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Operator: Thank you for standing by, and welcome to the Australian Agricultural Company Limited FY '26 Half Year Results Release. [Operator Instructions] I would now like to hand the conference over to Mr. Dave Harris, MD and CEO. Please go ahead. David Harris: Thank you. Good morning, and welcome to the Australian Agricultural Company's Half Year Presentation for the financial year 2026. I'm Dave Harris, Managing Director and CEO of AACo. And joining me on the call today is our Chief Financial Officer, Glen Steedman. Before we begin, AACo properties are the traditional homes of many First Nations peoples, and we acknowledge them and offer our respects to the elders, past and present. We recognize their culture and honor their deep connection to the land, waters, animals and skies, especially across the places where we have lived and worked for our 2 centuries of operation. As a food and agricultural company, there is much to learn from their approach to community and their knowledge and care for country. Our presentation today will follow the regular format. I'll start our presentation and then hand over to Glen to run through the financial performance in more detail before I close with some information about the current market conditions. And with that, let's begin our presentation on Slide 5. Australian agricultural company's history and its operations are well documented. We have been many things to many people over 2 centuries of operation. To some, we are an iconic pastoral company. To others, we represent innovation in cattle and genetics. And our connection to others is through feedlots, farming or processing. To many, we are sustainability and nature. And to our customers and chefs here and globally, we are world-class Wagyu. Through our integrated supply chain, we are all of those things and more. We manage our properties and value chain with a workforce of more than 450 people on our stations, in our head office and in our key global markets. And we take a nature-led approach, implementing farming practices that aim to balance human needs, the needs of our cattle and the needs of our ecosystems in our care. We are proud of our legacy and the opportunity we had to recognize that with you last year. We are equally proud of who we are today and the direction we are heading in through our next period of growth. This is AACo, and we are reimagining Australian agriculture to share with the world. That is our purpose. We first shared that purpose with you 6 months ago, alongside our vision, our values and our new strategic focus areas, all of which you will find as we turn to Slide 6. Our vision complements our purpose. We aspire to be the leading food and agricultural company, delivering nature-led solutions at scale. That is one of the ways we can reimagine Australian agriculture. We see sustainable beef production as one of the solutions to climate change, and we are actively pursuing the ability to demonstrate that through a holistic nature-based approach to sustainability. As we chase this endeavor, we are discovering, creating and building scalable innovations and beginning to share them with our industry and others here in Australia and globally. Our values, be curious, be generous and to own your impact are helping drive the culture within our company. In isolation, each value can help bring out the best in individual employees and in combination, they become a powerful tool that will bring out the best in our business. Striving for excellence will help AACo deliver on its new strategic focus areas. We unveiled these to you during our full year results in May. Better beef as we constantly seek to improve our genetics and accelerate our ability to grow revenue, margin and brand equity unlocking the value of the land, where we aim to leverage our world-class pastoral properties and assets to pursue new opportunities and revenue streams and partner and invest, which will drive our approach to innovation, building relationships with partners to solve problems and embed future value, building on our market-leading position. I'm pleased to say that we made progress in each of these focus areas, which I'll share with you shortly. Before that, though, as we turn to Slide 7, I wanted to acknowledge all of our shareholders and express the pride that I take in leading the Australian agricultural company. The Board and the management team are energized by the work we do each day and the vision and purpose that we are working towards. No year is without its challenges, but we face them together using the experiences of the recent and the not so recent past to help us achieve the best possible outcomes in each circumstance. The values that we have and the culture we are continuing to grow are supported through what we call the One AA approach, one team working towards the same common goal. With that approach and with a genuine understanding and appreciation across the supply chain, we are moving forward, progressing our strategy, and we are delivering outcomes for the business. In fact, as you'll see shortly, the operating profit in the first half of FY '26 is our best yet. It's an outcome that we are proud of though as always, we celebrate with a degree of caution. Perhaps the 2 constants over our more than 200 years of history are that nothing stays the same and that progress is always hard earned. Still, our teams here in Australia and around the world should be commended for how they have delivered in this period. And on that note, let's take a closer look at some of the financial and strategy highlights on Slide 8. Total revenue for the first half of FY '26 is $232.9 million, an increase of close to 20% versus the prior period. The growth was influenced by an increase in average beef prices that I'll talk more about shortly, along with an intentional and tactical program of earlier life cattle sales. AACo's live sales took place in the second half last year, but we strategically undertook a large portion of them in the first half of FY '26 to capitalize on a trio of ideal conditions, good cattle productivity, increased demand and strong cattle prices. While some of those settings are dictated by the market, AACo controls the biggest factor in achieving good live sales results, and that is the condition of our cattle. Pleasingly, AACo has achieved excellent productivity outcomes in recent periods through a combination of station-based cattle management activities and the company's nature-led sustainability program, which is improving land condition across many of our properties. With resilient paddocks that are producing quality feed, we have put ourselves in the best position to breed and grow the best quality cattle. And we have been building that resilience over several years through our nature-led program. It's given us better control and the ability to make decisions like choosing the time of those live sales, demonstrating the different avenues we can take to achieve consistent positive outcomes and create long-term value. The cattle sales also helped drive AACo's operating profit of $39.8 million for the period. As I mentioned, that is AACo's best half year operating profit result and is almost double the prior period. While used in slightly different forms elsewhere, AACo first introduced the operating profit metric into our business in 2019. The aim was to more clearly identify outcomes and progress from the day-to-day operational decisions that are being made across the business. It does this by removing the areas where we have limited or no control, such as herd valuations. 2019 was also around the time we further increased our emphasis on branded Wagyu. In the years that followed, we completed the move from being primarily a cattle company that also has some Wagyu brands to being a branded beef company that produces high-quality beef and cattle along a sophisticated integrated supply chain. Our Better Beef strategic focus area is the next stage of this evolution. AACo made targeted investments under this pillar in the first half of the year that you can see near the top right-hand slide under the heading Progress against strategic focus areas. One of the aims of the Better Beef program of work is to further improve our overall genetic profile of AACo's herd by increasing the proportion of Wagyu animals. Doing so is expected to result in both immediate gains and long-term value creation through improvements in production efficiency and overall quality. It will also increase the number of animals that are better suited to AACo's premium brands and high-paying markets. We also made another investment in the Goonoo property near Emerald in Central Queensland, boosting its production capacity by an additional 10%. The work will further enable the consistent year-round supply and the high quality, which underpins AACo's Wagyu branded beef sales. AACo progressed the delivery of its landscape carbon project at [indiscernible] Station in Central Queensland with the installation of the infrastructure that will help facilitate the generation of future Australian carbon credit units, or ACCUs. The company has received its first set of ecological condition scores for its highest value ecosystems after being granted registration with the organization known as Accounting for Nature. We first announced this project alongside the release of our sustainability framework in 2021 and have updated you on the extensive baselining work in the sustainability and annual reports since then. This brings to a close the first stage of that multiyear program. The scores and the framework will now be used internally to measure and inform AACo's science-based nature-led approach and track improvements in the ecosystem condition of our properties. Both projects are being delivered under the unlocking the value of the land program and are also examples of AACo's holistic nature-based approach to sustainability. As part of our partner and invest program, AACo is happy to announce investments in Appian, a carbon insetting company that operates the world's first carbon marketplace for livestock. Under this pillar, AACo is seeking opportunities with companies and initiatives that involve new technologies or measures that will help solve problems for the company and industry as well as create value over the long term. As you can see, we have made good progress against our strategic focus areas in the 6 months since we first shared them with you. Whilst we are only at the beginning of this next period in the company's already substantial history, I'm proud of what we have achieved against our priorities. The financial contributions we made to begin delivering in those areas are in line with the company's long-term approach of reinvesting back into the business. Pleasingly, core free cash flow improved $19.5 million versus the prior period to $7.7 million. Shareholders would recall that we've previously reported operating cash flow as one of our key performance indicators. That was appropriate through the previous period when the company's focus was almost exclusively on branded beef. However, we're of the view that core free cash flow is better suited to AACo's new strategic direction where investments into the business are made across multiple priorities in addition to normal business-as-usual activities. This metric will better highlight the combined outcome of our operating performance and strategic investments. In the first half, the core free cash flow result was driven by our overall performance, less those investments I've just taken you through. The long-term outcomes of the better Beef focus area will be seen through our commercial activities and the progress we are making in our global markets. I'll share more about that with you now as we turn to Slide 10. AACo was able to navigate fluctuating market conditions to achieve positive beef sales results. Whilst consumer sentiment was challenged by cost of living concerns, overall global beef supply and demand market factors were favorable. Premium beef prices improved in AACo's key markets compared to the prior period. and trim and commodity pricing was also strong, particularly in the U.S. and general retail. Overall, the average beef sales price per kilogram increased 7% on the prior period to $18.62. This was a major contributor to a 3% overall increase in average sales value across AACo's brands despite 4% lower volumes through the period. The results once again demonstrate the strength of our distribution network and partnerships and the strategic approach that we take to allocating products across our global markets to maximize value. Targeted marketing and other commercial activities supported the brands this period from launching a global chef Advocate program aimed at enhancing the knowledge of our Wagyu beef to dynamic pop-up experiences that take consumers on the sensory journey. We'll take a closer look at how each brand contributed to our success as we turn to Slide 11. As our most exclusive Wagyu brand, Westholme continues to be served in some of the world's best restaurants. Despite sitting at the top end of market globally, high-end foodservice isn't immune from the challenges and the cost of living pressures that I just mentioned impacted conditions in some markets this period. AACo's approach to product allocation and strong distribution relationships are important in these conditions, and we were able to use these tactical responses in the first half. Launching in Mexico and expanding into the Middle East opened the brand to new customers and new opportunities. And the launch of a new product here in Europe that we call PUA supported the brand's overall performance. Highly evolved global media and marketing strategies were deployed to continue exposing the brand to new customers, including chefs. And we were able to achieve increased menu presence and market penetration through scaling up value-added products like burgers in the U.S. On Slide 12, the Darling Downs brand benefited from improving market conditions, particularly in Korea. The brand is already an Australian brand success story with more than 20 years history in Korea and thriving as a household name in that market. Far from being content or complacent though, we continue to pursue growth in this region and elsewhere. Our Beyond Taste campaign that included the Sensory Maze experience I mentioned earlier is an example of how we're increasing brand awareness in Korea. The oversupply of local hanwoo beef that we spoke to you about in FY '25 began to ease in this period, helping reduce the price pressures we were experiencing. The Darling Downs brand grew beyond Korea as well, securing placements with 5 new retail groups across key Asian markets. Through these and other activities, the brand improved its performance in the second quarter, and we hope to continue that momentum into the second half of the year. Moving on to Slide 13 and 1824. The brand that we relaunched in January last year, recognizing and celebrating our 200 years of history. 1824 captures demand in markets and from consumers outside of Westholme and Darling Downs. It plays a key role in our brand portfolio, enjoying pride of place in more mainstream food service and butcher channels. It also has a more focused tighter set of markets, which enable it to play that complementary role without impacting price opportunities. The brand continues its positive growth. In just a short time, 1824 has already regained a loyal following, establishing itself with consistent supply and quality that is being sought after by distributors. There is strong demand within Australian market and opportunities to expand into the U.K. and to the Middle East. And with that, I'll now hand over to Glen, who will take you through our financial performance in more detail. Glen Steedman: Thank you, Dave, and good morning, everyone. It's a pleasure to be with you to share our financial performance for the first half of 2026. As shown by the performance highlights on Slide 15, we have delivered an excellent set of results this period whilst making progress against our strategy. Metrics along the top of this slide, operating profit, beef sales price and core free cash flow are some of our primary financial metrics we use to monitor our performance. Statutory profit and net tangible assets are secondary, given they incorporate an unrealized fair value movement on the market value of our [indiscernible]. Our first half operating profit of $39.8 million is the highest result achieved for a half since this measure was introduced, which has nearly doubled on the prior period. This was driven by our strong beef and cattle sales performance. Average sales prices were high for both beef and cattle sales with higher half 1 volumes for cattle sales underpinning this growth. Average sales prices for Wagyu Beef were up 7%, driven by global market allocation, capitalizing on opportunities across our brand portfolio. Our Better Beef program is targeted at growing revenue, margin and brand equity. And we have proven our ability to grow through uncertain market conditions, including the changes in tariffs, global trade policies and impacted markets during this period. Core free cash flow is a primary metric we use to determine how we are performing as a business. This represents free cash flow less in-year strategic investments made as we reinvest to deliver on priority areas. We believe this is an important measure as it highlights the underlying cash performance of the business and provides transparency on strategic investments we are making. As I'll touch on in the cash flow slide, we achieved a core free cash flow of $7.7 million, which was up $19.5 million on the prior period. Our statutory profit and net tangible assets improved primarily due to higher market prices of our cattle with the $82.2 million statutory net profit after tax, up $58.6 million versus the prior period and net tangible assets up 6%. Whilst the fluctuations in the mark-to-market value of the herd are largely unrealized and outside of our control, we're able to capitalize on market opportunities for our live cattle sales during this half and the higher sales revenue also contributed to favorable statutory performance. Cost control and supply chain efficiencies resulted in a stable cost of production, which is particularly notable given the higher inflationary environment. I'll now take you through the drivers of our performance in some detail as we walk through our profit and loss, balance sheet and cash flow. Moving to Slide 16. As Dave mentioned earlier, we are pleased to have delivered a total sales revenue of $232.9 million, representing a 19% increase on the prior period. This growth was achieved through strong sales execution across both beef and cattle and strategically higher volumes of cattle sold. Our Wagyu beef sales revenue was up 3% with 7% higher average sales prices on 4% lower volumes. There's significant value in the partnerships we have continued to nurture and grow in key markets across the world, enabling our teams to allocate profit to maximize price and ultimately grow margins, which underpins our favorable performance. We look forward to further development under our Better Beef strategy as we continue to invest in ways that can provide sustainable growth. During this first half, we further displayed the strength of our integrated supply chain and decision-making by executing on cattle sales. In doing so, we've been able to capitalize on increased demand and higher prices for live cattle, growing total cattle sales revenue by 71% from the prior period. This result was made possible through good productivity outcomes driven by improved land condition and station-based management activities, achieving 20% higher prices compared to the prior period. Importantly, the overall herd size remains in line with the 2025 year-end position with our herd well positioned to generate future value. Our beef and cattle sales results delivered a gross margin of $76.4 million, up 55% on the prior period. We have continued to invest in our brand and capabilities during this period, which supported our overall performance. The delivery of our $39.8 million operating profit is one we can all be proud of as we look to the future of continued momentum and strategic focus for success. Now turning to Slide 17. Our cash flow for the first half further tells the story of our strong sales results with reinvestment back into the business to progress our strategy. As mentioned earlier, core free cash flow is an important measure of our business performance, highlighting the underlying cash performance of the business. The difference between free cash flow and core free cash flow is the strategic investments we have made in year. We were pleased to achieve a core free cash inflow of $7.7 million, up $19.5 million on the prior period. Key cash outflows during the period were made in service of our strategy and included enhancing the genetics of our herd, improved 10% production capacity at our Goonoo property, infrastructure to enable the generation of future ACCUs from the [indiscernible] soil and carbon project and building alternative revenue streams through our Gulf cropping. These investments have supported -- been supported by access to capital under our refinanced debt facilities as well as higher receipts from sales revenue. Through our enhancements and investments in new infrastructure, we are making tangible progress against our strategic priorities. It's pleasing that whilst our strategy refresh is relatively new, we have been able to execute on meaningful components of this already. Moving to Slide 18. Our balance sheet strength continues to grow, underpinned by our world-class assets. The key movements on our balance sheet from year-end was predominantly livestock, which improved in value by $123.3 million. This was largely due to a $94.7 million unrealized fair value gain on the herd driven by higher market prices. The herd size remains materially unchanged with continued improvement in overall condition and quality, which is a focus of our strategy. As announced to the ASX in August, we were pleased to share that we successfully refinanced our club debt facility with our banking partners, securing an additional $80 million in borrowing capacity on more favorable terms. Securing additional capacity allows us to continue to actively pursue opportunities under our strategic focus areas and add further value into our business. I'll now hand back to Dave to take you through the outlook for our operating environment and provide closing remarks. David Harris: Thanks, Glenn. Now let's move to Slide 19. AACo's operating environment remains active heading into the second half, both within its supply chain and globally. Cost of living concerns and a downturn in high-end food service are being experienced in some key regions. However, market reports suggest a continued tightening of global beef supply will balance out these price pressures, and AACo will continue to manage evolving circumstances through its global distribution network. Lower live cattle trading volumes are expected in the second half after sales were initiated in the first period as we shared with you earlier. Our properties are well positioned as we enter the traditional wet season. They are increasingly resilient following several years of work to establish and embed our sustainable stocking and land management strategies. Through our sustainability program, we have intentionally moved away from more volatile seasonal business models. We anticipate having more control over how we manage our supply chain, which allows better long-term planning and produces better outcomes for our properties and our cattle. It also allows us to respond more appropriately when market challenges arise or when there is instability, which appears to be increasingly the case in recent years. On that note, we welcome the announcement this week of the tariffs being removed from Australian beef entering the U.S. It's an important market for AACO and Australian beef more generally, and we support the removal of barriers that could improve opportunities for us in any region. Our focus for a number of years has been on creating desirable premium brands as well as distribution network and routes to market that can help us withstand individual market pressures. Our brands have a growing presence in North America when combined with factors such as the prolonged herd liquidation there, we remain positive about that market, and we look forward to continuing to build our presence there. I would like to thank you for joining us on the call today and thank the Board and the management team here at AACo. Strong results like we saw in this period can only be achieved through hard work and dedication. A record half year operating profit is testament to the important role each person across the business plays in the success of our operations and to the course we have set ourselves on through our new business focus areas. We've made pleasing progress against our strategy, setting the company up for sustainable growth. We look forward to the future with optimism, with purpose and a drive to succeed. That's the end of today's presentation, and we're now happy to take questions. Thank you. Operator: [Operator Instructions] Your first question today is from Eric [indiscernible] and there's a webcast question. This reads, David, your predecessor marked that with adequate rain, AAC has the best grass factory. Can you comment on the recent rainfall on the AAC land masses and how it has benefited the cost of operations? David Harris: Thanks for the question there, Eric. Yes, there has certainly been a start -- a bit of a start to the early wet season in the north. The majority of our Central Queensland properties have also had really good rain, which has been helpful. I think that's a soft start for us, which is great. Obviously, we need that rain to continue. The last couple of years, we've had little starts like this, which then dried up and last year's rainfall was actually considerably later than normal with the majority of rainfall received in March last wet season. In relation to cost of production, I've been really happy with how we've been able to manage cost of production over the last 2 or 3 years now where we're largely flat. Over this first half period, you'll note it's actually down 1% on the prior comparative. But if we look at full year periods over the last 2 or 3 years, we've remained relatively flat from a cost of production perspective. I think something to take into account when I talk about building a resilient business model and that sustainable long-term stocking rate that we talk to is a lot of that work and that theory is put into place actually in the difficult years, not the good years. And so what we're trying to do there by breeding -- building this resilient business model is so that in the droughts and the tough years, which I'm sure won't be too far around the corner now that we've had a couple of good ones. That, that's actually when these programs come into play and we're not forced sellers and we're not forced into moving cattle around or spending a lot of money on excessive lick and supplement feeding programs. And so whilst I'm extremely happy with us being able to hold cost of production flat, whilst we're also evolving the herd to be slightly more Wagyu and slightly more from an intensive feeding program that have higher cost of productions, but that's also more higher-value product. So to hold it flat, I think, is an excellent outcome. And where I really look for this resilient business model to play out will be actually in the more difficult years than these good years. So I hope that helps and answers that question for you. Operator: Your next question is from John [indiscernible]. This reads, the first half result appears to be significantly enhanced by the mark-to-market and the value of livestock. This is, of course, not a recurring item and follows a particularly favorable period of broad beef price increases. In the absence of this, the company would have made a loss. It appears difficult to see how the company can achieve a return commensurate with assets employed given the long-term strategies have not really achieved significant results. Is this perspective wrong? Glen Steedman: Thanks for the question. I'll take that one, Dave. So we do use operating profit as our key measure of determining our profitability because the unrealized gains or losses on our cattle do distort our results from year-to-year. So some years like this one, there can be large profits and other years, there can be significant losses caused by that mark-to-market movement. So what operating profit basically does is it allocates the cost to the cattle as they move through the supply chain. So when you get to the end of the supply chain, the cost that they absorbed is offset against the revenue to get a true feel for the profitability of those animals that go through. We don't sell the majority of our cattle through the typical market process. So those unreal -- those market values that are assigned at different periods in time don't really represent the true value of that livestock to our organization. So for us, the operating profit is the best metric. We've introduced the core free cash flow metric as well to give greater transparency to the market, just so they can see what we're investing into the future and also how the business actually performs on an underlying basis without those investments occurring. So we hope that provides greater transparency, and that's a key measure that we're going to continue to monitor ourselves against. Operator: You have another question from John Dicks. This reads, how do you see the removal of U.S. tariffs on beef impacting AAC? David Harris: Yes. Thanks for the question. Look, I think as I mentioned in the presentation today, North America is a really important market for us as a business. I think it will obviously help all beef export businesses in Australia into the U.S. and help with pricing there. I think it's probably fair to say that we need to have a global outlook on this piece as well. And so whilst Australia's exports to the U.S. have reduced by 10%. There was a point in time where it was actually a competitive advantage against some of other exporting nations. And so in this situation where we may have lost 10, other nations have actually had more significant reductions. So for example, I believe Brazil is still at sort of 40%, but they were up in the 70s. And so other nations have had significant reductions as well. Largely, I think it's positive, but we have probably lost some competitiveness against other exporting nations into the U.S. But the North American market is a really strong one for us. And like I said in the presentation, we focus on the things in our control. So we focus on our brands, and we focus on being desired by the chefs and the consumers in North America and so that we can get to the top of the list and be a really desired product there. We've put a lot of effort in North America from a commercial brand marketing side of the business. And I think what stands us in good stead over there is our sophisticated distribution network that lets us get all the way around that country to some really amazing consumers and distributors. And so I think it will continue to be a very significant market for AACo. Operator: [Operator Instructions] Your next question comes from Lindsay Stubs. This reads why doesn't the company pay a dividend to its shareholders? Does the company have any franking credits? Is it likely the company will ever pay a dividend? David Harris: Thanks for the question, Lindsay. That's a question for the Board. But I can confirm that last year, there were no dividends declared or paid in that half year '26, and there are no franking credits. What I'm focused on from a management perspective is how we reinvest back in the business and how we build the business to be a more profitable business for the future. And so at the moment, what we're trying to do is illustrate to shareholders the value that we think we can deliver for the business by reinvesting back into it. We've just delivered the greatest or the largest half year result in recent history for the business. And so I'd like to think that, that's starting to build trust with shareholders about our capacity to reinvest back in the business and build returns. Operator: Thank you. There are no further questions on the webcast or on the phone line at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect. David Harris: Thank you.
Operator: Good day, everyone, and welcome to the Vivos Third Quarter 2025 Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of Vivos' website and will remain posted there for the next 30 days. I will now hand the call over to Brad Amman, Chief Financial Officer, for introductions and reading of the safe harbor statements. Please go ahead, sir. Bradford Amman: Thank you, Constantine. Hello, everyone, and welcome to our conference call. A copy of our earnings press release is available on the Investor Relations section of our website at www.vivos.com. With me on the call today is Kirk Huntsman, Vivos' Chairman and Chief Executive Officer. Today, we'll review the financial results for the third quarter of 2025 as well as more recent developments and Vivos' plans for the rest of 2025 and beyond. Following these formal remarks, we'll be happy to take questions. I would also like to remind everyone that today's call will contain certain forward-looking statements from our management made by -- made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended concerning future events. Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goal and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to significant risks, uncertainties and contingencies, many of which are beyond the company's control. Actual results, including, without limitation, the results of Vivos' growth strategies, operational plans, including sales, marketing, distribution, medical sleep provider acquisition and integration, research and development, regulatory initiatives, cost savings plans and plans to generate revenue as well as future potential results of operations or operating metrics, such as the potential for Vivos to achieve future positive cash flows or profitability and other matters to be addressed by Vivos management in this conference call may differ materially and adversely from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained in Vivos' filings with the Securities and Exchange Commission, including the risk factors and other disclosures in our Form 10-K for the year ended December 31, 2024, and our other filings with the SEC, including our third quarter 2025 Form 10-Q filed with the SEC today, all of which are or will be accessible on the Investor Relations section of Vivos' website as well as the SEC's website. Except to the extent required by law, Vivos assumes no obligation to update statements as circumstances change. Finally, please be aware that the U.S. Food and Drug Administration has given certain specific Vivos appliances 510(k) clearance to treat mild to severe OSA with the FDA clearance of certain Vivos products for severe OSA in November of 2023. Treatment of patients with severe OSA with these specific appliances is no longer needed to be performed off-label at the clinical discretion of the treating doctor and is now an integral part of the Vivos treatment protocol. Treatment of OSA of any severity or any other condition with any other Vivos FDA-cleared devices remains at the clinical discretion of the treating doctor. For further information on our results for the 3- and 9-month periods ended September 30, 2025, please see our earnings release, which was distributed earlier today and our quarterly report on Form 10-Q, which is available on the SEC filings portion of the Investor Relations section of our website. With that, I'll now review our financial results for the quarter. We are very excited about our results of operations for the third quarter of 2025, which show the outcome of our first full quarter of activity following our June 10, 2025, acquisition of the Sleep Center of Nevada or SCN. The message from our numbers is very clear. The pivot to our sleep medical practice acquisition and strategic alliance model is taking hold. For the third quarter of 2025, revenue increased 76% to $6.8 million compared to $3.9 million in Q3 2024 and 78% sequentially versus second quarter of 2025. The increase in total revenue during the quarter reflected an additional $2.7 million in service revenue and approximately $200,000 in additional product revenue. During the quarter, we saw a $2.2 million increase in OSA sleep testing services, primarily generated by SCN and $1.3 million generated from treatment centers launched at 2 SCN locations in Las Vegas. You will see this new treatment center revenue broken out separately in our financial statements. Because of SCN, this is our first time we are recognizing this kind of revenue. Our revenue growth was offset slightly by a decrease of $800,000 in VIP enrollment revenue from our legacy business model. We are pleased to see that VIP enrollment revenue is becoming increasingly less material to our company as our new model grows, and we are expecting to be finished with recognizing any such legacy revenue by the end of 2026. For the 9 months ended September 30, 2025, our revenue increased approximately $2.3 million or 20% to $13.6 million compared to $11.3 million for the 9 months ended September 30, 2024. The increase in total revenue was impacted by an increase of approximately $2 million in service revenue and $300,000 in product revenue. The increase in services revenue is attributable to $2.8 million in sleep testing services, primarily generated by SCN and $1.6 million of new treatment center revenue. This was offset by a decrease of $2.6 million in VIP revenue from our legacy business model, which is -- which as noted, we continue to wean off of. For the 3 months ended September 30, 2025, cost of sales increased $1.3 million or 87% to approximately $2.8 million compared to $1.5 million for the 3 months ended September 30, 2024. This was expected and primarily attributable to higher costs associated with key investments we made in integrating SCN, including $0.5 million related to appliance, pediatric and lifeline fees, $400,000 related to SCN operations, $300,000 increase in support costs for the treatment centers, such as staff compensation and financing fees and a $100,000 increase in software and medical reporting services. For the 3 months ended September 30, 2025, gross profit increased approximately $1.6 million to $3.9 million. This increase was attributable to the increase in revenue of $2.9 million, offset by an increase in cost of sales of $1.3 million. Gross margin increased slightly to 58% for the 3 months ended September 30, 2025, compared to 60% for the 3 months ended September 30, 2024, due to the higher increase in cost of sales as a percentage of revenue. For the 9 months ended September 30, 2025, cost of sales increased $1.7 million or 37% to $6.1 million for the 9 months ended September 30, 2025, compared to $4.4 million for the comparable period in 2024. This again reflects our investment in SCN, as I noted. For the 9 months ended September 30, 2025, gross profit increased $600,000 to $7.6 million. This increase was attributable to the increase in revenue of approximately $2.3 million, offset by an increase in cost of sales of $1.7 million. General and administrative expenses increased by approximately $5.7 million or 42% to $19.2 million for the 9 months ended September 30, 2025, as compared to $13.5 million for the same period last year. The primary cause of the increase was approximately $2 million in costs associated with running SCN operations, $1.6 million related to professional fees, $1.1 million associated with salaries and wages on additional personnel, infrastructure costs of $600,000 and equipment, repairs and maintenance of $200,000. Other expense increased by $600,000 and $800,000 for the 3- and 9-month periods, respectively. Our net loss increased to $5.4 million in Q3 and $14.3 million for the full 3 quarters of 2025, reflecting the higher costs associated with our business model pivot. During the first 9 months of 2025, we used $1.7 million more in cash in operations and $5.5 million more in investing activities compared to the comparable periods in 2024, largely due to our acquisition of SCN and increased net loss. We also secured both debt and equity financing, providing us with $14.2 million in net cash from financing activities. The equity financing in 2025 came from an affiliate of our existing significant investor, Seneca Partners. As of September 30, 2025, our balance sheet showed total liabilities of $23.1 million with cash and cash equivalents of $3.1 million and stockholders' equity at $2.5 million. In summary, we're seeing significant increases in revenue, reflecting the acquisition of SCN and related OSA diagnostic and treatment revenue, which is extremely encouraging. We are also seeing some increased costs from the hiring of SCN personnel on the diagnostic side and additional hiring on the treatment side, plus some noncash depreciation expense. We've learned a lot from our first quarter of operating SCN, and our goal will be to drive growing revenue by meeting the significant demand from OSA patients we are seeing while better understanding and prudently managing costs as we have historically. We believe the strategic move to acquire SCN and other potential affiliate alliances and acquisitions set the stage for stronger performance in coming quarters. For more detailed information, I refer you to our earnings release and in our first full Form 10-Q filed today. And with that, I'll hand the call over to our Chairman and CEO, Kirk Huntsman, for his thoughts on our Q3 performance and what it means for the future of Vivos. Kirk? R. Huntsman: Thank you, Brad. Good afternoon, everyone, and thank you for joining us on today's conference call. The third quarter of 2025 will go down in the history of Vivos as a watershed quarter and an inflection point in the trajectory of our business. It is this latest quarter that first signaled our company's ability to monetize on a potentially large scale our life-changing technology for treating sleep-related breathing disorders such as obstructive sleep apnea. Here at Vivos, we have firmly believed for many years that we possess the most innovative, most clinically effective, most cost-effective, most safe, the most preferred and easiest-to-use treatments for OSA in the world. And we backed up those beliefs with literally dozens of peer-reviewed published studies in both medical and dental journals around the world. Time after time and study after study, Vivos' novel and proprietary oral medical devices have been shown to be safe and highly effective in treating OSA. In a landmark study first published in 2022, independent researchers revealed actual clinical results showing complete nonsurgical resolution of OSA symptoms using industry standard metrics in adults after just 10 months of Vivos treatment, and with no need for further intervention. To our knowledge, no one had ever before shown such amazing clinical results. Many of those studies were authored by some of the leading researchers and clinicians from universities and hospitals like Stanford and Mount Sinai . Regulators at the FDA and other international agencies also took note. And over the past dozen years, granted this company multiple unprecedented clearances, thereby opening the door for Vivos to compete head-to-head on with the medical industry's 40-year-old and much maligned gold standard treatment of CPAP. Today, Vivos CARE oral medical devices are the only oral appliances in the world that are FDA cleared to treat severe OSA in adults and moderate to severe OSA in children. Ironically, over the past 5 years or so, that same FDA has recalled millions and by some accounts, as many as 10 million CPAP units here in the United States because of over 560 reported deaths and over 130,000 adverse health incidents potentially caused by CPAP use. A recent study just showed that prolonged CPAP use actually increases the risk of adverse cardiovascular events. Yet despite all those warnings, CPAP remains the go-to first-line treatment option for up to 95% of patients first diagnosed with sleep apnea. It is difficult to imagine a more perfect scenario or market timing for Vivos. Our technology is clearly superior to virtually every other option for most people. And based on our experience in Las Vegas and elsewhere, it is widely preferred by a large majority of patients over its primary competition, which virtually no one really wants to use every night for the rest of their lives. So we have the right patented and FDA-cleared products or technology, and we have a large and growing market to service. Our challenge has always been figuring out the best way to get our breakthrough solutions into the market. And we believe this past quarter's results show that we've struck upon the right model to do just that. Our strategic pivot away from a reliance on dentists and towards more direct affiliations with or acquisitions of medical sleep practices and testing centers was designed to put Vivos technology and solutions in front of far more OSA patients while yielding a higher financial return to our company. We see these third quarter results as a validation of our core thesis, which was that when OSA patients are fully informed and presented with the full measure of clinical treatment options, a large majority will choose Vivos over the alternatives, including CPAP. Now to briefly review how we got here. In June, we closed on our acquisition of Sleep Center of Nevada. This group medical practice in the Las Vegas area specializes in a full range of in-lab and home sleep testing solutions with corresponding sleep study interpretations and consultations. Historically, SCN did not venture into the treatment aspect of things, but a large majority of their patients were referred by SCN medical professionals for CPAP and a small minority were referred for traditional oral appliance therapy. One important factor here behind our success to date at SCN has been that the level of cooperation and buy-in from the existing SCN medical team and support personnel in Nevada has exceeded our expectations. In fact, 2 of the lead sleep MDs at SCN and their families were among our very first patients. Having the full and unwavering endorsement of the medical team at Sleep Center of Nevada who have been waiting for a viable alternative option for CPAP to CPAP or surgical solutions for their patients has been critical to the ultimate success of our model. As a result of the SCN acquisition, Vivos established what we call Sleep and Airway Medicine Centers or what we call SAMC centers in 2 locations, one being co-located in the same building as SCN's flagship center, which we call Charleston; and the other in Henderson, Nevada, a Las Vegas suburb. The purpose of these operations was to educate and evaluate SCN's patients for treatment and provide them with whatever treatment option they might choose. Our SAMC clinics there are staffed by what we call our sleep optimization teams of medical, dental and specially trained providers and staff. These teams are at the heart of our new model and are driving the revenue growth we experienced in the third quarter. Now, early in the third quarter, we realized that the demand for SAMC services was far outstripping the production capacity of our SAMC centers and teams. We, therefore, immediately moved to expand the facility at Charleston and relocate the facility at Henderson. Concurrently, we recruited, hired, trained and deployed additional sleep optimization team members as rapidly as we could. These efforts have proceeded ahead of schedule and under budget. However, the costs associated with such growth are immediate and occur for up to 60 days or more prior to when the first patients can be seen and revenue production can kick in. This reality has impacted our third quarter results by showing higher-than-normal expenses relative to recognized revenue. In addition, as Brad mentioned, every day we are learning lessons on the ground that over time will help us optimize existing and expanded operations. This includes things like the time it takes to assemble teams to service demand, train those teams and obtain in-network insurance coverage. We are applying these lessons and thus, we expect that revenue growth in the coming quarters will outpace expenses as we more fully deploy these new teams into 2026. We believe we are currently servicing significantly less than 40% of the potential new patients being tested each month at Sleep Center of Nevada. We believe there are even more legacy SCN patients out there who are either dissatisfied with their CPAP units or who have discontinued their CPAP treatment altogether and are looking for alternatives. Well over 210,000 OSA patients have been tested and seen by SCN providers since 2019. And as of now, we have not even begun to address that deep well of patients. As of today, this overall excess in patient demand for appointments and services has us booking patients out into the latter part of February 2026. Ideally, patients should expect no more than to have to wait 2 to 3 weeks out for their next visit in order to maintain momentum and enthusiasm for treatment. So our operations and HR teams have been working very hard to expand our production capacity there in Las Vegas. As I just mentioned, we've expanded our facilities and significantly increased the size and number of our teams in order to more efficiently handle this demand with more to come. In addition, after some great work by our SCN sales staff, a local and very large cardiology practice with multiple locations has recently been referring many more cardiology patients than they were earlier in the third quarter, adding to the congestion and making the urgency of our expansion efforts even more acute. As our capacity expands and based on current trends, we anticipate that this cardiology practice could eventually refer several hundred patients per month. If that proves successful, that funnel may in and of itself become yet another avenue for us to deliver turnkey sleep disorder treatment options to large clinical groups, whether they be primary care, cardiology, neurology, pediatrics, internal medicine or even OB/GYN doctors. Each of these medical specialties regularly deals with patients who have OSA or another sleep disorder. Through our SAMC model, Vivos is very well positioned to meet those needs in a win-win relationship that is expected to be highly accretive to Vivos. So in terms of our current revenue-generating capacity in Nevada, we have been somewhat constrained to date by the number of fully licensed and credentialed dental providers on our sleep optimization teams. We currently have a number of new dentists and nurse practitioners in the onboarding process, and we expect to have sufficient providers fully licensed and well on their way to being fully credentialed in the first part of 2026. There is a usual and customary credentialing process that all new providers must go through with third-party insurance payers. We are actively working with the payers and our consultants to expedite that process, which typically takes anywhere from 2 to 6 months depending on the payer. Certain payers have recently consented to us billing out the codes we need to optimize coverage and reimbursement. So we do see progress along those lines. Now as we have been saying for some time, OSA patients who have either failed CPAP or who have just been diagnosed have been accepting Vivos treatment at high levels. This has happened despite many patients not always having full coverage from their insurance payer. In Las Vegas, for example, just under 2/3 of SCN patients who are presented with a full array of clinical treatment options choose some form of Vivos oral appliance treatment with an average dollar amount per case just over $5,000. Most patients are paying at least some of those amounts out of pocket or with the help of third-party financing. We expect that dollar value per case to rise further as we continue to add diagnostic and therapy services and as our staff gains valuable experience in explaining and presenting treatment options. As mentioned in our 10-Q filed today, we have several initiatives planned for 2026 and beyond, which have the potential to further increase the number of OSA patients we can service in both current and new markets. Such initiatives include, but are not limited to, the expansion of diagnostic and treatment services, the establishment and rollout of a pediatric OSA program and the collaboration with certain specialty medical groups like the cardiology practice there in Nevada that I mentioned earlier, who treat patients with comorbid OSA, but who lack the ability to test, evaluate and treat such patients within their existing practice environments. In addition to our acquisition model, like we have with SCN in Las Vegas, Vivos has developed and refined a new collaboration affiliation model for sleep centers not interested in being acquired outright. Under our refined affiliation model, Vivos retains full operational control over the patient experience and the provision of treatment through its managed clinical practices while collaborating with the local sleep clinic to ensure patients receive the full array of OSA treatment options. These health care delivery operations have been properly structured and reviewed by legal counsel to ensure full compliance with both state and federal health care laws. We've already put this refined collaboration model into practice. In July, Vivos executed an agreement with MISleep LLC, a Michigan sleep specialist entity engaged in sleep testing and OSA treatment in the Greater Detroit area. We expect to have this fully operational and seeing patients by the first week of December with one nearly complete sleep optimization team already trained and ready to begin seeing patients and with the potential for additional teams to be deployed in 2026 according to demand. We believe this new model corrects some of the issues we faced with our first strategic alliance in 2024 here in Denver, and we believe it will be very attractive to sleep center operators and owners who may not want to be acquired by us, but are looking to grow their business and referral networks by offering a highly differentiated treatment package to their OSA patients. Our M&A team continues to field phone calls and inquiries from both acquisition and affiliation prospects around the country. We are currently in negotiations with several potential candidates in various key markets. Given our experience with SCN, we believe these opportunities should be similarly accretive. In summary, we believe this initial success at SCN is a strong indication of the potential and upside of our business. As we roll forward, we expect to continue to modify and refine our model to make it even more efficient with the potential for even better gross margins. Furthermore, we expect that this model and in particular, our affiliation model is highly replicable and scalable across multiple markets. Although these third quarter results are early returns and without diminishing the headwinds that remain, we firmly believe this new model will continue to be highly accretive to top line revenue growth, which will, in turn, reduce our cash burn and move us closer to bottom line profitability. We believe that this methodical effort patiently executed over time has now put Vivos in a much better position to realize the full potential of our technological advantages and industry-leading products and services. And that concludes our prepared remarks. Now we'll be happy to take questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Lucas Ward from Ascendiant Capital Markets. Lucas Ward: Congrats on the quarter. So now that we have this acquisition in the mix, how should we model sales for the next few quarters? Like what's the growth potential? R. Huntsman: Well, I would say, Lucas, that we expect the revenues, the top line revenues to continue to grow. We are not yet anywhere close to full capacity for our teams that are out there right now. The key element here is the addition to our teams of the dental providers and the nurse practitioners. These providers are where the -- they're the source of revenue-generating activities. And so as we now have several new doctors and new nurse practitioners in the queue, for both licensing and credentialing, then we're going to continue to see that revenue growth grow rather dramatically. And we do believe that as those providers are deployed, that what you're going to see is you're going to see the proper settling out of and sort of rightsizing between our expenses and our revenues. And as we tried to say a minute ago, we've been carrying additional expenses here even in the third quarter, we've been carrying expenses beyond what would be what I would consider steady-state operational levels. And that's just because we had to hire -- you have to hire in advance and then you deploy it and then you get the revenue boost after you deploy it that rationalizes your expenses, your cost of labor. Lucas Ward: Okay. So okay. So there's an upfront investment in personnel and then sort of a delayed benefit in terms of revenues. Like how big is that gap? Is it a quarter or 2? R. Huntsman: It will be -- it's a little bit of a -- there's a ramp. And that ramp is probably going to be depending on how quickly we get our doctors licensed and credentialed, it's probably a 3- to 6-month ramp. But it's not like we can't start generating revenues. In most cases, we can start generating -- we have providers in place. We just don't have the optimal number of providers. So we're leaving money on the table until we can get our provider teams built up and credentialed. And so that's where that comes. But I would say for most -- in most cases, to get to full optimized revenue levels, I would give it a 6-month ramp. Lucas Ward: Okay. And then in terms of the additional operating expenses that we saw in this quarter, presumably some of that was sort of onetime or acquisition related. I'm just wondering like what would be reasonable in terms of operating expenses like next quarter or the quarter after? R. Huntsman: Well, if you look at the way that we have structured these SAMC operations, our SAMC operations at steady state should be throwing off contribution margins of 50% to 60%. And so that's our model. That's what we're expecting and anticipating. And there's nothing that's happened thus far to dissuade us from that analysis. We had that analysis going in. We're now 3 or 4 months along. There's nothing that dissuades us from that. So if you -- when you get in your model, when you get to steady state and you assume contribution margins of roughly 50%, 55%, you're going to be right there with where we expect to see these things operate long term. And then as we continue to experience excess demand, we'll be expanding the number of teams in order to meet that demand in each market. Lucas Ward: Okay. Okay. Last question on cash flow breakeven, can you give us an update on your -- kind of your goal there? R. Huntsman: Well, our goal is cash flow breakeven. I mean, there's just no question about it. And I don't mean to be -- I don't mean to take that question lightly. But we are -- the ability to generate profit at the practice level from these SAMC centers is directly tied to our abilities to generate cash flow breakeven. Now, we have expanded our home-based infrastructure in our accounting teams, and our IT infrastructure and our personnel so that we can handle this growth. So there's been some additions to our team that are -- that we think are essential to us being able to properly manage and handle this growth. But eventually and not too far down the road, the accretion of profits and revenues from our SAMC center operations will basically turn the corner, and we will see this company get to cash flow breakeven. I hesitate to say exactly when that will happen, but the further out that we get, the more of these affiliations and acquisitions that we do, the closer we will be to cash flow breakeven. Operator: [Operator Instructions] Your next question comes from the line of Robert Sassoon from Water Tower Research. Robert Sassoon: Exceptional quarter. A question, under the new business model and with revenues on the rise, how should investors look at the company now and in 6 months from now? R. Huntsman: Well, that's a great question. And I think the answer to that, Robert, is that, look, we have waited for nearly 9 years in this company to actually settle in on a model that was equal to the technological advantages that our product line had. To be able to finally find that model and to monetize it, that's why we're so enthusiastic about this. But the full measure of what this model is going to do for this company is still down the road. I mean, it's still going to continue to grow. I mean, we're thrilled by these results. Don't get me wrong. But the -- the best is yet to come. And so we see this as just the very first stage of a long march towards profitability and expansion and growth because this model is replicable, it's scalable, and we can take this model and apply it in virtually any market in the United States and then beyond. So as I think about this from an investor standpoint, I mean, when you look at the valuations that our company has in the market right now and relative to what's actually happening here on the inside of this company, I think the potential for continued growth is just extraordinary. And so -- I mean, obviously, I'm biased, but I would say that as an investor, you should continue to watch for what's happening and what we report in the months and weeks ahead. What we report about how much progress we're making with new affiliations. I mean, we talked a little bit about this exciting new opportunity with medical specialty groups. We are really excited about the potential for actually working right alongside cardiology and neurology practices, in particular, because they have a very acute interest in seeing that their patients who have obstructive sleep apnea somehow find a way to get tested and treated for that sleep apnea and nobody is filling that void right now. And so we feel like we have a value proposition and a technology that can actually do that. And it's a very low-cost way for us to get -- to deploy teams and get involved with them and satisfy that need. So what I would say is that over the next 6 months, 9 months, 12 months, watch and see how many affiliations we're doing and the progress of our current affiliations as a sort of a bellwether indicator of what's to come because these deployments, these SAMC centers and these other teams that we have, all of that is highly accretive revenue, both top line and contribution margin to our bottom line. So it's really -- we finally found a way to monetize this in a very, very effective way. So I think this is really -- as I mentioned in my opening statement, I think this is a true inflection point for this company and that the future is very bright from that respect. Robert Sassoon: That sounds like a very interesting development. We'll definitely monitor that. Maybe a question to Brad. How does the recognition of revenue differ between the various models? Bradford Amman: Great question, Robert. In the case of an acquisition like SCN, our new model allows us to capture sales at the point in time when shipment of the related product occurs as well as OSA diagnostic and treatment revenue. In the case of contractual alliances, through varying arrangements, we capture revenue from appliance sales as principal in the transaction. And depending on the agreement, either pay a fee or split gross profit or net income with sleep medical provider affiliate. R. Huntsman: Operator, there are no further questions? Operator: Yes, we do have no further questions at this time. So I'd like to turn the call back to Mr. Kirk Huntsman for closing comments. Sir, please go ahead. R. Huntsman: Thank you, operator. Well, I would just like to thank everyone for joining us on today's call. And again, thank you for your continued interest in Vivos Therapeutics. This is obviously a very exciting time for Vivos as we begin to reap the fruits of our business model pivot. We look forward to sharing our continued progress with you as we continue to execute on our plans during the remainder of 2025 and into the next year. Thank you all, and have a very good evening. Thank you very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Hello, and welcome to PACS Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] The speakers on today's call are PACS Group's Chief Executive Officer, Jason Murray; Mark Hancock, Interim Chief Financial Officer; and Josh Jergensen, President and Chief Operating Officer. The call today is being recorded, and a replay of the call will be available on the PACS Group Investor Relations website an hour after the completion of this call. A replay of this webcast will be available for approximately 30 days. Information to access the replay is listed on today's press release, which is available on our website under the Investor Relations section. Before we begin, I would like to remind everyone that during today's call, we will be making forward-looking statements regarding future events and financial performance. I'd now like to turn the conference over to Mark Hancock, Interim Chief Financial Officer. Please go ahead. Mark Hancock: Thank you, and good afternoon, everyone. Thank you all for joining us for this earnings call. Before we begin our prepared remarks, we would like to remind you this afternoon that PACS Group issued a press release announcing its third quarter 2025 results and other filings. An investor presentation was published and is available on the Investor Relations section of our website at pacs.com. I'd also like to remind everyone that during the course of today's conference call, we will discuss certain forward-looking information that is based on our current expectations, assumptions and beliefs about our business. Any forward-looking statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. You should carefully consider the risk factors that may affect our future results as described in our 2024 Form 10-K and our other SEC filings. During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix included in the investor presentation, which are both published and available on the Investor Relations section of PACS Group's website. I'll now turn the call over to Jason. Jason Murray: Thanks, Mark, and thank you all for joining us today. Today, as you might imagine, is an exciting day for all of us at PACS Group. I'd like to extend our collective appreciation for your patience and support. We have worked expeditiously over the past several months and are once again current with all of our reporting obligations. We're ready to move forward with a renewed commitment to our mission of delivering high-quality care to our patients and driving value for our shareholders. Our results, which we will detail shortly, demonstrate that our team rose to the occasion. Together, we've navigated through recent challenges and turned those into momentum and motivation. With the previously announced restatement now completed and our internal controls strengthened in the process, we're operating today from a position of strength, transparency and discipline. I'd like to thank everyone on the PACS team for their hard work, focus and dedication throughout this period. We feel we have the best team in the business, and I'm excited about the opportunities that are ahead. In November 2024, the company's independent Audit Committee supported by external counsel and advisers began an independent investigation of the allegations made in the short seller report. That work has concluded. The committee's work and its resulting recommendations, which have been or are being implemented, reinforced our commitment to transparency, accountability and strong governance. Now our focus is squarely on the future, executing our strategy, delivering exceptional care and continuing to build trust with our stakeholders. PACS moves forward with confidence, strength and an unwavering commitment to doing things the right way. In short, today is the start of a new chapter for PACS. As I noted, we remain focused on executing our strategy and our results demonstrate the strong progress we have made. We delivered a tremendous start to fiscal year 2025 and delivered another quarter of growth and execution in the third quarter. In fact, we delivered record revenue and adjusted EBITDA in the first 9 months of 2025. We believe this record performance validates PACS core strengths, our commitment to clinical and operational excellence, our industry-leading talent and a strategy designed for sustainable growth. I'll touch on all of these themes throughout my remarks, and Mark will also provide more specifics on our financial performance and full year 2025 outlook. But first, I want to take a step back and talk briefly about PACS business and our strategy. We're a leading post-acute health care company, primarily focused on delivering high-quality skilled nursing care through a portfolio of locally operated facilities. Our mission is to be the leading provider of post-acute clinical care across the country and elevate care for America's most vulnerable. This has been our mission since I co-founded the company with Mark, starting with 2 facilities in 2013. Over the last decade, PACS team has worked to create value, trust and confidence for our patients and residents. We are now at 320 facilities across the country, and we feel like our journey is just starting. We're very thankful for the more than 47,000 employees across the country who provide care to over 30,000 residents each day. We're inspired and driven by their commitment to quality and excellence, and they are the foundation behind our success. We believe that health care is local, and we recognize that every patient, facility and community is unique. For that reason, PACS operates with a locally led, centrally supported model that empowers local leaders to make day-to-day operational and clinical decisions at the facility level, ensuring that care is responsive, personal and community-driven. At the same time, we maintain robust regional and central support systems that provide resources, oversight and regulatory expertise, establishing clear guardrails to help our local teams remain compliant with local, state and federal requirements. This coordinated model, local leadership supported by strong centralized systems enables us to deliver excellent clinical outcomes, operational consistency and the highest standards of integrity across the organization. Our model is centered on what matters most, which is putting patients first, empowering strong bedside leadership and holding ourselves accountable at every level. It's a simple approach, but it's very powerful. It's what makes PACS different, and it's why we're confident in our ability to deliver exceptional value to our patients and the communities we serve. We're proud of what this team has built, and we're excited to keep raising the bar of what's possible for PACS. We're applying these competitive strengths to a compelling market opportunity. The skilled nursing industry or SNF, is large and growing, with CMS expecting total industry expenditures to increase to $337.4 billion by 2032. At the same time, America is experiencing a significant demographic shift with estimates showing that nearly 20% of the U.S. population will be aged 65 or older by 2030. This aging curve, driven by the baby boomer generation is expected to meaningfully increase demand for post-acute and long-term care services over the coming decade. As one of the largest SNF operators in the U.S., we believe that our increasing scale and focus on clinical and operational excellence, coupled with our disciplined and sustainable growth strategy, uniquely positions PACS to capitalize on these demographic trends and drive further growth, both organically and through acquisitions. Taken together, we believe our competitive strengths will continue to drive our growth and success, delivering meaningful value to health care stakeholders, employees and shareholders alike. Now let's turn to an update on some of our recent operational and clinical advances. We continue to prioritize exceptional clinical outcomes across both our mature and newly acquired facilities, and that focus is reflected in our quality ratings. Based on CMS quality measure or QM star ratings, 192 of our facilities, representing 68.6% of our skilled nursing portfolio are rated 4 or 5 stars. This sustained improvement across the organization underscores the strength of our teams and supports the strong financial performance we continue to deliver. To better illustrate our facility's dedication to quality, I'd like to share a quick anecdote that highlights how our teams consistently rise to meet the needs of the communities we serve. In Q3 of 2023, we acquired a facility in Colorado. At the time of acquisition, the facility was on CMS' special focus facility list and members of the local community openly shared that it had been considered by some to be the worst skilled nursing facility in the state. For many operators, this combination of reputational and clinical challenges would have been a reason enough to walk away. But for us, it represented exactly the kind of opportunity where our model can make the deepest impact. More importantly, we believe without hesitation that the residents, families and communities deserved better. After many months of focused efforts and dedicated caregivers and leadership team at this facility, supported closely by the regional PACS team, execute a comprehensive operational and clinical turnaround. By Q3 of 2024, they had passed their second consecutive health inspection survey, meeting the requirements to graduate from the special focus facility program. As of March of this year, the facility officially came off the special focus facility list, and the team has since achieved a 4-star overall CMS rating, which is remarkable, milestone given where the facility started just a couple of years ago at acquisition. This example is just one that reflects a broader pattern across our portfolio. These types of clinical success stories are becoming increasingly common, underscoring the strength of our clinically driven operating model and the dedication of our caregivers in every market. In fact, through the first 9 months of 2025 alone, 5 additional facilities that were acquired while on the special focus facility candidate list have successfully graduated from the list. Each has its own unique story, it's different challenges, different starting points, different community needs, but all share a common thread, the ability of our teams to restore stability, rebuild trust and deliver meaningful improvements in patient care. These results reinforce what we believe at PACS. When supported with the right structure, leadership and resources, even the most challenged facilities can achieve dramatic sustained improvement. And most importantly, our patients and communities are better served because of it. These clinical achievements reflect the same operational discipline and team excellence that continue to drive momentum across our broader portfolio, momentum that has been especially evident over the last 15 months as we've expanded our footprint, strengthened operations and integrated a significant number of newly acquired facilities. Our third quarter performance reflects both sustained operational strength and the growth of the business through the meaningful expansion of our portfolio over the last 15 months. In that time, we've executed a series of strategic acquisitions, strengthened our presence in key markets and continued delivering high occupancy in our mature facilities. In the second half of 2024 alone, we acquired 94 facilities as part of 106 total acquisitions for the full year. The largest of these was the acquisition of the Prestige portfolio, which added 53 facilities across 8 states, 5 of which were new markets for us, significantly expanding our geographic footprint. In total, the acquisitions completed during the back half of 2024, added 7,424 skilled nursing beds and 1,334 assisted living units, more than 8,700 beds overall. This expansion meaningfully increased our scale and broadened the reach of our operating model. In 2025, we've continued to deploy capital to fuel growth, rooted in a disciplined approach focused on driving returns from our investments. Year-to-date, we've acquired the operations of 7 additional facilities. Today, our portfolio includes 35,202 total operating beds, 32,677 skilled nursing beds and 2,525 assisted living beds across 17 states, reflecting a significantly expanded geographic footprint. Portfolio performance remains strong. Total occupancy stands at 89% with our mature facilities delivering exceptional 95% occupancy, up from 94% last year. Occupancy in our new facilities, those acquired within the last 18 months, including the large 2024 acquisitions, is 81% compared with 83% in the prior year. This reflects the intentional onboarding period as newly acquired facilities begin adopting PACS operating systems and clinical processes. As these facilities progress through stabilization and ultimately move into ramping status, we expect to see continued improvement in both occupancy and skilled mix over time. Our locally led centrally supported model is foundational to driving increased occupancy, which prioritizes matching patient acuity with the right clinical capabilities at each facility. As hospitals continue to discharge higher acuity patients into skilled nursing settings, our team remains well positioned to meet that need, which supports both patient outcomes and continued occupancy strength. That means we also continue to invest in leadership development through our administrator and training or AIT program, better equipping local leaders to deliver responsive, personal and community-driven care, which ultimately drives higher occupancy. Since our founding, we have hired 261 AITs with 203 currently employed in licensed administrator or other leadership roles, reflecting an approximate 78% retention rate. We now have 36 AITs in the program, providing a strong pipeline of leaders to support both existing operations and future growth. We enter the fourth quarter of 2025 with confidence and momentum. But most importantly, the depth and quality of our people gives us a competitive advantage that can't be replicated. Our teams are motivated, they're focused, and they're ready to prove once again that PACS doesn't just adapt to challenges, we turn them into fuel. We're building on strength, executing with urgency and driving toward being the best in our sector. I'll now turn the time back over to Mark to cover our financial highlights for the quarter. Mark Hancock: Thank you, Jason. And I'd like to echo your sentiments in that when we first started PACS, we did it with the intention of building a legacy sustainable company in the post-acute health care sector. This is our life's work. And so I want to express my gratitude to our Audit Committee and advisers for their work and recommendations that have helped accelerate our maturation as a public company. We remain confident that our locally led centrally supported model, coupled with enhanced compliance and controls will increase our ability to deliver high-touch, high-quality care to our patients and strengthen our communities. With our exceptionally talented team, we are focused on continuing to execute our strategy to drive value for shareholders and the rest of the health care ecosystem. Our third quarter and year-to-date 2025 results reflect the operational and clinical excellence across our portfolio that continues to drive demand for our services. I will now highlight a few key financial metrics for the 3 months ended September 30, 2025. In the third quarter, we realized $1.3 billion of revenue, a 31% increase over the same period of the prior year. Adjusted EBITDAR for the third quarter was $226.6 million, while adjusted EBITDA was $131.5 million. Net income for the same period was $52.3 million. And lastly, our diluted earnings per share for the quarter was $0.32. In addition to our third quarter performance, I'd like to take a moment to highlight our year-to-date 2025 results. These further demonstrate the consistency of our growth and operating strength throughout the year. So for the first 9 months ended September 30, 2025, we realized $3.9 billion of total revenue. This represents a 36% increase over the same period in 2024. Year-to-date 2025 adjusted EBITDAR was $646.2 million, while adjusted EBITDA was $363.0 million. Net income for the same period was $131.7 million. And lastly, our diluted earnings per share through the first 3 quarters of 2025 was $0.80. As Jason noted, total facility occupancy across our portfolio was 89% for the first 3 quarters of 2025, well above the industry average of 79%. A meaningful number of facilities advanced into our mature category this year, and it's encouraging to see occupancy and skilled mix remain strong through that transition. Mature facilities continue to perform exceptionally well, achieving 95% occupancy, up from 94% occupancy last year, while skilled mix increased from 32% to 34% in 2025. Ramping facilities reported 86% occupancy and 23% skilled mix, reflecting the impact of several newer markets such as Colorado that continue to strengthen as operational initiatives take hold. New facilities ended the third quarter at 81% occupancy versus 83% in 2024, while skilled mix improved to 25% from 22% last year. The slight dip in occupancy reflects the expected transition following the large portfolio integrations completed in late 2024. As Jason mentioned, 2024 was an extraordinary year of growth for us. We completed 106 facility acquisitions, which is more than 4x our historical annual average, including 94 in the second half of 2024 alone. In comparison, during the first 3 quarters of 2025, we completed 7 acquisitions, all of which were strategic add-ons within the existing footprint of the states we operate in. This lower level of activity in 2025 has provided time to assimilate the significant volume of transactions completed in 2024 and demonstrates our intentional focus on integrating that large cohort. In 2025, our cost of services increased by 32% year-over-year as we continue to invest in staffing and quality initiatives. This increase aligns with our growth and reflects our ongoing efforts to make operational and clinical improvements across our portfolio, including in our newly acquired facilities. In addition to growing our operations in 2025, we purchased the underlying real estate of 5 facilities, further strengthening our balance sheet and our ownership position within our portfolio. As of the end of the third quarter, we now wholly own or partially own through joint ventures, the real estate interest in 100 of the facilities that we operate. In total, we currently own, have purchase options or have future rights to almost half of the properties that we operate. This continued expansion of real estate ownership achieved while maintaining consistent lease structures and financial terms underscores our disciplined approach to capital allocation and long-term value creation. Of the facilities that we lease, the average remaining tenor of our operating leases and our finance leases is 13 years and 19 years, respectively. Now turning to guidance. As we look forward to a great fourth quarter and finishing out the year, -- based on our recent results and current expectations, we are providing guidance for the full year 2025 as follows. We expect annual revenue to be between $5.25 billion and $5.35 billion in 2025. The midpoint of this range would be a 30% increase over 2024 revenue. For the full year 2025, we expect adjusted EBITDA to be between $480 million and $490 million. In summary, we expect these to be record results for the company. I'll now turn the call back over to Jason. Jason Murray: Thanks, Mark. And as Mark mentioned, we expect the full year to deliver record revenue and adjusted EBITDA, and our performance year-to-date has already reached record levels for the company. This continued momentum highlights the strength of our model and our teams throughout the country. We intend to continue proving that strength quarter after quarter, and we're energized and moving forward with discipline and focus and look forward to demonstrating our ability to execute and deliver results for our patients and shareholders. So with that, operator, I believe we're ready for questions. Operator: Our first question comes from David MacDonald with Truist. David MacDonald: I got a handful of questions. First, guys, can you just talk a little bit about -- you mentioned the momentum in the business a couple of times. If we look at the occupancy and skilled mix opportunity in the new and ramping, can you just spend a minute on that? And then kind of as we head towards 2026, is there any areas that you would call out in terms of areas of disproportionate investment? Joshua Jergensen: Yes. This is Josh. I'll take the first part of that question. As we look at occupancy, I think we refer often to our mature facilities. And as you know, those are facilities that we've had for over 37 months. And as reported, that occupancy has remained incredibly strong, and so has the skilled mix. What we've learned over the process of our acquisitions is that it takes time to implement and deploy our policies, procedures, our model of increasing the clinical capabilities of our facilities and the team's confidence in their ability to provide care to high acuity patients at a level where we can continue to operate and ensure that the patients and their family members are getting exceptional care outcomes. And so as we look at our ramping and new facilities, we still feel that there's a lot of opportunity for us to strengthen those teams to deploy the appropriate systems that we need. You heard, obviously, the number -- the sheer number of facilities that we took on, creates challenges for us to ensure that those teams are supported in a way that allow them to have the confidence to increase both skilled mix and occupancy. So I still -- and we still feel very confident that as you look at those cohorts of new and ramping that our expectation would be and the history of our company would show that those continue to increase and move towards where our mature facilities are performing, and we would expect that to be the case. Mark Hancock: And David, I would just -- this is Mark here. I'd just layer in that to your question about kind of any disproportionate relationships there. Just emphasizing what Josh said about the fact that we grew at over 106 facilities last year, which basically 1/3 of our portfolio represents that new bucket. And so there's a lot of embedded potential for organic growth there. David MacDonald: Okay. And then, guys, just I guess, second question, when you think about some of the changes the company has made relative to controls, what would you call out as the 1 or 2 changes that you view as most impactful? Jason Murray: Yes. That's a good question, David. And I would maybe point to one thing that stands out as I think through that. Number one, there's been a lot of lessons that we've learned through this process. But I would say the one that stands out to me is our ability to continue to develop and strengthen our compliance within the organization. And that's an area that we feel passionate about, and I think it aligns with our mission as an organization as well. And it's something that we, over the last year, have worked tirelessly to improve. And I think why that's notable is because it allows additional support for our locally led and centrally supported model, where we have administrators making decisions at the local level to support their patients and their staff. Having those additional support mechanisms in place to make sure that they're making good decisions, that's incredibly important to us. And so I'm very proud of the progress that we've made and the advancements that we've made in that area over the last year. And I would say that's probably the most notable in my opinion. David MacDonald: Okay. And then, guys, just last one for me, I guess, a 2-part question. One, if I look at year-to-date cash flow generation, it looked very strong. Anything that you would flag or call out there that's driving that? And then secondly, if you could just touch quickly on M&A. If you look at the number of facilities that you guys have integrated and you look at the activity year-to-date in '25, just an update on kind of the pipeline, how that's looking and how you guys are thinking about M&A on a go-forward basis? Mark Hancock: Yes, David. So I'll take the first part and maybe let Josh take the part about M&A. But on the question about cash, so yes, I mean, cash provided by operations for the first 9 months was $407 million. And we ended the quarter at September 30 with over $350 (sic) [ $355.7 ] million of cash and cash equivalents versus $157 million at the end of 2024. And that included, by the way, paydown of our line of credit throughout this year. Joshua Jergensen: And David, as far as M&A goes, I think Jason said it well as he was talking a little bit about the heavy amount of acquisition that we did at the end of 2024. And if you look historically at our organization, we kind of averaged out and talk about acquisitions around the 20 a year. Those have been somewhat cyclical as we've, in some years, grown a little bit more than that. And certainly, 2024, the second half of it would be one of those years. It's important for us as we grow that those facilities feel supported, that they feel that they are appropriately integrated into what makes our company special, that they get full access to our systems, to policies and procedures and understand how we go about providing training and education to ensure these facilities have the capabilities in order to be strong centers of excellence in the communities that they serve. And so that was a big part, along with what we've been going through in the investigation and prioritizing that and the recommendations that came from it that led to acquisitions being very strategic with the 7 that we acquired. As we move forward and feel that we are in the strongest position as an organization that we've ever been in, and we have a deep bench, as Jason mentioned, 36 AITs. We are incredibly excited because we're passionate and feel that the work that we do truly makes a difference. And so as we've continued to evaluate deals during this period and been very selective, I would imagine that we would continue to increase the amount of deals that we're looking at again, assuring that we stay disciplined in our approach, but also resilient in the efforts that we're making to ensure that the communities and people who are underserved right now can have the advantage of having PACS come in and deploy resources that help improve these facilities. And so as we look to what we've done historically, I think that you can look towards those historical numbers and use those as reference what we plan on doing as we move forward. Operator: Our next question comes from Benjamin Rossi with JPMorgan. Benjamin Rossi: So just thinking about long-term growth, with the changes to your baseline revenue and earnings structure and your 2025 outlook now implying that 30% top line growth and EBITDA growing further underneath that, what is the right way to think about your long-term growth algorithm? Is the previous framing of maybe low double digits across revenue and EBITDA still kind of roughly applicable? And then I think you kind of confirmed it here, but regarding your M&A with the 7 facilities year-to-date, I think you mentioned 20 facilities per year going forward is still the right way to think about inorganic? Mark Hancock: Yes. So yes, thanks, Ben. So the growth, I think that the models that you have are in line with our current performance, meaning take out the restatement for 2024, and I think we're tracking according to what you've been analyzing before. So -- but to your question -- to your point about -- we've given guidance of 20 facility acquisitions per year. We have far exceeded that in 2024. And over the years, historically, we've had years of kind of larger chunkier growth and followed by years of kind of a simulation. So that historical average gets smoothed out a little bit, but we have probably outpace that 20 facility guidance. We're not, at this point, prepared to change that guidance as far as the number of facility counts go. We kind of look to continue to be opportunistic in that. So we never set like goals on that. But as far as the top line guidance of 30%, I think that will be consistent with what previous models have suggested. Benjamin Rossi: Got it. Okay. And then across M&A, I appreciate your comments about activity progressing nicely over the past year. I guess just when thinking about your cohorts, what is the current embedded EBITDA opportunity across your new and ramping cohorts? And then when thinking about the 100-plus facilities you've added since last year, can you give any color on the embedded EBITDA opportunity across those newly acquired facilities? Joshua Jergensen: Yes. We've shared that generally, each acquisition is a little bit different depending on the state, depending on kind of how reimbursement works on the Medicaid side for each of those states. And so sometimes that's difficult to identify exactly, Ben, as we talk about that. One of the things that we have pointed to is kind of a margin number that each of these cohorts generally find themselves historically living in. And we've shared that the new facilities usually find themselves around 2% to 3%. And then as they kind of graduate into the mature, we see them somewhere in between 6% and 8% margin. And then as they move towards maturity, they usually are in the low double digits and sometimes get as high as the low teens. And what I can share with you is that the historical averages continue to be consistent with what we're seeing as those facilities kind of graduate through those cohorts. Benjamin Rossi: Great. And then if I could just sneak in one last one here. Just on the Medicaid rate development. Just thinking about rate development going into next year, how are you modeling growth relative to your historical trend at maybe 2% year-over-year? And what are any of your maybe embedded assumptions for the Medicaid supplemental program? And then for maybe some of the larger states like California, South Carolina or Washington, are you hearing any updates from your state counterparts on how they're factoring some of the related policy changes from the OBBBA as part of their budgeting? Joshua Jergensen: Yes. Medicaid is something that we keep a very close eye on. And Ben, obviously, you do as well as you're knowledgeable in asking the right questions. One of the things that we do in the acquisition process is we ensure that we're evaluating the states from a number of different perspectives. And one of those is identifying reimbursement associated with the state Medicaid programs and targeting opportunities where we feel like the reimbursement is modeled in a way where our model of taking a higher acuity patient is actually rewarded and appropriately reimbursed. And so you see from some of the growth in states like Oregon and Washington, California that have quality incentive programs, Texas that has that. There's a number of states that we look at where we're identifying that program, how it's reimbursed. And one of the things that we've identified as well is a case mix component to the Medicaid program, where essentially you're capturing patient acuity levels. So in a state like Kentucky and Ohio, where we've recently done some acquisitions in Ohio, the case mix allows a provider to be rewarded for taking a more clinically acute and complex patient. And most -- many providers shy away from going into states like that because their model isn't based on educating, training, building confidence in the clinical staff to take on those patients. And so each of the states that we've entered into in this last year, we actually feel incredibly good about the Medicaid basis and programs and our ability to have an impact on those and ensure that not only our skilled patients and revenue flowing to the bottom line, but also on the Medicaid front being rewarded for the patients that we're taking. And so you'll see that in the growth that we had in 2024 that we particularly identified states that we felt strong about their Medicaid programs. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Great. Thanks, guys, and great to have you back. Just a quick question about your local market strategy. You guys have talked extensively about the local market model, the ability to form really strong referral relationships in those models and how that helps with your payer relationships, too. Just wanted to talk a little bit about how those relationships in the various markets kind of fared across the audit process and if there were any changes that you had to make with regard to some key referral sources or key payers in your various markets and how those relationships held up through this process? Jason Murray: Yes. Ben, good to talk with you. So Jason here. So I think that's one of the beauties of the model that we have where it's locally led, centrally supported, that model where administrators and we try to keep health care local, administrators making decisions locally to support their patients and their staff as well. And I think what that means is they also have the ability to adapt to the local needs of that particular market. I think over this last year, we've seen our model shine amidst very challenging times to operate. What I would point to is our census numbers. You look across our portfolio, we have very strong census numbers, and I think that's a key indication that we are the provider of choice in the markets where we operate. So as we evaluated that very closely and kept track of those KPIs very closely over this last year, it was evident that our model works and that our people are special, and they have the ability to execute even in the challenging times that we were working through. It was inspiring to see, frankly. And so I would say that those relationships continue to be strong in the markets where we operate, and that's something we're very proud of. Benjamin Hendrix: In light of some of the operational changes you put into place as a result of the audit, are there any change in thinking about the types of M&A targets you're looking at, specifically how you're thinking about balancing deep turnaround opportunities like what you discussed in Colorado in your prepared remarks versus like another Signature, for example, which may be already performing well. Any thoughts on how you're balancing those opportunities? Jason Murray: So I think the short answer is no. As far as we evaluate deals, we continue to use the same discipline that we've used historically, which is we have a group of team members that consist of our investment committee. And that group meets regularly, and we talk through and evaluate deals. And as we work together as a committee, as we underwrite those opportunities, we ultimately settle on a decision there. And that structure has been a part of our company for a while now. And I think what that does is it provides the appropriate levels of control to make sure that we're doing good deals and staying disciplined with that. And so as we continue to use that same structure to vet deals, we anticipate that we'll continue to take deep turnarounds. Like I shared in the anecdote in my narrative, we feel very good about who we are as a company. And we like to think that we are very good at what we do. And I think that is an indication in the examples that we provided to take facilities that are struggling clinically and ultimately financially as well and to deploy our model into those and to breathe new life into those facilities and to see them transform and to see the quality metrics improve, that's incredibly rewarding for us. And so we will continue to do that moving forward in a very disciplined manner like we have historically. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Jason Murray for closing remarks. Jason Murray: Yes. Thank you, operator, and thank you all again for joining us. Have a nice rest of your day. Operator: This concludes today's conference. Thank you for participating. You may now disconnect.
Mark Herndon: Good afternoon, everyone. Thank you for joining us on this call. My name is Mark Herndon, Chief Financial Officer of Horizon Kinetics. We are pleased to have you join us for our call that will cover our results for the third quarter of 2025. But first, a reminder that today's presentation may include forward-looking statements. Reliance on forward-looking statements involve certain risks and uncertainties, including, but not limited to, uncertainty about the future security valuations or our performance. During the course of today's call, words such as expect, anticipate, believe and intend may be used in our discussion of our goals or events in the future. Management cannot provide any assurances that future results will be described in our forward-looking statements. Furthermore, the statements made on this call apply only as of today. The information on this call should not be construed to be a recommendation to purchase or sell any security -- particularly security or investment fund. The opinions referenced on this call today are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that any of the security transactions referenced today have been or will prove to be profitable or that future investment decisions will be profitable or will equal or exceed past performance of the investments. We encourage you to read our filings with the SEC on our Form 10-K as well as our other filings, which describe the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today. These filings can also be found at the OTC Markets website and our press releases or other information is at our corporate website at www.hkholdingco.com. Today's discussion will be led by Murray Stahl, Horizon Kinetics' Chairman and Chief Executive Officer, and will also be available to answer questions -- applicable questions, and we'll moderate the questions. [Operator Instructions] With that, I'll turn it over to Murray to start us off. Murray Stahl: Okay. Thank you, Mark, and thank you all for joining us. So I will lay out the format for today. So when there's a minute or 2, I'm going to turn it over to Mark Herndon. He's going to review the financials, then I'll take it back. And I might go into a little detail of a financial high point that I think is merits note. And then I will talk about strategy and how we're going forward and some interesting things that we are in the process of doing and some other things that we hope to be doing. So with that, Mark, you can describe the financial results, and you can relay it to me after that. Mark Herndon: Great. And as a reminder for everyone, our Form 10-Q update continues to be our required GAAP presentation that includes certain proprietary funds as consolidated entities, and our press release continues to present both that GAAP presentation as well as a supplement that provides our financial statements, excluding those funds. We call that the adviser-only presentation. Consistent with what we have previously reported, this is a presentational matter that does not impact the company's earnings available to HKHC shareholders or the shareholders' equity of HKHC. The consolidated results present higher total assets as we include the investment assets of those funds that we have consolidated on our balance sheet as well as a line item called redeemable noncontrolling interests. That line item essentially represents our clients' account balances that are supported by the assets of those funds, which you'll see identified in our financial statements as consolidated investment products. Another notable difference is the treatment of management fees charged to those consolidated investment products. Under GAAP, those revenues are eliminated for consolidation since the fund is presented within the financial statements. It is akin to an intercompany transaction. However, the economic benefit resulting to HKHC shareholders remains and that economic benefit is reflected through a smaller allocation of the investment returns of the consolidated investment products to the redeemable noncontrolling interests than what they would otherwise have received. You can also see the impact of those items in the table within the MD&A of our 10-Q filing. Our results this quarter continue to be favorable for HKHC shareholders. The company recorded revenues of $17.9 million for the quarter, a $4.8 million or 37% increase from the third quarter of 2024. The year-to-date period was similarly higher with a $55.8 million of revenues thus far in 2025, which was 49% higher than 2024's year-to-date period. These increases are primarily the result of the overall increase in AUM across the portfolio of investment products and client accounts compared to 2024. At the adviser-only level, as presented in the supplemental table within the press release, operating income was $5.5 million for the third quarter, up from $1.5 million in the prior year and the year-to-date period was $16.1 million as compared to $5.4 million in the prior year. These results were driven primarily by the revenue growth we just mentioned. Overall, the company's net income was $0.39 per share for the quarter and $1.05 per share for the year-to-date period. And please note that our net income or loss is often impacted by swings in unrealized gains or losses associated with certain investments, including digital assets. This quarter, that included an aggregate of $10.1 million of unrealized losses related to our investment securities and equity holdings in our proprietary funds. Those unrealized losses compared to the third quarter of 2024, which had unrealized gains aggregating about $31.6 million. This is an illustration of what we have previously noted for you that may result in seeing volatility from quarter-to-quarter as a result of unrealized gains or losses in various holdings, including those digital assets, which is primarily Bitcoin. I should also note that the third quarter of 2024 last year also included the cumulative tax adjustment for converting from a pass-through entity to a C-Corp, which resulted in an approximately $60 million deferred tax liability and expense upon the adoption of that status. That deferred tax value on the balance sheet changes quarterly based on movements in the underlying cumulative tax differences, including investment holdings or applicable tax rates. From a cash perspective, the company has paid approximately $4 million in income taxes in 2025 year-to-date. From a balance sheet perspective, the company continues to have substantial cash and investments, including amounts outside of the consolidated investment products, and we have no third-party debt. Our long-term liabilities are limited to various long-term office space leases. The company's Board recently declared a $0.106 per share dividend, which reflects a 49% increase from the prior quarter's dividend. This dividend will be paid on December 17 for shareholders of record as of November 25. That concludes the prepared remarks. I'll turn it back over to you, Murray, to say a few words before we get into Q&A. Murray Stahl: Okay. Thanks, Mark. And so -- you've heard that we are required to present our financials on a consolidated basis. I personally think it's important to look at the unconsolidated results, and those can be found in the 10-K -- I mean, the 10-Q, I beg your pardon, and starting on Pages 17, 18 and so forth. So let me just point out a few things there, and then we'll talk about some operating matters. So you will observe that on September 30, we had on our balance sheet this consolidated company. This is the company equity, not the consolidated equity. We had $37 million in cash. At the same period of time a year ago, December 31, we had $14 million in cash and caused us a little problem, you might recall, because we had these performance fees. That's very nice to have performance fees. The problem -- the only problem with performance fees, of course, is that the United States Treasury would like to get its money on an estimated accrued basis, but we don't have access to that money until we've actually finalized the numbers. So it was a little bit of an issue, not a big issue, but a little bit of an issue to actually raise the cash needed to pay the taxes to that would be applicable for our performance fees, which we're delighted in getting. Now that impacted last year's dividend policy because we didn't want to be caught in that circumstance again. Now in principle, we had no possibility whatsoever in lacking liquidity because we have a large and liquid securities portfolio, we could have sold securities. The problem with selling the securities is, they are at gains. And anything we sell at a gain would require even more taxes, which we'd very much like to minimize. So I say these things for two reasons. One, of course, is to call your attention to the cash balance and the effect on last year's dividend policy. You'll note that the dividend we just announced is higher than what we paid last year, even though we haven't accrued a performance fee yet, although we might in the future. And the second thing is just to make you comfortable with looking at the financial statements the way we look at the financial statements, which is to focus on the operating company. And the operating company for the year-to-date period, and it's the year-to-date period that I would argue is more important than the quarterly period. This is more important than the quarterly period is because with possibly performance fees and with fluctuations in markets, there are only so many conclusions one can draw from the individual quarterly results. So I personally like to focus upon the year-to-date results. In this particular case, the operating income line, which you will find on Page 18, the operating income line is $16.1 million approximately. So that's when my attention is drawn to the financial statement, that's the first number I look at. You'll see below the operating line, there are all sorts of things, entries and sometimes they're positive and sometimes they're negative, has an accounting impact in as much as we don't really bear the full brunt of negativity because we unaccrue certain tax liabilities. So just like we share our profits with the United States Treasury, we will also share our mark-to-market losses with the United States Treasury as well. So it's never as grievous as the below-the-line numbers appear to suggest. And I think the numbers should be understood in that context accordingly. Now a lot of interesting things have happened year-to-date. I'll call your attention to only several. One is, we launched a Japan owner-operated ETF in the month of May. And that ETF has now achieved $25 million in assets under management. Now obviously, $25 million in assets under management is not going to radically change our profitability. We also, some years back, you might recall, we launched another ETF called the Blockchain Development ETF. That ETF has more or less about $20 million in ETFs, even the aggregation of those are not going to radically change our profitability. However, you will observe that our largest expense, again, from the income statement is -- our largest single expense is sales and distribution and marketing. Employee compensation is even a bigger expense, but a lot of employee compensation is marketing related because the biggest unit we have is marketing. And that brings up the biggest problem in asset management companies, which is raising assets. And dilemma that every asset manager wrestles with is, how much time will be devoted to raising assets under management? Because that is the amount of time you're going to abstract from investing portfolios and doing the research. What we'd like to do is, we'd like to minimize the amount of time we spend marketing, so we can maximize the amount of time we spend doing research and investing so that we can have as good results as we possibly can. So the object of the exercise in Japan ETF and the Blockchain ETF was to see if we could raise money reputationally. In other words, the products get a reputation, the products were not marketed in a traditional sense. They spread with word of mouth. And we're looking to see what we did right in attracting the assets. Now obviously, if they had a lot more assets or alternatively, if new assets come in, and they're coming in through that modality, it's an incredibly high-margin business. So it's a success as it were, and we hope to make it a bigger success. If that success does materialize, the conclusion one would draw is, our margins would expand -- hopefully expand considerably. Now it turns out that in the first quarter of 2026, just around the corner, we're going to launch another ETF. And we haven't really officially publicly announced what it's going to be, but personally, I'm pretty excited about it and with the same approach, word-of-mouth approach. We'll see how far we can come with all that. And in addition to margins, the biggest challenge you really have in asset management is the challenge of indexation. Active management in and of itself doesn't really have the scalability of indexation. Indexation, obviously, since the S&P 500 has hundreds of trillions -- has trillions upon trillions of dollars of market value, the hundreds of trillions. I think the market capitalization of S&P 500 is $64 trillion or thereabouts. So obviously, it's a big number. So to go from $1 billion of assets to $5 billion of assets, it's not a problem. That's scalable. In the world of active management, you're only going to find so many good unrecognized ideas, and you have to realize there's a limit to how much money you can invest in. Therefore, it's not scalable. Therefore, you have to continually devise new products. So that's one of the challenges. We'd like to spend our time finding new investments rather than scaling our existing investments. And towards that end, we've come to the conclusion that we'd like to separate as much as possible, raising capital from managing capital. That brings me to another thing I think you'll find intriguing. You will observe that we brought a company public called Consensus Mining, trades under the symbol CMSG over the counter. It has a market capitalization of more or less $80 million. Horizon is the manager of the cryptocurrency in their portfolio. What do we mean by management? Well, Horizon manages the mining of cryptocurrencies. In Consensus Mining, we do something called scripts mining, which is basically to mine two cryptocurrencies simultaneously with one electric current. This is not the place or time to go into the detail unless somebody asks a question, then we will go into detail, but we do that. And as far as I can tell, it's actually pretty successful. So the amount of crypto is growing, but it's growing organically. It's not growing from marketing. If the company were to require capital and maybe one day that time will come, that will be the prerogative of that company. So Horizon is the manager and Horizon gets a fee. At the moment, that fee is de minimis. Why is it de minimis? Because we're looking to incubate Consensus Mining. But in the fullness of time, contractually, that will pay a substantial fee. It will be not substantial in relation to investment management fees as they are known to exist, but will be substantial relative to the de minimis quantities we get right now. We do the exact same thing with Winland Holdings which at the moment is 44% plus owned by our colleagues at FRMO Corporation. So there are two businesses. In total, the assets are crypto assets plus the devices that we use to mine crypto assets. And I believe, if I'm not mistaken, the aggregation of assets were over $50 million. If we were to charge a fulsome fee, that would be 1% and the number was $50 million of assets under management. 1% of $50 million is $500,000. So at that quantity, $500,000 would come right to the bottom line. There'll be some taxes on. So you can see we're building the potential for operating leverage, and we're separating to the degree that we can, the raising of capital and the managing of capital, something that -- just that everybody in investment management business has reflected upon. And to the best of my knowledge, and please correct me if I air in saying this, but I'm not familiar with anyone successfully addressing that question. So I think we're up to some really interesting things. We will wait for the new year to see what our new ETF does. Of course, at that time, I will report back to you. And we are mining new crypto coins every day, which, of course, adds to our assets under management in the crypto context. And I think we're up to some interesting things. So rather than continue, I'll stop here, and I'll open up for questions if anyone has any questions. And as per tradition, we will stay around and answer every question until we resolve questions. So if there are some questions, I'd be delighted to answer. Mark Herndon: We have a handful of questions already. [Operator Instructions] Going back to a topic you mentioned a minute ago about the Japanese fund. The question was simply, can you clarify the percentage of the AUM, which, as you mentioned, we publicly disclosed the assets under management for the fund. It's on our website. It's about $25 million, which is obviously a small portion of the $10.4 billion of AUM. But I do want our listeners to understand that you can find that information on our website. Is there anything else you want to talk about in terms of the opportunity of the Japanese market overall, just more broadly? Murray Stahl: Well, I suppose I'd be remiss if I didn't do at least a little bit of marketing since I'm already on the call. And let me put it this way. So virtually everybody in the world of investing is a devotee of diversification. So I will share a statistic with you. If you bought a European index and just by coincidence, 13% of the European equity index is pharmaceuticals. And if you took the pharmaceutical companies and looked at their revenues and disaggregated them by geographic exposure, you will find that not quite, but almost 2/3 of the revenue comes from the United States. Now obviously, the sum of the parts made is equal to whole. So if 2/3 or almost 2/3 of revenue comes from the United States, everything else is much less than United States. Therefore, the United States and the European pharmaceutical companies are the biggest exposure. So I think it's legitimate to ask in a very real sense, yes, of course, they domicile in Europe. Are they really European companies? You're really getting a different exposure, and that's Europe. Let's turn our attention to Japan. So big companies in Japan, Toyota, Sony, SoftBank, Mitsubishi UFJ. if you look at their financial statements, you will find the lion's share of their exposures geographically come from the United States. So how can it be that one buys an index in Japan with a view to diversifying away from American exposure and one buys a stock like Sony because it's part of the index, and Sony happens to have well over half of its revenue originating in the United States of America. So I think we're entitled to asking, is it a Japanese company or is it an American company? So one of the virtues of Japan ETF, I don't want to make it too much of a selling point of the Japan ETF. This is a Horizon Kinetics call, not a Japan ETF marketing call. But in any event, what's the point of investing abroad, for simplification, if your revenue is actually going to originate in the United States of America. This is an ETF where the companies do the lion's share of virtually all of their business in Japan. So for better or worse, this is really a Japan ETF. And in relation to Japan ETFs, they are largely comprised of the biggest companies in Japan, which are global multinational, it is distinctly different, and I think it is superior. They have other attributes that I think may make it further superior, but I'll leave it there, and you can get a sense of what we're trying to do. We're trying to develop very, very unique products. And I think Japan owner-operators' ETF is one such product. So I'll leave it there. Mark Herndon: Okay. And then with respect to our own portfolio, we've had a couple of questions come in. A perennial favorite to talk about the TPL stock. One of the questions is just simply, how much of our AUM does TPL make up? And the other is a question about if as a firm that we have been selling TPL stock. And of course, I understand that with some regulated products from time to time, there may be sales around the mutual fund or individual clients might provide instructions, but I don't believe anything has changed on that front, but I wanted to see if you would expand on our views about TPL in general? Murray Stahl: The only time we really sell it is where we're compelled to. So there may be cases like we have it in a certain portfolio and the regulations about what your exposure can be and you have no choice, you have to reduce it, not reducing it for any fundamental reasons. If the exposure too high by regulation is appreciated, well, we'll have to reduce the exposure. And of course, we're mindful of regulations, but not selling it for any fundamental reasons. As far as fundamentals go, in my opinion, of course, and feel free to disregard, I think the fundamentals are fabulous. I really do. I think they're absolutely fabulous. So you can take that for what it's worth, but I couldn't be more excited about the future prospects. So you might well, let me leave it there. But if you have more detailed questions to the degree, I can answer them, I'll be glad to answer. Mark Herndon: Okay. The next question is also about our portfolio. The commenter has noted the drop in LandBridge stock following a stock offering to their existing shareholders, and they were asking, is that an expression of doubt about data centers or the volume of data centers coming to that area or just what's the view there? Murray Stahl: Well, let's see what I can say about that. Yes, I think I can say about that. So first of all, you may be interested to observe. So on October 10, just for some reason, I have to -- I just remember that on October 10, LandBridge traded in round numbers at $49 a share. It's not exactly $49 a share, so forgive me for generalizing, but roughly $49 a share. Some number of days ago, LandBridge traded at $85 a share. Today, LandBridge trades at roughly $62 a share, okay? So clearly, in a little over a month, that's a pretty big movement, up and down, that's a pretty big range. So right now, without being too precise about it, we're just in the middle of the range. Interesting enough, today, because it was -- the matter was brought to my attention, LandBridge traded as low as $58, as high as $62 and a fraction, even in 1 day. That's a pretty big range. So it had something to do with the fundamentals. What can possibly happen in a 24-hour time period regarding data centers for any company? And if it did happen, it would truly be momentous and it would be disclosed because it would have to be disclosed. So basically, in my humble opinion, this is just my humble, I underscore the word humble opinion. I think it's a function in the modern age of how people do research. So basically, a typical person does research, I'm not like this, but a lot of other people seem to be, they have a screen that they look at constantly, and they have the prices of securities and some are up and some are down and some are more or less unchanged. And LandBridge is supposed to be active in data centers. They're waiting for an announcement and they haven't seen the announcement yet. So I can only imagine the reason thusly, perhaps there never will be data centers. And if there never will be data centers, then why am I paying X for the shares? They must surely be worth much less. And perhaps I should sell them. And on the other hand, there are days when people come to the exact opposite conclusion, as you can see from the ranges of the prices in a very brief period of time, I might add, I just quoted you. So now let me impose upon you the following heuristic. Let's make-believe, just for the sake of argument, I don't believe this, but just for the sake of argument, there will never ever in the course of history, no matter how many millennia, how many eons the world will see until the sun is extinguished and life becomes impossible on planet, let's say there's never going to be a data center on LandBridge. Never going to happen. So do you actually think that the company wouldn't prosper anyway? All it would mean is data center is going to be somewhere else. I'm going to explain where it's going to be in a moment. But you can't run a data center without power and you can't run power plants without water. And the only place you can build things of the appropriate magnitude are a place like West Texas. And it's happening. So up in Lubbock, Fermi is building its data center and starting with, I think, 1.2 gigawatts. And eventually, in Lubbock, they're going to have over 11 gigawatts. And then there is -- I think it's a 2.2-gigawatt plant in Sweetwater, Texas. which is supposed to be energized in April, I believe. I could quote other numbers. The plant, a data center is being built for Meta Platforms aka Facebook in Richland Parish, Louisiana. And that's going to start, I think, at 2.5 gigawatts -- either 2.2 gigawatts or 2.5 gigawatts and scaled up to 5 gigawatts. The reason for mentioning those numbers is as follows. The most data center dense area of the United States of America is the Washington, D.C., Northern Virginia metro area. If you looked up every data center in that area, every single one and added them up, it's 3.9 gigawatts. I know because I did it. So you just can't build a 2- or 3-gigawatt data center in an area that you can't get the electric power. And you could get electric power, you couldn't get the water. I'll explain why you need the water in a second. You don't need the water so much to cool the data center. You need the water to generate power. So you need a site if you're going to build these magnificent structures, and the power plants go with them. You have to have a site with a lot of water and not a lot of people. So over the course of civilization, as you probably know, the people wherever they are in the world, they had a tendency to move where there's a lot of water. There aren't too many places in the world where you can get water and you don't have to deal with people. And one of the few areas is West Texas. So now before I go more into water and why you need the water, I'm going to give you one other physical fact so you understand this question. Let's say, merely for the sake of argument, I decided to build a 2-gigawatt data center, okay? It's -- I'm going to give you a hypothetical question and I'm going to answer it. So it's rhetorical. So if I'm going to build a 2-gigawatt data center, how many gigawatts of power plant do I need to service it, okay? If I asked virtually any person they will say, well, if you have a 2-gigawatt data center, you obviously require a 2-gigawatt power plant. And as reasonable as the answer appears to most people, that is wrong. Why is it wrong? Well, for 2 primary reasons. First thing is that no power plant can possibly be up and running 24/7. It has to go down sometimes either for scheduled maintenance or unscheduled maintenance. Someone goes down, you have to have backup power. So since you have to power a data center, it can never be down, at a minimum, you need another 2 gigawatts. So therefore, a 2-gigawatt data center will require 4 gigawatts of power, okay? Now -- so now -- okay. So I build a 4-gigawatt power plant, and it might go down on a moment's notice. So I have to have both things running simultaneously. One is the power plant that's feeding the data center. The other one is the so-called spinning reserve. There's other backup power needed. Then you have to deal with another issue, which is called PUE, power usage effectiveness. What does that mean? That means if I had a 2-gigawatt data center and I had 1 power plant, 2 gigawatts, I couldn't possibly energize that power plant. Let's forget about the issue of the redundancy for backup. Why? Because the amount of power you're drawing, the wattage you're drawing is so enormous, even though the power is only moving a short distance that much of the power is being lost as heat. So basically, the electrons in the wire are hitting each other and they're hitting the walls of the cable. And a lot of power is being dissipated because of that, and that's expressed as heat. It's the same concept as when you charge your cell phone and you touch your phone, you touch the charging device, you'll see it's warm. So you're not using all the power that comes from the outlet. So it's being lost. The same concept, except it's not a small device, it's 2 gigawatts. So the general number you'd use is the coefficient of 1.58. That's your power usage effectiveness. So what does that mean? If you had a 2-gigawatt data center, you have to draw 1.58x2 or 3.16 gigawatts. You need 3.16 gigawatts to energize a 2-gigawatt data center. That's how much power you need. So it's just enormous. Okay. That answers the power question. Now the water. Why in the world do you need water? People think, well, you need water to cool a data center, but they can get around that. They have various ways of mitigating the amount of water you need, that's all true. I won't go into details because we're not in real agreement, but we're in general agreement. You don't need a lot of water to cool a data center, even though you do need some. But the power plant. So the power plant, whether your power source is coal, which you wouldn't use, or it's nuclear or it's natural gas, all those 3 things are thermal. What does that mean, thermal? It means whatever your fuel source is, you're generating heat to boil water. So you generate heat to boil water. What happens when you boil water? Well, it turns into steam? What happens to the steam? It goes through the turbine and spins the turbine. And that without explaining how the rotors and the stator actually generate power, let's just leave it at, power is generated. But in order to generate at a constant rate, the steam has to move through turbine at a constant rate. So how do you ensure that it's at a constant rate? Well, you have to basically condense the steam on the other side of the turbine. So if the temperature is lower on the other side of turbine, there's going to be a temperature differential known in physics as temperature gradient. And the steam is going to move from the hot area to the cold area at a constant rate, the same way water would flow through a pipe at a constant rate. That's how it's done. So how in the world are you going to condense the steam? There's only 2 ways to do it. Way number 1, what some people refer to as an open-loop system. How does an open-loop system work? Well, it's open, meaning you expose the water to air, you expose the steam rather to air, the ambient temperature of the environment. And because steam is a 212 degrees Fahrenheit, and you expose to the air, temperature and cool, it's going to condense the water. But 100% condense the water, some of it's going to evaporate. That's why when you look at a power plant, you see this big smokestack and you see white smoke coming out of it, that's steam. You're losing some of the water. So you need this water to be replaced. At what rate do you have to replace the water? The number is so big that I won't even tell you what the number is. I'll give you a homework assignment. Just go to the website of the American Electric Power Association and look it up. It's a big number. Even though you're condensing 90% of the steam, maybe more than 90% of steam, it's still a big number. You got to have a lot of water. That's the way the thing works. So what's the other way of doing it? Well, the other way of doing it is a closed-loop system. So basically, the steam never leaves the pipe. And the steam is routed back to the front of the turbine, okay? But it's lost some of its heat energy. So it's got to be fired up again through the boiler. Well, want to lose some of this energy just because heat is dissipating through the pipe. But you got to keep boiling the water. So you still have to condense the steam back into water. Now it's not going to evaporate because it's in the pipe. So how are you going to get the steam in the pipe to be recondensed to water when it's not exposed to air? Well, what do you do? You pour water on the pipe because the water is what's known in physics as a heat transfer fluid. And the water on top of the pipe turns into steam and it evaporates, steaming a lot of water. So the operative thing is, no matter how you do it, so everyone is looking for announcement. I put this 2-gigawatt data center on my property. But the operative thing is the water. Believe me, there'll be announcements eventually. So -- but the operative thing is to allow for the water. Now you can't draw the water out at a rate in excess of the natural refresh rate or you destroy the aquifer. So if your neighbor haven't been fortunate enough to have a data center on your neighbor's property, your neighbor is unlikely -- and by the way, it's not the data center, it's the power plant that counts, not the data center because it's the power plant that's using the water. But whether it's on your property or not, it's on your neighbor's property, it's true your neighbor is getting the ground rent, but the real money is the water. And since your neighbor can't draw the water at natural -- at greater natural refresh rate because your neighbor doesn't want to destroy the aquifer. Your neighbor is going to have to collaborate with you and take water for you anyway. So you're all going to share in it. So I just told you this, if people realize that, the stock will probably not be fluctuating the way it does. But unfortunately, we don't live in that universe. And well, the stock price is what the stock price is. So you see what their expectations are and you see the reality in my humble opinion, I underscore the word humble, of course, they ought not to be as excitable as they are at the moment is my, I suppose, my concluding remark on that subject. But you can follow up and ask me more questions than that if I haven't been sufficiently concise and clear. Mark Herndon: Okay. We're going to stay on the forward-looking investment horizon here a little bit. The question is then, over the next 3 to 5 years, do you foresee the global AI build-out leading to net inflation due to CapEx spending or net deflation due to productivity gains? Do you have a view on that? Murray Stahl: Neither. Neither. I just wrote about this. I don't think it's out yet, but I'll give you my investment thesis. The biggest exposure in the S&P 500, it's obviously technology stocks, whether it's Microsoft and Meta Platforms or Google aka Alphabet or whether it's NVIDIA or maybe Broadcom or maybe even AMD, you can add it up, you can see what it amounts to. It's the biggest exposure. So if you simply take the earnings of the big data center companies, they just reported them 1.5 weeks ago, take the cash flow statements. And what you will see is you will see very large capital expenditures. They're connected with data centers all right, but they're not building data centers. They're -- just like if you're a big company, you want to rent office space, you don't build a building. But you're still responsible for buying your furniture, you're still responsible for buying your computers and communications devices and electronics and office furniture and so on and so forth, same with data center. So the big companies, basically, what they're buying is they're buying electronics. They're buying the service. From whom are they buying the service? Well, NVIDIA, AMD, Broadcom, et cetera, et cetera, okay? So if the data centers are going to continue to be populated, well, the capital expenditures are going to be high and your free cash flow is not going to be very high. So because your free cash flow, your earnings might be higher than what they otherwise would have been, but your free cash flow is going to be lower. And that's going to affect the valuation in a negative way. Even the earnings go up. So you might say, well, but the capital expenditures will go on only for a brief period of time, and then they'll cease because the data centers will be built. And there, we have a problem. And that problem is only -- I've written about this. This problem is only dawning on the market right now. That's why the market is so tenuous. Two possibilities, either that assessment is correct or it's incorrect. Let's say, just for the sake of argument, the assessment is correct. So Amazon, Microsoft, et al. will significantly reduce their capital expenditures, but they're buying the equipment that goes into the data centers. So they're going to reduce their capital expenditures. It must logically follow that they're going to reduce their purchases from NVIDIA and Broadcom and AMD, et al. and that segment of the market will follow that and will probably offset because the market capitalizations and the weighting of the S&P are just about as big as the companies who are buying that stuff. So if indeed, the capital expenditures are going to decline, making a problem for a subset of technology, which is big enough because the valuation is very high to create a real market problem. Possibility number 2, the capital expenditures keep going up. Why would they keep going up endlessly? Well, a simple reason because the NVIDIA asserts, and they assert with very good reason, that they are doing what Intel had done a quarter century ago, which is they are obsoleting their equipment every 24 months. So the current iteration, the Grace Blackwell 200 GPU, graphics processing unit, it will soon give way to the Rubin Vera (sic) [ Vera Rubin ] equipment. So you have to get rid of your Grace Blackwell 200s, you have to buy new stuff, just like Intel was doing a long time ago. So if they intend to do this, which they obviously do intend because they do say that, well, then you always got to stay with the state-of-the-art. And if you always have to stay with the state-of-the art, the state-of-the-art is going to be obsoleted every 24 months and your capital expenditures will never end. You'll never really have free cash flow, and that's horrible. So you might say, well, but in that case, if that proposition is true, well, then I'll just go buy NVIDIA because NVIDIA has a real intriguing advantage relative to what Intel had because Intel, as you might recall, Intel had the problem of, yes, they obsoleted their microprocessor. Yes, the new generations of PCs, personal computers, will be required to include or embed the new Intel microprocessor, but they had to build a whole new wafer fabrication plant. So what good was it? They had more earnings, but they had less free cash flow. So to what end? But NVIDIA, you will undoubtedly argue, doesn't do that because NVIDIA doesn't make chips. Yes, they make a few chips on an experimental basis, but don't mass produce chips. So they have some nimble wafer fabrication facilities, but the chips are made by Taiwan Semiconductor. Only their wafer fabrication facilities will be obsolete. So therefore, NVIDIA is in an unbeatable position, but not really because you think Taiwan Semiconductor will live without a payback in its capital. For the privilege of making the chips, they will charge accordingly. And that will create a problem for NVIDIA. So you see no matter which way you go, there is a logical contradiction in the entire movement. And logical contradiction dates back, and this will explain our Horizon exposures. The logical contradiction goes back 10, 12, 15 years because the premise was you can build a gigantic business like the technology business without using resources from other segments of portfolio. And for a while, they were actually doing it. It's a very ahistorical view. So for example, historically, the automobile was invented, you could have been a big believer in the automobile more than 125 years ago, you never had to buy an automobile stock because you could have bought Exxon or some other oil company, and they needed gasoline. So you might conclude, I'm going invest in automobiles by buying oil companies. And Exxon actually would have been a big choice, a good choice. Then it was called Standard Oil of New Jersey, but nevertheless, you get the idea. And there are other things you could have done. So you didn't necessarily need to buy the automobile companies, other segments of the economy prospered. So for example, if they had to build roads, there were gravel companies, cement companies, construction companies. And some of those were actually very prosperous. You could have had a whole portfolio investing in the evolution of the automobile and never bought an actual automobile company. But strangely, that didn't happen in technology. It didn't happen in technology because the iPhone invention, you could run the iPhone, the smartphone, all these brilliant, beautiful devices on the existing fiber optic cable or telephone systems. So for 10 or 12 years, you can expand the business with minimal capital expenditure because you were building on an existing network. So Netflix, for example, Netflix, their nights and Netflix uses 25% of the Internet bandwidth in the United States of America. But they don't have a lot of capital expenditures because the fiber optic cable is already in the ground. That's a very ahistorical unusual situation. Now we're coming into the different world, the world of high-performance computer, note how I do not say artificial intelligence, but high-speed, high-performance computing because that's really what it is. We're going to need other things, and we're going to need water, and we're going to need natural gas. And there's only a handful of ways to get them. And at Horizon, we got them, and we're staying with them. So it's just a matter of time, the world is moving in the direction to make these -- all of them, extraordinarily lucrative investments. So you don't even have to do anything. All you need to do is think it through. And perhaps, just perhaps, I may advance the proposition, maybe that's why LandBridge for whatever reason, was actually up today, not down. Anyway, I'll leave it there, but I'm willing to elaborate if someone wants to propose a more involved question. Mark Herndon: Okay. And I may have lost a question earlier. There was -- and this is just a factual question of what percentage does TPL make up of our AUM. And I can just let our investors know. We disclosed that last year in our 10-K that was roughly 41% as of December 31, 2024. That's one of our risk factors. It's come down a bit since then, but I don't believe we've put out an updated number, but generally speaking, that's about where it is. Murray Stahl: Right. So based on the risks, when we get new assets -- because let me just elaborate, if I may. When you get new assets under management, we obviously can't buy and we wouldn't buy TPL at that allocation. So new assets diluted. And for example, Japan ETFs, say what you will about it, positive or negative, doesn't have any TPL in it. And similarly speaking, the Blockchain Development Fund has no TPL in it. So as we raise new assets, there are different investment products, they don't have any TPL. So we get diluted over time even without selling. Mark Herndon: So now we have a series of questions now that are turning back to just the Horizon Kinetics Holding Company stock. And this one is very simple. The -- what is your single highest priority for deploying free cash flow right now? Murray Stahl: Single highest priority. Well, we are -- obviously, we have the 70% payout ratio. So we're taking 70% of our net income and we're paying it out to shareholders. So I think it's fair to say our biggest priority is rewarding the shareholders. Mark Herndon: Along that same line, there's a question about governance structures. What governance structures are in place to ensure minority shareholders can fully participate in the long-term compounding of HKHC's capital allocation strategy, which I suspect you're going to talk a little bit more about dividend there. Murray Stahl: Well, dividend is one thing. And so obviously, everybody gets to participate. And we're long-term investors. We encourage people to be a long-term investor. We're open -- I think we're open. I'd like to believe we're open. And we -- I don't have the answer to your question to hand. Usually, I do. But if I don't, be delighted to get the information and engage with you and get you an answer. So we're pretty much an open book. We have no plans to take the company private and maybe that's what you're thinking about, that we might take company private again. We're not planning on doing anything like that. There are no plans to do that. You might observe in the last open period, I personally bought some stock. Right now, I can't buy stock today, obviously, because I'm having this call, and we'll see what I do when next open period is. But I don't know what else to say. It's available to anyone who is welcome long-term investors. Mark Herndon: Yes. It's really the same structures as any other public company really, right? Okay. So the next question, a little bit more specific back to our financial statements. And again, this one is a little specific to our lease obligations. The question is around new or extended lease obligations. Is that for -- that are listed in Note 10? Is that all for New York office space? And if I may, just to put a couple of clarifications around that for our listeners. Our lease obligations are for office space broadly over multiple locations, not necessarily just in New York City. What you see in Note 10, the contractual obligations table within Note 10 includes the runout of existing New York City offices through early 2027 as well as 2 other previously existing office space leases and 1 new 10-year lease in Connecticut for additional office space. While we've disclosed additional office space agreements, which are in both New Jersey and New York, those leases have not yet commenced, right? We haven't taken occupancy for those locations yet. So those are omitted from what you see in that table in Note 10, but rather, the broad terms are disclosed in the narrative sentences below that note. I will let you know also that, that lease obligation in New York City is for different space than what we are currently in. The new lease is for 15 years, which is why you predominantly see this gross number that you may see in the notes, total payments over that long-term time frame. And I'll emphasize to you now that the cash payments that we will be making eventually are actually less than what we're currently paying in New York City. So that is a very long setup, but I'll just -- Murray, I'll turn to you to ask, would you like to comment on how we plan to use that New York City office space or in general? Murray Stahl: Yes. So basically, we came to conclusion that if you've been to our offices, we're in 3 separate floors, and that creates one problem and then there's a second problem. First problem is it's very inefficient. We have 3 lobbies. We have 3 reception areas. You get -- you actually pay for the elevator entrance. So there's a lot of wasted space. So it's very inefficient. It'd be a lot more efficient if we could be on one floor. So part of the reason was to save money by going to one floor. The other thing is the current lease, we're responsible for paying for all sorts of ancillary services that in another location, we wouldn't be responsible for paying, and that's the savings as well. So basically, in terms of the usable floor space, we would have a better arrangement. In terms of the ambience, it's better. And in terms of the monthly obligation because you pay monthly, it worked out to be 35% cheaper. So everybody can have a better experience and we save 35%, it seems like everybody should be happy. And speaking as a very large shareholder, it made me happy. And so that's where we're going. We also have another issue that the new space is going to solve. So you might be aware, I myself do a lot of meetings, we call roundtables and other things where I invite investors to come in. And the existing accommodations don't normally allow for the attendance that we would otherwise have. So we have to limit it. And a lot of people like to come in and hear what we have to say, and it's kind of foolhardy to let them do it because it's also a source of new business among other things. So we needed to find a space where we wouldn't be so limited. And we found such a space, and that's what's happened as far as that goes. Have we left anything out more? Mark Herndon: Yes, we have a couple more. We've had a couple of questions come in around the mechanics of our disposal of the consumer products division. This person references specifically the Scott's Liquid Gold sale. And I did want to just spend a minute to set this up as well. Many people get confused about the Scott's Liquid Gold corporate entity that we merged with in 2024, which is actually different than the namesake brand that was -- they had disposed of well prior to our transaction with them. The 2 brands that we had were called KIDS'N'PETS and MESSY PET. And due to their relatively small size, the revenues associated with that, those brands were reported within our other revenue line in the past. And as a group, again, we called it the consumer products group as opposed to the individual brands. But the question was about, were there multiple bidders? And can we share more details about the sale and where the $2.5 million fair value, where is it reported on the balance sheet. If you'd like to comment on it broadly, I can also give a couple of specifics, if you'd like. Murray Stahl: Yes. Well, so basically, we did get some cash, and then we're also getting a long-term royalty. So we like royalties. Long-term royalty gives us some upside. Obviously, we're never going to have the scale to be in consumer products. So basically disposing of the inventory, getting some cash and disposing the ongoing expenses or limiting the ongoing expenses, which we did and getting a long-term royalty now just cash flow over a very long period of time, and you can maybe elaborate on that, Mark. Mark Herndon: Sure. I'd be happy to. The one thing, just mechanically, the $2.5 million fair value that you referenced is in the other assets sort of down the balance sheet line item a bit. And I would say one of the things we talked about is just that there's some parameters around the royalty arrangement that this percentage, we have a little higher percentage in the early years, a little lower in the outer years and a minimum of $1.5 million and a maximum of $5.25 million over this long-term period. But I think we came to the conclusion that the additional focus that this buyer can bring to it, that is going to bring more to us from those brands in terms of royalty income than we would have achieved by just continuing to own and operate it ourselves as a stand-alone operation. I think that's the last question specific to HKHC. There has been just one more that came in while we were talking about that around -- sorry, looking through the question again. AI as currently defined -- I'm sorry, it says, Murray does not believe we have AI as currently defined by the industry. Do you foresee any super intelligence being created in the near future? Are we on that trajectory? Murray Stahl: Okay. I'm going to try and just explain. Obviously, it's more than just Horizon Kinetics. So in the colloquial, artificial intelligence is taking the means the average person, machines that think like human beings. And the problem is it's very difficult and many would argue it's impossible to get a machine to think like a human being. So why is that true? Because a human being, even though human beings do many, many foolish things, human being has the ability, at least in principle, to recognize limitations of human thought, which is not to say to recognize the limitations of that individual's human thought, but the limitations of thought itself. So for example, without giving you a treatise on histo-analogy, there are certain inherent contradictions in thought. So for example, there's what's called the Cretan liar paradox, also known as the Epimenides paradox. And it goes something like this. Epimenides, a Cretan, says, all Cretans are liars. Well, he is a Cretan, and therefore, if that statement is true, he must be lying. So therefore, all Cretans are really telling the truth. But everything he says is a lie. So I'm hearing contradiction. How do you resolve it? And the answer is, it's unresolvable. In mathematics, you find the same thing, you find something called G del's incompleteness theorem that was discovered that you can't complete -- there are certain mathematical propositions that you cannot completely prove. So proof that there are certain things that can't be proven or you could have in mathematics also the Cantor infinity paradox. No matter how big a number you come up with, it's always going to be bigger because you can add 1 to it. So if you're going to add 1 to it, why can't you add infinity to infinity? Why can't you make infinity squared or infinity cubed or infinity to hundredth power and so on and so forth. So you never get to the end of it and how do you ultimately talk about a finite universe if numbers are infinite? And it goes on and on like that. Well, when you get into really complicated questions, you have to deal with that. But you also have to deal with it, and I gave an example of this at a recent roundtable, so I'll recapitulate it for your amusement. Let's take a more invisible, abstruse, very refined questions and maybe we shouldn't even be talking about them. Let's do a simple exercise of what some people call artificial intelligence, and I will describe the exercise, and I'll tell you where we got it from. It's a ChatGPT exercise. The exercise is as follows. You're asking a computer to make a list of all the books written by Winston S. Churchill, okay? So we're not talking about the Cantor infinity paradox or G del's incompleteness theorem or the Cretan liar paradox. There's a certain number of books that Winston Churchill wrote and you got to look it up. The problem came up because at the Roosevelt -- President Franklin Roosevelt's home at Hyde Park that I visited not long ago. They redid it. And in the study, because President Roosevelt was friends with Winston Churchill, they decided to put in the study all the books of Winston S. Churchill. That's a cool exhibit. Trouble is that there were books in there that said they were written by Winston Churchill, they were not written by Winston Churchill. And if you keyed in ChatGPT, give me a list of the works of Winston Churchill, until recently, they may have corrected it, but until -- because it was pointed out to them. But until recently, they gave you works that were not written by Winston Churchill that they said were written by Winston Churchill. How could they make such a mistake, not talking about complicated things because Winston Churchill was live and Winston Churchill was writing books. It just so happens, there were 2 Winston S. Churchills writing books. One was the Winston Churchill, the orator, the statesman that you know. The other was the American novelist known as Winston S. Churchill, lived in the city of Boston. And in his era, he was a best-selling novelist. Now how is ChatGPT to know there are 2 Winston Churchills, not one. Interestingly enough, Winston Churchill during his life corresponded with a novelist and he wrote, I'm going to paraphrase a letter that he wrote. And the letter was written before Winston Churchill became Prime Minister. So he said, I intend one day to be the Prime Minister of the United Kingdom. It wouldn't be great if you ran for President and you won, and we could meet as Winston S. Churchill each, you as the President of United States of America and I as the President of the United Kingdom. That will be pretty intriguing. Alas, that's not the way history was written, but ChatGPT doesn't know that. So you see the problem is, every nuance of every bit of data has to be pointed out to a computer. And all that data has to be catalogued properly and all that data has to be manipulated and somebody is producing a query. That's why the typical ChatGPT query takes 10x the amount of electric power than a simple Google query. So you will say to me, as a rejoinder as most people inevitably do, well, one day, they'll figure out a way to use less power for more elaborate queries. And you will not be right if you say that. Why? Because if you look inside a computer, a computer is basically just a big electromagnet. The data, it's expressed in binary forms. It switches on and off, zeros and ones. In other words, the data is simply electrons. So you can't process more data by using less electrons because data are electrons. You got to use more electrons. So the question is for society, if you want to have those privileges, which I personally don't need them, but I'm a minority of one. Everybody else seems to want them. Well, if you want them, if you want autonomous driving and you want to watch movies at 3:00 a.m. and you want to write book reports on Shakespeare without having read Hamlet, well, that's fine, but you better be prepared to use a lot of electric power. And this world is running out of it. So as I said, I'm minority of one. I don't need the stuff personally, but everybody else seems to want it. So since my vote doesn't count for anything, it is what it is. It's going to be the way it's going to be, and you know the outcome is. So sometime in the not-too-distant future, the best guess is sometime in the year 2028, we're running out of electric power. And there's nothing anybody can do to stop it. That's where we are. Now if it went the other way, let's just say, just for the sake of argument, mind you, went the other way, went the Murray Stahl way. So it went the Murray Stahl way instead of reading a book on a device, you might just buy the book and just put it on a bookshelf and that doesn't use any electric power. Problem with that, to show you that everything has its problems, believe or not, there are 5 million books published in the world every year. How would you ever build a library to contain them all? Even if you could, how would anybody be able to use, there's just too many books. So you can't flip through them. You can flip through some, but basically, you have to have some sort of electronic means of surveying them and extracting data from them that's useful. And therefore, there's no alternative but to go to high-performance computing, which everyone calls artificial intelligence. That's not artificial intelligence. It's merely data sorting. So I hope -- sorry for the elaborate answer, but it required it, and I hope you found it helpful with respect to your question. Mark Herndon: Okay. That's great. I do not have any further questions coming from the web or sent in advance. Murray Stahl: Okay. Excellent. So I take it that, that is, as they say in a movie business, a wrap. Is it a wrap? I think it's a wrap. Mark Herndon: I think it's a wrap. Murray Stahl: Okay. Good. So in that case, I'm going to thank everybody for listening. I thank you all for your support. And of course, you know what happens that we hang up this phone and someone is going to think about something they want to ask, they forgot to ask, please do not hesitate to contact us if such an event occurs and you have a question, we will get you an answer. And of course, we'll reprise this in about 90 days. So until that time, thank you so much for attending. We look forward to seeing you at the next Horizon Kinetics' shareholder update. Thanks so much. Bye-bye. Mark Herndon: Thank you.
Operator: Thank you for standing by, and welcome to the Australian Agricultural Company Limited FY '26 Half Year Results Release. [Operator Instructions] I would now like to hand the conference over to Mr. Dave Harris, MD and CEO. Please go ahead. David Harris: Thank you. Good morning, and welcome to the Australian Agricultural Company's Half Year Presentation for the financial year 2026. I'm Dave Harris, Managing Director and CEO of AACo. And joining me on the call today is our Chief Financial Officer, Glen Steedman. Before we begin, AACo properties are the traditional homes of many First Nations peoples, and we acknowledge them and offer our respects to the elders, past and present. We recognize their culture and honor their deep connection to the land, waters, animals and skies, especially across the places where we have lived and worked for our 2 centuries of operation. As a food and agricultural company, there is much to learn from their approach to community and their knowledge and care for country. Our presentation today will follow the regular format. I'll start our presentation and then hand over to Glen to run through the financial performance in more detail before I close with some information about the current market conditions. And with that, let's begin our presentation on Slide 5. Australian agricultural company's history and its operations are well documented. We have been many things to many people over 2 centuries of operation. To some, we are an iconic pastoral company. To others, we represent innovation in cattle and genetics. And our connection to others is through feedlots, farming or processing. To many, we are sustainability and nature. And to our customers and chefs here and globally, we are world-class Wagyu. Through our integrated supply chain, we are all of those things and more. We manage our properties and value chain with a workforce of more than 450 people on our stations, in our head office and in our key global markets. And we take a nature-led approach, implementing farming practices that aim to balance human needs, the needs of our cattle and the needs of our ecosystems in our care. We are proud of our legacy and the opportunity we had to recognize that with you last year. We are equally proud of who we are today and the direction we are heading in through our next period of growth. This is AACo, and we are reimagining Australian agriculture to share with the world. That is our purpose. We first shared that purpose with you 6 months ago, alongside our vision, our values and our new strategic focus areas, all of which you will find as we turn to Slide 6. Our vision complements our purpose. We aspire to be the leading food and agricultural company, delivering nature-led solutions at scale. That is one of the ways we can reimagine Australian agriculture. We see sustainable beef production as one of the solutions to climate change, and we are actively pursuing the ability to demonstrate that through a holistic nature-based approach to sustainability. As we chase this endeavor, we are discovering, creating and building scalable innovations and beginning to share them with our industry and others here in Australia and globally. Our values, be curious, be generous and to own your impact are helping drive the culture within our company. In isolation, each value can help bring out the best in individual employees and in combination, they become a powerful tool that will bring out the best in our business. Striving for excellence will help AACo deliver on its new strategic focus areas. We unveiled these to you during our full year results in May. Better beef as we constantly seek to improve our genetics and accelerate our ability to grow revenue, margin and brand equity unlocking the value of the land, where we aim to leverage our world-class pastoral properties and assets to pursue new opportunities and revenue streams and partner and invest, which will drive our approach to innovation, building relationships with partners to solve problems and embed future value, building on our market-leading position. I'm pleased to say that we made progress in each of these focus areas, which I'll share with you shortly. Before that, though, as we turn to Slide 7, I wanted to acknowledge all of our shareholders and express the pride that I take in leading the Australian agricultural company. The Board and the management team are energized by the work we do each day and the vision and purpose that we are working towards. No year is without its challenges, but we face them together using the experiences of the recent and the not so recent past to help us achieve the best possible outcomes in each circumstance. The values that we have and the culture we are continuing to grow are supported through what we call the One AA approach, one team working towards the same common goal. With that approach and with a genuine understanding and appreciation across the supply chain, we are moving forward, progressing our strategy, and we are delivering outcomes for the business. In fact, as you'll see shortly, the operating profit in the first half of FY '26 is our best yet. It's an outcome that we are proud of though as always, we celebrate with a degree of caution. Perhaps the 2 constants over our more than 200 years of history are that nothing stays the same and that progress is always hard earned. Still, our teams here in Australia and around the world should be commended for how they have delivered in this period. And on that note, let's take a closer look at some of the financial and strategy highlights on Slide 8. Total revenue for the first half of FY '26 is $232.9 million, an increase of close to 20% versus the prior period. The growth was influenced by an increase in average beef prices that I'll talk more about shortly, along with an intentional and tactical program of earlier life cattle sales. AACo's live sales took place in the second half last year, but we strategically undertook a large portion of them in the first half of FY '26 to capitalize on a trio of ideal conditions, good cattle productivity, increased demand and strong cattle prices. While some of those settings are dictated by the market, AACo controls the biggest factor in achieving good live sales results, and that is the condition of our cattle. Pleasingly, AACo has achieved excellent productivity outcomes in recent periods through a combination of station-based cattle management activities and the company's nature-led sustainability program, which is improving land condition across many of our properties. With resilient paddocks that are producing quality feed, we have put ourselves in the best position to breed and grow the best quality cattle. And we have been building that resilience over several years through our nature-led program. It's given us better control and the ability to make decisions like choosing the time of those live sales, demonstrating the different avenues we can take to achieve consistent positive outcomes and create long-term value. The cattle sales also helped drive AACo's operating profit of $39.8 million for the period. As I mentioned, that is AACo's best half year operating profit result and is almost double the prior period. While used in slightly different forms elsewhere, AACo first introduced the operating profit metric into our business in 2019. The aim was to more clearly identify outcomes and progress from the day-to-day operational decisions that are being made across the business. It does this by removing the areas where we have limited or no control, such as herd valuations. 2019 was also around the time we further increased our emphasis on branded Wagyu. In the years that followed, we completed the move from being primarily a cattle company that also has some Wagyu brands to being a branded beef company that produces high-quality beef and cattle along a sophisticated integrated supply chain. Our Better Beef strategic focus area is the next stage of this evolution. AACo made targeted investments under this pillar in the first half of the year that you can see near the top right-hand slide under the heading Progress against strategic focus areas. One of the aims of the Better Beef program of work is to further improve our overall genetic profile of AACo's herd by increasing the proportion of Wagyu animals. Doing so is expected to result in both immediate gains and long-term value creation through improvements in production efficiency and overall quality. It will also increase the number of animals that are better suited to AACo's premium brands and high-paying markets. We also made another investment in the Goonoo property near Emerald in Central Queensland, boosting its production capacity by an additional 10%. The work will further enable the consistent year-round supply and the high quality, which underpins AACo's Wagyu branded beef sales. AACo progressed the delivery of its landscape carbon project at [indiscernible] Station in Central Queensland with the installation of the infrastructure that will help facilitate the generation of future Australian carbon credit units, or ACCUs. The company has received its first set of ecological condition scores for its highest value ecosystems after being granted registration with the organization known as Accounting for Nature. We first announced this project alongside the release of our sustainability framework in 2021 and have updated you on the extensive baselining work in the sustainability and annual reports since then. This brings to a close the first stage of that multiyear program. The scores and the framework will now be used internally to measure and inform AACo's science-based nature-led approach and track improvements in the ecosystem condition of our properties. Both projects are being delivered under the unlocking the value of the land program and are also examples of AACo's holistic nature-based approach to sustainability. As part of our partner and invest program, AACo is happy to announce investments in Appian, a carbon insetting company that operates the world's first carbon marketplace for livestock. Under this pillar, AACo is seeking opportunities with companies and initiatives that involve new technologies or measures that will help solve problems for the company and industry as well as create value over the long term. As you can see, we have made good progress against our strategic focus areas in the 6 months since we first shared them with you. Whilst we are only at the beginning of this next period in the company's already substantial history, I'm proud of what we have achieved against our priorities. The financial contributions we made to begin delivering in those areas are in line with the company's long-term approach of reinvesting back into the business. Pleasingly, core free cash flow improved $19.5 million versus the prior period to $7.7 million. Shareholders would recall that we've previously reported operating cash flow as one of our key performance indicators. That was appropriate through the previous period when the company's focus was almost exclusively on branded beef. However, we're of the view that core free cash flow is better suited to AACo's new strategic direction where investments into the business are made across multiple priorities in addition to normal business-as-usual activities. This metric will better highlight the combined outcome of our operating performance and strategic investments. In the first half, the core free cash flow result was driven by our overall performance, less those investments I've just taken you through. The long-term outcomes of the better Beef focus area will be seen through our commercial activities and the progress we are making in our global markets. I'll share more about that with you now as we turn to Slide 10. AACo was able to navigate fluctuating market conditions to achieve positive beef sales results. Whilst consumer sentiment was challenged by cost of living concerns, overall global beef supply and demand market factors were favorable. Premium beef prices improved in AACo's key markets compared to the prior period. and trim and commodity pricing was also strong, particularly in the U.S. and general retail. Overall, the average beef sales price per kilogram increased 7% on the prior period to $18.62. This was a major contributor to a 3% overall increase in average sales value across AACo's brands despite 4% lower volumes through the period. The results once again demonstrate the strength of our distribution network and partnerships and the strategic approach that we take to allocating products across our global markets to maximize value. Targeted marketing and other commercial activities supported the brands this period from launching a global chef Advocate program aimed at enhancing the knowledge of our Wagyu beef to dynamic pop-up experiences that take consumers on the sensory journey. We'll take a closer look at how each brand contributed to our success as we turn to Slide 11. As our most exclusive Wagyu brand, Westholme continues to be served in some of the world's best restaurants. Despite sitting at the top end of market globally, high-end foodservice isn't immune from the challenges and the cost of living pressures that I just mentioned impacted conditions in some markets this period. AACo's approach to product allocation and strong distribution relationships are important in these conditions, and we were able to use these tactical responses in the first half. Launching in Mexico and expanding into the Middle East opened the brand to new customers and new opportunities. And the launch of a new product here in Europe that we call PUA supported the brand's overall performance. Highly evolved global media and marketing strategies were deployed to continue exposing the brand to new customers, including chefs. And we were able to achieve increased menu presence and market penetration through scaling up value-added products like burgers in the U.S. On Slide 12, the Darling Downs brand benefited from improving market conditions, particularly in Korea. The brand is already an Australian brand success story with more than 20 years history in Korea and thriving as a household name in that market. Far from being content or complacent though, we continue to pursue growth in this region and elsewhere. Our Beyond Taste campaign that included the Sensory Maze experience I mentioned earlier is an example of how we're increasing brand awareness in Korea. The oversupply of local hanwoo beef that we spoke to you about in FY '25 began to ease in this period, helping reduce the price pressures we were experiencing. The Darling Downs brand grew beyond Korea as well, securing placements with 5 new retail groups across key Asian markets. Through these and other activities, the brand improved its performance in the second quarter, and we hope to continue that momentum into the second half of the year. Moving on to Slide 13 and 1824. The brand that we relaunched in January last year, recognizing and celebrating our 200 years of history. 1824 captures demand in markets and from consumers outside of Westholme and Darling Downs. It plays a key role in our brand portfolio, enjoying pride of place in more mainstream food service and butcher channels. It also has a more focused tighter set of markets, which enable it to play that complementary role without impacting price opportunities. The brand continues its positive growth. In just a short time, 1824 has already regained a loyal following, establishing itself with consistent supply and quality that is being sought after by distributors. There is strong demand within Australian market and opportunities to expand into the U.K. and to the Middle East. And with that, I'll now hand over to Glen, who will take you through our financial performance in more detail. Glen Steedman: Thank you, Dave, and good morning, everyone. It's a pleasure to be with you to share our financial performance for the first half of 2026. As shown by the performance highlights on Slide 15, we have delivered an excellent set of results this period whilst making progress against our strategy. Metrics along the top of this slide, operating profit, beef sales price and core free cash flow are some of our primary financial metrics we use to monitor our performance. Statutory profit and net tangible assets are secondary, given they incorporate an unrealized fair value movement on the market value of our [indiscernible]. Our first half operating profit of $39.8 million is the highest result achieved for a half since this measure was introduced, which has nearly doubled on the prior period. This was driven by our strong beef and cattle sales performance. Average sales prices were high for both beef and cattle sales with higher half 1 volumes for cattle sales underpinning this growth. Average sales prices for Wagyu Beef were up 7%, driven by global market allocation, capitalizing on opportunities across our brand portfolio. Our Better Beef program is targeted at growing revenue, margin and brand equity. And we have proven our ability to grow through uncertain market conditions, including the changes in tariffs, global trade policies and impacted markets during this period. Core free cash flow is a primary metric we use to determine how we are performing as a business. This represents free cash flow less in-year strategic investments made as we reinvest to deliver on priority areas. We believe this is an important measure as it highlights the underlying cash performance of the business and provides transparency on strategic investments we are making. As I'll touch on in the cash flow slide, we achieved a core free cash flow of $7.7 million, which was up $19.5 million on the prior period. Our statutory profit and net tangible assets improved primarily due to higher market prices of our cattle with the $82.2 million statutory net profit after tax, up $58.6 million versus the prior period and net tangible assets up 6%. Whilst the fluctuations in the mark-to-market value of the herd are largely unrealized and outside of our control, we're able to capitalize on market opportunities for our live cattle sales during this half and the higher sales revenue also contributed to favorable statutory performance. Cost control and supply chain efficiencies resulted in a stable cost of production, which is particularly notable given the higher inflationary environment. I'll now take you through the drivers of our performance in some detail as we walk through our profit and loss, balance sheet and cash flow. Moving to Slide 16. As Dave mentioned earlier, we are pleased to have delivered a total sales revenue of $232.9 million, representing a 19% increase on the prior period. This growth was achieved through strong sales execution across both beef and cattle and strategically higher volumes of cattle sold. Our Wagyu beef sales revenue was up 3% with 7% higher average sales prices on 4% lower volumes. There's significant value in the partnerships we have continued to nurture and grow in key markets across the world, enabling our teams to allocate profit to maximize price and ultimately grow margins, which underpins our favorable performance. We look forward to further development under our Better Beef strategy as we continue to invest in ways that can provide sustainable growth. During this first half, we further displayed the strength of our integrated supply chain and decision-making by executing on cattle sales. In doing so, we've been able to capitalize on increased demand and higher prices for live cattle, growing total cattle sales revenue by 71% from the prior period. This result was made possible through good productivity outcomes driven by improved land condition and station-based management activities, achieving 20% higher prices compared to the prior period. Importantly, the overall herd size remains in line with the 2025 year-end position with our herd well positioned to generate future value. Our beef and cattle sales results delivered a gross margin of $76.4 million, up 55% on the prior period. We have continued to invest in our brand and capabilities during this period, which supported our overall performance. The delivery of our $39.8 million operating profit is one we can all be proud of as we look to the future of continued momentum and strategic focus for success. Now turning to Slide 17. Our cash flow for the first half further tells the story of our strong sales results with reinvestment back into the business to progress our strategy. As mentioned earlier, core free cash flow is an important measure of our business performance, highlighting the underlying cash performance of the business. The difference between free cash flow and core free cash flow is the strategic investments we have made in year. We were pleased to achieve a core free cash inflow of $7.7 million, up $19.5 million on the prior period. Key cash outflows during the period were made in service of our strategy and included enhancing the genetics of our herd, improved 10% production capacity at our Goonoo property, infrastructure to enable the generation of future ACCUs from the [indiscernible] soil and carbon project and building alternative revenue streams through our Gulf cropping. These investments have supported -- been supported by access to capital under our refinanced debt facilities as well as higher receipts from sales revenue. Through our enhancements and investments in new infrastructure, we are making tangible progress against our strategic priorities. It's pleasing that whilst our strategy refresh is relatively new, we have been able to execute on meaningful components of this already. Moving to Slide 18. Our balance sheet strength continues to grow, underpinned by our world-class assets. The key movements on our balance sheet from year-end was predominantly livestock, which improved in value by $123.3 million. This was largely due to a $94.7 million unrealized fair value gain on the herd driven by higher market prices. The herd size remains materially unchanged with continued improvement in overall condition and quality, which is a focus of our strategy. As announced to the ASX in August, we were pleased to share that we successfully refinanced our club debt facility with our banking partners, securing an additional $80 million in borrowing capacity on more favorable terms. Securing additional capacity allows us to continue to actively pursue opportunities under our strategic focus areas and add further value into our business. I'll now hand back to Dave to take you through the outlook for our operating environment and provide closing remarks. David Harris: Thanks, Glenn. Now let's move to Slide 19. AACo's operating environment remains active heading into the second half, both within its supply chain and globally. Cost of living concerns and a downturn in high-end food service are being experienced in some key regions. However, market reports suggest a continued tightening of global beef supply will balance out these price pressures, and AACo will continue to manage evolving circumstances through its global distribution network. Lower live cattle trading volumes are expected in the second half after sales were initiated in the first period as we shared with you earlier. Our properties are well positioned as we enter the traditional wet season. They are increasingly resilient following several years of work to establish and embed our sustainable stocking and land management strategies. Through our sustainability program, we have intentionally moved away from more volatile seasonal business models. We anticipate having more control over how we manage our supply chain, which allows better long-term planning and produces better outcomes for our properties and our cattle. It also allows us to respond more appropriately when market challenges arise or when there is instability, which appears to be increasingly the case in recent years. On that note, we welcome the announcement this week of the tariffs being removed from Australian beef entering the U.S. It's an important market for AACO and Australian beef more generally, and we support the removal of barriers that could improve opportunities for us in any region. Our focus for a number of years has been on creating desirable premium brands as well as distribution network and routes to market that can help us withstand individual market pressures. Our brands have a growing presence in North America when combined with factors such as the prolonged herd liquidation there, we remain positive about that market, and we look forward to continuing to build our presence there. I would like to thank you for joining us on the call today and thank the Board and the management team here at AACo. Strong results like we saw in this period can only be achieved through hard work and dedication. A record half year operating profit is testament to the important role each person across the business plays in the success of our operations and to the course we have set ourselves on through our new business focus areas. We've made pleasing progress against our strategy, setting the company up for sustainable growth. We look forward to the future with optimism, with purpose and a drive to succeed. That's the end of today's presentation, and we're now happy to take questions. Thank you. Operator: [Operator Instructions] Your first question today is from Eric [indiscernible] and there's a webcast question. This reads, David, your predecessor marked that with adequate rain, AAC has the best grass factory. Can you comment on the recent rainfall on the AAC land masses and how it has benefited the cost of operations? David Harris: Thanks for the question there, Eric. Yes, there has certainly been a start -- a bit of a start to the early wet season in the north. The majority of our Central Queensland properties have also had really good rain, which has been helpful. I think that's a soft start for us, which is great. Obviously, we need that rain to continue. The last couple of years, we've had little starts like this, which then dried up and last year's rainfall was actually considerably later than normal with the majority of rainfall received in March last wet season. In relation to cost of production, I've been really happy with how we've been able to manage cost of production over the last 2 or 3 years now where we're largely flat. Over this first half period, you'll note it's actually down 1% on the prior comparative. But if we look at full year periods over the last 2 or 3 years, we've remained relatively flat from a cost of production perspective. I think something to take into account when I talk about building a resilient business model and that sustainable long-term stocking rate that we talk to is a lot of that work and that theory is put into place actually in the difficult years, not the good years. And so what we're trying to do there by breeding -- building this resilient business model is so that in the droughts and the tough years, which I'm sure won't be too far around the corner now that we've had a couple of good ones. That, that's actually when these programs come into play and we're not forced sellers and we're not forced into moving cattle around or spending a lot of money on excessive lick and supplement feeding programs. And so whilst I'm extremely happy with us being able to hold cost of production flat, whilst we're also evolving the herd to be slightly more Wagyu and slightly more from an intensive feeding program that have higher cost of productions, but that's also more higher-value product. So to hold it flat, I think, is an excellent outcome. And where I really look for this resilient business model to play out will be actually in the more difficult years than these good years. So I hope that helps and answers that question for you. Operator: Your next question is from John [indiscernible]. This reads, the first half result appears to be significantly enhanced by the mark-to-market and the value of livestock. This is, of course, not a recurring item and follows a particularly favorable period of broad beef price increases. In the absence of this, the company would have made a loss. It appears difficult to see how the company can achieve a return commensurate with assets employed given the long-term strategies have not really achieved significant results. Is this perspective wrong? Glen Steedman: Thanks for the question. I'll take that one, Dave. So we do use operating profit as our key measure of determining our profitability because the unrealized gains or losses on our cattle do distort our results from year-to-year. So some years like this one, there can be large profits and other years, there can be significant losses caused by that mark-to-market movement. So what operating profit basically does is it allocates the cost to the cattle as they move through the supply chain. So when you get to the end of the supply chain, the cost that they absorbed is offset against the revenue to get a true feel for the profitability of those animals that go through. We don't sell the majority of our cattle through the typical market process. So those unreal -- those market values that are assigned at different periods in time don't really represent the true value of that livestock to our organization. So for us, the operating profit is the best metric. We've introduced the core free cash flow metric as well to give greater transparency to the market, just so they can see what we're investing into the future and also how the business actually performs on an underlying basis without those investments occurring. So we hope that provides greater transparency, and that's a key measure that we're going to continue to monitor ourselves against. Operator: You have another question from John Dicks. This reads, how do you see the removal of U.S. tariffs on beef impacting AAC? David Harris: Yes. Thanks for the question. Look, I think as I mentioned in the presentation today, North America is a really important market for us as a business. I think it will obviously help all beef export businesses in Australia into the U.S. and help with pricing there. I think it's probably fair to say that we need to have a global outlook on this piece as well. And so whilst Australia's exports to the U.S. have reduced by 10%. There was a point in time where it was actually a competitive advantage against some of other exporting nations. And so in this situation where we may have lost 10, other nations have actually had more significant reductions. So for example, I believe Brazil is still at sort of 40%, but they were up in the 70s. And so other nations have had significant reductions as well. Largely, I think it's positive, but we have probably lost some competitiveness against other exporting nations into the U.S. But the North American market is a really strong one for us. And like I said in the presentation, we focus on the things in our control. So we focus on our brands, and we focus on being desired by the chefs and the consumers in North America and so that we can get to the top of the list and be a really desired product there. We've put a lot of effort in North America from a commercial brand marketing side of the business. And I think what stands us in good stead over there is our sophisticated distribution network that lets us get all the way around that country to some really amazing consumers and distributors. And so I think it will continue to be a very significant market for AACo. Operator: [Operator Instructions] Your next question comes from Lindsay Stubs. This reads why doesn't the company pay a dividend to its shareholders? Does the company have any franking credits? Is it likely the company will ever pay a dividend? David Harris: Thanks for the question, Lindsay. That's a question for the Board. But I can confirm that last year, there were no dividends declared or paid in that half year '26, and there are no franking credits. What I'm focused on from a management perspective is how we reinvest back in the business and how we build the business to be a more profitable business for the future. And so at the moment, what we're trying to do is illustrate to shareholders the value that we think we can deliver for the business by reinvesting back into it. We've just delivered the greatest or the largest half year result in recent history for the business. And so I'd like to think that, that's starting to build trust with shareholders about our capacity to reinvest back in the business and build returns. Operator: Thank you. There are no further questions on the webcast or on the phone line at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect. David Harris: Thank you.
Operator: Hello, ladies and gentlemen. Thank you for participating in the third quarter 2025 earnings conference call for FinVolution Group. [Operator Instructions] After management's prepared remarks, there will be an opportunity to ask questions. Today's conference call is being recorded. I will now turn the call over to your host, Yam Cheng, Head of Capital Markets for the company. Yam, please go ahead. Yam Cheng: Okay. Thank you. Before I start, thank you, everyone, for dialing in. I think the line today could be a bit choppy. So in case we get disconnected, we'll dial again. So bear with us. Okay. So welcome to the third quarter 2025 earnings conference call. The company's results were issued via Newswire services earlier today and are posted online. You can download the earnings release and sign up for the company's e-mail alerts by visiting the IR section of our website. Mr. Tiezheng Li, our CEO; and Mr. Jiayuan Xu, our CFO, will start the call with prepared remarks and conclude with a Q&A session. During this call, we will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company's filings with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Finally, we have posted a slide presentation on our IR website providing details of our results for the quarter. I will now turn over the call to our CEO, Mr. Tiezheng Li. Tiezheng, please go ahead. Tiezheng Li: Thanks, Yam. Hello, everyone. Welcome to our earnings call. In the third quarter of 2025, against a dynamic regulatory backdrop in China, we delivered another resilient result driven by robust growth in our international business. Total revenue grew 6.4% year-over-year to RMB 3.5 billion, and net profit came in at RMB 641 million, up 2.7% year-over-year. Our China business demonstrated stable revenue. Meanwhile, our international business continued to shine. Transaction volume was up 33% year-over-year, and revenue rose in line with volume, up 37% year-over-year. Our international segment continued to be an effective natural hedge to our China business, representing a record 25% of total revenue this quarter comparing to 19% a year earlier. We made meaningful progress in our international expansion. Our borrower base now stands at a cumulative 10 million with new borrowers up 18% sequentially in the third quarter, reaching 1.3 million. Notably, our international new borrower count has exceeded China's for 6 straight quarters. In Indonesia, growth accelerated following the stable interest rate policy announced by the OJK in July 2025. We also succeeded in upgrading customers' quality which improved risk metrics and take rate. In the Philippines, we boosted transaction volume by 86% year-over-year to RMB 1.6 billion despite typhoon-related seasonal softness. Turning to China regulatory landscape, a new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across the industry in the third quarter. Our response was proactive and disciplined. We tightened credit standards to keep delinquency in check, prudently managed the loan growth and maintained close communication with our funding partners to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implementation of this regulation in the fourth quarter could create short-term uncertainties over volume, revenue and risk metrics. But... Operator: Pardon me, ladies and gentlemen. We have appeared to lose the main speaker line. Please stand by while we reconnect. [Technical Difficulty] And it appears we got the speaker line back in. We may proceed. Tiezheng Li: Okay. Sorry, we got disconnected. We will resume from where we start regarding the China regulatory landscape. Okay. Turning to China regulatory landscape. A new consumer finance regulation framework took effect on October 1, 2025. As expected, we saw transitional effects across the industry in the third quarter. Our response was proactive and disciplined. We tightened credit standard to keep delinquency in check, prudently managed the loan growth, and maintained close communication with our funding partners to ensure stable funding supply. Our funding costs improved slightly as a result. We anticipate that full implication of these regulations in the fourth quarter could create short-term uncertainties over volume, revenue and risk metrics. But this is not new to us. As an industry pioneer with 18 years of proprietary data spanning diverse credit profiles and economic cycles, we have built a deeply resilient foundation. We continuously enhance our industry-leading risk assessment and pricing capabilities by leveraging big data analytics and AI to refine our models. Most importantly, we have the experience of actually adjusting our operations to dynamic regulatory shifts. We have successfully navigated through interest rate change in China and other developing countries. And we are well prepared to adapt to this new environment. We also continue to lead on the technology and AI. In the third quarter, we hosted our annual FinVolution Global Data Science Competition, which brought together top AI researchers, engineers and data scientists to develop tools to combat deep fake image detection. Over the past decade, the competition has attracted nearly 10,000 cumulative participants and covered frontier topics, including credit assessment, fraud detection, behavioral analytics, device recognition and voice authentication. The competition is winning growing recognition from academic institutions as well, including official tracks like IJCAI, International Joint Conference on Artificial Intelligence 2025, and the CIKM, Conference on Information and Knowledge Management 2025, and showing the value we are bringing to the global ecosystem. On the ESG front, we adopted AI to improve fulfillment of customer service and enhance consumer rights protection. During the quarter, we introduced a new upgrade on customer service AI agent to more accurately identify customer intent and automated response to select inquiries based on the level of urgency. This upgrade simplifies the customer service journey, enabling more timely engagement with customers. During the quarter, the enhanced AI agent have successfully completed over 1 million times of service interactions. In summary, we delivered a resilient quarter, thanks to disciplined execution of our local excellence, global outlook strategy and an experienced response to changing regulation. Our diverse portfolio was a key strength. We remain confident in the long-term fundamentals of our China business, where our international operations are gaining exciting momentum. I'm now turning the call over to our CFO, Jiayuan Xu, for a deeper look at the numbers. Jiayuan Xu: Thank you, Tiezheng. Hello, everyone. Let me go through our key results for the third quarter. Please refer to our third quarter earnings press release for further details. Let's start with China. The economy remains in moderate recovery model. Domestic demand is still relatively mild amid a complex external environment. Consumer confidence index trended up slightly in Q3. Against this softer environment, coupled with the early impact of the new regulation, we saw [Audio Gap] liquidity has improved while funding cost has been on a downward trend, improving from 3.7% last quarter to 3.6% this quarter. Customer acquisition [Audio Gap] has also become more rational as competition for consumer eased. Looking ahead, we should continue to be diligent on risk as we manage our business. On the international front, we delivered robust growth this quarter, underscoring the strength of our regional strategy and the power of our scalable platform. On the timing, this regional performance is our core technological capability. We are systematically replicating our proven playbook, spanning technology, risk modeling and the partnership frameworks into high-growth economies like those in Southeast Asia. The results speak for themselves. From the macro standpoint, we saw a touch of softness in the region. Typhoon season lowered the PMI to 49.9% in the Philippines, while consumer confidence remained similar in the third quarter in Indonesia. Against this economic climate, we delivered RMB 3.6 billion in total transaction volume, a 33% increase year-over-year. The growth was broad-based with Indonesia and the Philippines contributing 57% and 43% of volume, respectively. Our unique international borrower base also expanded to 3 million, surging 114% year-over-year, confirming the deep untapped demand across the region. Our regional strategy even out the distinct local conditions and brought about diversification. For example, while our growth was moderated by the seasonal typhoon in the Philippines, we were encouraged by the stabilizing regulatory environment in Indonesia, allowing us to accelerate our user acquisition. This drove transaction volume to RMB 2.1 billion, up 14% year-over-year and the loan balance to RMB 1.4 billion, up 21% year-over-year in Indonesia. Across the region, we continue to scale the platform with our operational know-how. We strategically upgraded our user quality in Indonesia to drive improved unit economics as evidenced by longer loan tenure, healthy risk metrics and higher take rates. Furthermore, our partnerships with ecosystem partners continue to expand. Our growing credibility is unlocking premium funding sources and attracted a new institutional bank partners to our franchise in the Philippines. Our e-commerce partnerships also continue to proliferate, forming 36% of volume in the Philippines, up from 20% a year ago. As a result, transaction volume was up 86% year-over-year to RMB 1.6 billion, and the loan balance surged 101% year-over-year to RMB 897 million in the country. Overall, strong operational execution this quarter produced a resilient financial results despite modern external challenges. Group net revenue reached RMB 3.5 billion, up 6.4% year-over-year. Net income was RMB 641 million, up 2.7% year-over-year, but down 14.7% sequentially, partially due to one-off government subsidiaries in Q2. Our balance sheet remains healthy with cash and short-term investments of RMB 7 billion and a historical low leverage ratio of 2.4x. We also maintained a prudent provision coverage ratio of 517%. Furthermore, we remain committed to shareholder returns in the third quarter. We repurchased a total of approximately USD 2.6 million. As of September 30, 2025, we have repurchased a total value of approximately USD 66.5 million, bringing cumulative share repurchase amount to USD 437 million since 2018. Since October, we further accelerated our buyback effort amid market price dislocation. In short, we continue to demonstrate strong execution of our local excellence global outlook strategy, while our financial performance for the first 9 months ended September 30, 2025, remains generally in line with our revenue forecast for this period. The recent regulatory changes in China have introduced near-term uncertainties. We now expect full year 2025 total revenue guidance to be in the range of approximately RMB 13.1 billion to RMB 13.7 billion, representing year-over-year growth of approximately 0% to 5%. Thank you. Now let me hand over the call to the moderator. Operator, please continue. Operator: Okay. We will now begin the question and answer session. For the benefit of all participants on today's call, if you wish to ask a question, please ask your question to management in Chinese, we may ask that you kindly repeat your question in English. Our first question comes from Alex Ye with UBS. Xiaoxiong Ye: [Foreign Language] So I will translate my question. My first question is regarding -- so given the current regulatory changes, it has introduced some volatility in the near-term risk as well as impairment charges, which impact our earnings as well. So I'm just wondering how should we expect our normalized take rate to settle in the next few quarters after assuming the asset quality gradually stabilized? So the second question is regarding our buyback plan. So can you remind us what are the current unused quota that we have in place? And given the current elevated uncertainties and depressed share price, do you have any more specific guidance in terms of the pace and scale that you're going to implement those buyback plan in the next 12 months? Jiayuan Xu: Okay. Thanks, Alex. I will take your questions. Your first question is about the normalized situation and the 24%. But our risk-bearing loan stays within 24%. In Q3, the average is around 22%. So following the 24% cap, there were several factors to consider. First, risk may fluctuate across cycle and is the most important factor in the current environment. Based on our experience in the previous cycles, it would be mostly back to the normal level. And on the funding side, as subject to the demand and supply of liquidity, now we are seeing more liquidity changing after high-quality assets as there should be some room for the optimization of funding costs. So overall, for our risk-bearing portfolio, the take rate should likely track well towards during the normal period. However, the new regulation may impact some parts of our business, such as the traffic referral business. Some customers will no longer be served. Also, we expect the take rate for this service should narrow accordingly. It depends on the factors like the market liquidity, funding costs and the real appetite of our partners. Below the revenue take rate, we also need to factor in operational efficiency. On the user acquisition front, we have noticed that reduced competition in the market, there should also be some room to optimize the acquisition costs. We will continue to adjust our acquisition pace dynamically based on price, funding availability and the risk strategy. As the business scales up and the technology becomes more deeply embedded across our operations, we also see further potential to optimize the fixed cost. In short term, we do anticipate some P&L impact from the risk. This uptick will tighten our new loan origination and impact the volume. At the same time, the historical cohort will likely perform when risk increase. It result in the high provision cost. Both elements could reduce the near-term profit level. As the risk metrics are still volatile, it may be too early to say how risk may evolve, but we will continue to monitor this closely. And your second question is about the shareholder return. On the buyback front, we have been actively repurchasing our shares. As of November 14, we have bought back USD 78.4 million worth of shares. Notably, the pace picked up in the fourth quarter. We did $12 million in the Q4 so far, which is nearly 5x what we did in the third quarter. So given the momentum, we are on track for a full year total that looks a lot like last year. And for the dividends, in 2024, we paid out $0.277 per share, representing 17% year-over-year increase. And it makes -- it marks 5 straight years of growth. Average is an 80% CAGR. And looking ahead, our focus remains on delivering the steady growth of our EPS. Let me reiterate our shareholder return strategies. Even with all the short-term fluctuations in the market, our core commitment to our shareholders remains solid. When we think about the returning value, we will look at the whole picture, including the dividend and the share buyback program. We will weigh the benefits of each. And right now, with our stock trading at just 0.6x of our net book value and only 1.5x of our short-term liquidity, in this situation, buying back our own shares is an effective way to create the value for our shareholders. That's why we are ramping up our buyback activity. Okay. Operator: And the next question comes from Cindy Wang with China Renaissance. Yun-Yin Wang: [Foreign Language] I have 2 questions here. First one, due to the connection issues, so could you tell us, what's your day 1 delinquency rate and also the 30-day loan collection rate in third quarter. And based on the early risk indicators since July, have you seen a stabilization in October and November? And how do you determine the inflection point of credit risk? Second, looking ahead, will the growth momentum in overseas market accelerate? And what are the main product driving growth in Indonesia and the Philippines? Jiayuan Xu: Okay. Thank you, Cindy. Yes. Sorry for the connection issue, and hopefully, everything is good now. I will take your first question, and Tiezheng will take your second question. Your first question is about the risk in our domestic business. Well, the new regulation has tightened the industry-wide liquidity and increased the credit risk. And this was reflected in our Q3 results with the day 1 delinquency rate increasing by 30 bps quarter-over-quarter to 5% and the 30-day collection rate softened to 88%. This trend persisted in the early October driven by the regulatory changes and the seasonal effect on the National Day holiday, we saw a further uptick on risk in the first half of October. Now we have begun to see early signs of stabilization. By November, the day 1 delinquency rate decreased by 4% from its October peak, though it remains by 8% above the Q3 average. While this is a positive development, we believe it's too early to draw a conclusion here. And if we see -- if we can see the sustained improvement over 2 consecutive months, it could be a turning point. Our response to this cycle has been shifting and strategic. We focus on the key risk management areas like risk underwriting, collection. We have proactively refined our risk models, leveraging the insights from past downturns to simulate various scenarios to more precisely calibrate, create credit exposure. Furthermore, we are deploying advanced AI to enhance our early warning alert capabilities for individual borrower stress. This analytical approach has been translated into concrete measures. We have tightened the underwriting standards, reduced exposure to high-risk profiles and scaled back customer acquisition spending on lower-quality channels. On the collection front, we have adopted a more refined and dynamic strategy, customizing repayment reminders based on user categories and enhancing our communication approach. So the cumulative impact of this volume and risk management adjustment is that while overall risk levels remain on a high level, the rate of increase has begun to moderate. As a market leader with consistent prudent risk culture and deep cycle experience, we are confident in our positioning. We maintain strong risk resilience supported by ample cash reserves and consecutive provision coverage ratio of 517%. This solid financial foundation positions us to not only withstand the current market fluctuations, but to emerge from this cycle in a strengthened competitive position. Okay. Tiezheng Li: I will share some information about the growth and products on our international markets. Our international business are growing very fast right now. And since from 2020 to 2024, the transaction volume grew at a CAGR of over 70%. And in Indonesia, after increased rate cap adjustment, the business has bounced back and is now growing very quick. And the Philippine market has kept up high double-digit growth year-on-year. Looking ahead to 2025, we expect transaction volume for both markets to grow at current trajectory, and profitability should also stay solid. And from product side, we have a diverse product to meet different consumption scenarios. And in Indonesia, we are not just doing online cash loans, we've also been pushing into buy now, pay later in offline retail. And we got most finance license last year, and we are rolling out installment finance for products like phones and e-bikes and appliance and furnitures. And we have built partnership with leading electronic brands to attach our financing solutions to select 3C products in their store. Right now, the buy now, pay later product still makes a small part of our overall business, but they are growing very fast. It's 6x in transaction volume year-over-year. And in Philippines, we built attractive e-commerce partnerships. It's contributed 36% of the transaction volume. We started the digital partnership in February last year, and now it's -- the transaction volume was triple of what it was a year earlier. This helped us reach a whole different kind of customer cohort, smaller take size, higher repurchase frequency, and a lot of them are female customers. And we think this user tend to be lower risk, and it will balance out our online loan portfolio. Building on the success, we are expanding similar solutions to daily consumption broader -- in broader industry. For example, we recently partnered with Smart. It's a Philippine local telecom provider, provides consumer with buy now, pay later solution. As we keep expanding into more offline scenarios, we'll be able to reach even more people who aren't active online. So we expect our customer base to keep getting broader and higher quality over time. Thank you, Cindy. Operator: And the next question comes from [ Gian ] Zhou with CICC. Dongping Zhou: [Foreign Language] I will translate my question. With the current regulatory situation so uncertain, what measures has the company taken to address it? And what are the key priorities for the future development? Tiezheng Li: Thanks, Dongping. For over 18 years, FinVolution has successfully navigated multiple market cycles. In China, we have upgraded from a P2P model to a loan facilitation model, adapted to an evolving regulatory landscape, and managed through several interest rate cap adjustment. Our international business has similarly matured through its own cycle of regulatory change. This experience made us a more resilient and stronger company. In China, we took preemptive action early this year in response to initial signs of market volatility and decisively prioritized quality over quantity. In recent months, we have proactively upgrade our borrower base, and we raised our underwriting standard to target higher quality customers. And we also adjusted our user acquisition spend to maximize risk-reward efficiency from a lifetime value perspective. This strategy allowed us to reduce both near-term risk and the user acquisition cost. As a direct result of these efforts, our sales and marketing expense decreased by 12% quarter-over-quarter. Looking forward, we remain vigilant in our risk management discipline. And turning to our international markets. Since our expansion began in 2018, we have built one of the few scaled overseas platform in our sector. We reached a significant milestone this quarter. And as our international revenue contributed 25% of group revenue for the first time. Today, our international business has built a strong foundation. We have over 15 institutional funding partners, a diverse network of online and offline partnerships, flexible product offerings and a complete licensing portfolio across multi countries. So our playbook has proven successful in Southeast Asia, and we are well positioned to replicate this model further. And looking ahead, the China market will continue to be a major bedrock of our business. We will focus on the right balance between risk and growth, solidifying the foundation for profitable, long-term sustainable business. And our international operations are already profitable, and we will continue to enhance the profitability as we scale. Our strategic target is to build a balanced portfolio with 50% of our business coming from international markets by 2030. Thank you. Operator: As there are no further questions, I'd like to turn the call back over to management for any closing remarks. Yam Cheng: Thank you once again for joining us today. Apologies for the disconnection of the call. If you have any further questions after this call, please feel free to let us know and contact the FinVolution IR team. Thank you so much. Operator: This concludes the conference today. You may now disconnect your lines. Thank you.
Peer Schlinkmann: Good afternoon, everybody, and welcome to the 9 months earnings call of the Wacker Neuson Group. My name is Peer Schlinkmann, Head of Investor Relations and Corporate Communications. Thank you for joining today on the occasion of the release of our 2025, 9 months results. As usual, we will first start with the operational and financial results of the 9 months 2025 and give additional insights on the recent developments. Following this, we are happy to answer your questions in the Q&A session. Available to follow today's call via the webcast, the presentation slides are also available for download at wackerneusongroup.com/investor-relations. Please note that the entire call, including the Q&A session, will be recorded and a replay will be made available on our corporate website by the end of the day. And now I would like to hand over to our executives, Karl Tragl and Christoph Burkhard, who will lead you through this call. Christoph Burkhard: Thank you, Peer. This is Christoph Burkhard, CFO of the Wacker Neuson Group. Welcome, everybody, to our earnings call, and thank you for joining. Karl Tragl: Dear all, a warm welcome from my side, too, and thanks again for joining the conference call. I'm Karl Tragl, CEO of the Wacker Neuson Group. I would like to start the presentation with a brief overview of our key financials for the first 9 months of 2025. Our operational recovery continued in quarter 3 of 2025. Despite a challenging macroeconomic environment, which had especially weighed on the first quarter of this year, we were able to increase both our revenue and EBIT margin in quarter 3 year-over-year. This positive development is, among other things, the result of efficiency measures that we initiated last year. Now let's take a closer look. Our revenue for the first 9 months of 2025 amounted to EUR 1.625 million, marking a 5.6% decline year-on-year. This decline was primarily due to the weak first quarter of 2025 as well as persistently weak demand in the U.S. Our 9-month EBIT margin in 2025 amounted to 6.0%, which is 0.3 percentage points below the previous year. Also here, we were negatively impacted by the weak beginning of this year. However, it is apparent that we have succeeded in further stabilizing our improved profitability. The EBIT margin in the third quarter was at 7.5%, thus nearly on the same level as in quarter 2 2025 despite the lower revenue base of quarter 3. Moreover, this quarter's EBIT margin was 2.7 percentage points higher compared to quarter 3 in 2024. Looking at the net working capital ratio, we see a slight decrease compared to previous year. However, our yearly strategic target of approximately 30% remains under pressure, especially due to the uncertainties in the U.S. market. Our free cash flow surpassed the triple-digit mark and amounted to EUR 116 million. Christoph will explain both developments in more detail. Now let's look at the developments of our business segments after the first 9 months of this year. In general, the overall picture remains challenging. Recovery of compact equipment was slower than initially expected. It faced a year-on-year decline of 10%. Nevertheless, certain product groups like dumpers differed from the general trend, demonstrating resilient customer interest in our innovative products. The Light Equipment Products segment stabilized and remained only 1% below the previous year. And moreover, services grew again year-over-year by 1%. The 9 months year-to-date book-to-bill ratio was at 1.1. Nevertheless, we see the agriculture as well as construction industries recovery slower than initially anticipated. We, therefore, keep monitoring our markets closely, and we remain cautious regarding the developments in the last quarter of 2025. Let's take a closer look at our regions during the last 9 months. Revenues in the Europe region, EMEA, after 9 months of 2025 stood at EUR 1.269 billion and made up 78% of our global group revenue. Also, quarter 3 of 2025 revenues increased year-over-year. The 9-month revenues remained 4% below the prior year, still impacted by the negative effects of the weak first quarter. Moving to Americas region, accounting for 20% of our group revenue, we saw a decline of 10%, resulting in revenues of around EUR 322 million. Demand in the first 9 months of 2025 was further characterized by greater caution in ordering behavior in the U.S. compared to Europe due to ongoing macroeconomic and geopolitical uncertainties, mainly due to the effects of the U.S. tariffs. Demand declined not only in the U.S., but also in Canada and Mexico. In the Asia Pacific region, which represents 2% of our business, revenue dropped by 21% to approximately EUR 34 million. The region was primarily characterized by a decline in demand in Australia and China. I will now hand over to you, Christoph, to give some more insights into our financials. Christoph Burkhard: Thank you, Karl. Let's take a closer look at where we stand with our net working capital. Our net working capital ratio based on the last 12 months revenue at the end of September stood at 32.4%, slightly below the value at the end of the second quarter in 2025. In comparison to last year's figures, however, the progress we made is more apparent. Over the course of 12 months, net working capital dropped by EUR 116 million from EUR 808 million at the end of September 2024 to EUR 692 million at the end of September 2025. This reduction is mainly driven by a steady reduction of inventories and an increase of trade payables in the last 12 months. This is the driving force behind the reduction of 1.8 percentage points of net working capital and in the net working capital ratio over the last 12 months, which stood at 34.2% at the end of September 2024. Now looking towards year-end, I expect a slightly higher working capital ratio, predominantly caused by higher inventories in the U.S. Alternatively, we could have adjusted our production plan for 2025 downwards to the current lower demand in the U.S. This again would have triggered underutilization in our European plants. In light of our stable cash flow generation and in preparation for 2026, we decided to prioritize stable production output over short-term working capital optimization, leading to this temporary increase in finished goods inventories by year-end. We believe that this is the right decision because we avoid additional underutilization costs and at the same time, we expect inventories to decrease again towards springtime due to overall market normalization in 2026. Now let's have a look at our cash flow. Although our revenues decreased by 5% quarter-over-quarter, we were able to keep our profitability stable on a level of above 7.5% on a quarterly basis. This is also reflected in our stable cash flow from operating activities. Therefore, we could continue in Q3 with a positive free cash flow generation now for the sixth quarter in a row. Due to the just mentioned rising inventories in the U.S. by year-end, I do not expect cash flow generation in Q4 to continue as in the previous quarters. However, I stick to my previously made statement of a triple-digit free cash flow number at the end of the year. Also on the positive side, we further reduced our net debt in Q3 down to EUR 258 million, reaching the lowest level since the first quarter in 2023. Consequently, also our leverage ratio reduced further down to 0.9. And last but not least, the picture of our capital structure is completed by a robust equity ratio of 60%. And with this, back to you, Karl. Karl Tragl: Thank you, Christoph. Before concluding with the current outlook, I would like to give you an update on the implementation of our Strategy 2030. Despite the challenging market environment, along our strategic levers, we are continuing to implement the milestones, which you can see on this slide. The John Deere Cooperation is fully on track. We have successfully started delivering first serial excavators for John Deere from this. At the same time, we are ramping up the production line of our U.S. plant for further models and will start their delivery in 2026. On the chart, you see a picture of our modernized production sites in Menomonee Falls in Wisconsin. I can tell you, it really looks good. On the other hand, we have advanced our light equipment portfolio. We expanded the range of reversible plates and also introduced new battery-powered versions. The battery-powered rammers gained on efficiency through a feature called the integrated speed control. The compaction performance can now be optimally adapted to the respective application. And last but not least, we have expanded our zero emission portfolio in compact machines and added 2 models of excavators. With just a 1.2 ton operating weight, ESET 10 electric is particularly well suited for applications with a restricted floor load such as indoors. The green illuminated active working signal increases safety on both internal and nighttime construction sites. The second model introduced, EZ26 Electric is a bigger tracked zero tail excavator. Its emission-free, quiet and low vibration operation makes it the ideal choice for legally restricted or noise sensitive and environmentally critical areas as well as for special work sites with local and time restrictions. As you can see, one of our strategic focus areas remains our investment in sustainable construction. We believe that this is the future of construction, and we are ready to seize the future opportunities. Now let's move on to our outlook for the year 2025. Also, we have a stable order book development in the course of this year, market recovery is slower than we initially anticipated. Industry outlook partially stagnated as well. And moreover, we have faced a significantly weaker market demand in the U.S. due to geopolitical uncertainty as well as the tariffs. Due to supply chain issues of Nexperia, we only expect a minor impact on our production in the last 2 months of 2025. However, we will closely monitor the situation. Due to all of these factors, we have decided to narrow our yearly guidance. For 2025, we now anticipate a revenue in the range between EUR 2.15 billion and EUR 2.25 billion and an EBIT margin in the range between 6.5% and 6.8%. We expect our investments to reach around EUR 80 million and our net working capital to be at around 34% by the year-end. As we already mentioned, we succeeded in stabilizing our improved profitability in the current market environment in quarter 3 of 2025. Looking ahead, we will continue to counteract the weak market, especially in the U.S. with efficiency measures and cost discipline. For 2026, we expect market recovery in Europe as well as normalization of market demand in the U.S. Nevertheless, we still remain cautious and track our market developments continuously. Summarizing the key messages from our first 9 months. Revenue is in line to reach full year guidance. Narrowed margin guidance is driven by underlying U.S. tariff impact and geopolitical uncertainties. We are ready to seize the opportunities in the years ahead presented by the German special fund. Strong balance sheet is our foundation to execute our Strategy 2030 and drive future growth. Before we now jump into the Q&A session, let me send a sincere thank you to all our employees of the Wacker Neuson Group, who relentlessly are giving their best for our customers and our company, even more so in challenging times. So really thank you. Nobody is perfect, but a team can be. Thank you for listening. Operator, we are now ready to start the Q&A session, and we're very much looking forward to answering your questions. Operator: [Operator Instructions] First question is from Stefan Augustin of Warburg Research. Stefan Augustin: The first one would be actually on the book-to-bill just for Q3. And let's say, with that, maybe a little bit the progression throughout the quarter. Was that rather a stable quarter? Or was it more, let's say, weaker versus the end, something like that and the color on the current situation. That will be the first question, and I'll take them one by one, 2 more. Karl Tragl: Stefan, thank you for asking the question. The EUR 1.1 billion in the year-to-date was driven by a lot in the April and the [Baumol] effect. In quarter 3, we have been fluctuating around EUR 1.0 billion. So it's stable at the situation. Stefan Augustin: Okay. The next one is then a little bit more complicated, and I try to square it a little bit up. Starting from the net working capital ratio that goes up to -- in the new guidance, 34%. And you mentioned the production shipment into the U.S. Is that the right calculation to think about if you are now at 32% and you go up to 34%, that is roughly something like EUR 40 million in additional inventory. And how would this square up with shipments from Linz to the U.S. for Deere, which have been mentioned, I think, in the range around EUR 20 million for this year. Is there other shipments that are also impacted here? Or is it inventory that is not only in the U.S.? How do you need to think about that? Christoph Burkhard: Stefan, Christoph here. Well, you need to add to your John Deere calculation, of course, the imports from Europe that are already phased into 2026. And that, of course, is easily adding up to the number that you have in mind. I don't know, could -- is that the direction you wanted to. Stefan Augustin: Yes. I think I get this now. I just wanted to come, let's say, how do I come from the EUR 20 million to EUR 40 million, but that's a plausible answer. And then you cut on your investments. Is that actually something you abandon here? Or is that push out? And what is -- what has been, let's say, what is the cause of the lower -- the EUR 20 million lower investments? Where do you think? Karl Tragl: Stefan, Karl speaking here. There is no major investment which has been affected by this one. It's just many smaller investments, which we just moved a little bit forward to be on the safe side on that end. So it doesn't affect any future growth or any strategic investments. I would call it, it's a normal effect of cautious cost and cash flow management in such a situation. Christoph Burkhard: And Karl, if you allow me to add one thing here, Stefan, something that sometimes gets a little bit in the background is that our investment number does also comprise investments in terms of our sales network and sales channels. And so we are always evaluating, will we now replace a certain sales outlet. We will replace rent by a purchase of building and real estate, et cetera. So there are just some moving parts where we can be more conservative on the investment side without basically affecting the plants that are really adding to our capability for innovation. So it's not purely plant related. Stefan Augustin: All right. And then the last one is maybe a little bit on the pricing situation. What do you see right now? Is it okay? Or is it starting to deteriorate in Europe or the U.S.? How do we have to think about that one? Christoph Burkhard: Yes. Pricing situation, pricing expectations towards 2026, Stefan, let me differentiate between 2 major areas here. The first one is, I think we have been discussing that is the current situation in the U.S. where we encounter really difficult to increase prices. Here, we believe that -- I know it's a little bit vague, but sooner or later, I think the market will have to accept some price increases. I know this is pretty fuzzy, but that's, I think, all of us, even -- and also our competitors are calculating with this for 2026. And so the first part of the -- of our expectation that we will see modest price increases in 2026 is certainly in the U.S. And the second area for Europe, I think we will see the regular slight increase. So altogether, a slightly positive trend from our point of view. Stefan Augustin: Okay. And finally, a bit of housekeeping question. Can you remind us on the ramping up, the phasing of the Deere operation going from this year, the EUR 20 million to what roughly bracket in '26? And when does the production start in the U.S. Karl Tragl: Okay, Stefan, let me take the question. Karl speaking here. On the first hand, I would just want to remind us all that this is another partner who is not on the table, and we have to be careful not to jeopardize any communication from that side, especially we talk about start of production or start of deliveries. But in general, what we can say is, as I said, the cooperation is fully on track at the time we both agreed. Linz is fully operational, as we mentioned. There is start of production in U.S. by end of this year for the first model, which means then delivering next year. And as we always communicated, we are working with a 1-year interval in between 2 start of productions. So start of production of the next model is then obviously somewhere second half of next year in U.S. Operator: A lot has been clarified. I see there are no more questions in the queue right now. [Operator Instructions] There seem no questions to be incoming anymore. So with that, I'm handing the floor back over to Peer Schlinkmann. Thank you. Peer Schlinkmann: Thank you. Ladies and gentlemen, as we can see, there are no further questions left from you. That brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact me or the entire Investor Relations team via phone or e-mail. If you would like to meet in person, please let us know or check our website and financial calendar for all relevant roadshow days in the coming months. Thank you again for joining our call, and we wish you all a wonderful winter and Christmas season. Have a great day.
Operator: Good day, and thank you for standing by. Welcome to the SQM Third Quarter 2025 Earnings 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, Megan Suitor, Investor Relations team. Please go ahead. Megan Suitor: Good day, and thank you for joining SQM's earnings conference call for the third quarter of 2025. This call is being recorded and webcast live. Our earnings press release and accompanying results presentation are available on our website, along with a link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer; Mr. Gerardo Illanes, Chief Financial Officer; Mr. Carlos Diaz, CEO of the Lithium Chile division; Mr. Pablo Altimiras, CEO of the Iodine and Plant Nutrition division; and Mr. Mark Fones, CEO of the International Lithium Division. Also joining us today are members of our commercial and business intelligence teams. Mr. Felipe Smith, Commercial Vice President of the Lithium Chile division; Mr. Pablo Hernandez, Vice President of Strategy and Development of the Lithium Chile division; Mr. Juan Pablo Bellolio, Commercial Vice President, Plant Nutrition and Specialty Products; and Mr. Andres Fontannaz, Commercial Vice President of International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product and service line growth are considered forward-looking statements under U.S. federal securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update these statements, except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to our Chief Executive Officer, Mr. Ricardo Ramos. Ricardo Ramos: Thank you. Good morning, everyone, and thank you for joining us today. During the third quarter, we experienced a more favorable pricing environment for lithium compared with the previous period. Although the market remains highly volatile, we are cautiously optimistic. Our realized average prices increased. And while we expect this positive trend to continue in the fourth quarter, we remain focused on high-quality production, being a reliable supplier, increasing volumes and continuing to advance our cost reduction initiatives. Demand fundamentals remain strong, not only for electric vehicles, but also from energy storage systems, which already account for more than 20% of global lithium demand. Operationally, the quarter was very strong. We delivered the highest lithium sales volumes in SQM history, supported by low cost and strong efficiencies at our Atacama operations. Our Australian operation also continued to progress as planned. Spodumene sales increased significantly. We initiated lithium hydroxide production, and we reached record sales volumes of spodumene concentrate, an important milestone from this project. We expect commercial activity to remain robust in the fourth quarter. Outside the Lithium segment, performance was also solid. In Iodine and Plant Nutrition, results remained strong. Iodine prices continue at high levels with a balanced supply-demand environment. Construction of our seawater pipeline is now more than 80% complete, giving us the ability to bring additional iodine to the market earlier than expected, if required. We are also expanding our iodine production capacity through the development of a third operation in Maria Elena, which will add 1,500 tons of iodine capacity. This further strength our long-term supply position and reinforces our reputation as a reliable supplier. In fertilizer, we continue to see healthy demand and stable price across most key markets. Our Specialty Plant Nutrition business delivered discrete but sustainable growth compared with last year, both in volumes and revenues. The shift toward tailor-made solutions and higher value blends continues to improve our product mix and supports our strategy of allocating products to the most attractive markets. In iodine, revenues increased 5% year-on-year with prices averaging close to $73 per kilogram. The x-ray contrast media segment, the largest end-use application continues to grow steadily and remains a key driver of long-term demand. We also complete a detailed review of our CapEx program for the period 2025, 2027. Total CapEx is now estimated at $2.7 billion over the 3-year period. Our plan maintains a focus on increasing production capacity, preserving low cost, ensuring high product quality and upholding strong sustainability standards. While some investment decisions have been delayed, this does not affect our ability to meet the production and sales objectives set for each of our divisions. Finally, as announced last week by SQM and Codelco, we received approval from China's antitrust authority. We look forward to advancing this joint venture before the end of the year. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Joel Jackson from BMO Capital Markets. Joel Jackson: I'll ask my questions one by one. Can you talk about what you're seeing right now in lithium demand? Particularly, I wanted to maybe investigate, it seems like inside China, the demand forecast for lithium are a lot higher, like for forecast, they're coming from Chinese forecasters as opposed people outside China in the Western world seem to have lower demand forecast. Do you see this disconnect? Is it around energy storage in China? Can you talk about that? Pablo Hernandez: Joe, Pablo Hernandez here. So regarding 2025 demand expectations, we have recently improved since our last earnings call, so driven by stronger-than-expected EV sales, particularly in Europe and the sharp increase that you mentioned in BSS shipments. So we expect demand to reach over 1.5 million metric tons this year, representing an over 25% growth. In terms of China, it continues to maintain a significant lead in the EV market. We expected 30% year-on-year growth, representing more than 60% of the global EV sales. And regarding the other significant EV markets, Europe this year had a very strong first 3 quarters with more than 30% year-over-year growth. On the U.S., they still had a slower growth of 10% year-over-year, while the rest of the world, of course, had strong numbers reaching 40% year-over-year growth. Joel Jackson: Okay. You, on your last quarter talked about Chilean production for lithium to be up about 10% for you, and then you have about -- excuse me, 20,000 tons for your share at Mt. Holland. Are you still maintaining that 10% year-over-year our at Atacama? And then should we now expect something closer to 24,000, 25,000 tons for the year out of Mt. Holland in spodumene. Gerardo Illanes: Joe, this is Gerardo. Just to be clear, are you asking about production or sales? Joel Jackson: Well, you gave guidance last quarter that Atacama production or sales at the [indiscernible] would be up 10% this year, and then you'd have 20,000 tons out of Mt. Holland. In this particular quarter release, you said Q4 volumes would be similar to Q3 at Mt. Holland, which would imply more than 20,000 tons out of Mt. Holland. So I mean, maybe what do you expect out of Atacama? Like what production do you expect in Chile this year? What production do you expect in Australia this year? Let's do like that. Carlos Diaz Ortiz: Joe, this is Carlos Diaz. Well, our production in Chile is going according to what is schedule. We expect to produce this year close to 230,000 that is lithium coming from the Salar de Atacama. 180,000 of those processed in Chile and 50,000 is going to be processed in China, starting for our lithium sulfate production that we have been very successful with that. We'll continue working with expansion for next year, and we expect to grow next year. We still don't have the final figure, but we continue working to increase the production. That is regarding to the lithium production in Chile. Mark Fones: Joe, this is Mark Fones. To answer the second part of your question, yes, we maintain our production estimation or forecast for this year, which you may recall it was between 150,000 to 170,000 tons of spodumene concentrate at 5.5%. So that still holds. And regarding the sales projection, which you were referring to of 20,000 tons LCE for this year, that you're also right, we are increasing that to a range between 23,000 and 24,000 tons. Joel Jackson: Okay. That's perfect. And then my last question would be, when we look at the different average selling price for lithium that you get between Chile and international, it's about a $3,000 to $4,000 a ton discount. Should we think of that as that's the conversion costs that are basically embedded because you have to pay a toller to produce spodumene on an LCE basis? And then would we expect that international price discount versus the Chilean price realized to decrease across 2026 as you ramp up the Kwinana hydroxide conversion plant? Andres Fontannaz: Joel, this is Andres Fontannaz. Regarding prices for the SQM International Lithium division, please keep in mind that most of our sales are concentrated on spodumene. So more than 90% of our third quarter sales were explained by spodumene. And right now, we are reporting all of our sales as lithium carbonate equivalent. So in order to compare those prices with the prices that we are getting in the Chilean operation, you need to take into consideration the conversion factors and also the refining cost. So that would make a more fair comparison. Joel Jackson: Right. So my question is then across 2026, as Kwinana ramps up, shouldn't your -- shouldn't the international price rise -- realized price on an LCE basis rise closer to the Chilean price as Kwinana ramps up next year? Gerardo Illanes: Joel, this is Gerardo. Don't worry, next year or starting from next quarter, we're going to report the numbers from Australia as the product is sold. So if it's spodumene or lithium hydroxide, you will see the breakdown. So you will not have this confusion of prices without the conversion cost or not. Operator: Our next question comes from the line of Lucas Ferreira from JPMorgan. Lucas Ferreira: Hope you can hear me well. My first question is just to make sure I understand the part of China production. So are you already running 50,000 tons there? Because I remember the capacity was something around 30,000 tons with potential tolling of another 20,000. So I was wondering if there is more capacity to be used in China next year if the market remains good as it is right now in terms of prices. Is China ready full capacity? And the other question I have is also a follow-up on the JV with Codelco. If, imagine the signing, like Ricardo mentioned now by the end of the year, if there is any sort of a retroactive payment that SQM has to do for the year 2025, given that it took long to sign the contract. So in other words, when you look at the free cash flow of the company, even though you consolidate -- most likely consolidate the full thing, is there any sort of adjustment effect or cash transfers that we should be aware of when the contract is fully signed? Ricardo Ramos: Lucas, Ricardo speaking here. First, you're right in terms that we have to pay a dividend to Codelco during next year. This dividend will be in relation of the tonnage volume that belongs to Codelco according to the joint venture agreement. And we will put in our accounting this value as soon as we finish the agreement. That -- it has been stated very clearly in our financial statements that we have to do it as soon as we have the agreement with Codelco. And it is reflected, and you can calculate the number because it's quite clear in the agreement with SQM and Codelco that is public agreement. Carlos Diaz Ortiz: Lucas, Carlos Diaz again. With respect to your first question, our production in China, let me tell you that first that we expect to produce this year like 100,000 metric tons of lithium sulfate. So when you compare to lithium carbonate and hydroxide, you have to divide by 2. So it's equivalent to 50,000 around that. And 20,000 of those is going to be produced in our [indiscernible] plant in China and 30,000 is going to be produced with third parties. So we -- for the next -- for the coming year, we expect to keep increasing the production in lithium sulfate, and we're studying and evaluating to expand our capacity in China in our own plant. That is our plan. Operator: Our next question comes from the line of Ben Isaacson from Scotiabank. Lucy Zhou: This is Lucy on for Ben. And I have 3 questions. With the CapEx plan lower and lithium prices start to rise, how should we think about the need to raise capital in 2026? Is it fair to say that the base case scenario is no capital raise? Gerardo Illanes: Lucy, this is Gerardo. Well, you can see our balance sheet. We have a very strong balance sheet, and we have had always a strong balance sheet. And on these days, even at the current pricing environment, some of our main KPIs are improving. We are deeply committed to maintaining a strong investment grade. And there are several levers we believe can be pulled before pulling the last one, which is raising capital. So we're working on several initiatives. And as long as we keep on having a strong balance sheet, it may not be needed. Lucy Zhou: And for my second question, earlier this year -- earlier this week, Ganfeng suggested 30% to 40% lithium demand growth next year. Do you have any preliminary thoughts on demand growth next year? And in particular, how do you see demand for ESS developing next year? Pablo Hernandez: Lucy, Pablo Hernandez here. So regarding Ganfeng, of course, we will need to look into their assumptions. But of course, this looks like a good and optimistic projection for next year. In our case, regarding 2026, we're still assessing demand growth expectations, and we remain relatively conservative with the expectation to reach more than 1.7 million metric tons. And the main driver will continue to be the EVs and of course, as you mentioned, the very strong demand that we've seen on the BSS side. Lucy Zhou: Perfect. And finally, how much R&M production growth do you expect to see in 2026 that is not from SQM? And is it all Chile based? Pablo Altimiras: Pablo Altimiras speaking. Well, regarding to the third-party production, I mean, with the public information that we have, we believe that most of that will come from Chile, from caliche ore. And we don't have the exact figure, but our expectation is that, that amount will not surpass the growth of the total demand. Operator: Our next question comes from the line of Andres Castanos-Mollor from Berenberg. Andres Castanos-Mollor: Can you please update us on the progress to closing the deal with Codelco and remind us what the milestones are pending? What happens if it doesn't close by 2025? Is there a long stop close there? What will happen? Ricardo Ramos: Sorry, Ricardo speaking. First is we are -- as we announced, we closed with an agreement with the antitrust authority in China that was the last remaining external authorization we needed. And now everything is under the review, especially the agreements between CORFO and Codelco under the review of Contraloria in Chile. Contraloria is like an internal auditing body of the government that needs to review this kind of contracts. We expect that this review will be positive and will be before the end of the year. There's no second one. We will close this year. That's for sure. Andres Castanos-Mollor: That's great. Another question, if I may. This would be asking on 2026 expected mix out of Australia. What mix of spodumene and hydroxide do you expect to get out of Australia in 2026? If you could indicate something about this. Mark Fones: Andres, this is Mark Fones. We have not yet closed our budget for next year on production for Mt. Holland. What I can tell you is that the mine and concentrator at Mt. Holland, we expect to be producing at capacity. So of course, we will be expecting half of Mt. Holland's capacity in terms of spodumene concentrate. What happens with the ramp-up on the refinery on the other hand, is that we've announced the first product this year, as you well know, and we will be ramping up production until almost reaching nameplate capacity by the end of 2026. What's the exact amount of that lithium hydroxide considering all the good work that has been performing covalent with Wesfarmers and SQM at the refinery in addition to all the challenges as any ramp-up in a capital project will happen next year, still remains to be seen, and we will let the market inform in due time. Operator: Our next question comes from the line of Corinne Blanchard from Deutsche Bank. Corinne Blanchard: The first question, I would like to get more color on the CapEx reduction. You reduced it by about 22% versus what we had last year. But I think in the press release, you stated that there will not be -- you will not have an impact on any capacity or projects. So I'm not sure how to think about it. So maybe if you can help us understand the reduction of CapEx and for which business or segment division you come to and maybe any projects that have been pushed out of the 2027 range, that would be helpful. Gerardo Illanes: Corinne, this is Gerardo. Let me give you a breakdown of what we announced. Well, yesterday, we announced that our CapEx program for the years '25, '27 will be somewhere around $2.7 billion. The breakdown, it's going to be somewhere around $1.3 billion for the Lithium Chilean division that basically has -- the main projects that they have is to finish the expansion of lithium hydroxide to reach 100,000 metric tons that should be ready at the beginning of next year. Then the expansion to reach 260,000 metric tons of lithium carbonate capacity in Chile, while we keep on working on initiatives to keep on producing lithium sulfate that is quite relevant, as Carlos was mentioning before. Then for the International Lithium division, the total CapEx that is included within this $2.7 billion is approximately $700 million, which includes approximately $400 million between the expansion of Mt. Holland and the first steps of Azure. Of course, both projects are subject to approval with our partners, but that's what is included in this time frame. And finally, in the Iodine and Plant Nutrition business line, the total CapEx is approximately $800 million. That includes the seawater pipeline that should be ready next year that is going to be critical to give us flexibility to produce more iodine and also the Maria Elena iodine production site that should let us bring additional production or capacity of iodine as of this moment. Corinne Blanchard: Maybe the second question, coming back to the Codelco agreement. Are you still waiting for the local group to be concerted? And if so, like can you provide an update of where you stand with them? Ricardo Ramos: No, no, no. Sorry. Regarding the communities, we had the agreement with the communities that was, I think, a couple of months ago. It was publicly released that we had the final agreement in order to move forward. And the only one that has already explained to you is the internal auditing body of the government that is reviewing the agreements between CORFO and Codelco. And after they finish their review and their approval, we will continue with the joint venture start-up. Operator: Thank you. Our next question comes from the line of Marcio Farid from Goldman Sachs. Marcio Farid Filho: A quick follow-up from my side, please. You mentioned the demand expectations. I think you mentioned 25% growth to 1.5 million tons. I wasn't sure if that was related to 2025 or 2026 because in the presentation, you mentioned 20% expectations for demand growth for '25. And if you can also detail how you're seeing demand for 2026? And also maybe provide some more details around ESS demand, which has been calling the market potential for the last few weeks would be great. And then I'll have a few follow-ups as well. Gerardo Illanes: Marcio, this is Gerardo. Give me one second before answering your question. And just to clarify something over the previous answer I gave. I mentioned 260,000 metric tons of lithium production -- lithium carbonate production capacity in Chile, but it refers to 600 -- sorry, 260,000 metric tons of lithium production overall coming from Chile from lithium chlorine or toll in China from lithium sulfate. Pablo Hernandez: Marcio, this is Pablo Hernandez. So on your question, the information that I previously provided on the 1.5 million metric tons -- over 1.5 million metric tons on the 25% year-over-year growth, that was related to 2025. And as I also mentioned, our expectations for 2026 is that this number is going to be reaching over 1.7 million metric tons. Specifically to BSS, as you well mentioned, and has been mentioned during the call, there's been a strong growth in demand from BSS, which we estimate over -- between 40% and 50% year-over-year growth this year, and we expect those numbers to remain stable for next year as well. Marcio Farid Filho: That's great. And maybe another follow-up on the Codelco deal. Can you provide us what are the expectations in terms of -- you probably need a revision of your offer license if you go ahead with the plan to produce nearly 260,000 tons overall with Chilean assets. Obviously, in theory, it would be ideal that you defer as much CapEx as possible for when the JV becomes effective in 2030. So I'm just thinking if there is any CapEx related to Salar Futuro that we can expect to be spent before 2030? Or can you defer that to beyond 2030 when the JV becomes effective? That would be great. Ricardo Ramos: Okay. First, the agreement will go into effect the same day we signed the agreement that is going to happen in the next few weeks. I hope so. And after we signed the agreement, we signed with Codelco, the agreement is starting. We don't need to wait until 2030. But you are right in terms that Salar Futuro is a great, great project, and we are working very hard on it. We expect to submit the environmental study to the authorities and communities during next year. And it's going to be a complex project and probably we will reach the final agreement during 2029, 2030, means that the initial investment in Salar Futuro that is a big project and a very interesting one, will be 2030 or 2031 starting investment. It means that it will not affect the CapEx in the next 3 or 4 years. It will not affect 2026, '27, '28, and we will continue with our today plan of projects in the Salar de Atacama as usual. That's why this project will have a significant impact, yes, and a very positive one starting, I hope, 2030, if not 2031. Marcio Farid Filho: That's great. And maybe one last one on iodine. Obviously, market has been strong for a couple of years now. I think you're going to be adding about 5,000 tons of capacity once the new pipeline and Maria Elena is ready. So can you talk a little bit about overall supply and demand conditions on iodine, if you expect these prices above $70 per ton or $70 per kilo to remain sustainable? Where are the other areas of supply growth that could put some pressure on prices, if at all, in the next couple of years? Pablo Altimiras: Pablo Altimiras is speaking. Well, as we have been said before, supply and demand for this year is tight because we -- this year, we are not seeing additional supply. Actually, the demand of this year is not growing because of the lack of supply. We believe that demand for the next year will grow in the range of 3%. And why the demand will grow? Because we see more capacity arriving to the market next year. As I said before, it's coming from caliche ore mainly. So we believe that we'll have more supply next year. Operator: Our next question comes from the line of Mazahir Mammadli from Rothschild & Company, Redburn. Mazahir Mammadli: So my first question is, if we assume that lithium hydroxide and spodumene prices stay kind of at the same level as they are today for 2026, would you expect the stand-alone profitability of Kwinana conversion to be positive? Mark Fones: Mazahir, this is Mark Fones. Yes, as we've said before, we continue to see the long-term profitability of Kwinana and the Mt. Holland project to be positive. And we still see ourselves committed with our partners, and we will continue to develop this project. And that's the reason also we announced that we expect a final investment decision on the expansion for the mining concentrator for somewhere next year. Mazahir Mammadli: Okay. And maybe a follow-up on the Codelco deal. So the 201 kilotons of lithium that's attributable to Codelco, do I understand that correctly that will be paid as sort of revenue that's attributable to that amount of lithium? Or is it gross profit? Or is it some other metric? Gerardo Illanes: This is Gerardo. Yes, the amount that is to be paid to Codelco is paid as a function of a certain amount of tonnage per year, which is 33.5 and is paid as a dividend. Mazahir Mammadli: Yes. I just want to clarify, is it going to be the revenue that's derived from 33.5 kilotons or gross profit that's derived from that amount of lithium? Gerardo Illanes: It's the profitability that we get from this tonnage, but the exact calculation and the exact way of how you can get to the number, it's describing the contracts that are publicly available on our website. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everybody. And welcome to Nayax Ltd.'s Third Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. Presentation instructions will be given for the question and answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Aaron Greenberg. Please go ahead, Aaron. Aaron Greenberg: Thank you, operator, and everyone for joining us today on this conference call. With me on the call today are Yair Nechmad, Nayax Ltd.'s Co-Founder and Chief Executive Officer, and Sagit Manor, Chief Financial Officer. Following management's prepared remarks, we will open the call for the question and answer session. Our press release and supplementary investor presentation are available on our Relations website at ir.nayax.com. As a reminder, during this call, we will be making forward-looking statements. All forward-looking statements on our call today are based on assumptions and therefore subject to risks and uncertainties that may cause results to differ materially from those projected. We have no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our supplementary investor presentation released earlier today and our regulatory filings. In addition, today's call will include a discussion of non-IFRS measures. Management believes non-IFRS results are useful in order to enhance our understanding of our ongoing performance. However, these measures should be considered as a supplement to and not as a substitute for IFRS financial measures. A reconciliation between Nayax Ltd.'s non-IFRS to IFRS measures can be found in our earnings press release issued earlier today. All key performance indicators are intended to evaluate our business and properly measure in a macroeconomic environment to guide and support our decision-making. These key performance indicators may be circulated in a manner different from our industry standards. And finally, please note that all figures in today's call will be reported in US dollars unless stated otherwise. Yair will start the call with key financial and operational highlights. Following that, Sagit will go through the details of financial results and discuss the outlook. And with that, I would like to turn the call over to Nayax Ltd.'s CEO, Yair Nechmad. Yair? Yair Nechmad: Thank you, Aaron, and thank you, everyone, for joining us this morning to discuss our results for the third quarter and the progress we are making across the business. It was another strong quarter for Nayax Ltd., reflecting the continued execution of our strategy and our focus on profitable growth. We delivered strong operational and financial results highlighted by expanding margin disciplined growth across our segments, and consistent progress towards our long-term objectives. We continue to gain market share across our core automated self-service business with strong demand for our solution. We are adding new customers at scale while deepening relationships with existing ones. Our one-stop-shop solution hardware management suite and payment all from one trusted provider is a true differentiator for our customers in the automated self-service space and one that few others can offer. Our platform continues to demonstrate its value and stickiness with very low customer churn. Customers are expanding their engagement with Nayax Ltd. by adding more devices, processing more transactions, and adopting more of our services over time. As a result, we are seeing a steady increase in our ARPU driven by processing revenue growth per connected device. This reflects our growing share in high transaction value such as EV charging, amusement, and car wash, which are segments that drive significantly more revenue per customer. Recurring revenue as a percentage of total revenue continued to grow quarter over quarter. This sustained mix shift reflects our focus on building a more productive higher margin revenue model that scales efficiently as our customer base grows. Our growth in managing connected devices is a key driver of growth. As we continue to expand our product portfolio with our diverse payment hardware including lower-cost embedded products. I will now provide an update on three main focus areas: technology, customer and partnership, and M&A. On the technology front, we made great progress during the third quarter on several key technology initiatives. In Australia, we began rolling out the Bipos Media making the first commercial deployment of our next-generation Android payment platform. This is a meaningful step for us. The new device is our first truly Android-based PIN-enabled device family. And it opens the door to a wider set of vertical and higher value use cases in regions requiring PIN. The product combines our payment infrastructure with new engagement capabilities, including a touch screen interface and support loyalty, advertising, and permission promotional tools. We started our initial launch of the Vipose media in the UK and selective countries in Europe over the past months and plan more announcements about the product soon. In addition to announcements, two large partnerships with Autel and LinQual, we continue to build momentum with the UNO Mini, our embedded payment product. In China, six OEM partners completed their Ono Mini SDK certification which now allows them to support contactless payment across EV charging stations and power bank machines. We have a strong pipeline of OEMs that are going through the certification process and expect sales in embedded products to scale over the coming quarters. Finally, with respect to technology initiatives, Retail Pro has successfully integrated with One Bit AI-powered inventory optimization engine. This integration lends retail calls operational tools with predictive AI analytics from One Bit, helping merchants utilize the retail post software to cut overstock and stay ahead of evolving customer demand patterns. Turning to customers and partnerships. A key customer highlight this quarter is our success with ChartSmart. A US chart point operator managing thousands of ports and growing rapidly, in the DC fast charging space. Which has committed to using Nayax Ltd. as its preferred payment solution. ChartSmart is one of the fastest-growing EV charging networks in the United States, underscoring how our payment technology continues to power growth in the electric vehicle charging vertical. Our platform enables large operators like ChartSmart to simplify daily operations from payout and reconciliation payment acceptance, allowing them to focus on growing their network. Our collaboration with Adient continues to evolve as we jointly develop solutions in e-commerce embedded banking. For example, we began a pilot of our new e-commerce offering for EV charging, in October and already have a backlog ahead of the broader rollout. In parallel, we are preparing to launch our embedded banking product in the US in early 2026, including bank accounts and debit cards for our customers. This initiative brings us closer to our vision of being an end-to-end provider for our customers' business needs. We expect this initiative to drive higher recurring revenue per customer over time. On the M&A front, we remain active with a disciplined approach. We continue to pursue acquisitions that align with our key objectives of geographic expansion, technology enhancement, and strategic consolidation of distribution channels. Recently, we signed a letter of intent with exclusivity to acquire Integral Vending, our exclusive distribution partner in Mexico since 2015. Degel Vending has built a high-performing network across Mexico, developed a proprietary vending management system tailored for the Latin American market. This acquisition will deepen our presence in the region. Expand our software capabilities, and strengthen our ability to deliver a full suite of payment and management solutions across Latin America. It follows our recent two acquisitions in Brazil and represents the next step of our multiyear strategy to establish Nayax Ltd. as the leading platform across the region. While we do not expect a material financial contribution in 2025, we believe this deal will create long-term strategic value in 2026 and beyond as we expand our operation and distribution in Spanish and Portuguese-speaking markets. In November, we also completed the purchase of the remaining shares of Tigapo. Bringing us to full ownership of our arcade gaming business. Tigapo continued to deliver impressive growth and represent a highly scalable opportunity globally. Within the broader Nayax Ltd. ecosystem, Tigapo will benefit from our customers' network and international footprint. As an update, to the Nayax Ltd. capital purchase in Q2, we have successfully integrated it fully within our broader embedded payment initiative under the consolidation team. In July, we launched our rental business in Australia and we are rapidly growing our installed base of both rental units and finance hardware. Nayax Ltd. Capital allows us to provide a fully automated process of ordering the hardware, financing it, onboarding to NARTSCO, and invoicing, including the ability to automatically secure the financing against the gross processing receipt. This strategy produces a higher gross margin in the long term than selling the hardware outright. The low-touch sales cycle will create substantial operational leverage in the coming years. Turning now to guidance. For the full year. Which Sagit will also discuss in greater detail. At the beginning of the year, we set a target of revenue growth of 30% to 35% for 2025 including inorganic growth from acquisition. While multiple planned transactions have been delayed, we have maintained strategic discipline and refrained from pursuing deals at any cost. Our M&A pipeline remains active, focused on opportunities that enhance our technology, customer base, and long-term profitability. We are reiterating our organic revenue growth guidance of at least 25%. Which will be driven by enterprise hardware sales in the fourth quarter and maintain our strong recurring revenue growth. Enterprise sales accelerated in the third quarter. And we expect further momentum in the fourth quarter. Our hardware sales pipeline remains robust, and we are well-positioned to capture larger enterprise opportunities that align with our solutions and scale. Looking ahead, we remain confident in our strategy and the fundamentals of our business. Our growing base of connected devices, recurring revenue, strong customer retention, and disciplined focus on profitability position us well for sustained growth. Our addressable market continues to expand as the world moves further towards digital payment and connected commerce. While M&A continues to play an important role, organic growth remains the primary driver and the foundation of our business. We have entered the fourth quarter with strong momentum and even greater conviction in the long-term opportunities ahead. Our expanding pipeline, diversified revenue base, and strong financial discipline, we are well-positioned to continue outperforming the broader payment industry and deliver lasting value to our customers, partners, and shareholders. With that, I'll turn it over to our CFO, Sagit Manor, who will review our financial results in greater detail and walk through our outlook. Sagit? Sagit Manor: Thank you, Yair, and good morning, good evening, everyone. I'll start by reviewing our KPIs, and financial performance for the third quarter and then I'll discuss our updated outlook for the full year 2025. Looking at the three key performance indicators for the quarter that we consider primary measures of growth, First, total transaction value increased by 35% over Q3 2024, reaching $1.8 billion and driving strong corresponding processing revenue growth of 33% for the quarter. At the same time, average transaction value increased from $2.15 to $2.40 while maintaining a similar take rate. Displaying our strong positioning into emerging verticals such as EV charging, amusement, and car wash. Second, our customer base expanded by 21% compared to Q3 2024, with nearly 110,000 customers at the end of Q3. And third, our installed base of managed and connected devices grew 17%, compared to Q3 2024 to more than 1.4 million devices at the end of the quarter. These KPIs reflect the momentum in our business and the underlying strength of our platform as we continue to capture market share in automated self-service, driven by our technology platform and our growth in new verticals and geographies. Looking at our financial performance, Revenue for the third quarter was $104.3 million which is an increase of 26% over Q3 2024. We continue to take market share. Adding nearly 5,000 new customers this quarter and more than 56,000 managed and connected devices. Organic revenue growth for the third quarter was 25%, showing sequential acceleration compared to both the first and the second quarters. We expect organic revenue growth to continue to accelerate in the fourth quarter which I will discuss in our outlook. In the third quarter, recurring revenue which includes payment processing fees and SaaS subscription revenues, increased by 29% compared to last year's third quarter reaching $77 million and represented 74% of our total revenue in Q3. More specifically, processing revenue grew by 33% to $48 million in Q3, driven by a 17% increase in our installed base of managed and connected devices, and a 35% increase in dollar transaction value. Our take rate for the quarter was 2.71%. Hardware revenue in the quarter grew 18% to $27 million compared to $23 million in last year's same quarter, with continued strong demand for our products, solutions, and technology. In the quarter, our installed base grew by 17% compared to last year's third quarter, reaching more than 1.4 million devices as we added more than 56,000 devices to our installed base this quarter. Moving now to profitability and margins, for the quarter. We continue to drive significant margin expansion through initiatives to improve efficiency, in payment processing and optimize our hardware cost structure. Gross margin increased to 49.3% compared to 45.7% in the last year's third quarter driven by both higher recurring and hardware margins. Our recurring margin increased to 53.6% from 50.1% in the prior year quarter, mainly driven by an additional improvement in processing margin to 39.6% from 33% as a result of consolidating a majority of the payment volumes under five main payment acquirers. Driving improved operational efficiency, We also continue to benefit from recent favorable renegotiations of key contracts with several bank acquirers and improved smart routing capabilities. On the other side, our margin increased to 37% compared to 34.4% in Q3 2024. Driven by customer sales mix the continuing optimization of our supply chain infrastructure, and better component sourcing. For the full year, we expect other margins to be at the higher end of the range between 30% to 35%. In terms of gross profit, we generated more than $51 million an increase of 35% over last year's third quarter. Adjusted OpEx of $34 million was 32.2% of revenue and continues to improve as a percentage of revenue a testament to our disciplined cost management. Adjusted EBITDA increased to $18.2 million representing 17.5% of revenue an improvement of more than $7.2 million compared to last year's third quarter and demonstrating the continued scaling of operating leverage in the business. Operating profit was $7.8 million an improvement of $6.4 million from last year's third quarter. This significant operating profit increase is mainly driven by improved gross margin. Net income for the quarter was $3.5 million compared to $700,000 in the prior year period. Turning to our balance sheet. On September 30, 2025, cash and cash equivalents and short-term deposits totaled $173 million while short and long-term debt was $156 million. Both driven by notes and warrants of completed March 2025, of approximately 486 million shekels net maintaining a solid balance sheet and net cash position. Looking at cash flow, we generated $10.5 million from operating activities. Free cash flow for the quarter was $3.9 million mainly due to the timing of cash settlement from processing activities. Turning now to our outlook and referring to our forward-looking information disclosure in our press release. For the full year 2025, Nayax Ltd. is reiterating organic revenue growth guidance of at least 25%, driven by enterprise hardware sales in the fourth quarter and maintaining our strong recurring revenue growth. With some delays in strategic M&A transactions, we are updating our financial outlook to a revenue range of $400 million to $405 million on a constant currency basis. This represents revenue growth of 27% to 29%. We still anticipate an adjusted EBITDA margin of at least 15% and the updated guidance for the full year reflects the lower expected inorganic contribution due to delayed M&A activity and is now between $60 million to $65 million with at least 50% free cash flow conversion from adjusted EBITDA. As for our 2028 target, we continue to project an annual revenue growth of approximately 35% driven by a combination of organic growth and strategic M&A. We also continue to target a gross margin of 50% and an adjusted EBITDA margin of 30%, as we continue to drive high-margin revenues and operational efficiency. In closing, we are well-positioned for our future growth as we continue to grow our installed base globally and capture market share. We also continue to focus on scaling our recurring revenue streams in particular, our payment processing capabilities which benefit from the conversion trend of cash to cashless transactions. I'll now turn the call over to the operator for our Q&A session. Operator: Thank you. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset. Before pressing the star keys. Our first question is from Josh Nichols with B. Riley Securities. Please proceed. Josh Nichols: Yes. Thanks for taking my question, and great to see the company. Posted some record EBITDA margin here in the third quarter. I just want to touch on a little bit. You mentioned during the call there's a large number of these fast-growing EV partnerships and if you could give us a little bit of update on the timing some of those shipments. I know Autel alone was looking to ramp to maybe, like, 100,000 devices by the end of next year. Is that still on target? And what's the expectation for the EV ramp? Aaron Greenberg: Hi, Josh. This is Aaron. Yeah. So the EV charging has been accelerating as you mentioned. We've been announcing several partnerships. We also have been accelerating the OEM integrations on the embedded readers, which is a big growth driver for us, in the future with regards to EV charging. And we're getting a lot of momentum, especially in the North American market, and I expect also over the coming quarters with the launch of the VPost Media, which we talked about a little bit in the script as well. You know, over the coming quarters in Europe and UK with a pin on glass given that with DC charging, with the high average transaction value. You need to have a pen on glass device in order to be able to do those higher value transactions. And we all you know, so we see that, with the launch of that, that we'll be able to do more, in that market for the EV charging as opposed to in, you know, past years where we've been more focused on the North American market for EV charging. As we look forward, we already started to see some hardware revenues related to EV charging customers in Q3. We expect to see a significant acceleration of that in Q4. And as we start looking into, into next year, the partnership with Autel and with the other OEMs are progressing as expected. And we're seeing, you know, the first, Uno Minis were, you know, our embedded readers, were delivered at the '2 actually, and we're starting to see some acceleration of those volumes as well. Josh Nichols: That's good to hear for the EV ramp. I know there's been a couple other things you mentioned, like car washes, amusement, Looking at some of the recent, like, industry conference, I know smart coolers has been a big focus for the space. Any update you could provide us on what you guys have in terms of offerings on the smart cooler market and what you're seeing in terms of demand and potential growth activity that could be driving some acceleration there for next year? Aaron Greenberg: Yes. This is Aaron again. We signed some partnerships in the US market. We signed some partnerships in the US market with regards to the smart coolers for distribution with our Vipostouch. And we've been actively working in other markets as well. We signed a partnership with a large enterprise customer in Europe over the past several months, to start delivering smart coolers in the European markets. Which we hope to talk about over the coming months. And we see this as a big growth driver in the future. Smart coolers, as opposed to micro markets, which is also a fast-growing space. It's been best suited for us, with all the integration technology that we've developed over the last twenty years. You know, being able to utilize our Vipostouch and now the Vipost Media and other markets as well, for the smart cooler market, you know, see some acceleration. I think that car washes, as you mentioned, is a big growth area for us. We're also seeing a lot of growth in things like arcade gaming, after we finish the purchase of Tigapo over the last year. We saw significant growth in Tigapo's arcade gaming solution over the last twelve months, and we expect that to continue to be, even though it's a smaller number at the moment, to continue to be a large growth driver as well. Maybe just to add to the appreciate One thing to add to it, yeah, there is a great opportunity that Nayax Ltd. is exercising with all the OEM. In the cooler by itself, we are partnering with the cooler manufacturers and we are embedding ourselves with the Deepos Media already right now with the provider OEM. And by that, we can expose ourselves to a greater market share in the cooler industry. Appreciate the update. I'll hop back in the queue. Josh Nichols: Thanks. Operator: Our next question is from Cristopher David Kennedy with William Blair. Please proceed. Cristopher David Kennedy: Yes. Thanks for taking the question, and thanks for all the information. Just wanted to talk a little bit more about the embedded banking and the e-commerce opportunity that you mentioned in your opening comments? And just think about kind of the position for the business as we think out into 2026. Yair Nechmad: Yes. It's a great question. Thank you, Cristopher David Kennedy, for the question. The embedded is alive and kicking in terms of internally almost done from Nayax Ltd.'s perspective in the ready to launch. It will be launched during Q1, mostly in the US market. Everything in terms of setting up the agreement the way that we're operating. Will take live in Q1. And then following this, in Q2, this Q3, rolling out production, we have set targets for this. The impact of this in terms of how we're operating, I strongly pushing that, we'll look very much to bring value out to our customer. Mostly with the weight, MCA, with the working potential solution that we have. And then we'll help our customers to work it seamlessly with their working capital issues or challenges. With us helping them with our other part of the division, which is Nayax Ltd. Capital, that we close the loop for this. Cristopher David Kennedy: Great. Thank you for that. And then any update on the e-commerce opportunity as well? Thank you. Yair Nechmad: The same thing will happen also in the next year with the e-com. The e-com is mostly for the EV for the first start. The EV market. And then it will roll out to more and more segments in the All of this is gonna happen in 2026. Aaron Greenberg: Right. Cristopher David Kennedy: Thank you. And then I'll if I could just add there, we did start pilot test testing in the US market for the e-commerce solution. The beginning of this month. And as Yair said, production, full production, with external customers will start beginning of the year. Cristopher David Kennedy: Okay. Thanks for that. And then just as a follow-up, Sagit, you mentioned the higher average ticket. Can you just talk a little bit about average tickets across different verticals and kind of you know, the range between traditional vending versus EV or amusement or car washes? Thanks for taking the questions. Of course. I'll start and maybe Aaron can help as well. Thank you for the question. Sagit Manor: So we do see that, on a quarterly basis, the number of the value of the transaction is growing faster than the number of transactions. So and it comes from the higher, the verticals that provide higher ticketing. Like power, like laundromat, like, the easy, of course, and other areas where other verticals that we are growing. And we expect that to continue. And with that, I'll let Aaron to add some more information. Aaron Greenberg: Yeah. So know, there's high you know, some of the higher growth verticals like like EV charging. You know, for example, on a, you know, on a DC charger, you can see you know, average transaction value. Right now, we're seeing it somewhere around $18 on a transaction. You know, even with AC chargers, we see about 4 to $5 per transaction. On average. At the moment, and those have been, steadily rising as well. With EV adoption over the last couple of years. And, also, some of the other verticals as well are, starting to see some significant growth, car wash and others that are, you know, rising that, ATV. And then you know, it's important to mention also that on the retail, division, as you continue to grow the retail side of the business as well, the ATV will continue to go up as well. So I think we you know, it's important to, you know, stress that the ATV will likely continue to go up over time. You know, it's continue to expand these new verticals. The gross take rate is not what the focus has been on as opposed to really the net take rate and making sure that as we continue to increase the ATV, that the net take rate that we've been taking continues to maintain steady or growing. And as we've shown over the last several we've been able to get the processing gross margin up from the high twenties up to the high thirties. Which is a huge testament to the, you know, to the financial negotiating power that we now have, you know, doing, you know, several billion transactions a year now, and growing that processing growth as much as we are, gives us a lot of leverage to be able to go in do the negotiations with the acquiring bank. But, also, we have great smart routing capabilities that we've continued to add. Over the last several, quarters, that's allowing us be able to, you know, shave off even, you know, fractions of a penny off of each transaction and you know, even in, you know, in a one $2 transaction, a fraction of a penny is a huge difference, so with regards to the processing margin. Great. Make sure all the information because then a little bit of numbers. Right? And the dollar transaction value grew to $1.8 billion and grew 35% compared to the last quarter versus the number of transactions that grew 21%, and we see that growth coming from new customers, but mostly from existing ones. So it's, again, it's the cash to cashless conversion. More transact more cashless transactions going into and add to that geo so verticals, geography, and what and and extra item there that create, that growth of ATV. So we're very proud of that. We're very proud on the high margin, as Aaron on the processing. If you remember us talking about it a few years ago, that if we reached a 100 basis point, we'll be happy. And today, we are way over that, and we're continuing to grow. As we, am focusing on on the main acquirer of consolidation and really make the most of it. Cristopher David Kennedy: Great. Thanks for all Maybe one last thing to add to add to this. Yair Nechmad: Chris, one last thing to add to this. We also boost the platform remotely to change pricing. It's helped existing customers to fit their pricing according to inflation. And it's also increasing their capabilities to control price. Cristopher David Kennedy: Right. Thanks. Everyone. Appreciate it. Operator: Our next question is from Hannes Leitner with Jefferies. Please proceed. Hannes Leitner: Yes. Thanks for letting me on. I got also a couple of questions. The first one is maybe on your comments around acquirer optimization, given the processing had been growing nicely and gross profits been driven here on the recurring side. That would be interesting. To understand. Then the second one is on M&A opportunity. Appreciate the prudence of rather quality over quantity. Which led to the guidance cuts. Maybe you just can give us an update on your appetite. Has there anything been changed in terms of size? Are you looking for bigger things which didn't come through this year? Or should we expect that next year will be a catch-up in M&A? And then maybe just the last one, in terms of giving us a broader update on the market dynamics in the US. We know that two of your competitors are essentially merging. Has there been any change with the delay in that process? Has there been any opportunities? Thank you. Yair Nechmad: Maybe I'll start. Regarding how we are routing transactions, we are doing this more and more and better and better. And it's helped us to go currently now semi-automatic regarding how we are we're doing this with the acquirers, but we'll move further and further to almost automatic regarding each and every beam call will be routed according to the best price and the best data that we have. Since we have more than 3 billion transactions, we know exactly which acquirers is doing in terms of acceptance rate, is the most important part. And then they're the rate that we're getting. And we'll have the ability to increase the acceptance in one hand and to reduce the cost from the other end. This will go more and more into holding our margin in a very, very tight way that we can control the margins. And we know that we can negotiate against the vendors regarding the acquirers, we have big volume, and we can also have leverage against our customers. Most of the customers, 36% of them, are small customers that cannot really have leverage in terms of negotiating. So all of this is keeping us, I think, on the good track that the margin will be according to what we expect to achieve, and we are in control. Maybe before passing this to Aaron to talk about the M&A, we're looking at the 2028 and we see the market according to what we expected to reach our targets. That's a part of what we believe is the ability of the Nayax Ltd. team to bring to life this growth. And with the M&A, sometimes it will be potentially a delay, and maybe we should be more clear regarding the organic and just that's what be the main topic that will guide the market and not really relating to an organic. Aaron Greenberg: Thanks, Yair. This is Aaron. Thanks, Hannes, for the questions. On the M&A front, on the two points that you asked about, With regards to M&A appetite, we are continuing to be prudent with regards to the acquisitions that we're doing. Most of the acquisitions that we've looked at have tended to be on the smaller side, as you've seen, in quarters past. However, we do have the appetite to do a larger acquisition, not transformational, but a larger acquisition, if it makes sense strategically for us. As if we look into the 2028, mark, we expect to see somewhere around probably $200 million of inorganic out of the billion with regards to, as we've looked from 2022 to 2028, when we first came out with the 2028 targets. And, we still expect that to be relatively the same. So that would mean, obviously, if we're continuing to do a few a year, there's going to be a couple of larger acquisitions between now and 2028. And I would expect that probably as we go into 2026, one of the, you know, few acquisitions will likely be larger, you know, call it more than $100 million of enterprise value but still not a transformational acquisition. It's very important to us that we keep the culture and the infrastructure of Nayax Ltd. at the core. And that and having the core management team and, you know, and not having an acquisition, you know, us in the wrong direction. So anything that we end up doing, you know, really needs to fit within our culture, but also, needs to be something that we can, you know, easily digest as a company. And that's been very important to all of us as we look at this. You know, with you know? And I'll just mention as well that you know, we raised the bond at the beginning of this year to have the cash on hand to do acquisitions as needed. But, obviously, if needed, we can you know, there are other levers, to be able to go and, to purchase these companies as we go forward. With regards to the US, competition and M&A, obviously, you know, we've been tracking, you know, the merger of and three sixty five. They went into second three you as publicly announced. We've been watching as has everyone else. We don't have any other comment with to the M&A as it, currently stands. However, I will say, that we haven't been, afraid from a global perspective of, you know, this merger or any other mergers that are happening. You know, there's consolidation that's been happening in our industry for several years. We expect the consolidation will continue to happen. And we are winning right now in market share, taking, you know, of our technology, because of our great customer service. Because when a small customer and an enterprise customer comes to us, they know that they're gonna get great end-to-end support. And this is something that, you know, has been a big differentiator for us over the years. We're not the cheapest system out there in the world. We're not the cheapest you know, monthly service fee, you know, depending on which region that you're in. But we're, in our opinion, the highest quality. And able to touch all of these different verticals with one product, you know, which makes us very resilient in the long run. So, you know, in terms of the US market, we always look at the US market with regards to acquisitions. However, we've been seeing better opportunities outside of the US you know, in Europe, in Latin America, in Asia. Versus the US markets just because of the market dynamics over the last couple of years. But it doesn't exclude us from looking at the US market as well. And we obviously do look at acquisition targets in the US. Hannes Leitner: Great. Thank you so much. Operator: Our next question is from Sanjay Sakhrani with KBW. Please proceed. Sanjay Sakhrani: Thank you. Good morning. Want to talk a little bit about hardware. Obviously, it's a big contributor to the fourth quarter. You mentioned sort of accelerating enterprise. Could you just talk a little bit about the visibility there as well as the margins? It seems like the margins have been a bright spot there, continued improvement. What's the ceiling on those margins? Yair Nechmad: The ceiling is margin 100%, if you can. But in terms of what we want to achieve is to be better than the market. We invest around I think, the last two years a lot regarding putting the hardware in the half of ourselves in terms of how we produce and how we are reaching out to the best source of the component and design of the product. And now we're launching the also the Repos Media, which is a fully Android, which should support. Should have been what you call increasing our hardware cost, but actually, it is not. We succeed to get what we call a very, very good way to operate our hardware manufacturing and the way that we are sourcing it. And I believe that we can keep on running on the rails of the 30%, 35% as we said on the hardware side. We have the flexibility to meet all the requirements of the market. On top of the risk of the target, which is coming on and off into the US market, but the US market is only 39% of our business. So basically, in terms of all the blending of the global, we can see that we can control the margin of the hardware. Sanjay Sakhrani: Got it. And just the visibility for that fourth-quarter ramp. Yair Nechmad: So we're seeing high demand. Q4 is always a big enterprise. And we have a very, very good visibility to end this quarter with the expectations that we set to the market. And visibility is in our Salesforce. So it's a good visibility. Sanjay Sakhrani: Okay. And just one follow-up. In terms of the delay in the M&A, like, how much of that contributed to the third quarter versus it contributing to the fourth quarter? And then just a follow-up on Yair, you mentioned sort of it might be better just to give the organic growth expectations because inorganic is sort of hard to sort of estimate timing. There's always lumpiness there. As we think about that 2028 guidance, like, how much of it is organic versus inorganic to get to that 35? Thank you. Sagit Manor: So maybe I'll start and Yair and Aaron will continue. So the job in Q3, you know, we are not giving a quarterly guidance. However, versus the consensus, absolutely, the gap between our organic financial results. And the consensus comes from the lack of significant M&A that we were expecting to see, and that impacted the Q3 and, obviously, Q4. That's the reason why we are updating our guidance with respect mainly to the inorganic growth of the business. And as for 2028, I'll let Aaron speak about that and what's the M&A portion of it. Aaron Greenberg: Yeah. Thank you, Sagit and Sanjay. So with regards to this year, you know, I'll just say that, you know, there were multiple M&A's, that were delayed later in processes. You know, as I mentioned to Hannes and to others, you know, we're very prudent with regards to M&A. We want to make sure that we're doing the right acquisitions. You know, we have a very, you know, detailed due diligence process with regards to these acquisitions. You know, we're not just buying them on the fly. We have a dedicated team to work on this. And we want to make sure that the ones that we're buying are not just contributing, you know, in the short term to revenue, but you know, contribute to the long-term strategy of the business. Specifically with regards to this year, we expected that the Integral Vending acquisition would have happened earlier in this year. It's one that we've been talking about for a while with our with Integral there in Mexico, and it's one strategically that we really wanted to do for a while. And we finally were able to, know, to get to terms on the LOI, back. In the last, you know, month and a half or so, which is, which is a big plus for us, and, we're very excited about that. And, we believe that we'll be able to get that done by the end of the year. We're actively in the negotiations and due diligence process right now to get it closed. And there was another acquisition at the time of the Q2 earnings that we were deep in the process of we decided to drop out of in the due diligence process. You know, again, because of the prudent, you know, measures that we take during the process, we expected that we were gonna complete that, which would have contributed for this year, but we've decided to move on to other acquisitions as well. Or instead, sorry, that will contribute more into '26 as opposed to 2025. As we look at the 2028 targets, think, you know, Yair mentioned this, you know, it's very difficult to predict the exact timing of M&A. You know, the organic growth is the most important part to us in the long term. And we don't see that slowing down. We have a lot of potential catalysts as we go forward as well, not just from the cash to cash list, but also the embedded banking services, e-commerce, and other solutions. That we believe will continue to increase the ARPU over the coming years. But as we look into 2028, we do expect meaningful contribution from the M&A. Mentioned to Hannes, we expect about $200 million of inorganic revenues from the 2022, 2028 So I would still say another probably, you know, 150 plus million, basic is gonna come, from contribution of inorganic over the next you know, three and a half years. You know, So there'll still be some meaningful M&A that happens. Most of them will be smaller acquisitions, you know, call it, you know, plus or minus you know, 10 million of revenue per acquisition, something like that, but but there'll be know, as we've seen in the past quarters. But, there will be larger ones as well. Sanjay Sakhrani: Thank you. Operator: With no further questions, I would like to turn the conference back over to Yair for closing remarks. Yair Nechmad: Thank you for joining us today and for your interest in Nayax Ltd. This quarter again showed the strengths of our business and our strategy, as we help merchants move to cashless payment in many geographies and verticals. As we look ahead, we will stay focused on our plan profitable, and profitability growth growing in key markets and working closely with our partners. I want to thank our employees, for their hard work, and our customers, partners, and shareholders for their trust. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Operator: Hello, and welcome everyone to the Valvoline Inc.'s 4Q Earnings Conference Call and Webcast. My name is Becky, and I'll be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. I will now hand over to your host, Elizabeth Clevinger with Investor Relations to begin. Please go ahead. Elizabeth Clevinger: Thank you. Good morning, and welcome to Valvoline Inc.'s fourth quarter fiscal 2025 Conference Call and Webcast. This morning, Valvoline Inc. released results for the fourth quarter, and fiscal year ended September 30, 2025. This presentation should be viewed in conjunction with that earnings release, a copy of which is available on our Investor Relations website at investors.valvoline.com. Please note that these results are preliminary until we file our Form 10-K with the Securities and Exchange Commission. On this morning's call is Lori A. Flees, our President and CEO, and John Kevin Willis, our CFO. As shown on slide two, any of our remarks today that are not statements of historical facts are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline Inc. assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted non-GAAP basis unless otherwise noted. Non-GAAP results are adjusted for key items, which are unusual, non-operational, or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our GAAP to adjusted non-GAAP results and a discussion of management's use of non-GAAP and key business measures is included in the presentation appendix. The information provided is used by our management and may not be comparable to similar measures used by other companies. With that, I will turn it over to Lori. Lori A. Flees: Thank you, Elizabeth. And thank you for joining us today. Let's start with a look at some key highlights for fiscal year 2025 on slide three. System-wide store sales again saw a double-digit increase, to $3.5 billion, and we delivered our nineteenth consecutive year of system-wide same-store sales growth. This nearly two-decade-long streak accounts for almost half of our retail business's history and puts us in a special category of retailers. The network continues to grow with the addition of 170 system-wide stores this year, bringing the total to 2,180 across the US and Canada. We also saw double-digit growth in adjusted EBITDA, taking into account the impacts of refranchising and including the investments in technology we made this year. This would not be possible without our team and our strong franchise partners, and I'd like to thank both groups for all of their work that went into driving these results. Slide four shows our performance over time on key metrics. Our historical performance shows our track record of steady new store growth, strong same-store sales comps, and compelling net sales and profit growth. This performance is a function of the attractive market we operate in and the capabilities we built over time, which allow us to deliver best-in-class customer, employee, and franchisee experiences. Turning to slide five, we'll take a look at our fiscal year 2025 performance compared to our updated guidance from August. Net revenues and system-wide same-store sales growth came in at the midpoint of the guidance range, while adjusted EBITDA landed above the midpoint. System-wide store additions of 170 demonstrate meaningful progress in new franchise store growth. They added 71 net new stores and 104 total stores this year, including transfers. Adjusted EPS came in at the low end of the range at $1.59 per share, and our capital expenditures were above the range driven by the timing and mix of new store additions at the end of the year. Overall, we're pleased with our fiscal year 2025 results and the continued growth of our business. Now I'd like to provide an update on the progress we've made against our strategic priorities this year. Our strategic priorities remain the same. First, drive the full potential of our core business. We are the retail leader in automotive preventative maintenance services, and we'll continue to drive transaction and ticket growth with increased store-level efficiency. Second, deliver sustainable network growth. We'll continue to extend our reach to more customers across North America, and we'll do that in a way that maximizes return on invested capital. And last, we will continue to innovate to meet the evolving needs of our customers and the car park. We made very good progress in fiscal 2025 to drive the full potential of our core business, and we continue to believe we have a lot more opportunity in front of us. This past year, we saw strong same-store sales growth with a healthy balance from transaction and ticket. Transaction growth continued across the network, including in our mature store base. We also saw ticket growth across the network with contributions from premiumization, net pricing, and increased NOCR penetration. Our efficiency initiatives within company-operated stores in fiscal 2025 included a continued focus on labor productivity. Workday implementation combined with scheduling process improvements already underway drove meaningful efficiencies in our largest cost category. As of Q4, all US company-owned stores have migrated to use Workday's forecasting and automated scheduling tools that enable our field leadership to more easily monitor and optimize schedules to match both team member availability and experience with expected customer demand. We recently spent time with both our operations leadership team and our franchise partners across the US and Canada. We spent time celebrating our accomplishments in 2025 and getting focused on 2026. Our core business remains focused on four key things. One, consistent process execution. Our technology-enabled SuperPro process earns a 4.7-star rating from customers, and this builds loyalty. Two, increase store efficiency by leveraging fully the work started in FY 2025 in both labor and store-level expense management. Three, enhance return on marketing spend as we gain benefits from our network scale and reach. And four, continued team member retention to help improve store throughput and NOCR penetration. As it relates to network growth, we closed fiscal 2025 with a strong Q4, delivering 56 net new system-wide stores in the quarter and bringing our total to 170 additions for the year. Over 60% of this year's new stores across the system were ground-up builds, a testament to our real estate analytics capabilities and our proven playbook for successfully opening new construction sites. Franchise ground-ups drove much of the increase year over year, as they had 41 greenfield additions this year. At the end of 2024 and 2025, we refranchised three markets: Denver, Las Vegas, and West Texas. Our franchise partners for these markets committed to significant development agreements to grow the markets by two to three times in size. Since the closing of the refranchising transactions, we have seen the new store additions in these markets grow by more than 150% over the prior year, and these franchise partners' pipelines continue to grow. Our new store growth will continue to ramp in FY 2026, with continued momentum across our franchise partners. Fiscal 2026 will also include the expected closing of the Breeze Auto Care acquisition. As we shared previously, bringing a year's worth of store growth in one step will allow us to leverage many of the investments we've already put in place across a larger store base, including retail-specific technology investments and fleet sales expansion. At the end of last week, we received regulatory clearance from the FTC and plan to close the transaction on December 1. As part of the agreement with the FTC, we will divest 45 stores, bringing the net additions to 162. Although we had to reduce the number of store additions in order to gain FTC approval, we believe this is still a good use of capital and will create long-term shareholder value. Turning to the third priority, fleet growth continues to outpace the growth in our consumer business. Our fleet customers tell us that they value the speed and convenience of our service to maximize the productivity of their assets. This year, we've increased our work with our franchise partners to grow our fleet business across their geographies. Early days, but significant opportunity for growth. Before I turn it over to Kevin to discuss our financial results in more detail, I want to invite you to a planned investor update on December 11. We'll introduce you to more of our management team, provide a deeper look at our strategic priorities, and long-term growth targets, and the initiatives driving our business forward. Now I'll turn it over to Kevin. John Kevin Willis: Thanks, Lori. Let's turn to Slide eight and start with a more detailed look at our financial results. For the fourth quarter, net sales grew to $454 million, increasing 4% on a reported basis and 10% when adjusted for the impacts of refranchising. System-wide same-store sales increased 6% with about one-third coming from transaction growth. We do continue to see transaction growth across the portfolio. For the fiscal year, net sales grew 12% when adjusted for the impacts of refranchising to $1.7 billion. System-wide same-store sales grew 6.1% over 13% on a two-year stack. For the year, transaction growth accounted for just over one-third of the comp also across the portfolio. On the ticket side, we saw contributions from all three levers: premiumization, net price, and NOCR service penetration. Slide nine looks at the other drivers of the financial results for the quarter. The gross margin rate of 39.1% was flat year over year driven by leverage at the labor line of about 120 basis points offset by increased product costs. We continue to drive operating leverage generating a 60 basis point year over year improvement excluding increased depreciation expense. SG&A as a percentage of sales increased 40 basis points year over year to 18.2%. Sequentially, SG&A as a percentage of sales decreased 30 basis points as we continue to see SG&A growth moderate. Overall, adjusted EBITDA margin increased 20 basis points to 28.7%. Turning to the next slide, we'll take a look at the financial drivers for the full fiscal year. We'll start with gross margin. We are very pleased with the benefit coming from labor leverage for the year which drove 90 basis points of margin expansion. Operating leverage improved 70 basis points year over year excluding increased depreciation expense. SG&A as a percentage of net sales increased 80 basis points from the investments in both teams and technology, to support growth and provide a better operational foundation for the future. As we look forward to fiscal 2026, we will continue to invest in growth, but do continue to expect SG&A growth to moderate. Adjusted EBITDA margin was flat with SG&A investments offsetting gross margin expansion. On slide 11, we'll take a look at our overall profitability for the year adjusted for refranchising. In fiscal 2025, adjusted EBITDA increased 11%, adjusted net income increased 6%, impacted by increased new store depreciation on a recast basis adjusted EPS increased 8%. Turning to slide 12, we'll take a look at the details of our balance sheet and cash flow and cover the Breeze acquisition. We ended fiscal 2025 with a leverage ratio of 3.4 times on a rating agency adjusted basis. Our capital allocation priorities have not changed. First, fund growth with a focus on strong returns on invested capital second, to stay within our target leverage ratio and third, to use share repurchase as a way to return value to shareholders. Turning to cash. Our CapEx for the year was $259 million. About 70% of the spend was for new store additions. Now let's take a look at some details of the Breeze acquisition. As Lori mentioned, we plan to close on December 1. We will acquire 162 stores following the divestitures required by the FTC for a net purchase price of $593 million subject to adjustments for acquisitions and sale leaseback transactions completed by Breeze, since signing and customary closing adjustments. We'll fund the purchase price entirely with a newly issued $740 million Term Loan B. The excess proceeds will initially be used to pay down the revolving credit facility. The additional debt will increase our leverage ratio to approximately 4.2 times. We expect it to take approximately eighteen to twenty-four months to return to the target leverage ratio through a combination of EBITDA growth, and debt reduction. Now let's take a look at our outlook for fiscal year 2026 on the next slide. These amounts include the Breeze acquisition, makes some of the ranges broader than they might normally be. We expect system-wide same-store sales growth of 4% to 6% and overall network growth of 330 to 360 new stores. The low end of this range reflects a need to carefully consider our overall capacity in light of the Breeze acquisition. At the midpoint, we expect sales to grow by about 20% with EBITDA growth of approximately 15%. Including Breeze and our planned company store growth, we expect fiscal 2026 CapEx of $250 million to $280 million. We expect adjusted EPS of $1.60 to $1.70 per share. At the midpoint, this represents a 4% growth over the prior year including an impact of approximately $0.20 per share related to interest expense for the acquisition. Similar to prior years, we anticipate approximately 40% to 45% of adjusted EBITDA dollars to come in the front half of the year. As we move into fiscal 2026, we are excited by the opportunities in front of us, and are confident in our ability to execute. We look forward to sharing more details about our long-term outlook at our planned investor update on December 11. I'll now turn it back over to Lori to wrap up. Lori A. Flees: Thanks, Kevin. As we wrap up this fiscal year, I want to again thank our team and our franchise partners. Dedication to delivering a quick, easy, and trusted experience to our guests remains a key driver of our long-term growth. In fiscal year 2025, we delivered compelling growth and financial results, while making investments to support our future. The fiscal year 2026 guidance Kevin laid out underscores our commitment to drive continued financial performance. Our resilient and durable business model positions us for ongoing growth in fiscal year 2026 and beyond. We look forward to sharing more with you at our planned investor update. With that, I'll turn it over to Elizabeth to begin Q&A. Elizabeth Clevinger: Thanks, Lori. Before we start the Q&A, I'd like to remind everyone to limit your question to one and a follow-up so that we can get to everyone on the line. With that, can the operator please open the line? Operator: Thank you. Our first question comes from Justin Kleber from Baird. Your line is now open. Please go ahead. Justin Kleber: Hey, good morning, everyone. Thank you for taking the questions. Just a few on the outlook. I was hoping you could maybe frame the revenue and EBITDA contribution from Breeze just so we can understand how the core Valvoline Inc. business is expected to perform. And then a follow-up related to guidance, just what's driving the decline in EBITDA margins in fiscal 2026? It looks like about 100 basis points. How much of that is kind of core Valvoline Inc. versus simply including the Breeze business in your consolidated results? I'll that one. John Kevin Willis: First, we do expect the core business to continue to perform well in fiscal 2026, really no change in that. In terms of how we considered what to include for the Breeze transaction, it's still early days. We haven't closed on the deal yet. We have received recent financial updates on how the business is doing. And as part of the conclusion of the FTC second request process, we're getting reengaged with the team. And we tried to take all of that into account and be measured in our approach in terms of what we in the outlook for Breeze. And that's partly why some of the ranges are admittedly a little bit broader than we normally make them without the inclusion of an acquisition like this. So we're not prepared at this point to really talk specifically about Breeze in terms of what exactly is included in there. But rest assured, did take a measured approach and consider that very carefully. As we included Breeze into the end of the numbers for the ten months we expect to own that business in fiscal 2026. Justin Kleber: Okay. Thanks for that, Kevin. And then just, as it relates to the acquisition, I'm not sure how much you can share you know, given you haven't closed the deal yet, but it looks like the divest locations, right, if we compare the net purchase price relative to what was discussed back in February, it seems like you're divesting those locations for less than a million dollars a box. And you're acquiring, the remaining stores that you know, close to $4 million a box. So can you just help us you know, reconcile those two numbers? And maybe why the divested locations look like, you know, you're selling them at such a lower price relative to what you're buying the remaining outlets for? Thank you. Lori A. Flees: Yeah. You know, the FTC when they do their review, they really were looking at maintaining a level of competition across all the markets that oil changers is located. And they defined competition significantly more narrowly than what we do and what we see when we open stores or when we operate stores in the market. However, we had the process requires us to go out and divest the 45 stores that have been agreed to with the FTC. And so we conducted that process. It was a competitive process. And that's where the outcome is and where the numbers that Kevin shared, where the net acquisition price is $593 million, which reflects the sale price of the locations that we have to divest. I will just underscore what I said in my prepared remarks is that we know where the stores are that we will be integrating them into our portfolio. We've assessed them with our real estate analytics capability. And when you take that analysis with our proven playbook around integrating acquisitions, which we have been doing pretty much since we started the business. We have confidence we're gonna deliver long-term shareholder returns. You know, at the outset, as Kevin mentioned, we do have the latest information through August of the performance of the business that we will be integrating. But we have not been able to spend time in detail with their leadership team because of the FTC review. So as Kevin mentioned, we've tried to incorporate what we know and what we believe we can accomplish in this fiscal year with the new assets that we'll be adding to our portfolio. But we have been appropriately measured in how we incorporated them in the ranges we're providing. Justin Kleber: Okay. Thanks for all that color, and I look forward to seeing everyone next month. Lori A. Flees: Yes. Thanks. Justin Kleber: Thank you. Operator: Our next question comes from Simeon Gutman from Morgan Stanley. Your line is now open. Please go ahead. Simeon Gutman: Hi, Lori. My question is we have, I guess, a slightly lower outlook or algo than what we're used to. And frankly, I think the market has been hoping to have something that's like a little bit more conservative. So we are getting together, it sounds like, in a few weeks. So can you talk about expectations for the core business? It sounds like nothing's changing, I want to confirm. But how do you think about the core business? Is the algo change reflective of anything structural or tactical? Or it is just being prudent and setting up a reasonable range for the business to grow off of? Thanks. Lori A. Flees: Yes. Thanks, Simeon. The same-store sales guide has really been the material difference in our longer-term algorithm in our current year algorithm. And as we look at FY '26, we're very confident in the four to 6% range. We will be sharing more of the longer-term algorithm probably more medium-term. But the fundamentals of our business remain incredibly strong. And when you compare it to where we were in 2022, the material difference is twofold. One, is the percentage of new stores within our network. Obviously, new store ramping contributes a higher same-store sales for those stores than our mature stores. And so as we continue to scale our business and the new stores become a smaller part of the overall same-store sales, you would expect that to naturally come down. The second is the interest and the inflation environment. When we were coming off of the COVID era, there was significant inflation that was running through our same-store sales comp, and we're back down to a more moderate normal level. Now, obviously, you know, that could change. We don't expect it to change. But we expect if that changes, it will only go up. So I think we feel very good about the four to six guide. Think we'll be able to share our longer-term outlook in December, and we'll be able to break down why we have confidence in that longer perspective. Simeon Gutman: And then a follow-up can we talk about the, I guess, the number of stores in market and expansion by you and others? It looks like capacity or number of oil changers is increasing steadily. Curious how you look at that how your own cannibalization rates look and if there are any markets that you are not going to enter or you have thinking twice because a competitor is already well positioned there. Lori A. Flees: Yeah. You know, Simeon, we look at every new unit both in terms of the demographics of that geographic area, the travel patterns, the household growth, the income, and what's been happening with the income levels. We look at broad competition, not just quick lube competition, but others that are competing for customers' preventative maintenance business. And we look at where our stores are in proximity with any location. We know that customers will seek out quick easy trusted service in the most convenient location. So we know when we add a store or pretty high precision around knowing what transfers will happen from our existing stores. And we also know what the impact of potential competitive entry are. Sometimes, you know, sometimes we have a pretty long lead time with that construction timing and sometimes a little less so if it's an acquisition. But what's been happening in the market is not changing. So the competitive environment that we operate has been relatively consistent. The competitive it's very fragmented. There's still a significant number of customers that are not going to the most convenient stay in your car, you know, quick, easy, trusted service. So whenever we add a site, you know, 70% or more of the customers are coming from outside our specific category, our specific channel. But we see normal behaviors from our competitors as it relates to adding sites. And we know what the impact is in the short term. They typically have high promotions, and we may have customers that go and try it in order to take advantage of a new store opening promotion, but then they return. They return back to their trusted service provider. So there's really not any changes that we're seeing, and there are no markets we stay away from because of the competitive environment. Again, the QuickLube channel has such a small percentage of the preventative maintenance market that there is a lot of share to be captured by the category. And we have been capturing that share right along with it. Or more so. Simeon Gutman: Okay. Thank you. Good luck. Operator: Thank you. Our next question comes from Steven Zaccone from Citi. Your line is now open. Please go ahead. Steven Zaccone: Great, good morning. Thanks very much for taking my question. Can you help us think through the margin outlook for '26 with the new four to six same-store sales guidance? There were some prior commentary that you were hopeful to see SG&A leverage at some point in 2026. So how does that stack up with the new guidance? John Kevin Willis: I'll take that one. And we were really pleased with how we continue to see SG&A growth in improvement or SG&A growth moderate in Q4. Continue to moderate versus what we saw in Q3. And that's that we think that's a very good sign. We're going to continue to invest in the growth of the business. But as we said before, we do expect to return to leverage and fiscal 2026. I think a comment though worth making is that with the inclusion of the Breeze acquisition, in the numbers, that's going to be more difficult to tease out and we'll continue to provide color around that. As we've said before, we would expect to lap the technology that we've made sometime in Q1, again, while continuing to invest in growth of the overall business. So see we do see some opportunities there. I think from a gross margin perspective, we continue to see opportunities. Good progress, great progress really has been made from a labor perspective. But we continue to see room to improve in the overall store operating profit as well. And we're focused on that. We're going to continue to work that fiscal 2026 and beyond as we operate the business and find new ways to improve the profitability. Lori A. Flees: The key thing, Steve, just to add on to what Kevin Sorry. Sorry. Key thing to add on to what Kevin's saying is Laurie. Whenever we do acquisitions or start new stores, it typically has a lower margin four-wall EBITDA in any new store we acquire or we build. And that ramps over time. In this case, we are adding 162 stores that have a lower margin profile than our existing base. And so as those stores as we can apply our playbook you should fully expect that margin improvement to happen. We're just taking on a significant increase in new stores in the overall mix. But from an SG&A standpoint, you know, we will be we will be levering relative to the business without you know, without the Breeze addition, and we'll work through continuing to leverage SG&A as we integrate. Steven Zaccone: Okay. That's helpful. That's helpful. Thank you. The follow-up I had is just, on the same-store sales guidance. You know, the last year you faced a difficult compare in the first quarter. So if we think about the quarterly cadence of comps, is there anything to be mindful of you know, below or above that guidance range as we go each quarter? John Kevin Willis: As we look at it based upon our current view of the fiscal year, we would expect the same-store sales growth to be pretty consistent across all four quarters. We don't really see any reason for there to be much variance around that throughout the course of the year. Obviously, weather can be an impact if it happens, but typically that just changes timing. It doesn't necessarily change what our guests actually do. As look at where we are, obviously, it's still relatively early in Q1. We're seeing that play out. So far, the core business is operating as we would expect it to. In Q1. So does help support the commentary, think. Steven Zaccone: Very much. Best of luck. Lori A. Flees: Thanks. Thank you. Operator: Our next question comes from Mark Jordan from Goldman Sachs. Your line is now open. Please go ahead. Mark Jordan: Thank you very much for taking my questions and looking forward to the investor update. For the same-store sales guidance, you've gone to a little bit but how do you build to that 4% to 6%? What's the mix like between traffic and ticket? Is it more ticket heavy? How should we think about the mix of franchise versus company operated? John Kevin Willis: To give you a little bit of color on that. As we look at both Q4 and the year, we a nice balance between transactions and ticket across the system. Q4, it was about one-third. The same-store sales growth was about one-third transaction and two-thirds ticket. And again, that's consistent with both company and franchise. As you look at the full year, very similar. Again, the core business is operating and performing as we'd expect it to. And so as we look at fiscal 2026 on an overall basis, I wouldn't really expect that to change materially over the course of the year for the business as we're operating it today. Mark Jordan: Okay, perfect. And then just just one quick follow-up, guess, kind of on your current trends, health of the consumer you're seeing. We've heard a little bit about concerns around deferral and non-oil change services or just an extension oil change intervals. Is there anything you're seeing there in your current business? Lori A. Flees: Yeah. Thanks, Mark. You know, automotive maintenance is a non-discretionary spend for consumers, and the demand for our services has been very resilient. Over this more uncertain macro environment. We continue to see the same dynamics. So we are not seeing customers trade down or defer. Premiumization is up across all customer types, which is a reflection of the car park. And we saw growth in customers across all levels of household income. Think the interesting thing when we look at the past five years intervals between service have been largely stable. Although in FY 2025, we saw slightly less days and miles between oil changes for our customers. Again, we've been talking about car maintenance in in almost like a peace of mind becomes a seasonal or time of year sort of consideration, less than an exact number of miles. And so what we've seen in FY 2025 is slightly less days and miles between oil changes. Now we are not expecting that to hold or continue to go down. We would expect for the days and miles to be more consistent. But in 2025, it was interesting that we did see a shortening of the cycle. Mark Jordan: Perfect. Thank you very much. Operator: Thank you. Our next question comes from Chris O'Cull from Stifel. Your line is now open. Please go ahead. Patrick: Great. Thanks, guys. This is Patrick on for Chris. I had a quick follow-up on the comp guidance. Laurie, the company guided to 4% to 6% this year. And I'm just curious what factors you're seeing in the business that could get you to the lower end of that range given kind of where you exited 4Q? Lori A. Flees: Yeah. I think, what we've talked about is, at the low end, we would fairly more even balance between transaction and ticket on the high end, it might be a little bit more weighted to ticket. So some of the things that would factor in is the NOCR improvement year over year. We've got a few things that our teams are executing against, but that would sort of depending on how that plays out, that would get us to the higher end of the range. Just specifically on NOCR. And then there's some are always doing pricing tests. So, again, assuming that our pricing test show both from a competitive positioning as well as the last of demand that we would move forward with some of the pricing that we have planned and that our franchisees would do the same. So those are the two things that I think pull you up to the high end of the range. But the other fundamentals are consistent across the low and bottom end. Patrick: Got it. That's helpful. Thank you. And then can you provide an update on the company's efforts to improve new unit build costs and just help us understand how much savings you think you can achieve relative to current levels? And is there any other opportunity you see in terms of improving the new unit economics outside of improving the build costs? Lori A. Flees: Yeah. Great question. And this is something that I know we'll spend more time on in December. Because it has been an area of focus for us for the past two years. When you look at our new unit cost, relative to two years ago, we've actually reduced those costs by about 10%. In this year. And we're fairly early in our journey, some of the things that we've done, like, we've got a I talked about it in the last quarter. We had a new prototype design, which would reduce the cost of the building. We had bids out the last time we spoke, and we just opened our first new prototype design in June, which does deliver a nice savings relative to the old building design. And so that was the first one in June. So when you look at where we will be in this year, those factor into our CapEx numbers. And we're in the early days. There's still additional work that we're doing. And so we look forward to sharing more of those plans and the impact that that will have on CapEx. I will just state though that when we look at returns, we've always talked about 30% cash on cash returns and or mid to high teens IRR on a new unit. Even through the period of our of our CapEx or new unit capital cost going up, our returns have stayed high and improved in many cases. And this is because the fundamentals of the core business have gotten stronger. So each box is returning a higher four-wall EBITDA margin again, over a slightly elevated CapEx, it still delivered a really fantastic return for both us and franchisees. Now that will continue to improve as that denominator starts to get more optimized. So really excited to share more information on that, in December. John Kevin Willis: The only thing I would add to that is there's also the aspect of converting acquired stores. There's been a lot of focus also on really sharpening the pencil around what we spend when we buy a store, which we typically do buy 30 to 40 stores in a normal year, obviously we'll be taking that into consideration as we think through the Breeze stores as well once that deal is closed. Patrick: Great. That's helpful. Thanks, guys. Elizabeth Clevinger: Mhmm. Thank you. Operator: Our next question comes from Peter Keith from Piper Sandler. Your line is now open. Please go ahead. Peter Keith: Thanks. Good morning and congratulations on getting the Breeze acquisition done. Just on a separate topic, wanted to dig into a little bit on the higher product cost impact. It looked pretty impactful at around 120 basis point drag for the quarter. Could you give a little more detail on what this was and if we're going to see this headwind continue or if there's any potential offsets as we step into the new fiscal year? John Kevin Willis: Yes. As we look at product cost, there are several components to that. As we all know, crude oil pricing continues to be down versus prior year. And typically, we would expect to see base oil pricing come down as well. That typically takes some time, three or four months is not uncommon for that curve to catch up. And unfortunately, we really haven't seen much there yet. And in the case of supply chain costs, we continue to see inflation there, which does create a drag on the product cost side. When base oil pricing does decline, and we would expect it to at some point, we would see some benefit from that as well as our franchise partners. And since our franchise partners will benefit from this as well as we pass those savings along to them. Another component to this that has also been a drag and is, I would say, marginally gotten worse would be used oil pricing. It's also a component of product cost. Historically, it's been more of offset as we sell the used oil. Used oil prices do tend to move with crude oil pricing and that has been the case even more so than the case, I would say to the extreme. We've seen used oil pricing come down considerably to the point that some providers out there are starting to charge customers to pick up used oil versus actually buying that. It's just a function of the market dynamics. As crude has gone down and stayed down there's just less demand on the used oil side. And so it becomes more of a drag. But we've seen an outsized impact to that as well. We are not currently paying providers to pick up our oil, but we're also not realizing very much in terms of the sale of our used oil either. And we expect to see that trend continue for the time being. And would expect to see that in 2026. And we've included that in the consideration around our outlook as well. Peter Keith: Okay. All right. That's helpful. And then, I guess a simplistic question on optics. So the comp was quite good for the quarter, the EBITDA at the high end and then the EPS the low end. So I guess optics do matter. You did miss the EPS consensus estimates a bit. To me, it looks like you had $0.02 headwind from higher interest expense. Maybe you can comment if the why did interest expense jump up so much and if there's anything in your model that maybe caused the drag on the EPS? John Kevin Willis: Yeah. There a couple of things in there. Depreciation in the quarter was a little higher than we expected because of the timing and mix of new store additions in the quarter. So that's part of it. The effective tax rate is also just a bit higher than what we expected as well. And I would say probably from an interest perspective, would say net interest is probably a little bit higher, meaning interest income that we would have expected to see was a bit lower as well. So it's really pieces of all of that that I would say contributed to us landing at the bottom end of the range for the full year. Peter Keith: Okay. That's helpful. Thank you. Good luck with the new fiscal year. John Kevin Willis: Thank you. Elizabeth Clevinger: Thank you. Operator: This marks the end of our Q&A session for today. So I'll hand back to Laurie for closing remarks. Lori A. Flees: Well, thank you everyone for joining and for the questions. You know, as we step back and look at FY '25, we feel really good about what we delivered from compelling growth and financial results. And as we look at FY '26, we know there's more to come as we continue to drive the core business and moderate the G&A growth and spend in our existing business. Now with Breeze, while we're adding 162 stores to our network, this is not something that is new to us. We have been doing bolt-on acquisitions for a long time. This is obviously larger scale, but we have the playbook and the team ready we will you know, following the close on December 1, we'll start our integration process. And I feel really good about the Breeze team and again, the strategic rationale for that acquisition. Remains the same. When we close the transaction, Valvoline Inc. will be the category leader in store count, revenue, and transactions both on an absolute and an average per store basis. We'll have over 2,300 well over 2,300 stores, which we can leverage our investments against. So using our playbook, we'll bring these stores into the portfolio and we do see significant growth opportunities ahead. Our resilient business model remains unchanged, and it will continue to position us for momentum in FY 'twenty six and beyond. So I wanna thank you all again for joining us today, and I look forward to seeing you either virtually or in person at our investor update in December. Thanks all. Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Kingsoft Cloud Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nicole Shan, IR Director of Kingsoft Cloud. Please go ahead. Nicole Shan: Thank you, operator. Hello, everyone. And thank you for joining us today. Kingsoft Cloud third quarter 2025 earnings release was distributed earlier today and is available on our IR website at ir.ksyulin.com as well as on the PR Newswire services. On the call today from Kingsoft Cloud, we have our Vice Chairman, CEO, Mr. Zhou Tao, and the CFO, Ms. Li Yi. Mr. Zhou will review our business strategies, operations, and other company highlights followed by Ms. Li, who will discuss the financial performance. They will be available to answer your questions during the Q&A session that follows. There will be conductive integration. Our are for your convenience and the reference purpose only. In case of any discrepancy, management statement in original language will prevail. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in The U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions. And relate to events that involve known or unknown risks, uncertainties, and other factors. All of which are difficult to predict and many of which are beyond the company's control. Which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors are included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements. As a result of new information, future events, or otherwise. Except as required under applicable law. Finally, please note that unless otherwise stated, all financial figures mentioned during this conference call are denominated in RMB. It's now my pleasure to introduce our Vice Chairman and CEO, Mr. Zhou. Please go ahead, Zhou. Zhou Tao: Hello, everyone. Thank you, and welcome to Kingsoft Cloud third quarter 2025 earnings call. I am Zhou Tao, CEO of Kingsoft Cloud. In the era that artificial intelligence is implemented across various industry verticals, and reshaping the technological landscape, Kingsoft Cloud firmly established its strategic positioning and defined its development orientation. On the premise of steadily meeting the demands of model training, we have made adequate technical and resource reserves for the explosive growth of inference. In the face of the dual trends of rapid model iteration and increasing adoption of artificial intelligence, we have provided our clients with stable and efficient integrated training and inference intelligent cloud computing services. And have laid out model API business to turn inference scenarios into new growth engines. The substantial high growth in revenue and the stable profit margin level validates the steady execution of our strategic measures achieving high quality and sustainable development. First, our revenue in the third quarter reached RMB 2,480,000,000.00, with year-over-year growth rate accelerating from 24% in the previous quarter to 34 to 31% this quarter. Both public cloud and enterprise cloud achieved year-over-year and sequential growth. Among which public cloud revenue increased significantly by 49% year-over-year, reaching RMB 1,750,000,000.00. Second, intelligent computing cloud business remains on a fast development track. This quarter, gross billings of intelligent computing reached RMB 782,000,000, with a year-over-year growth around 122%. It accounted for 45% of the public cloud revenue, realizing a significant increase from 31% in the same period last year. Generative artificial intelligence and cloud are symbiotically integrated in many aspects, including technology, products, and customer cross-sales. The demand for artificial intelligence not only drives the rapid development of intelligent cloud, but also leads to the growth and technological innovation of basic public cloud and accelerates the iterative process of cloud computing technologies. From training clusters to native technologies, our computing power services, model API services, storage services, and data services have all been upgraded. Third, the Xiaomi and Kingsoft continued to offer a solid foundation. This quarter, revenue from the Xiaomi and Kingsoft ecosystem reached RMB 691,000,000, increasing by 84% year-over-year. And its proportion in the total revenue further rose to 28%. From January to September 2025, total revenue from the Xiaomi and Kingsoft ecosystem reached RMB 1,820,000,000.00. We anticipate adequately fulfilling the business cooperation under the continuing connected transactions annual quarter this year and are optimistic in the further increase of the quarter next year. Finally, our adjusted gross profit for this quarter reached RMB 393 million, representing a year-over-year increase of 28%. The adjusted operating profit turned from loss to profit reaching RMB 15,360,000.00. And the adjusted operating profit margin was 0.6%. The adjusted net profit recorded a historical positive profit of RMB 28.73 million for the first time. The company is aiming at both revenue growth and profitability improvements. As the economies of scale are becoming increasingly prominent, while accelerating the construction of intelligent computing infrastructure and technological capabilities, we are also strengthening the control of costs and expenses. Now I would like to walk you through the key business highlights for 2025. In terms of public cloud services, revenue reached RMB 1,750,000,000.00 in this quarter, making a year-over-year increase of 49%. Intelligent computing cloud business has maintained strong growth. We have successfully supported the large-scale training and inference demands of various top Internet customers providing high-quality, high-performance, high-stability, highly efficient cloud computing services. Especially for many artificial intelligence and Internet enterprises, facing the simultaneous demands for model training and inference, we have provided customers with stable and integrated intelligent computing services for different scenarios. Meanwhile, we actively expanded customer coverage and the cross-selling of intelligent computing cloud and basic cloud. In terms of ecosystem customers, we continued to provide high-quality services to Xiaomi and Kingsoft, continue to prepare underlying resources for ecosystem customers to enhance the rapid expansion capability of intelligent computing demands. In terms of enterprise cloud services, revenue in the quarter was RMB 730,000,000. We firmly believe that in today's rapidly evolving generative artificial intelligence landscape, intelligence will evolve from model capabilities to industry solutions empowering and reshaping diverse sectors of the economy. As the indispensable carrier for intelligent computing, cloud services enjoy tremendous potential for such digitalization and intelligentization. In this trillion-dollar sustainably expanding market, we have deeply explored our inherent DNA of two d enterprise services, targeted advantageous selected verticals, and geographical regions, and built core competitiveness for the future. As a result, it has received widespread recognition from our customers and the broader markets. For example, in the public services sector, we aim to become the preferred cloud partner for intelligent computing in the public services agencies and enterprises for their inference demands. Taking Qingyang City in Gansu Province as an example, as one of the eight major nodes of the national project is data web computing and a central area for intelligent computing business. We will be responsible for building the public services cloud platform in Qingyang fully empower local public services affairs with intelligence and digitalization. In the field of health care, we have achieved a milestone breakthrough in a project integrating artificial intelligence with traditional Chinese medicine clinical scenarios. Whereby not only have we achieved a deep integration of traditional Chinese medicine theory in artificial intelligence, seizing the commanding position in chronic disease management technology, but we have also verified the practical value of artificial intelligence in improving patients' quality of life and disease control rate at the clinical level. In the enterprise services sector, following the successful implementation of a landmark project for intelligent generation of bank credit reports, we continued to advance the intelligentization transformation across the entire credit approval process. This evolution extends from the single function of credit report initiation to a comprehensive intelligence system including customer onboarding, credit report generation, loan disbursement, monitoring and early warning, and post-loan reporting. We firmly believe that these proven accumulated successful experiences, market reputation, and replicable core solutions will enable us to seize a pioneering position in the emerging industry wave, build a solid core competitiveness, and achieve high-quality and sustainable shareholder returns. In terms of product and technology, in the public cloud space, we continued to enhance the technology of Intelligent Computing Cloud this quarter, strengthening the capability of the Starflow platform and made significant progress in the following three aspects. First, we have launched our model API service delivering highly available and easily integrable capabilities for model invocation and management, laying a solid foundation for the subsequent provision of diverse model service paradigms. Second, we upgraded our online model services integrating multiple open-source foundation models equipped with automatic scaling capabilities, offering a highly available inference platform. Third, we launched our data annotation and dataset marketplace, aiming to provide customers with end-to-end support for data flow and help them efficiently advance the model training process. In the enterprise cloud space, in order to meet the demand for private deployment scenarios, we have built a computing power scheduling platform, a lightweight math platform, a generative artificial intelligence knowledge base. And we have closely collaborated with WPS AI to build a trusted intelligent product architecture for public services use cases. Meanwhile, through the organizational development of the dual R&D centers in Beijing and Wuhan, we attract talents from various regions, build a talent pipeline, and maintain sustained investment intensity in the intelligent computing field. As of the end of Q3, the number of employees in Wuhan is 2.8 times the headcount back in 2022 when we first launched our Wuhan strategy. Overall, we will firmly seize the historic opportunities presented by the Xiaomi and Kingsoft ecosystem. Continue to invest in infrastructure, focus on refining core products and solutions, and to create long-term value for our customers, shareholders, employees, and other stakeholders. I will now pass the call over to Ms. Li Yi, our CFO, to go over our financials for the third quarter of 2025. Thank you. Li Yi: And thank you all for joining the call today. Before we go through the details of financial results for the third quarter, I would like to highlight the following aspects. First, revenue has consistently achieved year-over-year growth for six quarters, reaching RMB 2,478 million this quarter. This represents an accelerated year-over-year growth rate of 31% up from 24% in the previous quarter. Revenue from public cloud service stood at RMB 1,752,300,000.0, a significant increase of 49% from RMB 1,165,500,000.0 in the same quarter last year. Meanwhile, robust demand from our intelligent cloud, which is also called AI cloud business, drove around 120% year-over-year billing growth, which totaled RMB 782,400,000.0. Second, profitability has seen substantial improvement. Our adjusted gross margin rose to 16% up from 15% in the previous quarter. And adjusted EBITDA margin improved to 33% compared with 17% last quarter. Notably, we turned quarterly adjusted operational and adjusted net loss into profit simultaneously for the first time. These gains validate our strong execution in pursuing high-quality, sustainable development as well as our ability to monetize opportunities in the intelligent cloud space. Third, I would like to express our gratitude to shareholders for their support during our risk to equity financing in September. We successfully raised HKD 2,800,000,000.0. And 8% of the fund will be allocated to further investment in AI infrastructure and transfer them to general operational needs. This funding will fully underpin the growth of our intelligent cloud business and enable us to create long-term value for all stakeholders. Now I will walk you through our financial results for 2025. And use RMB as currency. Total revenues were RMB 2,478 million. Of these, revenues from public cloud services were RMB 1,752,300,000.0, up 49% from RMB 1,175,500,000.0 in the same quarter last year. Revenues from enterprise cloud services reached RMB 725,700,000.0, compared with RMB 110,000,000 in the same quarter last year. Total cost of revenues was RMB 2,097,100,000.0, up 33% year-over-year, which was mainly due to our investment into infrastructure to support intelligent cloud business growth. Addition cost increased by 15% year-over-year, from RMB 673,800,000.0 to RMB 775,700,000.0 this quarter. The increase was mainly due to the purchase of racks which is their expanding intelligent cloud business, as well as the basic computing and storage cloud demand both by AI development. Depreciation and amortization costs increased from RMB 297,500,000.0 in the same quarter of 2024 to RMB 649,700,000.0 this quarter. The increase was mainly due to the depreciation of newly acquired and leased servers and later work equipment, which were mainly allocated to intelligent cloud business. Solution development and services cost increased by 90% year-over-year from RMB 499,000,000 in the same quarter of 2024 to RMB 595,900,000.0 this quarter. The increase was mainly due to the solutions that no expansion. Fulfillment cost, other cost were RMB 5,200,000.0 and RMB 70,600,000.0 this quarter. Our adjusted gross margin for the quarter was RMB 392,600,000.0, increased by 28% year-over-year and 12% quarter-over-quarter. It was mainly due to the expansions of our revenue scale, the energy contribution from intelligent cloud, and the cost control of IBC racks and servers. Adjusted gross margin increased from 15% last quarter to 16% in this quarter. On the expense side, excluding traffic concession cost, our total adjusted operating expenses were RMB 420,900,000.0, decreased by 70% year-over-year and 25% quarter-over-quarter. Of which our adjusted R&D expenses were RMB 10,888,400,000.0, decreased by 90% from the same quarter last year. The decrease was mainly due to the decrease of personal cost resulting from our strategic adjustment for the research team, as well as the expense serving from Beijing Wuhan dual research center strategy. Adjusted selling and marketing expenses were RMB 127,600,000.0, increased by 15% year-over-year. Adjusted general and administrative expenses were RMB 104,900,000.0, decreased by 29% year-over-year due to the reverse of credit loss. The impairment of long-lived assets was near this quarter, compared with RMB 190,700,000.0 in the same quarter last year. Our adjusted operating profit was RMB 15,400,000.0, total profit from adjusted operating loss of RMB 140,200,000.0 in the same period last year. The improvement was mainly due to the of revenue scale and gross profit, the expense control, as well as the reverse of credit loss. Adjusted operating profit margin increased from minus 7% in the same period last year to 0.6% this quarter, representing an increase of eight percentage points. Our non-GAAP EBITDA profit was RMB 826,600,000.0, increased by 3.5 times of RMB 185,400,000.0 in the same quarter last year. Our non-GAAP EBITDA margin achieved 33% compared with the 10% in the same quarter last year. It was mainly due to our strong commitment to intelligent cloud development, strategic adjustment of business structure, strict control of costs and expenses, as well as the long recovery impact of subsidy in other income. As of 09/30/2025, our cash and cash equivalent totaled RMB 33,954,500,000.0, decreased from RMB 5,464,100,000.0 as of 06/30/2025. The decrease was mainly due to our infrastructure investment for intelligent cloud. This quarter, our capital expenditures, including those financed by third parties, and the right of use assets obtained in 24 finance lease liabilities was RMB 2,787,800,000.0. Looking forward, AI technology drives the revolution of cloud computing. We can more than just fulfill the computing demands of model training and inference. We also empower enterprises to invoke an API and apply AI capabilities to their business. Stepping into the phase of rapid development in AI applications and explosive growth in demand, we will further invest into infrastructure, strengthen technology, enhance service stability, and provide customers with high value-added cloud service. That's all for the introduction of our operational and financial results. Thank you all. Thank you, operator. We are now going to start the Q&A session. Please ask your question in both Mandarin Chinese and English if possible. Operator, please go ahead. Operator: Thank you. As a reminder, to ask a question, you will need to press 1 and one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Xiaodan Zhang from CICC. Please go ahead. Your line is open. Xiaodan Zhang: So thanks management for taking my questions. And, first of all, has there been any structural change in the demand of your ecosystem and external clients for the past quarter? And secondly, how does management see the margin trend in the coming quarters? And what's the expected mix of different computing resources acquisition models? Thank you. Zhou Tao: So basically, the core of the reason behind the AI revenue growth in Q3 is that we have some clusters that, you know, partially delivered in the previous quarters, for example, like the 2025, and these clusters and these services have only been partially accounted for revenues from a full quarter basis. But now in Q3, they are starting to be recognized as full quarter revenues. And, also, there's the factor of partially delayed revenue as well. Some of the revenue which we had in Q2 but was not accounted for, and then this revenue is delayed into the third quarter. Yeah. So regarding the second part of your first question, which is about the structure of internal and external customers, I think I used to say that from a large trend general trend perspective, currently in the phase of transitioning from large and top customers' training demand to general and wider spread customers' inference demand. Most of at the current stage, we still see, you know, majority of our demand coming from the larger customers in their training demand. However, especially in the latest quarter, we are increasingly seeing the trend of our customers adopting artificial intelligence models into their diverse industries. So in face of this general trend, we have also, as we mentioned in the prepared remarks, we have launched our StaffLoad platform to meet the demands of such general trend. And this also goes back to the margin that you also asked about. We generally think that in the future, the inference demand will tend to exhibit a higher margin profile than the current stage of training. And therefore, we think that when that wave of demand comes, we expect to have higher margins. Li Yi: Thank you, Xiaodan. I think because level as a proportion of the AI business continues to rise and its cost structure is mainly dominated by depreciation, we expect this EBITDA margin will still remain above 20%. But I have to mention that the significant quarter-on-quarter improvement in this quarter was mainly driven by a one-time other income, which will return to the normal level next quarter. Thank you, Xiaodan. Operator, next question, please. Operator: Thank you. Our next question comes from the line of Wenting Yu from CLSA. Please go ahead. Your line is open. Wenting Yu: The first question is, could management share the outlook and guidance on the revenue outlook for next year? And beyond the Internet companies' post-model training and in-body intelligence scenarios that are already underway this year, which other industry and application scenarios are expected to have strong computing power demand that could drive the revenue growth next year? And the second question is with multiple providers in both China and the US increasing the proportion of server leasing in their computing resource mix, how does management view the current market dynamics for procurement versus leasing? And from a cost-effectiveness and profit margin perspective, how would the company allocate the resources between these two approaches? Li Yi: Wenting, thank you for your question. The company's budget process is currently underway and expected to be completed around the beginning of the next year. We will share the specific details with you once it is finalized. However, regarding the demand for our AI business, we are fully confident in the subsequent demand growth. And for your second question about the procurement method, we primarily align our capital channels with actual customer needs, including cluster scale, delivery time, and supply inventory level. There's no rigid total allocation target from the cost-effectiveness perspective. Both approaches have their own pros and cons. The leasing model is to find our supply chain channels and provide a certain degree of flexibility in resource allocation, with the flexibility also offered through short-term and long-term contracts. Self-procurement, on the other hand, gives us great autonomy in control delivery time rates and managing plus. It also reduces the profit sharing with suppliers, thereby, elevating our pressure on profit margin. Zhou Tao: Yeah. You know, as you mentioned that the robotics companies in China are a growth environment partly. So, you know, as you this year, we have covered most of the robot companies in China, and we can see the revenue is increasing very rapidly. In the next year, we believe the increase of the robotic companies will also be fast. Meanwhile, you know, as more and more Internet companies in China using talking token services, which is the API services, we are seeing the increase of the business is very quickly. So we believe in the next year, this will be a very important factor to driving the revenue to increase. Thank you. Li Yi: So this is the CEO. He added that yes, that is your question. Your second question is really about the choice between the leasing model and the CapEx model. So we've talked about that before. So, generally, there's a general rule of thumb. When you're looking at the larger customers, especially the customers that have solid profiles, have solid fundamentals, and are trustworthy. Premium customers, for example, like Xiaomi. We would tend to choose the CapEx model. While in other growth stage companies, medium and small-sized companies, we generally tend to adopt the leasing model. Which is also a way a meaningful way to reduce our own risk. So as we rightly mentioned, there's no kind of a top-down target for the split between these two different methods. And we also talked about in the last quarter as well that the impact of these two different methods have different impacts on our gross margins. However, we have seen the financial results for the past three quarters. Which we have adopted various combinations of these two different models. You know, especially when you compare the gross margin for the third quarter versus the second quarter, it actually also improved sequentially. So I would say that at the current stage, we do not expect material changes to the current status. But generally speaking, in the future, we do expect the margin to improve. Thanks, Anthony. Next question, please. Operator: Thank you. Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open. Timothy Zhao: Thank you, management, for taking my question. My question is regarding the differences between AI training versus inferences. Could management share what is the pricing methodology between these two kinds of demand and what has been the part pricing trend over the past few months or year to date? And, in terms of the utilization rate of the chips of GPUs, pricing, and profitability, can you share more color on the gap between training and inferences? Thank you. Zhou Tao: Okay. Let me answer these questions. You know, we're not talking about the price strategy for inference and training. You know, there's not too much difference between two things. So the price is based on the qualities. How many resources to use, which is the most important factor. And also comparing, you know, the margin rate, you know, there are two kinds of inference services, which one is, you know, customer by resource and use our platform to influence. So that margin ratio is very similar to the training margin ratios, but another one is, you know, customers do directly by our API talking services. That we think that will have a better margin ratio. But, you know, this business is just in the beginning, so we have we need time to see what is the big difference between the two things. Thank you. Operator: Sounds good. Thank you. Due to time constraints, this concludes our question and answer session. So I'll hand the call back to Nicole for closing remarks. Nicole Shan: Thank you. Thank you all once again for joining us today. If you have any questions, feel free to contact us. Look forward to speaking with you again next quarter. Have a nice day. Bye-bye.
Operator: Good day, and thank you for standing by. Welcome to Wix.com Ltd.'s Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising when your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Emily Liu, Head of Investor Relations. Please go ahead. Emily Liu: Thanks, and good morning, everyone. Welcome to Wix.com Ltd.'s Third Quarter 2025 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder, Nir Zohar, President and Co-Founder, and Lior Shemesh, our CFO. During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from these forward-looking statements. We do not undertake any obligation to update these forward-looking statements. In addition, we will comment on non-GAAP financial results and key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our interactive analyst center on the Investor Relations section of our website, investors.wix.com. With that, I'll turn the call over to Avishai. Avishai Abrahami: Thanks, Emily. With Vibe Coding and our decades of proven expertise in democratizing emerging technologies for everyone to enjoy, we will be able to deliver products that unlock entirely new value for small businesses and people. Let me start by setting the stage. When I think about Vibe Coding, I try to simplify things by breaking the world apart into two categories. One is the developer sphere. This is Claude code, cursor, Windsurf, and all these tools which are great for engineers. These tools integrate directly on the source code of a project, enabling complex technical programming which requires significant user expertise. The second sphere is where everyone else lives. The majority of humanity who do not code or even think they can code. Suddenly, with Vibe Coding, they can create pieces of software that improve their personal lives or help to build their businesses, all by simply using natural language. For example, a school teacher can create a custom app to track attendance and post grades. A neighborhood restaurant can build an application to handle their staff schedule, another to manage vendors, another to sort inventory, and so on and so forth. These people can now build any type of application they need or want with zero coding knowledge. Bottom line, Vibe Coding is unlocking access for regular people to build software intuitively without any technical barriers. This story sounds exactly like Wix.com Ltd.'s story back in 2006. We did not invent websites back then. They were already widely available, but only to big companies with engineering budgets. There was an absolute barrier for the average person. We knew there was a way to enable an online presence for everyone. This was and still is the mission of Wix.com Ltd. We intend to do for software what we did for websites, enabling everybody to build applications without any need for a developer. What's different today is that the software application market is many, many times bigger than the website creation market. Think about it. That same neighborhood restaurant needs only one website, which they likely built on Wix.com Ltd., but they may need many applications to successfully run their business. Up until now, creating the application a business owner may want has been too expensive or completely inaccessible. Without this new tech, it probably would never have been built. We are already seeing this huge opportunity materialize as the AI-powered app building space has grown exponentially over the past year, and we are taking a bigger and bigger piece of this pie. Base 44's share of audience traffic increased from almost nothing to more than 10% in October. Among local tools, Base 44 is quickly proving to be a leader and the best solution on the market today, with enormous white space still ahead. Base 44 is also getting better fast. We recently launched our new builder, transitioning Base 44 from a predominantly user-reliant tool to an expert developer partner for everyone. The new builder represents a fundamental architectural advancement moving to an agent decoding environment with multi-agent layers. Base 44 can now validate, debug, refactor for performance, and fix its own work, making app creation faster, smarter, and more powerful than before. Please do not mistake my obvious enthusiasm for Base 44 and the AI-powered app building opportunity as lack of excitement about Wix.com Ltd. It is no secret that we intended to release a new flagship product as early as this summer, and as CEO, I am clearly unhappy that I still cannot share it with you today. However, seeing it in our labs gives me more and more confidence that the wait will be worthwhile. I expect it early 2026 and truly believe that it will deliver great value to our users. I want to impart one last thought about the massive importance of building products that allow humans and AI to work in tandem. People building big tech projects, creating websites, or developing applications, whether engineers or not, need to be able to control the outcome of their creation. This is why we continue to put a huge emphasis, both at Wix.com Ltd. and at Base 44, on curating the right combination of visual editing capabilities for humans and powerful AI Vibe Coding. This combination will allow for high-quality outcomes with less iteration, while giving humans the right level of control and calibration. The future of creation will be interactive, intelligent, accelerating, and we're just at the cusp of this transformation. With that, I'll turn it over to Nir. Nir Zohar: Thanks, Avishai. We are pleased to see the new user cohort behavior in our core business from the first half of the year continue through Q3 and into October. These robust cohorts have been a key driver of our top-line growth, fueling the momentum we've seen throughout the year. They also provide a solid foundation for continued growth as we move into Q4 and 2026. Organic traffic continued to improve as more users actively searched for Wix.com Ltd. online, underscoring Wix.com Ltd.'s continuously improving brand awareness and top position platform for web creation. Solid traffic from paid channels also drove higher traffic as we cap robust demand while operating within our TROI guardrails. New users purchased more advanced website subscriptions, adopted more business applications, and purchased longer-duration subscriptions at an accelerating clip, demonstrating the growing trust our users place in Wix.com Ltd. With new cohort bookings following a similar shape to the second quarter cohort, cohort growth continued to trend strongly through the third quarter. We also welcomed our first full quarter of new Base 44 cohorts under the Wix.com Ltd. banner in Q3, which performed better than anticipated. As the Vibe Coding market has exploded this year, Base 44 has meaningfully outgrown most peers. We now estimate our share of audience traffic to AI-powered application builders to be more than 10%, up from low single digits in June. This growth in a matter of just months is a result of a fantastic product with organic reach supercharged by our expertise and investments, as well as the application of Wix.com Ltd.'s proven strategic playbook to Base 44. In addition to establishing a dedicated customer care team and expanding Base 44's R&D capabilities, we focused on building up a comprehensive full-scale brand and marketing function. Remember, Base 44 did not have any marketing motion when we acquired it in June. On day one after the deal closed, we started to apply a marketing plan that has been fine-tuned and tested over the past two decades. A key competitive differentiator for Wix.com Ltd. to Base 44. This included refining the company identity, messaging, and visual system to better reflect our market ambition. We also launched campaigns in key channels and core geographies. Compelling branding and effective marketing are crucial to growing Base 44's reach beyond just early adopters and capturing the huge white space Avishai spoke about. Returns on our initial marketing investments meaningfully exceeded expectations as demand ramped through the quarter. As a result, we were able to confidently scale marketing efforts above our initial August plan. Today, Base 44 serves over 2,000,000 users around the world. This is more than seven times more users than we had in June. Impressively, this translates into more than a thousand new paying subscribers joining daily. We now anticipate Base 44 to achieve at least $50,000,000 of ARR by year-end, an increase from our previous expectations. We also continue to see positive trends in our main geographic markets as we improved monetization of the growing population of users and conversion improved sequentially. Better monetization was also a result of healthier commerce activity in the third quarter. Transaction revenue accelerated, increasing by 20% year over year, driven by 13% growth in GPV and an elevated take rate. Merchants are continuing to opt for Wix.com Ltd. payments. The opportunity remains large as we continue to strive towards capturing and addressing the full spectrum of merchant needs per our long-term commerce strategy. To wrap it up, our solid Q3 results illustrate the durability of our core business, which remains healthy against a dynamic operating environment. It also speaks to our ability to enter new markets efficiently and effectively, highlighting Wix.com Ltd.'s innovation-first mindset and the proven first-mover advantage. I remain confident in our ability to drive long-term growth by delivering essential tools that help users, both new and old, adapt, operate, and succeed in any environment. With that, I'll hand it over to Lior. Lior Shemesh: Thanks, Nir. We accelerated growth entering the second half of the year with third-quarter results exceeding expectations. This performance was driven by strong fundamentals in our core business and an exceptional first full quarter of Base 44 under the Wix.com Ltd. banner you just heard about from Nir. The team is executing well as we build the critical foundation for sustained momentum in 2026 and beyond. There were a few highlights in the third quarter, but I'd like to start with our financial results. Total bookings grew to $515,000,000 in Q3, up 14% year over year. The strong performance was driven by robust new user cohorts joining, the existing users finding success and adopting more business applications, as well as better-than-expected results from Base 44. Total revenue grew to $505,000,000, also up 14% year over year and above the high end of our guidance range. Partners' revenue grew 24% year over year to $192,000,000, driven by continued traction among professional designers and solid studio adoption. Domains, marketing applications, and Google Workspace saw particular strength within the partners' business in the most recent quarter. Transaction revenue was $65,000,000, up a strong 20% year over year, driven by slightly improved GPV growth coupled with a sustained elevated take rate as merchants continue to attach Wix.com Ltd. payments. GPV grew 13% year over year to $3,700,000,000. Partners remained the primary driver of GPV growth, contributing approximately 55% of total GPV. Turning to the cost side, we recognized our first full quarter of costs associated with Base 44. Before getting into the details, I'd like to start by explaining the business dynamics of Base 44, which differs from core Wix.com Ltd. As Nir discussed, we are seeing top-line growth for Base 44 trend above our initial expectations. A very large majority of these users are on monthly subscription plans, a stark contrast to the more than 80% of Wix.com Ltd.'s mix attributed to annual or longer-duration plans. This translates into a linear bookings dollar trajectory for Base 44 compared to Wix.com Ltd.'s front-loaded bookings behavior. As a result, most of Base 44's bookings are expected to come in future quarters as these monthly cohorts build and renew. However, the cost associated with these Base 44 users is impacting our financials today. This misalignment between bookings and operating expenses is resulting in a short-term headwind to our free cash flow. We also anticipate a short-term headwind on operating profit as we incur startup costs and initial growth investments for Base 44 while revenue ramps but remains insignificant to our top line today. The two areas we see the most impact are cost of revenue and sales and marketing. On the cost of revenue side, we are incurring AI processing and compute costs to support ramping Base 44 demand. These costs tend to be front-end heavy as new users consume more AI tokens during their initial build phase. These expenses offset continued AI-driven product productivity efficiencies across the customer care organization and improve business solutions' gross margin. As a result, total non-GAAP gross margin in Q3 was 69%, down slightly from 70% in Q2 as expected. On the sales and marketing side, third-quarter non-GAAP sales and marketing expenses increased 23% sequentially as we built and deployed a marketing strategy for Base 44. This is a result of accelerated branding and acquisition marketing investments above our initial August plan to capture stronger-than-expected demand, particularly in the back half of the quarter. I'm very encouraged by Base 44's TROI, especially so early on, a signal of sustained user strength that isn't fully reflected in the P&L due to the monthly mix dynamic. We also saw a slight increase in non-GAAP R&D expenses, which were up 7% compared to the second quarter as a result of higher overhead, AI, and other expenses as planned. As a result, non-GAAP operating income was $90,000,000, 18% of revenue in the third quarter. This excludes $35,000,000 of acquisition-related expenses, primarily earn-out payments for the Base 44 team. We expect earn-out payments to continue to trend upwards as Base 44 AI ARR approaches the high end of its lofty previously set performance target. Q3 free cash flow was $159,000,000 or 32% of revenue. This is an increase from a free cash flow margin of 30% last quarter as we generated strong bookings and realized working capital benefits associated with the higher costs I just discussed. I expect operating and free cash flow margins to improve over time as we optimize multiple areas of our business model. Today, we're already beginning to see AI costs decrease as LLMs improve and competition continues to ramp. I expect this to continue, if not accelerate. Additionally, I expect sales and marketing expense leverage as branding investments normalize once we move past initial branding investment costs. TROI targets should tick lower as Base 44 scales too. We also expect Base 44's user and subscription mix to optimize over time. In the long term, I expect Base 44 to have similar operating free cash flow margins to Wix.com Ltd. We continue to strategically manage our balance sheet. In September, we issued $1,150,000,000 in 0% convertible senior notes due 2030. These notes follow the maturation and payback of our previous tranche of 2025 convertible notes. We expect to deploy this cash for business purposes, potential M&A opportunities, and continued share repurchases. We repurchased approximately 1,300,000 Wix.com Ltd. ordinary shares for approximately $175,000,000, underscoring our continued commitment to returning value to shareholders. This leaves approximately $225,000,000 remaining on our current authorized program. Let's now talk about how we expect to finish out the year. As healthy in our core offering, along with ramping Base 44 contribution, is setting the foundation for a strong fourth quarter. We are raising our full-year bookings outlook to $2,062,000,000 to $2,078,000,000 or 13% to 14% year-over-year growth, up from the 11% to 13% year-over-year growth previously expected. This increased expectation is driven by meaningful outperformance of Base 44, which we expect to continue as we accelerate marketing investments to capture the stronger-than-anticipated demand we're seeing today. As a result, we expect Base 44 to achieve at least $50,000,000 of ARR by year-end, an increase from our previous plan. Our guidance also assumes a stable macro, continued strength in our top of funnel, and current FX rates. For revenue, we are updating our previous full-year outlook to $1,990,000,000 to $2,000,000,000, up 13% to 14% year over year. This is a shift towards the high end of our plan, up from the 12% to 14% growth previously expected. The dynamics differ between bookings and revenue as Base 44 outperformance is offset by a continued shift in our core business mix towards longer-duration subscription packages. On the cost side, we now expect non-GAAP gross margin to be 68% to 69% of revenue and non-GAAP operating expenses to be approximately 50% of revenue for the full year. These updated expectations reflect the front-end heavy AI and sales and marketing costs against linear revenue and bookings behavior. Due to higher anticipated bookings and working capital benefits partially offsetting these increased cost expectations, we expect free cash flow of approximately $600,000,000 in 2025 or 30% of revenue for the full year. I'm looking forward to a strong finish to 2025 as we enter 2026 on solid footing. Operator, we are now ready for questions. Operator: Thank you. And wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Ygal Arounian with Citi. Your line is now open. Ygal Arounian: Hey, guys. Good morning. Good afternoon. So a couple on Base 44. Could we just dive into the dynamics of monthly subs versus the sort of more traditional annual subs that you got for core Wix.com Ltd. and what are you seeing there in terms of churn and those subscription dynamics? And as people sign up monthly, can you get them to sign up annually more often over time? Is that the expectation? How does that change your kind of visibility into investment as some of the margins come down here? And then I have a follow-up on the cost side. Avishai Abrahami: Well, I'm just gonna have a shy. I think that as regards to the percentage, of course, at this stage, lean a lot more towards a monthly subscription than an annual subscription. And then we've also seen it in Wix.com Ltd. in the beginning. It takes time for people to trust the platform. And then they will actually feel more comfortable to pay an annual subscription. And I think we are heading in that. Vibe Coding is still so new that we are heading toward that direction. But if in Wix.com Ltd., the vast majority are annual subscriptions, then on Base 44, most of our users are still on their monthly subscription. When it comes to churn, it's very early to say, it's changing very quickly. So it's very hard to say. Obviously, churn is higher than the standard Wix.com Ltd., which almost doesn't exist. Right? There's almost no churn. But if you look on a cohort basis, Base 44 is better than we expected. And we know there's so much more we can do. So we're very optimistic, and we think that churn will probably not be our problem going forward. Right, if everything continues to advance in the same way it is now. Ygal Arounian: Okay. You talked about, Avishai, in the past that these platforms are good for prototyping. But, eventually, when you have a finished product, that sort of has to live somewhere else, right, because a lot of the back-end stuff isn't developed. Is that part of the factor for churn? Then on the cost side, just on the gross margins and the AI compute, is there anything that you can do within your control outside of LLM costs coming down to keep costs down, for example, your own internal data to help build versus relying on third-party LLMs as much? Thanks. Avishai Abrahami: Well, I'm not gonna go into all the details here, but yes, there's a lot we can do in cost. Okay? It's not a priority at this stage, right? It's something that we're also investigating. I think the priority now is to build a better product and capture more market share. But I think that long term, and long is not multiple years, we can dramatically improve the cost of AI for Base 44. There is so much we can do from training our own models to do part of it, from partnerships with the different vendors, from the fact that simple reality that cost is always declining. And so I think there's gonna be a tremendous amount of opportunities for us to reduce the cost of the AI for Base 44. And sorry? And so the first part, so I'm sorry I missed that. So we do see, you're right, when you say, a lot of it is just used for prototyping. Right? And that's great. For people to actually build an application that is just for demo, for a few people, and then the prototype is the application. Right? It doesn't need scale. It's okay if it kind of like it has tiny bugs or but we are getting to a place that today with Base 44, you can really build more full applications. There's still quite a way to go on what we can do there, and how to make it even better. But we are getting to a place, and of course, we have some users that already built really large applications that have been deployed and we can see that. So if a year ago, you couldn't do Vibe Coding for anything real, and a few months ago, you could do Vibe Coding for multi prototypes. For applications, I think today we are starting to see more applications that are real and have been used on the commercial level. For websites, it's still different. I think for websites, there's still a gap that needs to be closed with Vibe Coding to build real websites that are Google-friendly, that are LLM-friendly, that are of all the privacy rules that are required by law. And a bunch of other things. And there's still quite a distance to go. But we hope to close that early next year. Lior Shemesh: You guys, this is Lior. Just a couple of small points about the cost. I think that what is interesting here is that new users coming to Base 44, they are obviously consuming more AI tokens. Right? More bandwidth as they build their apps. But what we see is a big difference between, obviously, the cost of newcomers to the one that actually continues, because they might modify, do some changes, but it's really not the same. But it means that, for example, if you take this year compared to next year, next year you're going to have much more of the recurring revenue. It means that the profit obviously will be totally different. So it's not just about the fact that, as Avishai mentioned, that we already started to see the cost of AI goes down, but it's also about the model itself that is so different between newcomers to the one that actually already built their app and just maintaining it. Ygal Arounian: Okay, guys. Very helpful. Thank you. Operator: Thank you. Our next question coming from the line of Deepak Mathivanan with Cantor Fitzgerald. Your line is now open. Deepak Mathivanan: Great. Thanks for taking the questions. Avishai, I just wanted to ask a big picture question for you. Wix.com Ltd. is pretty well positioned to kind of reengineer the web for the AI era by making a lot of small business websites kind of agent-ready. Right? Like so they can be discovered by Gemini, IGBT, and others more effectively versus the current web architecture, which includes a lot of total consumption for them. Can you talk about the vision you have for Wix.com Ltd. for this era and how you're planning to capitalize on this big secular theme for the next three to four years? What are you doing, perhaps the new product or from others in the future, to make the websites of both your current and future customers kind of agent-friendly so they can get the traffic, transactions, everything from agents? Avishai Abrahami: So, yes, you are right. I think that you're touching a very important point. We're gonna see in the next couple of years. We're already starting to see that, but it's probably going to accelerate a transition and change in many ways that you consume content website, or discover website with the content. And or just discover the content without even the website. Right? So there's a lot of things that are changing now. The first thing that we're doing in Wix.com Ltd. in order to support and enable all our customers to enjoy that new mode is that every Wix.com Ltd. website is now indexable by LLMs. Right? So we make the data available to any LLM, and there's a few formats for that. And so we ensure that CHARGEPT can actually read your content and discover your website. That's the first part. The second part is that we continuously add new standards for how to do e-commerce, the one that OpenAPI OpenAI released a few months ago, MCP, and a bunch of others in order to enable all the functionality to be available within LLMs or be discovered by LLMs. And then run on your website. In addition to that, there's a few more things that we think that how the user interface will change next couple of weeks. I'm not gonna go into details, but I think that that's another super interesting opportunity for our customers. And we intend, of course, to provide fantastic solutions for that. So if you look at it, long term, I mean, the fact that, and not just Wix.com Ltd., right? There are other platforms out there. But if you are an owner of a business and you try to build a website in the old way, you're gonna find that you're not supporting all these new standards that are coming every few months. Right? There's a new standard that you need to support to be part of the new world of AI. Then I think the platform we have to work for you really pretty hard in order to make sure that all those standards that will ensure your business visibility in this new world are part of what we supply. Deepak Mathivanan: Got it. Then maybe one quick one for Nir. Can you talk about the cohort retention trends of Base 44 and how it compares versus Wix.com Ltd. on monthly customer plans, perhaps on month one retention or monthly retention given that you have had Base 44 now for a few months? Nir Zohar: Hey. Sure, Deepak. So, you know, naturally, it's still very early. Just as you said, it's just a few months. When we look at it, we're seeing kind of similar behavior to what we know from the monthlies on Wix.com Ltd. And I would actually dare to say that it seems it's better than what you used to see at Wix.com Ltd. in the early days. So I think, you know, we are, Avishai referred to this in the beginning when he was talking about the monthlies' behavior. Our belief is that we're gonna work on a few different things in tandem that we are gonna eventually improve the dynamics. One, as we garner more brand visibility and brand recognition, it would be easier for people to transition to the annual plans and then obviously will give us more visibility and better TROI. Faster TROI, so to speak. And secondly, there's a lot more improvements we can do in creating more motivation for people to retain and strengthen their connection with the platform. And our belief is that we should see better results as time progresses. Again, it's very, very early. Deepak Mathivanan: No. Makes sense. Thank you so much. Operator: Thank you. Next question coming from the line of Andrew Boone with Citizens Bank. Your line is now open. Andrew Boone: Thanks so much for taking the questions. I'd like to touch on WixVibe and just the learnings of Vibe Coding as it relates to website creation. Do we get self-creator to that double-digit kind of target that we've talked about in the past? And then going back to Base 44, you guys just help us understand the pathway to getting margins up to core Wix.com Ltd. levels? What does that have to look like? And kind of what are the assumptions that need to take place around retention? Thanks so much. Nir Zohar: Andrew, I'll take the first one about WixVibe. So, you know, WixVibe is, you know, it's a beta of something we're trying out. And it's part of our general strategy in terms of product and understanding. Avishai spoke about this today and in the past about the higher complexity there is between Vibe Coding and building websites. All that, you know, Google-friendly as you put it, Google-friendly, LLM-friendly, matching means security, etcetera, etcetera, etcetera. And obviously, we think there needs to be a better solution there, and we're working towards this. Lior Shemesh: Andrew, with regard to the second question, I think that we need to relate to the two different components in terms of the investments that we are making. And the first one, we spoke about it before, is about the AI. And I think that, you know, I would like to take the opportunity and spend a couple of minutes in order to explain it better. By the way, for both cases, also for the sales and marketing and also for the cost of goods sold. We have a really proven track record, you know, how we can actually, over time, we can drive growth and be in a place where we believe that we can drive even more profitability. And I will try to explain. So with regard to the AI cost, you know, I kind of spoke about it before. We see a very strong user demand. Very important to mention that both of the investments, also sales and marketing, and also the AI cost, which is a part of the cost of goods sold, are both driven because of a very, very strong demand. As we know, you know, from an accounting point of view, we first recognize the cost, only later recognize the revenue. So by definition, when you have such a hyper-growth business, you recognize more cost at the very beginning and then you recognize the revenue over time. So by definition, we are going to see a higher profitability in a later stage. But at least at the very beginning, you know, this is the situation. Also, in terms of the AI cost, I, you know, kind of spoke about it before. New users consuming more AI tokens. So it means that the more that we have more customers, and that are maintaining their application and stay with us in terms of the application, so obviously, we are going to see that their margin profile is much better than the new one. But right now, all of the customers, most of the customers, because it's such a new platform, are new. So we all understand this situation. The other thing is about the cost of AI. We've already started to see, we're going to see more players in this market, which eventually is going to lower the cost. So I believe that we are going to see that dramatic change in terms of the overall cost, which obviously is going to have a positive impact. Very much that you saw, we saw at the very beginning when we started the business at Wix.com Ltd. The hosting was totally different in terms of its cost. Right? And today is much, much, much more profitable than it used to be in the past. With regard to the marketing, it is really the same methodology as we use at Wix.com Ltd., meaning that we invest in marketing based on TROI. So it means that when you have such a hyper-growth business, you invest more right now in order to capture the demand under the TROI methodology. Meaning that we are not investing money in marketing and we don't see short-term returns. And this is something that is really important to mention because when you have such a growth, you invest right now more, you're recognizing the cost immediately and only after you recognize the revenue. In order to summarize everything, I think that already next year, we are going to see improving margin as a result of that. But yes, I mean, we are going to see some pressure on margin in the short term. Definitely because of all the reasons that I mentioned before. We are going to see that the TROI targets are optimized, we are going to see that AI cost decrease, we are going to see Base 44 mix of customer change. All of that is going to drive the profitability to be very similar to the one that we see in Wix.com Ltd., and we strongly believe because we've been there. Andrew Boone: Thank you. Operator: Thank you. Our next question coming from the line of Josh Beck with Raymond James. Your line is now open. Josh Beck: Yes. Thank you so much for taking the question. Maybe, you know, following up on Lior's comments there. You know, when we look at kind of the Q4 gross margin guidance implied, I think it's something on the order of 66% or so. And, you know, assuming that, you know, creative core subscriptions are kind of in the mid-eighties, it would indicate, you know, a pretty big difference for Base 44, which, as you mentioned, I think it has to do with this hypergrowth dynamics. You have effectively these new cohorts being the vast, you know, majority. So should we kind of assume that as long as this is in a hypergrowth phase going from $50,000,000 to $100,000,000, yeah, there should be kind of this drag and not until we get beyond that phase, it goes away just kind of any other guidepost to kind of help us think about the duration of this drag would be great. Lior Shemesh: It's a great question. You know, it's I think that it's kind of interesting because this kind of drag is a drag that we really like. Right? Because it's coming from very high growth, and I believe that also profitable growth in the future. I think that it's too early for me to say because, yes, you're right. The more that we have very high growth, it means that we have more new customers that are building the application, and it's more expensive, as I mentioned before, from recurring customers. But we also see quite a big decrease in the AI cost. But also in terms of our ability, for example, to do changes in our model in order to take the margins up. So it's really hard for me to answer the question. It really depends on what is stronger, meaning the growth effect or the ability to actually reduce the cost. But I do believe for sure, looking at the trends right now, that I believe that the margins will continue to improve as we already started to see that from Q3 to Q4. Josh Beck: Okay. Very helpful. And then maybe just a follow-up. On the pricing construct. Obviously, we can all see the Base 44 pricing and, you know, the freemium and some permutation of good, better, best. You know, is that at a point where you're still experimenting? Or, you know, do you feel like if you were to take one of these plans and kind of run out that customer's life cycle that it already does have, you know, quite attractive profitability built in, or are you still tweaking the pricing? How are you thinking about that? Nir Zohar: Hey, Josh, it's me. Again, I think, you know, it's very, very early. So naturally, you know, we're just gonna be testing different things and different ideas. And see what lands the most balanced and smart optimization between the margins and the financial results. And our top priority, which is grabbing market share. Josh Beck: Very helpful. Thank you. Operator: Thank you. Our next question coming from the line of Ken Wong with Oppenheimer. Fantastic. Thanks for taking my question. Maybe first, just as we think about that bookings guide, last quarter, you guys had mentioned that the majority of the raise was coming from the core. Any color on how we should be thinking about the contributing factors to the 4Q bookings? And then second, just on the profitability. I think we get it. You're a lot of upfront costs. You guys had already started messaging that perhaps less margins going forward. As we try to rattle through the higher OpEx and the gross margins, I mean, is it fair to assume that we might still see some margin expansion? Any early thoughts there, Lior? Lior Shemesh: Sure. So I will start with the guidance. I think that it's fair to say that most of the increase in guidance is coming from the strength that we see with the Base 44 business. I think that it's very much kind of different from what we've seen only last earnings. I remember it has been like five months from the minute that we've bought this business. The first earning that we had like a few months ago, we've seen the demand, but in the last few months, it's even much, much bigger than what we anticipated at the very beginning. This is why we've decided to invest more. And I do believe that Base 44 will turn out to be a significant growth driver for Wix.com Ltd. With regard to the margin headwind, yes, I believe that it will continue and let me even say differently, I hope that it will continue because it means that we are going to see a much higher demand. I think that in this case, it's really the same as what we've seen, you know, in the past from Wix.com Ltd. You know, every time that we've launched a new product, it was actually the case the very beginning with the ADI, even when we started the partners business. We saw such a huge demand and obviously we are investing in to capture it. So, yes, I mean, in the short term, we are going to see some more pressure on margin. I'm not sure where the margin expansion will start again. It is going to be 2026 or late 2026. It really depends on the demands that we are going to see for this business. Ken Wong: Fantastic. Thank you. Operator: Thank you. And our next question coming from the line of Trevor Young with Barclays. Your line is now open. Trevor Young: Great. Thanks for the questions. First one, Avishai. On the new Self Creator tool that was expected first this summer and then pushed to the fall, now getting pushed out again to sometime in '26. Can you expand on what the delays are there? Is there some sort of reimagination going on with the tool? Just trying to figure out what's going on in terms of, you know, the product launch and timing. Avishai Abrahami: Actually, most of the reason for the delay is about just fine-tuning technology. So, you know, it's solving a lot of technical challenges and bugs and making it really stable and working faster. And, yeah. So I suppose the most project was doing software, which you know, anyways, tend to be delayed, but this one to be fair to the team, right, is using a lot of new technologies that didn't exist before. And so a lot of AI stuff that never existed before. So it was a bit harder to estimate some of the effort that will go into finalizing them. I think we are beyond this point. In fact, it's kind of entering already the first stage of a closed beta within here inside of Wix.com Ltd. So I feel very confident we're gonna see it very early in 2026. And we're actually gonna have, I think, a much better product. Trevor Young: Great. Thanks for that. And as a follow-up question, on the 3Q cohort commentary trending similar to 1H, if I recall correctly, 1Q cohort collections grew 12%, 2Q was 14%. So should we assume 3Q is kind of low teens growth territory? So did something change in August and September to cause a step down relative to the 20% growth that you had flagged back in the July timeframe? Nir Zohar: Hey, Trevor. It's Nir. Not so much, actually. No. I think we've, you know, we've seen some expected seasonality. And generally, we've seen the cohorts behave as we expected. We're seeing ongoing strength going into, you know, the rest of Q3 and into Q4. Trevor Young: Great. Thanks, guys. Operator: Thank you. And that's the end of our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect. Nir Zohar: Thank you, everyone.