially as kind of these last top twenties make their decision. You tempered expectations around cross-sell during this migration period, but you have a ton of new products. Right? Service center, campaign manager, patient CRM. Like, when do you lean in on those products a little bit more with the top 20? And just maybe talk about kind of how you balance all this and see it evolving over time. Paul Shawah: Yeah. David, it's a good question. And maybe higher level, we have dedicated teams in each of these areas. Dedicated strategy teams and product teams, and they're all focused on their different areas. So they're able to move, advance the product forward, advance customer discussions forward. In some cases, there's dedicated sales teams. So it's not, you know, we don't necessarily have to kind of just focus on one thing and not focus on something else. We're able to kind of focus in multiple areas. But you're correct. Right? The migration thing is the transition of customers over to Vault CRM. That is creating, in some cases, it's slowing things down. In other cases, it's actually creating opportunities for us. We're seeing as customers are making that decision, they're looking at their data. And maybe it's time that we switch out our customer reference data because Veeva Systems Inc. has better data in this area or their master data management with network and Nitro are now becoming opportunities. As they're going through the migration, they're thinking about, they're thinking more broadly. Because there are more pieces of trying to get to broader efficiencies, and they're able to get there as they adopt commercial cloud. We're able to focus in multiple areas. It does create openings for us to continue to expand in each of these areas. And, as you heard, there's kind of some stable businesses, and there are other areas that are growing a little bit faster. We're going to continue to drive and push in each area. Because we can add a lot of value when they put all these pieces together. Operator: Your next question comes from the line of Andrew DeGasperi with BNP Paribas. Your line is open. Andrew DeGasperi: Thanks for taking my question. Wanted to ask the top 20 CRM question. Different way. Particular, how it relates to your 2030 targets. I know you mentioned that it doesn't impact your capability to reach it. I was just wondering why is that the case? Is it because you either the sort of low expectations is mostly tied to a very small number of clients that have decided to go a different way, like one or two? Or is it a factor of you have these other Vault CRM customers that are smaller, the 100 plus that you've listed that could be also contributing and offsetting some of that potential weakness you would see in that business? Brian Van Wagener: Andrew, this is Brian. I'll take this one. When stepping back, there are a few things, some of which you touched on. One is that the top 20 is certainly not the entirety of the CRM. And you heard Peter speak to the fact that the overall business is very healthy. Got enterprise customers, SMB customers. We still expect to win. The vast majority of customers are to retain that. We will have the opportunity to win some of these customers back, and we think that's likely to come through. Then the third and probably the biggest one is that this is a diverse business. It's not only a CRM business. CRM Suite is about 20% of total revenue today. So the other 80% is continuing to perform really well. It's growing well. There were always multiple paths to 2030. And so when we step back and look at the progress that we're making, we feel very good about the progress and how we're tracking out to the 2030 goals. Peter Gassner: Yeah. That way to think about it is the commercial is a part of the business. Right? Our total addressable market and clinical is even a bit bigger than that. And then there's quality and safety and manufacturing and other things. And then inside of the commercial, the CRM suite is a part of that. It's certainly not the majority of it. It's the minority of the commercial area. And we have to see how things, you know, play out. It's not unforeseen that Crossix can be as big as the whole CRM suite by 2030 as well. Right? That's, you know, it's a good business, the CRM, and it's a strong business for us, but the CRM suite itself and the number of field ops and things, that's not a growing business. That's kind of a stable business. That's where Veeva Systems Inc. started, but it's not our determinant at all for 2030. Operator: Your next question comes from Jeff Garro with Stephens. Your line is open. Jeff Garro: Yes, good afternoon. Thanks for taking the question. Want to ask about the comments in the prepared remarks on the Quality Cloud opportunity expanding. Is that expansion by reaching new customer types or more of a reference to product expansion? Just any further remarks on specific drivers of your success in quality and with labs and CDMOs would be helpful. Thanks. Peter Gassner: Yeah. I'll take that one. This is Peter. It's, yeah. Quality is one of these areas where we can reach a lot of customers, a lot of different customers. CDMOs, you know, other regulated, highly regulated services, industries that are close to life sciences. Our success has been we have three main core products all on a common platform. We have the quality documentation, which is used mainly in test. Manufacturing for Engineering Europe. Standard operating procedures and your changes around that, your quality management system for, you know, deviations and kappas, etcetera, and your GXP training. Your validated training environment. So we're the only vendor that has all three all in a common platform. So that's what's really driving a lot of the growth. In addition, we have some new products there, batch release and computer systems validation. And we're very excited about LINZ. We announced that early customer in LEMS, the laboratory information management that's used to test the medicine as it's being manufactured. And that's a growth area because there's, you know, new manufacturing plants being built. Because of a variety of reasons, let alone, you know, political reasons, etcetera. So new manufacturing plants being built, and the medicine and the manufacturing of these medicines is becoming more expensive and more complicated. And there are two main solutions used out in that area, and they're both, you know, on-premise hosted solutions that are not modern. Critically important, but not modern. So we have a real greenfield opportunity there. If you look at life sciences, they will generally, they will research and find a molecule. They will run clinical trials. They will commercialize the product. But along the way, before they put that medicine even in the first human, they have to manufacture it. First in a small volume, and then in a large volume. And so that manufacturing area is critically important. You're manufacturing something that's gonna be either ingested by a human or put right into their bloodstream. So it's super important how you do that. So that's a great growing area for us. Quality in the manufacturing space. Operator: Your next question comes from Jailendra Singh with Truist Securities. Your line is open. Jailendra Singh: Thank you and thanks for taking my questions. I want to follow-up on the MAX environment question earlier. You did note in the prepared remarks that the guidance raise is driven by improved visibility into Q4. Can you elaborate on that? Is it stronger renewal activity, up momentum, or new logo wins? And related to that, we have seen some good clarity for the pharma industry in recent months with all the discussion with the administration. Do you get a sense based on your conversation that we could see a potential up in client buying trends in the coming year or so? Brian Van Wagener: Hey, Jailendra, this is Brian. I'll take this one. So, I think really good execution coming out of Q3. We had some earlier timing of deal closure than we expected that contributed to some of the outperformance in the quarter and the raise in Q4 and therefore for the full year. Overall, I think broad strength across the business. On the commercial side, we saw Crossix continue to perform well, but also the SMB commercial side had stronger performance in the other areas of our commercial business. Strong performance in R&D, which tends to be more predictable, but we saw strong performance in R&D. And then strong performance as well in our services business and really across professional services and business consulting. So we're very pleased with the momentum coming out of Q3 and what we see coming into the quarter. I think beyond that, we'll factor that into our guidance for next year, which we'll release following the fourth quarter here. But feeling good about the execution of the business as we enter the final quarter of the year. Operator: Your next question comes from Steven Valiquette with Mizuho Securities. Your line is open. Steven Valiquette: Thanks for taking the question. So I guess for me, my primary question was also going to be on your comments about the unique customer-specific factors driving a few less of the Vault CRM wins. See you talked about that already. But really my quick follow-up question is, since it sounds like it really is truly scattered across these customer-specific factors, are there any learnings for Veeva Systems Inc. from all of this, either on, you know, Vault, CRM, product design or on pricing or it even not really change anything going forward? On the go-to-market strategies just in the back of all those? Thanks. Peter Gassner: It's a good question on the learnings. Yeah. We did, you know, look through that. No. I think, there's, you know, we did things the way we wanted to do things with customer success in mind, and we've gotten our top twenties live. And, you know, I guess we thought more customers would, you know, 90% of customers maybe would put weight on that, and some customers didn't. They just, you know, it's they just wanted to try something new. So no particular learning. I would say there's a lot of enthusiasm around the Veeva Systems Inc. team, product and services team because, you know, it's kind of distracting to try to resell all those top 20 customers all at once, right, in a very short period time, and you're competing with a product that doesn't really exist yet and a lot of promises and things like that. That's kind of distracting a little bit, but we're largely through that. So now, you know, we used to have 18 out of the top 20. Now we're maybe gonna have 14 or so. And now it's back to business as usual and really focusing on those customer success. But with a difference. Now we are entering the age of AI. You know, probabilistic computing. To really drive and change what a CRM system can do. So that's giving people a lot of excitement. This, you know, the Vault CRM of '26 and '27 and '28, that's not gonna be, like, the CRM of 2022 and 2023. So that's where the real excitement is. Operator: Your next question comes from Gabriela Borges with Goldman Sachs. Your line is open. Gabriela Borges: Hi, good afternoon. Thank you. For Paul and Peter, I wanted to get your thoughts on the risk that the CRM market becomes more competitive over time. For example, could the large competitor that has six out of the top 20, could they use that as a beachhead to expand their presence with time with the road map that will improve over time? Or, for example, the 14 that have committed to Veeva Systems Inc., could they be thinking about the structure of the ecosystem changing? So for example, a year from now or three years from now, could they consider competition? So maybe just give us a little bit of a sense of your conviction on long term and how Veeva Systems Inc. can continue to have the dominant position that it has in the event that the competitive environment does change more structurally on the commercial side. Thank you. Paul Shawah: Yeah. So, as we think about other areas in commercial, there are generally separate decisions from CRM. You know, the people who make decisions around Vault CRM are generally different than commercial content and Crossix data cloud. We've actually done something unique, and we've connected all of those pieces together. One of the reasons we moved to Vault CRM is to make it feel more like Development Cloud. So when you buy into Veeva Systems Inc., you have these really mission-critical areas. Crossix. You're seeing how important that is. Commercial content, that we have all plumbed up together. So we create a lot of value. So I think the customers that do decide to buy into Vault and Veeva Systems Inc. will get additional value. The synergy of having everything on a common platform where they know everything is just gonna work together. We've made a long-term commitment to life sciences. I think what we're seeing Salesforce is, you know, kind of just entering. They have a very new product in the CRM space. They don't have everything that we've talked about. All of the other software products, commercial content, Crossix business, all of the data assets, what Peter has talked about earlier with business consulting. So we're building just something that's fundamentally very different than what Salesforce is trying to do. I think that's a very significant competitive advantage for us, and I think that's why we feel really confident about our long-term market position. Because, one, we're gonna have a better CRM and a CRM suite area, but it's all gonna be connected together. And building the industry cloud, bringing all of those pieces together. So feel good about the competitive position. I'm happy with where it's shaking out. Obviously, you love to win every customer. But we're executing well, really across all the commercial. Operator: Your next question comes from Tucker Rumors with Jefferies. Your line is open. Tucker Rumors: Hi. Thanks for taking my question. So my question revolves around the development of AI agents in the clinical suite. I just want to get a sense of how soon you think you could develop some clinical AI agent, for example, you can give, and how can Veeva Systems Inc. monetize that in the future? Thank you. Peter Gassner: Yeah. We have, we've published our road map around our agents. We're gonna have agents in literally all of our software applications as we get through 2026. We started this year. We'll have them in commercial. And CRM and commercial content. Next year, in roughly the first quarter, April, it'll be in safety and quality. And then through the end of the year, we'll have agents in clinical operations. And then, by the end of the year, clinical data management. We think it's one of those potentially transformative areas in clinicals. It's our largest single opportunity, the clinical business. There's a lot of potential to just streamline a lot of core processes, ePMF, you know, when you just intake a document and scanning through that, making sense of that with an agent, as an example. Just replacing core human labor with agents. So a lot of potential for productivity. That's just one example, but I think we see that pretty consistently across the broader clinical area. So super excited about AI because we've actually accelerated our agent road map. And we'll have it in, like I said, virtually every application area as we get through 2026. Operator: Your next question comes from the line of David Larsen with BTIG. Your line is open. David Larsen: Hi. Just going back to these top 20 biopharma clients. Can you maybe—I just have a tough time believing, like, with your R&D capabilities, if you have 20 of the top 20 on your electronic trial master file platform, that's where all of the R&D flows out of. Like, did these four already sign with Salesforce? Did they just sort of verbally tell you they're gonna go with Salesforce? How sort of final are those decisions? And then we keep saying, may win them back. Like, how would that work? Is there a trial period they have with Salesforce? Thanks very much. Peter Gassner: I'll take that one. So in terms of the—this is around the CRM product. Right? We announced the Salesforce ones that particularly around our CRM product. And, if I just reiterate, that's about 20% of our business today. Two years ago, it was about 25% of it. We're not gonna give a direction of what percentage of our business it would be in 2030, but you could, you know, that's gonna be significantly less than 20%. So it's a minor part of our business that's nothing to do with our clinical business. Right? Nothing to do with our clinical business. And then in terms of the win back, how does that work? Well, you know, when you roll out a pharmaceutical CRM system, you'll do it by region, and might have a failure in one of those implementations. So you might say, well, okay. I'm not gonna use Salesforce in that other region. I'll go over to Veeva Systems Inc. Or you might have a failure in your first region, and you're gonna say, well, I'll cancel that overall. Or you might have an executive change. And they might have a different idea of what they want to do. But, also, you might run with that system, sort of a more of a custom build system for three years, five years, seven years, and then you feel like, okay. That's run at the end of the life. We have a custom system, and the industry has moved on. And we want to move back onto a more industry-standard system. Because with Salesforce, very open platforms, so the IT team sometimes can build exactly what they want. And the system integrators kind of feed into that as well. So you end up with a very custom system. So it's not—this top 20 things had nothing to do with the bulk of our business, clinical. And the win backs happen over time. As they naturally would. Operator: Your next question comes from Sean Dodge with BMO Capital Markets. Your line is open. Sean Dodge: Maybe just on the Veeva basics. Offering you rolled out, was about, I think, a little over a year back. You had a release a few weeks ago that there are about 100 clients that have selected that. I guess just wondering how we should think about sizing the longer-run opportunity for Veeva Systems Inc. in that part of the end market. Obviously, R&D budgets for small biotech are small, on the other hand, are a lot of them. So just maybe kind of thinking about does that have the potential to be a real needle mover for Veeva Systems Inc. at some point here soon? Peter Gassner: It's a very important thing for Veeva Systems Inc. because it helps the smaller end of the life sciences industry. And that's critical. So, for example, it's a very important thing in the clinical side for our larger. Because when they need to evaluate an acquisition, and that acquisition is using Veeva Basics in the clinical area. They're gonna be much more organized and much easier to automate. So Vault Basics helps the Veeva Basics helps the industry grow overall. That's gonna help Veeva Systems Inc. In terms of how significant it can be, it's not gonna be the significant part of our revenue driver. It's, you know, it's a part of the overall ecosystem. We have 100 customers now. It's—I don't know where that ends up. But it's not impossible that we have a thousand customers on basics over time of the different offerings. So, you know, it's a great business and more than anything, it's the right thing to do. Giving a professional solution to these small biotechs that in the unlikely event that their business really takes off and their molecule really takes off, and they're gonna be the next Pfizer. Okay. They don't have to change systems. They can just graduate from basics right in place and get enterprise Veeva Systems Inc. So super excited about the innovation that's happening in Veeva basics. Operator: Thank you. No further questions in queue, I'd like to turn the conference back over to the CEO, Peter Gassner, for closing remarks. Peter Gassner: Thank you, everyone, for joining the call today, and thank you to our customers for your continued partnership and to the Veeva Systems Inc. team for your outstanding work in the quarter. Thank you. Operator: This concludes today's conference call. You may now disconnect.