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Operator: Treats or Bosch and Cobalt power tools. Lowe's has everything you need to feel like the MVP of DIY. So get it done and earn your sundae. Shop now in-store and online. Lowe's, official partner of the NFL. Member week is here at Lowe's. That means it's time for My Lowe's rewards members to save. Kate Pearlman: With up to 40% off hundreds of items like appliances, tools, home essentials, and more. Plus, get free standard shipping. Shop these exclusive member-only savings now through October 15. Not a rewards member? Join for free today. Standard shipping not available in Alaska and Hawaii. Exclusions and more terms apply. Loyalty program subject to terms and conditions. Details at lowes.com/terms. Subject to change. On the job, every minute counts. That's why Lowe's now has ProBlock Quick Dry Primer, expertly manufactured by Sherwin Williams. Engineered for pros to dry fast and go on smooth for virtually flawless results to keep your job moving. It's available in oil and water base. And getting it is easy. Order online by 2 PM and get free same-day delivery right to your job site. Lowe's, we help. You save. Orders placed after 2 PM will be delivered next day, valid in select ZIP codes, subject to driver availability. More terms apply. At Lowe's, this Veterans Day and every day, verified military members, veterans, and their spouses get automatic silver status in MyLowe's rewards with free standard shipping, plus 10% off eligible purchases with no annual limit. It's one way we honor and give back to those who have served and still do. Learn more now at lowes.com/military. 10% discount can't be combined with another offer. Exclusions, terms, and conditions apply. Loyalty program subject to terms and conditions. Details at lowes.com/terms. Subject to change. Operator: ProBlock Quick Dry Primer HO for Sherwin Williams. Kate Pearlman: Here's the Lowe's early Black Friday deals? You're on time for some of our biggest savings. We're talking up to 50% off select major appliances, plus up to an extra 25% off when you bundle select major appliances. Holiday lights going up soon? Select ladders are up to 50% off right now. Get Black Friday prices without the Black Friday crowd. Lowe's, we help. You save. Valid through November 19. Selection varies by location. Select locations only while supplies last. See lowes.com for more details. Scott Hanson: I'm Scott Hanson, host of NFL Red Zone. Lowe's knows Sundays are for football. That's why we're here to help get your next DIY project done even when the clock isn't on your side. Whether that's a new filter or Bosch and Cobalt power tools, Lowe's has everything you need to feel like the MVP of DIY. So get it done and earn your sundae. Shop now in-store and online. Lowe's, official partner of the NFL. Kate Pearlman: Member week is here at Lowe's. That means it's time for My Lowe's rewards members to save big with up to 40% off hundreds of items like appliances, tools, home essentials, and more. Plus, get free standard shipping. Shop these exclusive member-only savings now through October 15. Not a rewards member? Join for free today. Free standard shipping not available in Alaska and Hawaii. Exclusions and more terms apply. Loyalty program subject to terms and conditions. Details at lowes.com/terms. Subject to change. On the job, every minute counts. That's why Lowe's now has ProBlock Quick Dry Primer. Expertly manufactured by Sherwin Williams. Engineered for pros to dry fast and go on smooth for virtually flawless results to keep your job moving. It's available in oil and water-based, and getting it is easy. Order online by 2 PM and get free same-day delivery right to your job site. Lowe's, we help. You save. Orders placed after 2 PM will be delivered next day, valid in select ZIP codes, subject to driver availability. More terms apply. At Lowe's, this Veterans Day and every day, verified military members, veterans, and their spouses get automatic silver status in MyLowe's rewards with free standard shipping plus 10% off eligible purchases with no annual limit. It's one way we honor and give back to those who have served and still do. Learn more now at lowes.com/military. 10% discount can't be combined with another offer. Exclusions, terms, and conditions apply. Loyalty program subject to terms and conditions. Details at lowes.com/terms. Subject to change. Operator: ProBlock Quick Dry Primer for Sherwin Williams. Kate Pearlman: Here's the Lowe's early Black Friday deals? You're right on time for some of our biggest savings. We're talking up to 50% off select major appliances, plus up to an extra 25% off when you bundle select major appliances. Holiday lights going up soon? Select ladders are up to 50% off right now. Get Black Friday prices without the Black Friday crowds. Lowe's, we help. You save. Valid through November 19. Selection varies by location. Select locations only. While supplies last. See lowes.com for more details. Scott Hanson: I'm Scott Hanson, host of NFL Red Zone. Lowe's knows Sundays are for football. That's why we're here to help you get your next DIY project done even when the clock isn't on your side. Whether that's a new Filtrate filter or Bosch and Cobalt power tools, Lowe's has everything you need to feel like the MVP of DIY. So get it done and earn your sundae. Shop now in-store and online. Lowe's, official partner of the NFL. Kate Pearlman: Member week is here at Lowe's. That means it's time for My Lowe's rewards members to save big with up to 40% off hundreds of items like appliances, tools, home essentials, and more. Plus, get free standard shipping. Shop these exclusive member-only savings now through October 15. Not a rewards member? Join for free today. Free standard shipping not available in Alaska and Hawaii. Exclusions and more apply. Loyalty program subject to terms and conditions. Details at lowes.com/terms. Subject to change. On the job, every minute counts. That's why Lowe's now has ProBlock Quick Dry Primer. Expertly manufactured by Sherwin Williams. Engineered for pros to dry fast and go on smooth for virtually flawless results that keep your job moving. It's available in oil and water-based, and getting it is easy. Order online by 2 PM and get free same-day delivery right to your job site. Brandon Sink: Lowe's, we help. You save. Orders placed at 2 PM will be delivered next day. Valid in select ZIP codes. Subject to driver availability. More terms apply. At Lowe's, this Veterans Day and every day, verified military members, veterans, and their spouses get silver status in MyLowe's rewards with free standard shipping plus 10% off eligible purchases with no annual limit. It's one way we honor and give back to those who have served and still do. Learn more now at lowes.com/military. 10% discount can't be combined with another offer. Exclusions, terms, conditions apply. Loyalty program subject to terms and conditions. Details at lowes.com/terms. Subject to change. Operator: ProBlock Quick Dry Primer, HO for Sherwin Williams. Kate Pearlman: Here's the Lowe's early Black Friday deals? You're on time for some of our biggest savings. We're talking up to 50% off select major appliances, plus up to an extra 25% off when you bundle select major appliances. Holiday lights going up soon? Select ladders are up to 50% off right now. Get Black Friday prices without the Black Friday crowds. Lowe's, we help. You save. Through November 19. Selection varies by location. Select locations only while supplies last. See lowes.com for more details. Scott Hanson: I'm Scott Hanson, host of NFL Red Zone. Lowe's knows Sundays are for football. That's why we're here to help you get your next DIY project done even when the clock isn't on your side. Whether that's a new Filtrate filter or Bosch and Cobalt power tools, Lowe's has everything you need to feel like the MVP of DIY. So get it done and earn your sundae. Shop now in-store and online. Lowe's, official partner of the NFL. Kate Pearlman: Member week is here at Lowe's. That means it's time for My Lowe's rewards members to save big with up to 40% off hundreds of items like appliances, tools, home essentials, and more. Plus, get free standard shipping. Shop these exclusive member-only now through October 15. Not a rewards member? Join for free today. Kate Pearlman: Good morning, everyone. Welcome to The Lowe's Company's Third Quarter 2025 Earnings Conference Call. Robbie Ohmes: My name is Rob, and I'll be your operator for today's call. As a reminder, this conference is being recorded. I'll now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer. Kate Pearlman: Thank you, and good morning. Here with me today are Marvin Ellison, Chairman and Chief Executive Officer Bill Boltz, our Executive Vice President, Merchandising Joe McFarland, our Executive Vice President, Stores and Brandon Sink, our Executive Vice President and Chief Financial Officer. I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on Lowe's Investor Relations website. During this call, we will be making comments that are forward-looking. Including our expectations for fiscal 2025. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors, MD and A and other sections of our Annual Report on Form 10-Ks and our other SEC filings. Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found on Quarterly Earnings section of our Investor Relations website. Now, I'll turn the call over to Marvin. Marvin Ellison: Thank you, Kate, and good morning, everyone, and thank you for joining us today. Third quarter sales were $20.8 billion with comparable sales increasing 0.4% year over year. Despite a roughly 100 basis point headwind related to Hurricanes Helene and Milton. During the quarter, adjusted operating margin expanded approximately 10 basis points leading to adjusted diluted earnings per share of $3.06 which is an increase of 6% versus last year. These results reflect continued operational discipline and strong execution across our perpetual productivity improvement or PPI initiatives. And Auto sales results continue to be impacted by softer demand within an uncertain macro environment we're encouraged to see improvement in DIY customer engagement and discretionary projects across many areas of the home. We're also pleased with our performance in the North and West divisions which were not affected by storms in the prior year. And we're seeing strength across all five key initiatives within our 2025 total home strategy which we launched at our Analyst and Investor Conference last year. Let me give you an update on the performance of our total home strategy beginning with the small to medium pro where we once again delivered growth this quarter. We're enhancing our Pro offering through our Pro Extended Owl which is a direct interface with our supplier systems. It allows our pro sales associates to sell directly from their product catalogs with the suppliers opting fulfilling the orders directly to the job site. This expands our product assortment inventory quantities and delivery capabilities for larger orders. Second, when it comes to accelerating online sales, we delivered online sales growth of 11.4% this quarter, driven by increased traffic and continued strong conversion. We're also continuing to enhance the online experience across lowes.com and our mobile app. To make it simpler and faster for DIY and Pro customers to find all the products they need. Looking ahead, we're pleased with the ongoing build out of our marketplace. This allows us to expand our product assortment to offer our customers everything they need for their homes across the price spectrum from value to premium without assuming the risk of owning the inventory. Third, we're leveraging our loyalty ecosystem to increase our customer preferences for Lowe's so they choose us first and shop more often. In fact, our 30 million MyLowe's Rewards members shopped twice as often and spend over 50% more than non-members. Through both our DIY and pro loyalty programs, we're gaining deeper customer insights, which help us tailor more personalized value enhancing offers through data driven marketing. Fourth, we're really pleased with the strong results this quarter in Home Services where we delivered double digit comps. Later in the call, Joe will discuss the initiatives that are driving these gains. And the fifth and final initiative in our total home strategy is increasing space productivity. We made great progress optimizing our selling space and Bill will provide details on a couple of key initiatives later in the call. Overall, I'm very pleased with the progress that we have delivered through our total home strategy and the strategic alignment we're driving across the organization. Let me now discuss the importance of generative AI to improve how we sell, how we shop, and how we work. This is what we refer to as our AI framework. And as we continue to make strategic investments in our AI capabilities, we're already seeing tangible results. Our virtual assistants, Milo and Milo Companion, which are built on an open AI platform, are answering nearly 1 million questions per month, about everything from product specs, to project know-how to the status of a customer order. In fact, when our customers engage with MyLo Online, the conversion rate more than doubles which is clear evidence that AI is simplifying decision making and driving sales. When our associates use MyLo Companion to help customers shopping in our stores, we're seeing customer satisfaction scores increase 200 basis points. And every interaction with our virtual assistant is feeding our proprietary models allowing us to continually improve accuracy, and build a durable advantage in home improvement expertise. Within our technology team, engineers are using AI tools for development and code review leading to double digit productivity gains and accelerating our speed to market. In fact, Lowe's has just been recognized by OpenAI with their 100 billion token milestone award as a reflection of the depth and breadth of AI adoption throughout the organization. Achieving this milestone places Lowe's in an elite tier of companies that are not just experimenting with AI, but operating at a true enterprise scale. Looking ahead, we have a detailed roadmap or several additional high impact AI initiatives. That will drive further enhancements to the pro and DIY customer experience both in-store and online. This will include our participation in a Genetic Converse so we can continue to meet our customers where and how they choose to shop. And we also anticipate incremental product productivity gains as we leverage AI to drive operating efficiency across the enterprise. Now let me turn to our acquisition of Foundation Building Materials, or FBM. Which we completed in October. I'd like to begin by extending a warm welcome to the entire FBM team. As a reminder, FBM is a leading distributor in interior building products including drywall, metal framing, insulation and sealing systems. FBM's business mix is balanced evenly between commercial and residential. And while the housing market is currently under some pressure, we're pleased with the momentum we're seeing with FBM's commercial sales. Some recent highlights include several data center projects, a luxury 150 unit residential high rise, and medical facilities. As FBM leverages a strong reputation for reliability and technical expertise to win these contracts. And when we consider the impact to Lowe's, this acquisition gives us a more comprehensive product portfolio, expands our revenue streams and further enhances our offering to our Pro customers. In fact, efforts are already underway to quickly connect FB product catalog to our Pro extended aisle. And FBM customers will gain access to Lowe's as complementary products like tools, safety gear, fasteners so they can more quickly and conveniently source everything they need for their jobs. FBM's 370 locations nationwide also strengthens our fulfillment capabilities, especially in high density urban markets in California, the Northeast, and the Midwest where Lowe's has less of a physical store presence. Our acquisition of FBM and Artisan Design Group or ADG creates a comprehensive interior solutions for our homebuilders, with everything from drywall and insulation to doors, flooring, cabinets and appliances. And I look forward to updating you on the progress we're making with both acquisitions in the future. Now let me transition to our view of the macro environment. Overall, The U.S. Homeowner remains healthy. Balance sheets are strong. And consumers continue to spend. However, affordability and uncertainty in the broader economy continue to weigh on consumer confidence. Particularly when it comes to larger discretionary purchases as borrowing costs have been elevated for longer than originally anticipated. Looking ahead, lower interest rates, including for home equity loans, could begin to spur demand even as many homeowners remain reluctant to move and give up their historically low mortgage rates. This cycle is different from past housing slowdowns in a few important ways. First, homeowners today have record levels of equity. Roughly $400,000 on average. And at the same time, they are more likely to invest in the home they already own instead of giving up the low mortgage rate. This is referred to as the lock-in effect. And could make home equity financing a more attractive solution. So while the near term macro backdrop reflects an anxious consumer, the combination of strong fundamentals, substantial home equity, and the potential for lower rates ahead gives us confidence in the long term health of the home improvement sector. And we remain confident that the continued execution of our total home strategy will position Lowe's to win in the short and in the long term. Before I close, I'd like to wish all of our associates a blessed and safe holiday season. Our associates are our competitive advantage, and I appreciate all they do to make Lowe's a great company. And with that, I'll turn the call over to Bill. Thanks, Marvin, and good morning. Bill Boltz: This quarter, we delivered positive comps in 10 of our 14 merchandise divisions. And solid performance across both DIY and Pro despite lapping hurricane activity last year. Starting with Home Decor. We delivered positive comps in appliances, flooring, paint, and kitchens and bath. We continue to strengthen our leadership position in appliances by providing customers with value proposition, that no other retailer in the industry can match. This includes the widest assortment of top brands and innovative products all at a must-win price point. And by leveraging our market delivery network, we're the only retailer who can deliver and install major appliances in virtually every zip code in The U.S. Next day. This capability is crucial for items like refrigerators, or washing machines that often need to be replaced immediately. One example of our innovative product offering is an exclusive new Bosch hybrid tub dishwasher line. Available only at Lowe's. These models combine the quiet operation Bosch is known for along with the durability of stainless steel, and the affordability of polymer. The result is a better clean and a better value with the most accessible price points in the industry. Turning to flooring. We saw a broad-based strength across soft surfaces, vinyl, and tile flooring. In carpet, customers are enthusiastic about the benefits of Stainmaster Pet Protect. Its leak defense backing helps prevent spills and pet accidents seeping into the carpet pad or subfloor. Stainmaster is the most trusted brand in carpet and it is exclusive to Lowe's. Touching on paint, we drove broad-based growth across stains, primers and paint along with accessories and applicators. And we're excited to announce the launch of Sherwin Williams ProBlock Quick Dry Primers. An innovative product that blocks stains and provides outstanding coverage and dries in less than an hour. This new primer is available only at Lowe's and Sherwin Williams locations marking the first time that we have co-launched a product. This product provides Lowe's with true differentiation within the home center channel as we continue to build on our strong relationship with this key supplier. Lastly, in kitchens and bath, we recently completed a reset of our bathroom vanity showrooms and these new sets are delivering results ahead of our expectations. The updated showroom provides a much better shopping experience for both pro and DIY customers because they can now see, interact with a larger number of products. And the stock products are now much more accessible and readily available for quick take with. This is an important way we're driving space productivity and leveraging our larger stores as a competitive advantage. Turning now to Building Products. We drove positive comps across millwork, rough plumbing, lumber and electrical. We're supplementing our already robust in-store pro offering in building products with our pro extended aisle. As Marvin mentioned, this initiative expands our product offering increases our inventory depth and enhances our delivery capabilities. And in millwork and rough plumbing, we've seen strong performance driven by higher installation sales in home services, which Joe will discuss shortly. Millwork is another area where we're seeing innovation. Like the Larson 60 MT Stormdoor with magnetic technology that keeps the door closed. It offers both performance and curb appeal and it gives customers a reason to upgrade. Turning to Hardlines, we delivered positive comps in lawn and garden with particular strength in live goods and hardscapes. Customers were inspired by the outdoor vignettes that showcase everything they needed to build their vertical gardens, along with upgrading a mailbox display and more. And the mild weather gave customers more opportunities to tackle more outdoor projects which helped drive extended demand. We're also pleased with a strong start to the holiday season in our tools, trimetry and decor categories. Shifting gears to tools, where we also delivered positive comps, we saw strong performance in hand tools and tool storage. Customers responded to our value offerings, and improved assortments like the Cobalt 46 inches workstation, available in a wide range of colors. During the quarter, we leaned into value and drove strong online engagement during our DEWALT DAYS event supported by a homepage takeover and a compelling free tools battery offer. Now, let me give you an update on one of our key total home strategy initiatives. Increasing space productivity. Which is all about driving incremental sales opportunities by optimizing our sales footprint. This quarter, we completed the rollout of our rural format in 150 additional stores, bringing the total to nearly 500. We're also on track to complete rollouts of workwear and pet to more than 1,000 stores giving us an opportunity to drive these assortments beyond our rural stores. In line with our Pet expansion, is focused on grab and go items like toys and treats, we're pleased to announce our new private brand Heart and Heard. It offers pet owners high quality value priced products for dogs and cats just in time for holiday gifting. And as part of our space productivity efforts, we've made significant progress on our SKU rationalization initiative. Designed to improve our inventory productivity. By the 2025, we're set to achieve our multiyear goal of reducing our in-store SKU count by 15%. As we head into the holiday season, we're delivering new exciting products both in-store and online through our Black Friday Build Up event. We're giving customers an early start on their holiday shopping with great deals, including several that are already available now. In closing, I'd like to thank our merchants, inventory and supply chain teams along with our MST associates and our supplier partners for their continued efforts to deliver results for our customers, ahead of the busy holiday season. And now, I'll turn the call over to Joe. Joe McFarland: Thank you, Bill, and good morning, everyone. Let me begin by recognizing our store and supply chain associates who show up every day energy and commitment to serve our customers. Quarter after quarter through changes and challenges, they've proven themselves to be our company's greatest asset. And that's why I'm particularly pleased to share that the investments we're making support our frontline associates are truly paying off. New training programs are better equipping our store teams to sell complete customer projects. Including featured seasonal products and services. By enabling our associates to deliver more comprehensive solutions these programs are boosting their knowledge, confidence and effectiveness at driving sales. And as Marvin mentioned, they can also rely on our AI powered Milo companion, for product details and for help answering customers' questions. Add it all up, we're empowering our associates with the tools they need to sell more effectively across all departments in the store. Additionally, a few weeks ago, we concluded our associate annual engagement survey. A critical component of our proactive listening strategy. Which supports our efforts to become the employer of choice in retail. Scores across the key measures of engagement and associate well-being as well as leadership effectiveness have all continued to improve. And our 95% participation rate continues to be industry leading. All told, our better trained and highly engaged associates are elevating the Lowe's shopping experience, which is reflected in improved customer satisfaction scores for both the DIY and Pro. To focus now on the Pro, enrollments in our MyLowe's pro rewards program continue to grow as our core small to medium Pro customers experienced firsthand the benefits of our easier to use loyalty platform. Which allows them to start earning rewards immediately and achieve higher rewards with lower levels of spending. We're also pleased to see PROS taking advantage of our enhanced digital capabilities as they shift to more shopping online. And looking ahead, we're encouraged that our recent PRO survey overall sentiment improved for small to medium pros. As they remain confident in their job prospects and report stable backlogs. Shifting now to performance in Home Services this quarter. We're pleased with our double digit growth in this key initiative within our total home strategy. The team delivered broad based strength across a number of product categories, including windows and doors, HVAC, water heaters, kitchens and bath, and window treatments. These strong results were driven in part by tech enabled solutions have enhanced the experience of customers installers and associates alike. For our customers, we've accelerated the process from inquiry to completed installation by providing intuitive solutions for scheduling, quoting and payment. These enhancements have transformed what was a time consuming process by removing friction and pain points along the customer journey. Turning now to our focus on operating efficiency. I'd like to thank our asset protection teams for continuing to deliver one of the best inventory shrink results in big box retail. Despite the challenging environment, these results are driven by a combination of outstanding leadership and industry leading technology. We also focused this year on a number of perpetual productivity improvements or PPI initiatives in our stores. Including our front end transformation, streamlining our BOPUS fulfillment and the freight flow optimization. And we're already working on our PPI roadmap for 2026 for store operations as we leverage AI enabled solutions to further enhance the customer experience while also driving labor productivity. Before I close, let me take a moment to discuss one of our new initiatives support veterans. As part of our longstanding commitment to the military community, and in support of our objective to deliver 10 million square feet of impact in 2025. As a Marine who served in combat, I'm particularly proud to share that in partnership with Building Homes for Heroes and our hometown of Mooresville, North Carolina, we've just broken ground on Freedom Hill. This first of its kind community will provide mortgage free housing and support services for up to 15 households of injured veterans and first response. For responders. As the executive sponsor of Lowe's philanthropic support of our military communities, it will be an honor for me to see lives change through this initiative. With that, let me turn the call over to Brandon. Brandon Sink: Thank you, Joe, and good morning. Starting with our third quarter results, we generated GAAP diluted earnings per share of $2.88 In the quarter, we closed on our acquisition of Foundation Building Materials or FBM. We recognized $105 million in pre-tax transaction costs including the fees associated with $9 billion in bridge financing. To finance the $8.8 billion purchase price, we issued $5 billion of bonds with a competitive weighted average coupon of 4.38% and borrowed $2 billion under a three-year term loan. Given our better than expected cash flow generation, we financed the remaining $1.8 billion with cash on hand. We also recognized $24 million in non-GAAP adjustments associated with Artisan Design Group or ADG. And keep in mind that in the third quarter of last year, we recorded a pre-tax gain of $54 million associated the 2022 sale of our Canadian retail business. Excluding these impacts, we delivered adjusted diluted earnings per share of $3.06 exceeding our expectations. This is a 6% increase compared to adjusted diluted earnings per share in the prior year quarter. My comments from this point forward will include certain non-GAAP comparisons that exclude these impacts where applicable. Third quarter sales were $20.8 billion with comparable sales up 0.4% driven by DIY engagement across project related categories as well as another quarter of growth in Pro online and appliances. As Marvin mentioned, we also lapped storm related demand which was a roughly 100 basis point headwind to sales this quarter. While we continue to manage through an uncertain macro environment, we are pleased that we delivered positive comps in 10 of 14 product categories. Monthly comps were up 2.5% in August up 0.9% in September and down 2.6% in October when storm related demand was most concentrated last year. For the quarter, comparable average ticket increased 3.4% driven by ongoing strength in pro and appliances mix shift into larger ticket purchases and modest price increases while comparable transactions declined 3%. Gross margin was 34.2% in the quarter up 50 basis points as we cycle a number storm related pressures in the prior year. We also saw improvements in credit revenue and better sell through of inventory as we drive our SKU rationalization efforts. Adjusted SG and A was 19.6% of sales deleveraging 36 basis points as we cycled lower bonus attainment in the prior year and also invested in sales driving actions. Adjusted operating margin rate of 12.4% was up 10 basis points versus prior year and the adjusted effective tax rate of 24% was in line with prior year results. Inventory ended Q3 at $17.2 billion approximately $400 million versus prior year. This net decrease also reflects the inclusion of inventory from recent acquisitions of approximately $600 million and higher tariffs. These results were driven by several inventory productivity initiatives across the company as we leverage advanced AI inventory solutions to enhance our demand planning allocation and replenishment, while also driving our SKU rationalization efforts. ADG operating results were accretive to EPS on a non-GAAP basis for the third quarter and pressured operating margin by approximately 15 basis points. In line with expectations. Turning now to capital allocation. In Q3, we generated $687 million in operating cash flow inclusive of the payment of federal and state taxes of roughly $900 million that have been deferred under a provision related to Hurricane Helene. Capital expenditures totaled $57 million as we continue to invest in our strategic growth imperatives. In the quarter, we paid $673 million in dividends at $1.2 per share. Adjusted debt to EBITDAR was 3.36 times at the end of the quarter after we repaid $1.75 billion in debt maturities and borrowed $7 billion to finance the acquisition of FBM. The structure of this financing in conjunction with the timing of our existing bond maturities will allow for steady deleverage to our 2.75 times target, which is expected by mid-2027. We ended the quarter with $621 million of cash and cash equivalents and delivered a return on invested capital of 26.1%. Turning to our financial outlook. Which we are updating to include our year to date results and our expectations for FBM. We are seeing a cautious consumer amid ongoing uncertainty in the macro environment and the timing of an inflection in the home improvement and housing markets remains unclear. We're now expecting comp sales to be roughly flat for the year which is at the bottom end of our previous guidance. Marvin Ellison: When we include FBM sales of approximately $1.3 billion in the fourth quarter we are expecting sales of approximately $86 billion for the year. Brandon Sink: We also now expect full year adjusted operating margin of approximately 12.1% which includes 20 basis points of dilution from FBM and ADG. We're expecting adjusted diluted earnings per share of approximately $12.25 which represents a 2% growth over the prior year. Please note that this includes the impact of FBM which is roughly neutral to adjusted EPS. And we expect capital expenditures of up to $2.5 billion for the year. On an annualized basis, we expect FBM and ADG to negatively impact consolidated adjusted operating margin by approximately 50 basis points. We are already working collaboratively with the FBM and ADG teams on cross selling opportunities as we expand the offering for our pro customers. We've also begun the efforts to extract cost synergies from our overlapping areas of spend. Taken together, we remain confident that there are compelling long term EBITDA synergies from both revenue growth and lower operating expense. These investments in our pro growth initiative along with the other investments in our total home strategy will position us to capitalize on the expected recovery in housing and home improvement and continue to deliver long term sales growth and shareholder value. And with that, we will open it up for your questions. Robbie Ohmes: Thank you. We're now ready for questions. Our first question comes from the line of Chris Horvers with JPMorgan. Please proceed with your question. Christopher Horvers: Thanks and good morning. So my first question is about just how you're thinking about the trend in the business in light of the performance that you've seen over the past six months and harder compare and then into 2026. So noted that quarter to date is positive. Is there anything you could elaborate on that? And is the flat guide for the fourth quarter simply just like, hey, there's uncertainty and there's a harder compare And then as you think to '26, if if the home improvement market is flat to slightly down this year and you're putting up a flat comp. If you take a look at the sum total of everything at a little bit of lower rates, a little bit of replacement cycle, a little bit of innovation and what you're doing on the self help side, should should your sort of should the market and should Lowe's comp accelerate in 2026 relative to 2025? Marvin Ellison: Hey, Chris, this is Marvin. Bill and I will talk about November, then we'll let Brandon share a tiny bit about how we think about 'twenty six because as you respect, we're not going to get into a ton of detail about that until our February call, where we'll provide guidance for year. Relative to November, look, we're very pleased with the positive comp performance to start quarter. In spite of storm overlaps from last year. We've seen improvements in the top line since exiting October, and we just believe that some of the key elements of our top home strategy are working. We're excited about November because there's some great things untapped. So I'm going to let Bill talk a bit about November, but also talk about appliances, which we think is really key to our performance, only for the quarter, but what we're seeing in November. Bill Boltz: Yes. Thanks, Marvin. And Chris, we're excited about kind of the early start to the the quarter. Obviously, coming off of October. Strength for us really broad based across the store, but particular strength within our seasonal categories, holiday, trim and tree, tools, appliances, and other gift related businesses that are getting off to an early start. Our stores look great. We're starting to see Live Trees show up now. Poinsettia is showing up now as we get ready for next week. And we're seeing some early excitement around some key areas of the store. So whether it's buy now and install by the holidays within our flooring and cooking areas, or look at cobalt and some of the strength that we're seeing there with some new products in work stations. The buy and get offers within our tool business driven by DEWALT, Craftsman, Cobalt, We've got just a lot of strength going on right now will carry into next week with Black Friday. So we're excited about how things are progressing and in our appliance business, we've had really since last year four straight quarters now of growth and unit growth. Which is telling us the health of that business and that consumer responding to the offers and the innovation and the new products team has put out. Brandon Sink: And Chris, this is Brandon. I think when I step back and look at the totality of the year, we're now three quarters of the way through. Navigating a lot of factors, a very choppy macro. But when I look at just the trends of the business, think a lot for us to be cautiously optimistic about as we look ahead to 2026 We're seeing acceleration on one year comps when you exclude storm related activity for Q3 and what's implied in our Q4, also two year comps accelerating nicely as we move through the year. Ongoing strength in pro online, Bill just spoke to appliances. Some early signs of life in our home services business, is really positive. We cited broad based performance across categories with 10 or 14 categories, geographies broad based, really excited about FBM and ADG as we start the integration efforts and obviously just really pleased with the bottom line performance and the ongoing operational discipline that the company and has been able to show. So pleased through three quarters and as we look ahead into 2026, as Marvin mentioned, we'll have more to come in February, but those are early thoughts. Christopher Horvers: And then on a related question, I mean, kitchen and bath I think you said it was positive. Looking back, seems like have to go all the way back to 1Q twenty twenty three. What's changed there? And as you think about it, Marvin, you've talked about like we have a lot of big ticket, we have a lot of remodel, the kitchen, bath, the appliances and we sort of need lower rates to to improve that sort of big ticket remodel category, but you are seeing signs of life. So there sort of a misperception around sort of how remodel oriented you are amongst investors? Or how do you think about maybe that category showing signs that it will inflect to the positive? Marvin Ellison: So Chris, I think it's two things. I'll take the first part and I'll let Bill just talk about some of the work in resets and new products. I really believe that this is more about Lowe's taking share in this space If you can go back to 2018 at at our first Analyst and Investor Conference, I presented how we were managing this installed business with binders and whiteboards. And it's taken us a while candidly to get this business digitized with a technology platform that makes this entire process easy for the associate, the installer, and most importantly, the customer. We think now we have a best in class tech stack this space. We have central selling. And so what you're looking at outside of kitchen and bath, which Bill will speak to, you're seeing categories like windows. And doors and HVAC and water heaters. These are more replacement categories for customers who are living in the oldest housing stock in the history of The U.S. But because we have a better go to market strategy, Bill's team's given us great pricing, Brandon's team's given us a great credit portfolio, we're taking share in this area But we're also seeing, to your point, signs of life in areas that make us cautiously optimistic that maybe there are brighter days ahead. I'll let Bill talk about some of those categories. Bill Boltz: Yeah. So, Chris, I mentioned in my prepared remarks that during the quarter, we had completed our vanity reset across the stores and that's one of the nice bright spots driven driving our kitchen and bath business. But we're also seeing broad based strength toilets, bathing, faucets, disposal of kitchen sinks, bath repair, So it's really kind of broad based across the categories. We're excited about that. But it really boils down to the strength. I think we're also seeing within our central selling organization where store associates take the lead, we get turn it over to our central selling team and they're helping to close the deal on a kitchen cabinet The strength of what Joe's team is doing in the store to take good care of customer. There's just a lot of things that are adding up to strength of the kitchen and bath business, but those are just a few highlights. Christopher Horvers: Thanks so much. Have a great holiday. Thanks, Chris. Robbie Ohmes: Our next question is from the line of Zach Fadem with Wells Fargo. Please proceed with your questions. Zach Fadem: Hey, good morning. I wanted to on your comments around improving pro survey sentiment. And I'm curious if there's any extra color you can talk through in terms of how that's trended through the year From what extent you think this is a good leading indicator for your business? And then what do you think is driving the recent improvement? Marvin Ellison: So Zach, thanks for the question. Look, just to hit it at a high level, our small to medium pro business remains very stable. And roughly 75% of our pros are very confident in their job prospects. And also, this segment of the pro consumer continues to work on smaller ticket repair and maintenance projects and that's been very consistent with what we've been saying all year long. So when we look at our pros, when we talk to our pros, they feel very confident in their business. They feel confident in their access to credit. And even feel a little bit more confident about their ability to hire and attract labor. So we feel great about what our pros are telling us. And let me hand it over to Joe to just talk about some of the things we're doing in the store to drive this continued growth and, in my opinion, market share gain with the specific customer segment. Joe McFarland: Well, Zach, thanks for the question. And we're really pleased with the flywheel effect that we're seeing from the Transform Pro offering. And when you think about where we've been headed with the loyalty through MyLowe's Pro Rewards, a relaunch there. We have, just a wonderful enhanced digital experience that pro extended aisle, we have made investments in fulfillment. The last three years are pro inventory investments are really beginning to pay off. The order modifications of fulfillment flexibility, and the in-store experience. So, we're excited, to see this flywheel effect, all come together with the great product offerings that we have. And we have a good confidence that when this does bounce back, we're well positioned to capture the share. And Zach, the only thing I'll add to that, I mentioned in my prepared comments that we're in the process of adding FBM to our Pro extended aisle platform. That's gonna be a huge deal for us because it is very challenging for us today to fulfill a large order of something, let's say, drywall, to a customer job site and do it efficiently. We now are working to just transition that entire fulfillment process to a company that's best in class at it, and FBM. And so we think this is gonna be great for FBM. It's gonna be great for Lowe's, but more important, it's gonna be great for the customer. So again, we we see this as a sustainable you know, growth strategy, and and we feel great about the work we've done thus far. Zach Fadem: Appreciate that. And I know we aren't guiding for 'twenty six yet, but since the model is different with SBM and ADG, could we talk through early margin scenarios in both status quo as well as a scenario where perhaps we see some benefits from tax stimulus and lower rates? Brandon Sink: Yes, Zach, I'll just hit briefly what we're looking at in terms of margins. On the FBM and ADG transactions. When you look at 2025, taken in isolation, I mentioned in my remarks, we're roughly 20 basis points on 2025, so that's coming roughly split even 10 from FBM. And 10,000,000 ADG. And then when you look at as we wrap the year for 2026, that's going to be 50 basis points on the year. So think 30 basis points of wrap into 2026. And the majority of that 50 basis points when you think of 2026 is going to be weighted towards gross margin on that. So I'm not going to get into any more details as it relates to base business or run rate, but that's just some early views of geography and impact from the transactions in 2026. Zach Fadem: Thanks for the color. Joe McFarland: Thanks Zach. Robbie Ohmes: Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions. Simeon Gutman: Hey, good morning everyone. I wanted to ask to put the macro hat on again. There's a don't know if it's a bear case, but there's a housing scenario that it just stays in this, it's treading water position for a longer. You have new prices that are lower than existing homes, and the age of homeowners is pushing close to 40 years old. So I think affordability is the issue, It sounds like you may reject that premise, Marvin, given some of the bright spots, but I wanted to hear how you react to it. Marvin Ellison: No. Simeon, it's a good question. So I'll give you my thought and I'll let Brandon provide any additional comments. The way we see it is this. I think that mortgage rates obviously are elevated longer than any of us anticipated. But the one thing that's different, as I said in my prepared comments, is the fact that you have a healthy homeowner financially and you have $33 trillion in equity that is in the system. And we think anywhere between $11 trillion to $13 trillion dollars of that is tappable. So we think this lock in effect is real because at some point, customers are going to be looking at these sub three percent thirty year fixed mortgage rates. They like the neighborhood that they live in. They have excess equity in their home, and we think HELOCs are gonna become the next opportunity for us to drive discretionary remodel big ticket projects. So, we think that is a strong possibility in the future. Now, we're not gonna try to time it. We're not gonna try to build it in our forecast. I think that would be reckless. But we do think that that is a very plausible hypothesis that takes you away from the bear case. So I'll pass it on to Brandon to see if he has any other Simeon, I'll add as Marvin mentioned, the mortgage rates we're looking at those remaining elevated at least as of now 6% to 6.5%. Tied more to the longer term yields and that's continuing to pressure both existing home sales and new home starts. And I think as we start to look ahead into 2026, we're not anticipating meaningful near term improvement there. But we are potentially excited about what could happen with the funding coming from home equity. We've seen 150 basis points of rate cuts from the Fed here over the last eighteen months. The consensus would suggest we're going to see more. We've seen these HELOC rates go from neighborhood of 10% to 12% down to 8% to 10%. And that's creating I think some opportunity as we look at project backlog, when we look at the data about $50 billion of projects that have been delayed or deferred with the equity now with the potential to be a significant funding mechanism and if we do see further near term rate reductions that could act ongoing as an additional stimulus. So we're investing in the business through our total home strategy to be prepared for that type of environment and excited about potential upside related to that into 2026. Simeon Gutman: Okay. And my follow-up it's on the medium to larger pro. Can you, Marvin, set up what Lowe's strategy is there? We've talked about the pieces of it. Will you keep supply chain separate? Are there categories? That you think are essential to addressing that customer, whether it's an existing home remodeler or even a new home builder? And will you cross sell that customer using the rest of the Lowe's asset base? Marvin Ellison: Yes. So, Simeon, I would say, we feel great about the current strategy with the small and medium pro is working. We've had quarter over quarter growth. We think it hinges on our My Lowe's Pro Rewards loyalty platform. It's resonating well. Where our customers We think it hinges well on the products that Bill's team brings to the table every day and that was a huge gap and deficit for us. Seven years ago, and that is no longer the case. We also think it's important that we maintain a very competitive credit portfolio. We have a best in class 5% off every day for our Lowe's credit cardholders, and that also extends to the pro customer that resonates exceptionally well. And we have every intention on leveraging FBM fulfillment, and every intention on taking the roughly 40 million FBM Pro customers and getting them connected to complementary projects product and projects at Lowe's. But we see a very specific void in the marketplace for serving the small to medium pro. That's why we've been so intentional about focusing on our And we think we can focus on that customer in the brick and mortar stores and lowes.com, and we can have a very robust strategy and platform with FBM and ADG and we can do both concurrently. One of the reasons we talk about the importance of FBM's commercial business is because it's countercyclical. When housing is down, that commercial business tends to outperform and that's what we're seeing right now. So, overall, we think we can do both. And the data has proven that we have a very effective strategy with the small to medium pro. Simeon Gutman: Okay. Thank you. Good luck. Joe McFarland: Thanks, Simeon. Robbie Ohmes: Our next question is from the line of Kate McShane with Goldman Sachs. Please proceed with your question. Kate McShane: We wanted to ask a little bit more about the marketplace. Just in terms of like what the initial performance has been, what you've seen regards to seller onboarding, product expansion and customer adoption? And just when you expect to scale this platform to a point where it start to contribute more meaningfully to margin? Marvin Ellison: Kate, thank you for the question. We are really excited about the launch of our marketplace. The caveat is it's really early and so we're not going to get into a lot of conversation relative to performance other than to say, it's exceeding expectations, relative to financial performance it's exceeding expectations relative to the number of sellers and the quality of sellers. So every seller that we've approached, and we literally looking at four star plus rated sellers are required to get on this platform and we again, had great adoption with Merkel's technology, and they actually awarded Lowe's as the fastest launch partner they've ever had. So we were able to get that done quickly and we feel incredibly excited. And one of the unique characteristics that we have is that virtually everything purchased as a marketplace item can be returned in a physical Lowe's store because Joe, his team partnered with technology some years back to create the technology rails to make that happen. So, it creates incredible convenience for the customer when they need to return something. And again, I'll let Bill talk about how the merchant are playing a role to make sure that we have a really balanced approach to how we're thinking about this. Bill Boltz: Yes. Thanks, Marvin. And Kate, the only thing I would add is, obviously early, but we're learning a lot as we progress with marketplace. We're finding that it's an opportunity to expand programs that our current vendors are providing in our stores to provide stuff that would be found on lowes.com. And we're also entering in and finding new products. Products that quite honestly we didn't think that could be available on lowes.com that now is available and the consumers are engaging and buying them. So we're excited about that learning and what that can do. But at the forefront of when we put this together based on being a closed system is that we wanted it complement what we're doing with what what's happening inside of our stores and that's exactly what we're seeing early on here. Joe McFarland: Thank you. Thanks, Kate. Our next question is from the line of Seth Sigman with Barclays. Please proceed with your question. Hey, good morning, everyone. I wanted to ask about operating leverage going forward. You've been delivering really strong operating margin improvement this year on pretty low comps. I guess it's been mostly driven by gross margin this year. So how do you think about the sustainability of gross margin as the primary driver of that? Or does the composition of margin expansion change over time? And then I guess in general, you could speak to how you are thinking about the leverage point in the business would be helpful. Thank you. Brandon Sink: Sure, Seth. This is Brandon. Thanks for the question. I think as it relates to margin, very focused at this point on delivering the 12.1% operating that we communicated as part of our guide. And just as a reminder, ex the dilution from the acquisitions, that's at 12.3% consistent with the flat bottom end of our range that we communicated at the beginning of the year. So the team has done a really great job balancing flow through the balance between gross margin, SG and A, managing the tariff pressure that we've been dealing with. And honestly, the PPI initiatives continuing to deliver $1 billion or split roughly between SG and A and gross margin, has been the primary driver our ability to deliver mid softer sales. I think as we look ahead into 2026, a few things I would highlight. We're continuing to look at FBM and ADG what we think housing and commercial markets are going to be looking like in the business performance there in 2026. I mentioned earlier new home starts both single family and multifamily remain under pressure, but confident with these businesses that we can gain share in a down market Marvin also mentioned the nice balance that we have on the commercial side. So looking at that and how that impacts the margin profile in the '20 And then the last thing I'll mention just as we continue to look at tariffs those ramp here in Q3 Q3, we're expecting that also to continue ramping in Q4 and the wrap to affect the first half of the year. So managing through that and trying to understand how that impacts both sales margin and operating margin going forward. So all that will be weighed. We'll look at that in terms of our previous rule of thumb and we'll have more on that as we get into our call in February for 2026. Seth Sigman: Okay, got it. That's helpful. And then just I guess a related follow-up would be on the gross margin specifically. The gains this quarter really stepped up. Can you just unpack that a little bit more? Are there any timing considerations mean, you mentioned tariffs starting to flow through. Was there a benefit from raising prices? Relative to the cost coming through? Or anything else you can tell us about the mix dynamics that seem to be supportive this quarter? Thank you. Brandon Sink: Yeah. I would say, Seth, on Q3 margin really nothing related to pricing or tariffs. I would say they're that's playing out very much in line with our just in terms of estimating when the cost is going to be flowing through margin. The great work that Bill and team have done on the merchandising side with our suppliers. It really is the themes that I outlined in my remarks were lapping storm pressure, from last year, so that is serving as a benefit this year. The credit portfolio has outperformed our expectations on better than expected losses. And then Bill referenced the SKU rationalization initiative. We've seen really good sell through results thus far on the inventory that we're exiting there. That really was the core of the composition of the 50 basis points that we saw in Q3. Joe McFarland: Okay, great. Seth Sigman: Thanks so much. Joe McFarland: Thanks, Seth. Robbie Ohmes: Our next question is from the line of Greg Melich with Evercore ISI. Please proceed with your questions. Greg Melich: Hi, thanks. I'd love to follow-up on the traffic and ticket breakdown. If you look at the ticket expansion, it's accelerated I think each quarter this year. How much of that 150 bps of acceleration is related to some of the early tariffs going through? How much of it is mix? How sort of the basket evolving in terms of items in it and the size? Brandon Sink: Yes, Greg, I can speak to ticket and transaction. So when we look look at ticket growth, it's really similar when we look at Q3 performances to what we've seen in previous quarters in terms of the drivers. So strength in our pro business also appliances I will reference that in Q3 we did have some modest price increases And when we look at like for like inflation, again modest it's very consistent with our expectations. And also the year to date trends that we've seen as we continue to watch tariffs move through the system. The offset is transactions and that has been pressured by the lower DIY demand. But I also call out the bulk of the 100 basis points of storm related pressure with the DIY is affecting the transaction. So that's really the driver of the offset when we look at Q3. And then I think when we look ahead to Q4, a lot of those same drivers are expected lift from pro up appliances. There will be some modest like for like inflation Just as a reminder, we also have 100 basis points of hurricane pressure that we're cycling in Q4. That will also pressure comps and pressure DIY transactions in Q4. Greg Melich: Got it. And then maybe just a clarification on before, the 50 bps is the full annualized effect on the margins of of the two acquisitions, right? So we're we have like basically fifteen bps that show up this year and then 35 bps next year. Brandon Sink: So, would Greg, it's twenty on the year for 2025. And then 30 of wrap for a total annualized run rate into twenty twenty of 50 basis points. Joe McFarland: Got it. Thank you. And if I take the guide for 4Q, it seems like margin should be down Greg Melich: 60 bps and it's fair to say that's the two of those sort of rolling in? Brandon Sink: Yes. Would say when you isolate Q4 the bulk of the operating margin is going to be driven by layering the transactions. We have $1.3 billion of sales for FBM That will pressure operating margin or diluted down as well as ADGs that's driving the bulk of the change in Q4. Greg Melich: That's great. Thanks and good luck. Joe McFarland: Thanks Greg. Robbie Ohmes: Our next question is from the line of Jihan Ma with Bernstein. Please proceed with your questions. Jihan Ma: Great. Thank you for taking my question. I wanted to ask about the FBM ADG integration that you're doing. Can you just help us understand to what extent you're maybe onboarding ADG onto the SBM ERP system? How does that integration work in the near term? Marvin Ellison: No. Thank you for the question. It's early days. So, the first rule that we have is to do no harm to the performance of either business platform, including loads. But we are in the early stages of the integration The big advantage we have is FBM's current IT platform is the same platform that we are transitioning ADG to. That is not by accident. And also, it's an existing platform that we have in our Lowe's Pro Supply businesses So we feel like we're going to have the ability to accelerate the IT integration between the companies. But as you can respect, we're in the early stages of that. But we feel really good about the plan. We feel really good about the timetable. And we have the best IT team in retail working on it. So I'm very confident we'll be able to make it happen. Jihan Ma: Great. And then just a longer term follow-up. You mentioned the plan to delever to the 2.75 by mid 'twenty seven. Is the longer term plan to resume share buybacks by then or to should we expect additional acquisitions from here? Brandon Sink: Yes. I would say, Jian, still very focused on the integration activities as Marvin mentioned. That's going to be our focus here over the next two years. We're pausing share repo and very much expect to get back down to that 2.75 times leverage target by 2027. So that's our focus. FBM is going to continue to run their existing play in the meantime expanding through Greenfield expansion organic growth and there could be potentially some small tuck in M and A, but that would only be what we could self fund with additional cash flows. I think that's the best way to think about how we're going to be operating here over the next two years. Joe McFarland: Great. Thank you. Robbie Ohmes: Yes. Thank you. Our last question comes from the line of Robbie Ohmes with Bank of America. Please proceed with your question. Robbie Ohmes: Thanks for squeezing me in. I'll be quick here because we all have to jump, think, to other calls. But just two follow ups. Just on the fourth quarter when you the way you're planning it for seasonal and given a little bit more probably tariff prices coming through, any changes in the timing of promos? Are you doing any promos earlier related to holiday and things like that? Bill Boltz: No, Ravi. I mean the promotional cadence remains relatively consistent. To prior years. We started the quarter off with kind of the early pre Black Friday type stuff that we've been doing obviously Black Friday next week and then post Black Friday when you get Cyber Monday events for .com and then you get into that leading up to the holiday timeframe, we've got offers out there for both the Milo's Rewards members as well as our all of our consumers both online and in store, so relatively consistent. Robbie Ohmes: That's helpful. And then just a follow-up on flooring and the strength you guys are seeing there, you guys called out soft surfaces. Is there a trade down going on? How do you think you're doing relative to industry? Is there something changing in flooring or is it all is it something about your positioning in good, better, best or maybe a little more color there? Bill Boltz: Yeah. You know, It's nice to be able to give a shout out to the flooring team and all the work that they've been doing. Last quarter, we announced the acquisition and being able to get Dal Tile into our assortment, so that's starting to roll in now. But specifically to soft surface, it's really the strength of Stainmaster and we've called that out as one of our strongest brands and now we've got Leak Defense being able to be offered. That is not a trade down, that's a trade up offering in assortment. But I think the team's done really nice job of offering value out there every single day and I'd stack our soft surface offer out there every single day against what's going on in the marketplace. And then could go into luxury vinyl, you can go into resilient hybrid and then you go into hard surface tile and the teams have offers out there every single day to close that consumer that's now making the decision to do a flooring project. Joe McFarland: Rob, I would just add that, the investments we've continued to make in our services business, flooring was one of our first to go central selling. Where we remove that complexity of the design from the store. We shorten the time to close the customer, and take them off the market. And so I think all in all the products, the service level were really seeing some green shoots. Robbie Ohmes: Really helpful. Thanks so much. Brandon Sink: Thanks, Robbie. Kate Pearlman: Thank you all for joining us today. We look forward to speaking with you on our fourth quarter earnings call in February. Robbie Ohmes: Thank you. This concludes the Lowe's third quarter 2025 earnings call. You may now disconnect.
Wendy Huang: Good day and a good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2025 Third Quarter Results Announcement webinar. I'm Wendy Huang from Tencent IR team. [Operator Instructions]. And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President, Martin Lau and Chief Strategy Officer, James Mitchell, will provide business review; and Chief Financial Officer, John Lo will conclude the financial discussion before we open the floor for questions. I will now pass it to Pony. Huateng Ma: Okay. Thank you, Wendy. Good evening. Thank you, everyone, for joining us. During the third quarter of 2025, we achieved solid revenue and earnings growth, reflecting healthy trends across games, marketing services and fintech and business services. Our strategic investment in AI are benefiting us in business areas such as ad targeting and game engagement as well as efficiency enhancement areas such as coding and game and video production. We are upgrading the team and architecture of our Hunyuan foundation model, whose imaging and 3D generation models are now industry-leading. As Hunyuan's capabilities continue to improve, our investment in growing Yuanbao adoption and our efforts in developing agentic AI capabilities within Weixin will gain further traction. Looking at our financial numbers for the third quarter. Total revenue was RMB 193 billion, up 15% year-on-year. Gross profit was RMB 109 billion, up 22% year-on-year. Non-IFRS operating profit was RMB 73 billion, up 18% year-on-year and non-IFRS net profit attributable to equity holders was RMB 71 billion, up 18% year-on-year. Turning to our key services, core communication and social networks. Combined MAU of Weixin and WeChat grew year-on-year and quarter-on-quarter to RMB 1.4 billion. For digital content, TNE grew its paying user base and ARPU, solidifying its leadership position in music streaming. For games, Delta Force is now the top 3 game in China by gross receipts, while VALORANT successfully expanded from PC to mobile. And in AI, we enhanced our Hunyuan large language model's complex reasoning capabilities, especially in coding, mathematics and science. Our Hunyuan image generation model is ranked first globally among text-to-image models by LMArena. And our Hunyuan 3D model is the top ranked 3D generative model of [indiscernible]. I will now hand over to Martin for the business review. Chi Ping Lau: Thank you, Pony, and good evening and good morning to everybody. For the third quarter of 2025, our total revenue was up 15% year-on-year. VAS represented 50% of our total revenue, within which Social Networks subsegment was 17%, Domestic Games subsegment was 22% and International Games was 11%. Marketing Services was 19% of total revenue and FinTech and Business Services was 30% of total revenue. For the quarter, our gross profit was up 22% year-on-year to RMB 109 billion. VAS gross profit increased 23% year-on-year to RMB 59 billion, representing 54% of our total gross profit. Marketing Services gross profit increased 29% year-on-year to RMB 21 billion, contributing 19% of total gross profit and FinTech and Business Services gross profit increased 15% year-on-year to RMB 29 billion, contributing 27% of total gross profit. Turning to business segments. Value-added Services revenue was RMB 96 billion, up 16% year-on-year. Social Networks revenue was up 5% year-on-year to RMB 32 billion, driven by increased revenue from Video Accounts live streaming service, music subscriptions and Mini Games platform service fees. Music subscription revenue increased 17% year-on-year, boosted by growth in ARPU and subscribers. Music subscribers grew 6% year-on-year to RMB 126 million. Long-form video subscription revenue decreased 3% year-on-year. ARPU was stable while video subscribers declined 2% year-on-year to RMB 114 million due to the delay of drama series, Love's Ambition. Following its release at the end of the quarter, finally, Love's Ambition ranked among the most viewed drama series in China year-to-date. Domestic Games revenue grew by 15% year-on-year, primarily driven by Delta Force, Honor of Kings and VALORANT. International Games revenue increased by 43% year-on-year or 42% in constant currency, which is an unusually rapid rate due to recognizing revenue upfront on top of -- on copy sales of Dying Light: The Beast and also due to the consolidation of recently acquired studios. Moving to Communications & Social Networks. For Mini Shops, we're systematically building a more vibrant transaction ecosystem, resulting in continued rapid growth in GMV. We enhanced mini shop merchandise recommendations and thus sales conversions by leveraging our foundation model capabilities to better understand users' interests based on their content consumption within Weixin. We rolled out new features to enhance merchandise discovery in Weixin. For example, we added gifting capabilities in Weixin order and card page, leveraging Weixin's social graph. We also upgraded the image search feature in Weixin, which users can use to scan objects, identify them and then shop for them in Mini Shops. We also enhanced AI features in Weixin to provide new services to users and to promote greater usage of Yuanbao with encouraging results. @Yuanbao feature in video accounts and official accounts comment boxes summarizes content and also encourages users to ask follow-up questions and users like that feature a lot. We also enriched the Tencent news feed in Weixin with Yuanbao-generated content, and facilitated user exploration of news-related topics via the Yuanbao app. Now with that, I'll pass on to James. James Mitchell: Thank you, Martin. For domestic games, Honor of Kings gross receipts grew year-on-year, benefiting from collaborations with the China Literature IPs, Node of the Mysteries and Fox Spirit Matchmaker. The game achieved 139 million daily active users during its tenth anniversary event in October, which featured hero and minion outfits inspired by Bronze Age Shu Kingdom artefacts. Delta Force ranked among the top 3 games industry-wide by gross receipts in the quarter, achieving over 30 million daily active users in September including over 10 million daily active users on PC, driven by new season content, extensive first anniversary events and a global eSports tournament. We released VALORANT mobile on August 19 and it's become China's most successful mobile game launch year-to-date based on its first month DAU and gross receipts. VALORANT PC continued to grow and achieved record high DAU and gross receipts in September, benefiting from eSports-themed weapon items. The mobile launch resulted in VALORANT's combined monthly active users more than doubling from July's level to over 50 million in October. Among our international games for Clash Royale Supercell released new auto-chess mode Merge Tactics and extended its Trophy Road achievement system to 10,000 trophies, driving higher player engagement. Monthly daily active users and gross receipts achieved all-time highs in September. Gross receipts increased more than 400% year-on-year during the third quarter. Gross receipts of PUBG Mobile also grew year-on-year in the third quarter, benefiting from ancient Egyptian-themed outfits, an innovative X-suit with emote sound effects and a 2-player glider, and collaborations with Transformers and Lotus Cars. Our Polish subsidiary Techland released a new game in its Dying Light series called Dying Light: The Beast, which has achieved a very positive average user review score on Steam and which contributed to our international game revenue growing unusually quickly during the quarter due to the upfront revenue recognition of copy sales. The Marketing Services revenue increased 21% year-on-year to RMB 36 billion, underpinned by ad spend growth from all major advertiser categories. Impressions grew year-on-year as we enhanced engagement and increased ad load across video accounts, mini programs and Weixin Search. Average eCPM increased year-on-year as we upgraded our adtech foundation model with more parameters and captured additional closed-loop marketing demand. We introduced our automated ad campaign solution, AI Marketing Plus through which advertisers can automate targeting, bidding and placement as well as optimize ad creation improving their return on marketing investment. By inventory, video accounts and rich content and transaction system and its upgraded recommendation algorithms drove stronger user engagement. Increases in DAU and time spent per user contributed to ad impression growth. Advertisers increasingly adopted our marketing tools to drive traffic to their short videos, live streams in Mini Shops. For mini programs, increases in activations and time spent attracted ad spend for mini drama and Mini Games to promote their content. And for Weixin Search, increases in commercial query volume and click-through rates contributed to notable revenue growth. We improved the relevance of search ads by upgrading our large language model capabilities and optimizing sponsored results to better match user queries. Looking at FinTech and Business Services. Segment revenue was RMB 58 billion, up 10% year-on-year. FinTech services revenue grew by a high single-digit percentage, primarily driven by commercial payment services and consumer loan services. For commercial payment volume, the year-on-year growth rate was faster in the third quarter than the second quarter. Online payment volume continued to grow robustly, while off-line payment volume improved, particularly in the retail and transportation categories. For consumer loan services, our nonperforming loan rates remained among the lowest in the industry and improved year-on-year, reflecting our prudent risk management practices. Turning to Business Services. Despite supply chain constraints on sourcing GPUs, revenue grew at a teens rate year-on-year in the third quarter, benefiting from higher cloud services revenues and increased technology service fees generated from rising mini shop e-commerce transaction volumes. Revenue from our cloud storage and data management products, namely Cloud Object Storage, TCHouse, and VectorDB grew notably year-on-year due to increased demand, including from leading automotive and Internet companies. And for WeCom, we launched an AI summarization feature generate project recaps and provide advice based on users' e-mails and conversations to hand some project collaboration efficiency. And I'll now pass to John for the financial review. Shek Hon Lo: Thank you, James. For the third quarter of 2025, total revenue was RMB 192.9 billion, up 15% year-on-year. Gross profit was RMB 108.8 billion, up 22% year-on-year. Other gains were RMB 0.5 billion compared with other gains of RMB 3 billion in the same period last year, mainly due to lower subsidies and tax rebates as well as provisions paid for some receivables during the quarter. Operating profit was RMB 63.6 billion, up 19% year-on-year. Interest income was RMB 4.3 billion, up 7% year-on-year, driven by growth in cash reserves. Finance costs were RMB 3.8 billion, up 6% year-on-year due to ForEx movements and high interest expenses. Share of profit of associates and JV was RMB 7.8 billion with RMB 6 billion in the same quarter last year. On a non-IFRS basis, share profit was RMB 10.3 billion, up from RMB 8.5 billion in the same quarter last year, driven by associated company, specific factors, including this growth and improved operational efficiency. Interest expense increased by 10% year-on-year to RMB 9.8 billion, mainly driven by operating profit growth. On a non-IFRS basis, diluted EPS was RMB 7.575, up 19% year-on-year, outpacing non-IFRS net profit growth due to reduced share count after our share buybacks. Our weighted average number of shares, which we use for calculating quarterly diluted EPS decreased by 1% year-on-year. On non-IFRS financial figures, operating profit was RMB 72.6 billion, up 18% year-on-year. Net profit attributable to equity holders was RMB 70.6 billion, up 18% year-on-year. Moving on to gross margins. Overall gross margin was 56%, up 3 percentage points year-on-year. By segment VAS gross margin of 61%, up 4 percentage points year-on-year, mainly driven by greater contributions from certain internally developed high-margin games. Marketing Services' gross margin was 57%, up 4 percentage points year-on-year due to higher contributions from high-margin revenue streams, including video accounts and Weixin Search. FinTech and Business Services' gross margin was 50%, up 2 percentage points year-on-year due to improved revenue mix within fintech services. On third quarter operating expenses. Selling and marketing expenses were RMB 11.5 billion, up 22% year-on-year, reflecting increased promotional efforts to support the growth of our AI native applications and games. R&D expenses rose by 28% year-on-year to RMB 22.8 billion, primarily due to higher staff costs and increased infrastructure investment to support our AI initiatives. G&A, excluding R&D expenses increased by 2% year-on-year to RMB 11.4 billion. At quarter end, we had approximately 115,000 employees, up 6% year-on-year or 3% Q-on-Q, primarily reflecting headcount conditions for both games and our technology platform, including AI-related accounts. Our third quarter non-IFRS operating margin was 38%, up 1 percentage point year-on-year. Operating CapEx was RMB 12 billion, down 18% year-on-year, primarily due to supply changes. Non-operating CapEx was RMB 1 billion, down 59% year-on-year, reflecting higher base last year related to construction in progress. Free cash flow was RMB 58.5 billion, largely stable year-on-year as operating cash flow growth was offset by higher CapEx payments. On a quarter-on-quarter basis, free cash flow was up 36% due to higher games gross receipts. Net cash position was RMB 102.4 billion, up 37% Q-on-Q or 27.8% -- RMB 27.8 billion, mainly driven by free cash flow generation, partially offset by share repurchase were RMB 19.2 billion. Wendy Huang: [Operator Instructions]. The first question comes from Liao Yuan from Citic. Thomas Chong: Congrats on the strong results. My first question is about your gaming business. Your international gaming business growth rate has been accelerating for multiple quarters. So I just want to know what have you done right to achieve such good results? And how should we think about the growth trend going forward. Besides, could you share more thoughts on your international gaming strategy? For example, will you continue investing in high-quality overseas game studios or bring more developed games to global markets? And my second quick question is about your CapEx. This quarter, CapEx was around RMB 13 billion, but the cash payment for CapEx was RMB 20 billion. So how should we interpret the difference between these 2 figures? And is there any new update to your full year CapEx guidance? James Mitchell: Great. Why don't I start with the questions around games and the growth rate of the international game business, the strategy for the international game business. So the growth rate that we reported for the quarter for the international game business is substantially faster than the underlying trend line, and that's because during the quarter, we had the benefit of consolidation of newly acquired or recently acquired games studios as well as the benefit of the upfront revenue recognition on copy sales for the game Dying Light: The Beast. So going forward and looking into the fourth quarter, you should expect the growth rate for the International Games subsegment to decelerate closer to the underlying trend line. In terms of the strategy for our International Games business, yes, the drivers that you mentioned, we'll continue seeking to acquire games studios. We'll continue seeking to partner with overseas games studios, and we'll continue seeking to bring more games that are made in China to a global audience as well. Shek Hon Lo: In terms of CapEx, the difference reflects timing gap between the accrual of server-related expenditure and cash payment, which can cause temporary mismatches between the 2. In particular, the credit period for us to pay server suppliers is usually 60 days. In terms of the CapEx for 2025 to share with you, in 2024, our total CapEx grew by 221% year-on-year and was about 12% of the revenue. Previously, for 2025, we guided total CapEx was -- as a percentage of revenue to be at low teens and the 2025 CapEx will be lower to our previous guided range, but the amount will be higher than that of 2024. Wendy Huang: We will take the next question from Alicia Yap from Citigroup. Alicis a Yap: Congrats on the solid results. First question, can management elaborate about your comment on the upgrading Hunyuan team and also the Hunyuan infrastructure? What should we be expecting to see from the upgraded version? And then does management have any updated view on how Yuanbao might complement the AI capabilities that you have embedded into the Weixin ecosystem in the past few months? And then second question is on your advertising marketing service revenue. So does that automated ad campaign solution, the AIM+ better serve the smaller advertiser? Should we expect the solution to drive broader adoption rate for advertisers and drive higher ROI spending that support potentially accelerations of the ad revenue growth in the coming quarters? Chi Ping Lau: Yes. In terms of the Hunyuan team and the Hunyuan architecture, we are actually hiring more top-notch talent, especially in the research area in order to complement our existing strong engineering team and they are complementary to each other. And we have also been improving the Hunyuan overall architecture across different dimensions such as improving the hardware and software infrastructure in order to support better data preparation to support better pretraining of the model as well as to support reinforced learning across different knowledge domains at scale. So these are the improvements that we are making more specifically on the Hunyuan team as well as the Hunyuan architecture. Now in terms of how Yuanbao and Weixin complement each other, I would point to the fact that Weixin has actually introduced a number of AI features based on Yuanbao's capability. For example, in the prepared comments, we actually talked about the @Yuanbao feature in video accounts and official accounts comment box, which allows users to ask Yuanbao to summarize the content so that they can actually have very quick reference. And it actually encourage a lot of interesting additional follow-up questions and follow-up comments based on the summary of what Yuanbao provided. And we also enriched the Tencent News feed in Weixin with Yuanbao-generated content and allowed a lot of users to use that as a way to explore more news content, related news content as well as ask questions on the news content. And we are actually adding more and -- we are planning to add more functionalities of Yuanbao into Weixin so that -- those functionalities actually, one, serve the Weixin users better; and, two, actually help Yuanbao to gain a larger audience. And more and more of these audience find Yuanbao's capability through Weixin and eventually become a Yuanbao app user. So that's sort of complementary to each other. James Mitchell: And Alicia, in terms of the AIM+ automated ad campaign solution, we believe the automated ad campaign solution benefits all advertisers who deploy it by enabling them to automatically reach inventories as well as user profiles that are more performant than the inventories and user profiles they were manually targeting. You're right to say that small and medium-sized businesses are the first or the most eager to adopt this kind of product because they have the least legacy process to replace, and that's what we're experiencing right now. But we're also seeing bigger advertisers adopting AIM+ too that parallels the experience of Meta's Advantage+ automated ad solution overseas. Thank you. Wendy Huang: We will take the next question from Gary Yu from Morgan Stanley. Gary Yu: My first question is a follow-up on Yuanbao and Weixin. It appears that both the Yuanbao adoptions and also agentic AI function of Weixin hinder on foundation model capabilities, but yet CapEx spending remains slow according to your latest comment. So is there a risk that the company is not aggressive enough such that the potential AI application market could be lost to other companies who have either better model capabilities or more aggressive CapEx spending? And my follow-up question is regarding some of the expense items, selling and marketing and R&D. So when should we expect some of the internal AI adoption to benefit on cost efficiency in order to offset some of the investment that we have talked about on Yuanbao and game advertising. Chi Ping Lau: Yes. In terms of adoption and also the CapEx spending at this point in time, we actually believe that there's no insufficiency of GPUs for us at this moment. It's -- all our GPUs are actually sufficient for our internal use, and there is some limiting factor for external cloud revenue. Now in terms of the Yuanbao capability and Hunyuan model capability, as I talked about to Alicia's questions, we are actually making a lot of improvement in terms of our team, in terms of our talent recruitment and in terms of our Hunyuan infrastructure and overall process of the Hunyuan research. And I would say we are actually happy with the progress we have made already. And if you wait a little bit for our next model, you can see meaningful improvement in terms of the Hunyuan capability. And I believe with the new improvements that we have been making, we'll continue to pick up pace on the Hunyuan capability. And at this point in time, we actually do not believe that there is a decisive better model in China as everybody is actually locked in a pretty close race and different models may be different, maybe better in different use cases as well. So we don't believe we are really behind. And as we continue to improve our Hunyuan capability, and we actually have been also seeing quite a good ramp in terms of Yuanbao engagement. So I think you see both the model capability as well as our AI products keep on improving. Now in terms of the expenses, I think at this point of time, the G&A expense, especially the R&D is actually some of that is related to our AI investment. So there's a natural ramp-up because we invest more in AI. And if you look at the benefits of AI, at this stage, a lot of the efficiency gains are more on the revenue side and the gross profit side. So you see pretty good growth in those items. But in terms of the cost item, I would say we have already done pretty big organization optimization a few years back. And the organization that we have is actually lean and efficient and AI adoption actually allows our team to do more as well as instead of -- to reduce cost, which I think some other companies you are probably comparing with. Wendy Huang: We will take the next question from Alex Yao from JPMorgan. Alex Yao: Congrats on a very strong quarter and also thank you for playing a very smooth and relaxing music before the call. I will ensure I watch this TV drama after the earnings season. So 2 questions from my side. First one, you mentioned that Tencent is developing agentic AI capabilities within Weixin in the prepared remarks. Can you share your thoughts about how agentic AI creates value to consumers in Weixin. I'm particularly interested in your thoughts around Agentic commerce. Second one is on CapEx. Did I hear John right that the CapEx for 2025 will be lower than the previous guidance, but higher than the '24 actual CapEx spending. If I get that right, does it reflect a change of AI chip availability or a change of AI investment strategy or a change of your expectation of future token consumption? Chi Ping Lau: Yes. On your second question, the answer is you heard it right. And it's not a reflection of our change in AI strategy. It's not a change in terms of expectation of future token consumption. It is indeed a change in terms of the AI chip availability. Now in terms of the agent AI capabilities, right, I think the blue sky scenario is that eventually, Weixin will come with an AI agent that actually can help the user to essentially do a lot of tasks within AI -- within Weixin leveraging AI, right? Because if you look at the ecosystem of Weixin, it has very strong communications and social ecosystem, and it has a lot of data that allows the agent to understand about the users' needs as well as the intentions and interest. It has a very strong content ecosystem in the form of official accounts and video accounts. It has a mini program ecosystem, which essentially includes most of the use cases on Internet. It has a commerce ecosystem, which allows people to buy stuff and the payment ecosystem, which actually allows people to pay for it almost immediately. So that is almost ideal assistant for users and understands about the users' needs and can actually perform all the tasks within the ecosystem. So that's the blue sky scenario. Now I think how do we get there? At this point in time, it's actually very early stage in terms of development. Weixin is doing a number of things in parallel. For example, it's introducing Yuanbao capabilities into Weixin so that we can test out a lot of the AI features on a stand-alone basis within Weixin. It's also enhancing search with AI so that we can serve the users' search and information collecting as well as analysis needs more efficiently. We are also starting to work on vertical agent capabilities. And that's something that we are working on. We have not launched these yet. But then very likely, we'll be sort of working on functionality one by one. But eventually, we can actually sort of integrate all these agentic capabilities as well as the AI features so that we can actually create this blue sky scenario of Weixin agent. I think in terms of agent commerce, right, I think there's the agent side and there's the commerce side, the commerce, we're actually making very good progress in terms of building up our e-commerce ecosystem and the mini shop is actually growing very nicely in terms of GMV. Over time, as it continued to grow, right and as we work on the vertical agents, right, at some point in time, we will have agent e-commerce as well. But that's a bit later in the process. Wendy Huang: We will take the next question from William Packer from Exane BNP. William Packer: Congrats on the strong quarter. Firstly, Bloomberg have reported today that you've come to terms regarding a 15% commission with Apple within the WeChat ecosystem, below their usual 30%. While you probably prefer not to talk about the specifics in the press article, could you help us think through the implications of your improving relationship with Apple and the impact on your business, particularly in Mini Games and domestic video games? And then secondly, as a follow-up, Q3 was another very good quarter for Marketing Services with revenue growth accelerating. Could you help frame the growth outlook in the shorter term and for 2026 and any new structural or cyclical factors to consider? Chi Ping Lau: Well, in terms of Apple, right, what I could say is that, number one, we have a very good relationship with Apple, and we have sort of collaborated on a lot of different areas. And we have been in discussion with Apple to make the mini game ecosystem more vibrant. And we are constructive with the progress that we've made so far. And I think at some point in time, there may be an official announcement. And I think everybody should wait for that. James Mitchell: And in terms of the advertising growth outlook, we think that it's largely a continuation of current trends. Overall, China consumer spending is subdued, but gently improving, which is a gentle tailwind for advertising spending on the demand side. And then in terms of the supply that we provide, we'll continue deploying more AI capabilities, including the AIM+ program automated ad campaign program that I referred to earlier. Thank you. Wendy Huang: We will take the next question from Charlene Liu from HSBC. Charlene Liu: I think a quick one on R&D spending, especially as a percentage of revenue. How do we expect that to trend in the near and medium term? And then separately, we've seen really good GPM optimization at the segmental level. How should we think about overall impact to OPM taking into consideration potential uptick in AI investments, depreciation costs and whatnot? Yes, so those 2, I wanted to kind of see how that margin net impact will sort of play out in the medium term. James Mitchell: Why don't I take the gross profit margin question. And first of all, to clarify, while the gross margins of our various segments have been trending upward over time, that's not purely or even primarily due to sort of optimization efforts per se. There are some subsegments such as cloud, where we have taken a number of measures to optimize profitability, and that has flowed through into higher gross margins in the last 2 years. But for most of our segments, the improvement in gross margins is more a function of the positive mix shift toward higher-quality revenue streams that we've talked about a number of times in recent quarters. In terms of the dynamic between gross profit margin and operating profit margin, I would not put too much weight on that quarter-to-quarter because there are costs which at an early stage in a product development cycle, we would expense under R&D and therefore, come below the gross profit line. But then as we actually make the product more widely available, commercialize the product, we would move the costs from R&D expense into cost of service and therefore, above the gross profit line. So I would probably focus more on revenue growth, operating profit growth without getting too fixated on gross profit margin versus operating profit margin. Wendy Huang: We will take the next question from Kenneth Fong from UBS. Kenneth Fong: Congrats on a strong result. I have a question about the investment strategy. Given the strong equity market performance year-to-date globally, could management share some thoughts on our investment portfolio and strategy and direction? So basically, how should we deploy or recycle our capital? James Mitchell: So as you point out, markets have been quite buoyant both in terms of price and in terms of liquidity. And so we've been taking advantage of that buoyancy to more actively recycle our portfolio primarily via some on-market sales of our investment holdings. We've also been new investing in some emerging growth opportunities as well as our normal sort of focus areas such as games and digital content. But overall, year-to-date, divestments have exceeded investments by over $1 billion. And we've been actively investing in some interesting AI start-ups, particularly in China, where we can see a sort of new wave of value creation ahead. Wendy Huang: We will take the next question from Ronald Keung from Goldman Sachs. Maybe we go to the next question if Ronald not online. So we will take the next question from Robin Zhu from Bernstein. Robin Zhu: I guess 2 questions on gaming, please. One is if we look at the shooter genre, I think there seems to be a bit of a changing of guard with Battlefield, Delta Force, ARC Raiders is now doing quite well. Would be curious your thoughts on what you think is happening at the genre level. And for Delta Force specifically, what it would take, what's being planned to get the game from #2 -- #3 closer to the top 2 games? Is it realistic to expect that, that happens at some point or not? And I guess a follow-up on an earlier question on the Mini Games developments, I'd be curious if you could try and dimension some of the relative contributions of in-app advertising versus in-app purchases on Android right now and whether we think that this discussion going on with Apple is -- primarily on Mini Games has been reported? Or is there a broader discussion going on about -- or could potentially go on about the broader games business as a whole? James Mitchell: Robin, so in terms of what's happening with first-person action games, then outside China, as you say, there may be a changing of the guard. Within China, I think that Delta Force has obviously been performing gratifyingly well, but VALORANT has had an exceptionally strong year. And then Peacekeeper Elite, Arena Breakout, Crossfire Mobile, pretty much all of our first-person action games have actually been growing DAU or growing monetization or mostly both during 2025 year-to-date. So to me, that's not really a changing of the guard. It's more an expansion of the royal guard, if you will, which I think speaks to the fact that first-person action games are the leading game genre in the rest of the world. They're not yet the leading game genre in China, but with Delta Force and VALORANT and Peacekeeper Elite and the rest, we're seeking to bring them to the position that they should enjoy. In terms of growing Delta Force further, then we're really embracing platformization with our biggest games. And Delta Force unusually is sort of built from day 1 to support platformization in terms of its modularity. With more platformization, we can also support more new modes. And then one of the new modes that has done very well in Peacekeeper Elite, in PUBG Mobile and over time, we'll seek to nurture in Delta Force is user-generated content. And then we'll continue to add player versus environment content. We'll continue to strengthen the stream ecosystem and generally apply the experiences that we've accumulated over 17 years of launching 40 first-person action games in China to Delta Force. And then on your second question, the stories refer to Mini Games, not to app-based games. And at this point, the majority of the Mini Games revenue is in-app purchase rather than in-app advertising. So we'd theoretically benefit. Thank you. Wendy Huang: We will take the next question from Thomas Chong from Jefferies. Thomas Chong: Congratulations on a very strong set of results. My question is on the FBS side. Given that we are emphasizing more on the consumer loan side, I just want to get some color with regard to the macro environment. Is this a factor that we need to take into consideration about our consumer loan revenue growth? And if we look into our cloud revenue, how should we think about the growth rate going forward? Should we take into account the CapEx spending? Or should we expect the growth may decelerate because of less CapEx? Chi Ping Lau: So in terms of the FBS, particularly with respect to fintech, I think if you look at the fintech, there are 3 major businesses within fintech. One is our payment business. The second one is wealth management. The third one is loans, right? And in terms of macro environment, macro environment has the biggest bearing on the payment business because payment business is already very big. It tracks pretty closely with consumption growth in China. And there was a time in which the consumption growth was actually in more challenging state. I think over time, it's gradually improving. And what we see is in China, the consumption growth has been slow, and it's mainly due to the fact that a lot of consumers ramp up their savings during a period in which their balance sheet was actually sort of dragged down by the decline in property prices. So unlike a lot of the other economic downturns around the world, which are driven by excessive credit and a lot of people would go bankrupt, right? In China, it's just sort of people have resources, but then they decide to save more instead of spending more. We actually sort of -- so that's why we think there is actually potential for consumption to grow if people start to feel that they are secure now with the additional savings. And at the same time, if property prices stop declining, I think people will probably begin to spend more. I think this year, we have seen stock prices have been sort of pretty strong and that adds to the household balance sheet, and that is slightly a positive factor. And at the same time, if you look at consumer loans, right, because people are not stretched from a balance sheet perspective, they're just sort of saving more. It's not actually sort of affecting consumer loans delinquency that much. And by the way, we have been sort of very self-constrained in terms of extending loans, in terms of loan amount and also because of the data that we have, right? I think our underwriting is actually very conservative, very data-driven and our delinquency is among the industry leading. So that's essentially on the fintech side. In terms of cloud business, I think we have been increasing our revenue finally sort of this year, right? In the past few years, our revenue has not grown that much, but our gross profit has grown very significantly. And this year, we're growing both the revenue as well as the gross profit and the business is actually sort of profitable. One constraint of cloud business growth is availability of AI chips because when AI chips are actually in short supply, we actually prioritize internal use as opposed to renting it out externally. And the other way to say is if there is not an AI chip supply constraint, then our cloud revenue should be growing more quickly. Wendy Huang: We will take the next question from John Choi from Daiwa. Hyungwook Choi: I just want to quickly follow up on the advertising business. I think another strong quarter, as you said. But I think last quarter, management mentioned that it was more due to AI implementation. But for this quarter, can you kind of elaborate a bit more how impact from AI and how that has reshaped the overall conversion and pricing for our ad business. So if you take that out organically, what kind of growth could it be seen? And also just on the -- quickly -- a quick follow-up on the payment side. I think Martin just mentioned that the overall household spending has a high relation. But you also, I think you mentioned the retail and transportation category has done well on your volume growth. Especially on the grassroots side, have you noticed any trends that we are seeing on industry-specific levels and in terms of the transactions or the transaction size that gives us more confidence that over the past couple of quarters to see the improvement trend? James Mitchell: Why don't I take those? So in terms of the advertising revenue, roughly half of the growth or about 10 points was due to higher eCPM, which we attribute primarily to AI-supported adtech as well as the closed loop benefits. And then the other half was due to increased impression volume, which reflects increased user engagement and increased ad load. In terms of the commercial payment volume trends, then there is a measured improvement. As Martin spoke to, it's positive that China consumers have accumulated substantial savings, above trend savings in recent years. So they may be less worried by property price fluctuations and more receptive to the stock market performing well than would otherwise be the case given the substantial pent-up spending power. And we have seen that the online payment volume has continued to grow quite steadily through the weaker periods and now through this more stable period. But the off-line payment volume, which had been very suppressed and under pressure for a period of time, has also started to recover. So while online payment volume is growing faster than offline payment volume, the gap has been narrowing as off-line payment volume has improved in categories, including transportation and retail, which I suppose reflects people going out and about more often. Chi Ping Lau: But I have to stress such improvement is still pretty nascent. So we actually need to see it for a few more months in order to sort of have more confidence in saying this is a trend. Wendy Huang: We will take the last question from Ronald Keung from Goldman Sachs. Ronald Keung: Sorry for the technical. I have a question on advertising. Just following up on -- I want to hear how the AI Marketing Plus product, any early data points on the performance and ROI for merchants on that? And I also see you mentioned Mini Shops in one of the very early bullets in the results. So could you quantify the potential of that ad potential that I'm particularly looking for the increasingly vibrant Mini Shop transaction ecosystem, the ad potential there? And then my second question, I just want to ask about the analogy from Weixin and QQ because we have seen Facebook and Instagram kind of serving different cohorts within the company, and we have been serving those with Weixin and QQ as well. Any parallels and differences how we see Weixin as a key product, but also potentials for different products serving cohorts within domestic China? Just an open question -- open-ended question. James Mitchell: Why don't I start with the question around AIM+. So when you introduce this automated ad campaign system, the biggest sort of leap for the advertisers is allowing us as the platform operator to actually manage the bidding process on their behalf. And of course, there's degree of internal conservatism within the bigger advertisers as to whether to entrust the platform to manage the price or not. And typically, the larger advertisers will run the automated and the manual processes in parallel for a period of time and compare the ROI to verify whether the automated process is delivering more performance or not. And we've turned on that automated bidding tool relatively recently, but the early results are positive. Those advertisers who are adopting the automated solution are enjoying superior returns. And therefore, the percentage of our advertisers and the percentage of our advertising spending that is going through AIM+ is steadily increasing. And in terms of the Mini Shops, then I think you can benchmark the advertising to GMV ratios of the incumbent e-commerce marketplaces in China across to the GMV for Mini Shops, which is growing very quickly. And that will give you a sense of the advertising revenue potential from the mini shop operators. So that's on the advertising question. Chi Ping Lau: Yes. In terms of Weixin and QQ and then sort of analogy for rest of world, for example, sort of Facebook and Instagram. I think it's a very interesting question. And I think there are some fundamental differences, right, in the sense that, number one, if you look at Instagram and Facebook, they are primarily social networks, right? And if you look at Weixin and QQ, they are both communication network and social network. So if you have social network and it's sort of -- it's content-based, then it's actually easier for you to have different groups of people dialing in and reading different content versus communication, then the network effect of communication platform is actually sort of stronger. And the other thing is that China is much more mobile-oriented versus I think the rest of the world, there are still a lot of people who are using PC and if you have PC, then Facebook seems to be sort of adding more PC users. And I think thirdly is if you compare Facebook and Instagram, right, Facebook tends to sort of keep the more mature users and Instagram sort of more younger people. But in China, it's actually different between Weixin and QQ, right? The QQ users are primarily sort of younger in nature. So I think there is some fundamental differences. But at the same time, Weixin and QQ are serving different user group and different use cases. A lot of the younger people also have Weixin, but then they use QQ so that they would not be seeing their parents and their teachers and some people -- younger people would not be seeing their colleagues. And so I think going forward, when we continue to evolve QQ as a product, right, then we should actually latch on to these features and these user needs and sort of make it more fun, make it very differentiated from Weixin. Weixin probably will serve all purpose, whereas sort of QQ will serve the younger people, more active people, and we should sort of try to provide a lot of functionalities. You can meet new people, you can sort of serve more of your interest-based groups. And I think that's the way we are going to be differentiating QQ and Weixin and make sure that they serve our users in different use cases and scenarios. Wendy Huang: Thank you. We are now ending the webinar. Thank you all for joining our results webinar today. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also soon be available. Thank you and see you next quarter.
Operator: Welcome to the Williams-Sonoma, Inc. Third Quarter Fiscal 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the conclusion of the prepared remarks. I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead. Jeremy Brooks: Good morning and thank you for joining our third quarter earnings call. I'm here today with Laura Alber, our Chief Executive Officer, Jeff Howie, our Chief Financial Officer, and Sameer Hassan, our Chief Technology and Digital Officer. Before we get started, I would like to remind you that during this call, we will make forward-looking statements with respect to future events and financial performance, including our updated guidance for fiscal 2025 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for, and should be read together with, our GAAP results. This call should also be considered in conjunction with our filings with the SEC. Finally, a replay of this call will be available on our Investor Relations website. Now, I'd like to turn the call over to Laura. Laura Alber: Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. I'm excited to talk to you about our third quarter. First, I'd like to take a moment to thank our team for their continued hard work. Everyone at Williams-Sonoma, Inc. has been focused on our key three priorities this year, which are returning to growth, elevating customer service, and driving earnings. That focus continues to drive our results. We are proud to deliver strong results in 2025, with an accelerating positive top-line comp and continued outperformance in our profitability. In Q3, comp came in above expectations at 4%, driven by another quarter of positive comps across all of our brands. We continue to deliver on the bottom line despite the substantial tariff headwinds. Our operating margin came in at 17%, expanding 10 basis points with earnings per share of $1.96, growing 5% year over year. We are encouraged by our continued strong year-to-date performance through Q3 and are confident in our outlook for Q4. Therefore, we are reiterating our outlook for the full-year comparable brand revenue growth to be in the range of 2% to 5%. We are raising our bottom-line guidance 40 basis points to an operating margin of 17.8% to 18.1% versus 17.4% to 17.8%. We drove this improvement in performance despite continued geopolitical uncertainty and no substantive improvement in the housing market. We continue to gain market share and outperform the industry, which declined again in Q3. Our continued strong results reflect the power of our operating model, industry-leading channel experiences, and strong portfolio of brands. We continue to see exceptional performance in our retail channel, which ran a positive 8.5% comp in Q3. Retail continues to benefit from an improved in-store experience with more inventory availability, enhanced design services and events, and the opening of 14 beautiful newly remodeled or repositioned stores so far this year, with seven more to come in Q4. This investment is paying off with almost all of them beating the performance of the prior location. Our stores serve as brand billboards, and we believe a refreshed store improves customer perception of our brands. As we move into 2025, I want to highlight the specific progress we made on our three key priorities. Starting with growth, our core brands continue to deliver strong results from positive momentum in Furniture. Our focus on innovation has driven strong and improving Furniture comps. Additionally, we are focused on incremental growth categories like Pottery Barn dorm, and 9% quarter with strength in both trade and contract. Our emerging brands Rejuvenation, Mark and Graham, and Greenrow continue to perform exceptionally well. Together, they delivered a double-digit comp, and we're excited to have recently opened our thirteenth Rejuvenation store in Salt Lake City. This year, we're also very proud of our improvements in customer service. We are committed to flawless execution, delivering orders on time, damage-free every time. We're proud that this year we have record metrics. We're focusing on furthering our improvements through fewer split shipments and faster fulfillment. Finally, our third key priority, driving earnings. Focus on revenue growth, elevating customer service, and maintaining cost discipline has delivered strong earnings with our year-to-date earnings per share growing 5% in a very tough tariff environment. Also in Q3, we used AI as a key business driver to accelerate our strategy. Across our portfolio, AI-powered chat experiences are now live for all brands, providing customer service delivery support, and product guidance. These agents are improving speed, consistency, and satisfaction, and we are now resolving over 60% of chats without human assistance, reducing handle times from twenty-three minutes to just five. Another notable milestone this quarter was the launch of Olive, our new AI culinary and shopping companion for the Williams-Sonoma brand. Olive helps customers plan, cook, and shop with confidence, combining our culinary authority with cutting-edge technology to create a differentiated experience. What makes Williams-Sonoma, Inc. unique is how AI can amplify our differentiated foundation with our proprietary data, our vertical integration from design to delivery, our multichannel engagement, and our expertise in home design in the culinary space. Our strong balance sheet coupled with our tech capabilities allows us to apply AI in ways that can drive real scalable impact for our business that others cannot. Looking ahead, we see opportunities to drive down costs and drive up sales with AI, and our early results are reinforcing that confidence. We're using AI to enhance what we do best, guiding customers through shopping and design decisions. Additionally, AI is driving improvements in productivity and empowering associates with tools to amplify their creativity and expertise. Now I'd like to update you on tariffs. Since we last spoke, there have been notable changes in tariffs, such as a new tariff on some furniture, including imported upholstery, kitchen cabinets, and bath vanities. Now, the 20% additional China tariff is down from 30%. Net-net, these changes are a push to our current estimated impact. As we look forward to the future, predictability in the tariff environment and a reduction in the India tariff would certainly be a positive for us. In the meantime, we continue to be actively and aggressively mitigating what we can with our previously discussed six-point plan. To remind you, first, we are obtaining cost concessions from our vendors. Second, we are resourcing goods to get the best cost for our customers. Third, we're identifying further supply chain efficiency. Fourth, we are controlling costs. Fifth, we are expanding our Made in The USA assortment production and partnerships, and last, we are taking select price increases with a focus on maintaining competitive pricing. Now let's review our brands. Pottery Barn ran a positive 1.3% comp in Q3. We are pleased with the improvement we saw in large ticket items, including furniture, upholstery, and lighting. Our Pottery Barn stores continued to outperform, led by our standout design crew services and our increased Take It Home Today assortment. Our strategy of focusing on improving retail inventory availability, refreshing product assortments, and enhancing design services is working. We have opened six beautiful new remodeled or repositioned Pottery Barn stores so far this year, with three more to come in Q4. Finally, across the brand, we continue a major change that we have made all year, which is to substantially reduce promotions in Pottery Barn. Now I'd like to talk to you about our Pottery Barn children's business, which ran a 4.4% comp in Q3. We saw acceleration in furniture, fueled by successful new product launches, continued growth in collaborations, and back-to-school and dorm was a particular highlight in the quarter. Laura Alber: In fact, back-to-school delivered double-digit growth, an acceleration from Q2. Our brands have become a destination for high-quality study solutions, durable backpacks, and on-trend dorm decor. Additionally, our enhanced dorm design tools and pick-up near campus options have been important for gaining share in a very fragmented market. Now let's review West Elm. West Elm ran a positive 3.3% comp in Q3. We continue to make progress against the brand's four key pillars: product, brand heat, channel excellence, and operational efficiencies. Throughout the year, West Elm has brought in new successful collections in both furniture and non-furniture where the brand was previously underdeveloped. West Elm has significantly shifted the composition of their sales towards new products. The cumulative effect of new introductions since the fall of last year continues to produce results. Retail in West Elm was also a highlight due to improved in-stocks and more new furniture and more new fabrics displayed on the retail floor. We've opened two beautiful new remodeled or repositioned West Elm stores so far this year, with one more to come in Q4. To remind everyone, we have 119 stores in West Elm, and based on results, we are looking forward to returning to retail unit growth in this brand. As you can hear, we are quite excited by the momentum at West Elm. Now let's review the Williams-Sonoma brand, which continues to fire on all fronts and ran a positive 7.3% comp in Q3. Williams-Sonoma remains focused on premium quality products that are expertly crafted, combining style and functionality. In Q3, we celebrated many successful culinary stories, from the food and flavors of Spain to authentic Indian flavors through a collaboration with Palak Patel, founder of the Chutney Life. We also recently launched a wicked collection featuring a limited edition Le Creuset Dutch oven inspired by Elphaba and Glinda. As we continue to connect our customers to the world's best chefs and products, we are seeing great traction with in-store events. Across the country, we hosted 42 in-store book signing events in Q3. We welcomed the fans of celebrities and celebrity chefs like Neil Patrick Harris, Dave Burkah, and Melissa King into our stores for amazing cooking demos and cookbook signings. Finally, we've opened six beautiful new remodeled or repositioned Williams-Sonoma stores so far this year, with two more to come in Q4. Now I'd like to update you on B2B, which grew 9% in Q3, with both trade and contract delivering strong comps. Leveraging our design expertise and commercial-grade product assortment, we've built a strong and growing client base across multiple industries. Our B2B offering remains a powerful differentiator, and we are seeing continued momentum. Our biggest success story in Q3 was an increase in commercial workspace wins, including projects with Google, WeWork, TurboTax, and PayPal. Q4 brings the ramp-up of our growing corporate gifting program, including our leading assortment of quality giftables that can be customized with logos and company branding. Jeff Howie: We're also a destination for seasonal favorites that make the perfect client and employee holiday gift. If any of you need help. Now I'd like to update you on our emerging brands. With our proven ability to incubate and scale brands in-house, we are confident in the continued growth of our concepts and their ability to deliver profitability to our results. Rejuvenation delivered strong double-digit comps in the quarter, continuing an upward trajectory fueled by product innovation and category expansion. Our high-quality product offer and proprietary designs are resonating with customers. Both channels are performing well, and we continue to open new retail locations to drive brand awareness. This quarter, we expanded our Rejuvenation store count to 13, with the opening of two new storefronts, one in Nashville and one in Salt Lake City. The brand also saw strong performance from its first-ever lighting collaboration. Mark and Graham delivered its best Q3 in brand history, driven by successful new categories M and G Kids, and Bark and Graham, as well as continued growth in personalized corporate gifting. As we head into the peak gifting season, the brand is well-positioned with thoughtful, personalized gifts for all occasions. I'm also excited to talk about our newest brand, Green Row, which delivered strong growth this quarter. In Q3, we launched the largest holiday collection to date with handcrafted decor and gifts made from upcycled and natural materials. The brand's colorful and unique products have had a great response, and the product line is incredibly beautiful in person. Therefore, we believe retail stores are the next leg of growth at Green Row and are looking to test a few store locations as soon as possible. Finally, I'd like to share one highlight in our global business. In the UK, we broadened our brand presence to launch a Pottery Barn online and the opening of a pop-up store in our West Elm Tottenham Court Road in London. So far, we're quite pleased with the performance of Pottery Barn in this new market. In summary, we're pleased with our execution and continued outperformance in Q3, marked by accelerating positive comps and strong profitability. Across the company, we remain dedicated to enhancing our channel experiences and strengthening our brand. Each and every day, we prioritize innovation, product design, and exceptional customer service. These are the qualities that set us apart in a fragmented industry and position us to capture additional market share. We see tremendous opportunity to continue to lead our industry as we execute on our vision to own the home and the places where our customers work, stay, and play. As we enter the final quarter of the year, we're filled with optimism for a strong finish. This holiday season, we're ready to showcase our best across our stores and online. From all of us, we wish you and your family a joyful Thanksgiving next week and a happy holiday season. Before I hand things over to Jeff, I want to take another minute to express our thanks to our team, our vendors, and all of our partners for their ongoing dedication and contribution to our company's success. We appreciate everything they do. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail. Jeff Howie: Thank you, Laura. And good morning, everyone. Our results this quarter reflect Williams-Sonoma, Inc.'s competitive advantages in the home furnishings industry, including the following: the strength of our multi-brand portfolio across different categories, aesthetics, and price points; our size and scale providing the ability to drive market share gains as we maximize white space opportunities; the competitive advantage of our multichannel platform serving customers where they choose to shop, online, in-store, or business-to-business; our focus on customer service and full-price selling creating efficiency and cost savings across our supply chain; and finally, the power of our operating model to deliver highly profitable earnings. Our headlines for this quarter demonstrate these competitive advantages. We delivered positive comps for the fourth straight quarter. Furniture and non-furniture categories both ran positive comps, reflecting strength across all categories of our offering. White space opportunities, such as dorm, West Elm Kids, and Rejuvenation, grew double digits. Retail, e-commerce, and business-to-business all drove positive comps. Our supply chain team achieved best-ever results across nearly all customer service metrics while simultaneously improving efficiency and reducing costs. Despite the headwinds from tariffs, we drove operating margin expansion of 10 basis points to 17% and EPS growth of 5% to $1.96 per share. Our results this quarter would not be possible without the team we have at Williams-Sonoma, Inc. I'd like to thank our talented, dedicated team for delivering these outstanding results. Jeff Howie: Now, let's dive into the numbers. I'll start with our Q3 results and then update guidance for fiscal year 2025. Q3 net revenue finished at $1.88 billion for a positive 4% comp. All brands delivered positive comps, driven by positive comps in both our furniture and non-furniture categories. We gained market share in the quarter, even as we increased our penetration of full-price selling. From a channel perspective, both channels delivered positive comps, with retail up 8.5% comp and e-commerce up 1.9% comp. Moving down the income statement, gross margin exceeded our expectations, coming in at 46.1%, seventy basis points higher than last year. Higher merchandise margins and supply chain efficiencies drove this gross margin improvement, offset by slightly higher occupancy costs. Merchandise margins delivered 60 basis points of our gross margin improvement, exceeding our expectations. Three factors contributed to this improvement in merchandise margins. First, the impact from tariffs is taking longer than anticipated to flow through to our gross margin. This is due to the delayed effective dates of the tariffs and our aggressive front-loading of inventory before tariff effective dates. Jeff Howie: Second, we are seeing margin upside from our six-point tariff mitigation plan, including price increases as well as strong consumer response to our full-price product offering. Finally, lower inbound transportation costs are helping offset tariff costs. Supply chain efficiencies added 30 basis points to our gross margin. Our focus on customer service and in-stock ready-to-sell inventory is delivering tangible margin improvement from lower accommodations, damages, replacements, and out-of-market shipping expense. Occupancy costs were up 5.9% and were 20 basis points higher year over year. This was because of our retail outperformance and the higher occupancy costs in that channel. To recap, our gross margin results this quarter exceeded our expectations. Our tariff mitigation efforts more than offset the headwinds from tariffs in the third quarter. Turning now to SG&A, our Q3 SG&A ran at 29.1% of revenues, 60 basis points higher than last year. Employment expense deleveraged 50 basis points due to higher incentive compensation from our strong results year to date. We continue to manage variable employment costs across our stores, distribution centers, and customer care centers in line with top-line trends. Advertising expenses were 20 basis points higher year over year. Our in-house marketing team continues to test and optimize into different levels of spend. During the quarter, we increased our investment in digital advertising. After testing, and proprietary in-house analytics models indicated we could scale efficiently. The higher spend drove an acceleration in year-over-year site traffic and improved revenue per visit. Our in-house marketing team's ability to test, scale, and optimize across our portfolio of brands is a competitive advantage in the home furnishings industry. Finally, general expenses leveraged 10 basis points. On the bottom line, our earnings exceeded our expectations. Despite the tariff headwinds, our operating margin of 17% was 10 basis points above last year. Diluted earnings per share grew 5% year over year to $1.96. On the balance sheet, we ended the quarter with a cash balance of $885 million with no outstanding debt. We generated $316 million in operating cash flow during the quarter and invested $68 million in capital expenditures supporting our long-term growth. During the quarter, we returned $347 million to our shareholders. We did this through $267 million in stock repurchases and $80 million in dividends. Merchandise inventories stood at $1.5 billion, up 9.6% to last year. Our inventory includes $48 million of incremental tariff costs recorded in inventory as well as $30 million of a strategic pull forward of receipts and lower tariff rates than in effect today. Without this incremental $78 million, our inventory level would be in line with our sales trend. Jeff Howie: Overall, our inventory level and composition are well-positioned to support our upcoming holiday season. Summing up our Q3, we're proud to have delivered strong results even as we navigated a challenging tariff environment and historically low housing turnover. Now let's turn to our guidance for fiscal year 2025. First, some housekeeping. In 2024, we recorded a $49 million out-of-period adjustment related to prior year's freight accrual. This benefited fiscal year 2024 operating margin results by approximately 70 basis points. Our guidance for fiscal year 2025 uses our fiscal year 2024 results without the out-of-period adjustment as a comparable basis. Additionally, fiscal year 2024 was a fifty-three-week year for Williams-Sonoma, Inc. In fiscal year 2025, we will report comps on a fifty-two-week versus fifty-two-week comparable basis. All other year-over-year compares will be fifty-two weeks versus fifty-three weeks. On full-year 2024 results, the additional week contributed 150 basis points to revenue growth and 20 basis points to operating margin. The discrete impact of the additional week on just Q4 2024 was five to ten basis points to revenue growth and 60 basis points to operating margin. Jeff Howie: Now our guidance. Given our strong Q3 results and our outlook for Q4, we are updating our fiscal year 2025 guidance. On the top line, we are reiterating our fiscal year 2025 net revenue guidance. We expect full-year 2025 comps to be in the range of positive 2% to positive 5%, with total net revenues in the range of positive 0.5% to positive 3.5% due to the fifty-third-week impact from last year. Our guidance continues to assume no meaningful changes in the macroeconomic environment, interest rates, or housing turnover. Our guide reflects the continued strength in our business, strong customer response to our product lineup, and continued traction across our growth initiatives. On the bottom line, we are raising our full-year operating margin guidance by forty basis points to a range of 17.8% to 18.1%. This means that despite the tariff headwinds, we are now guiding the midpoint of our fiscal year 2025 operating margin to be approximately 20 basis points above last year when excluding the fifty-third-week impact. Our higher operating margin guide reflects both the strong results we have delivered year to date and the expectation that tariffs will have a greater impact on our margins in Q4. Our updated guidance reflects all the tariffs in place as of this call. This includes the new Section 232 tariffs on furniture, the revised 20% additional China tariffs, the 50% India tariff, the 20% Vietnam tariff, and an average 18% tariff on the rest of the world, as well as the 50% steel and aluminum tariffs, and the 50% copper tariff. In fact, our incremental tariff rate has more than doubled from 14% earlier this year to 29% today, inclusive of all the tariffs I just mentioned. We believe the strength of our operating model combined with the six-point mitigation plan Laura outlined enables us to mitigate a large portion of these tariffs, which is embedded in our guidance. It's important to note the tariff policy has been volatile and subject to multiple revisions. It's hard to say where tariffs will ultimately land and what impact they will have on our business. Our guidance reflects our best estimates of the impact based upon the tariffs in place as of this call. Also today, we are providing some further inputs for modeling purposes. We now expect our full-year interest income to be approximately $35 million and our full-year effective tax rate to be approximately 26%. Turning now to capital allocation. Our plans for fiscal year 2025 continue to prioritize funding our business operations and investing in long-term growth. We expect to spend between $250 million and $275 million on capital expenditures in fiscal year 2025. We are investing 85% of this capital spend in our e-commerce channel, retail optimization, and supply chain efficiency. We remain committed to returning excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, we will continue to pay our quarterly dividend of $0.66 per share, which is a 16% increase year over year. We are proud to say that fiscal year 2025 is the sixteenth consecutive year of increased dividend payouts. For share repurchases, we announced today that our Board of Directors approved an additional $1 billion share repurchase authorization, bringing our total authorization to approximately $1.6 billion. We remain committed to opportunistically repurchasing our stock to provide returns to our shareholders. As we look forward to 2026, we will balance our long-term growth potential with the tariff and macroeconomic landscape, and we will provide guidance in March. As we look further into the future beyond 2026, we are reiterating our long-term guidance of mid to high single-digit revenue growth with operating margins in the mid to high teens. Wrapping up Laura's and my comments, we delivered another quarter of strong results despite the headwinds from tariff policy and historically low housing turnover. Our focus remains on our three key priorities: returning to growth, elevating our world-class customer service, and driving earnings. We are confident we will continue to outperform our peers and deliver shareholder growth for these five reasons: our ability to gain market share in the fragmented home furnishings industry, the strength of our in-house proprietary design, the competitive advantage of our digital-first but not digital-only channel strategy, the ongoing strength of our growth initiatives, and the resilience of our fortress balance sheet. With that, I'll open the call for questions. Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Max Rakhlenko from TD Cowen. Your line is open. Max Rakhlenko: Great. Thanks a lot and congrats on the nice quarter. So first, can you just discuss the elasticity that you're seeing in the business as you selectively increase prices? And how we should think about the impact to comps, from transactions versus ticket in 3Q? Laura Alber: Thanks, Zach. Good morning. We look at prices constantly across our brands, across categories, and with our competition. And, you know, we sell a wide range of products, so there's not one quick answer to elasticity. Because in some, there's room to take up prices. In other cases, you need to take down prices based on what the market is doing. This is why we're so focused on innovation and bringing new innovative and exclusive products to market because that gives us better pricing power. Also, I would say that pricing is not just about the product itself, but also the service and the experience. We have been really, really focused, as you know, on improving our service, which has been a huge driver of our op margin, which I'm sure we'll talk a lot about today. But that's a big deal, especially if you come up against the holiday season. It's a big deal for customers deciding where to buy their gifts, especially large ticket items. They want to buy gifts from people they trust, they can return things to, and they're going to stand behind their product quality. They can get instructions about how to use, you know, that expensive espresso machine. So, you know, it's not just one metric, and it's not just one category. And, you know, it's going to be different depending on the product you asked me about. Max Rakhlenko: Got it. Thanks a lot, Laura. And then, Jeff, you noted that it's taken longer for tariffs to flow through. Just how should we consider the impacts of tariffs over the next several quarters as it does sound like 4Q will see a pickup? And then just any guideposts on modeling for the next several quarters? Jeff Howie: Yeah. Good morning, Matt. Thanks. Yes, let me explain why the tariffs are taking longer to flow through. I think it's important to unpack that. And first, it's really due to the delayed effective dates. For example, the August 7 reciprocal tariff, which applies in most countries like China and Vietnam, etcetera, had an exception for goods that were on the water that had to be received before October 5. Another example is with the India tariffs that were effective on August 27, there was an exception for goods in the water to be received before September 17. So this means that these tariffs will not start being applied to new receipts until mid to late third quarter. And then on top of that, we aggressively front-loaded receipts to bring in inventory at lower tariff rates than are in effect today. So the combination of these two really advantaged us in Q3. As we look to Q4, we've certainly said that the tariffs will have a larger impact upon our margin, and that is embedded in our guidance. As we look beyond Q4, it's a little early to talk about '26. There is a lot that could change between now and then, especially with the tariff landscape. So we'll save that conversation for March. Operator: Your next question comes from the line of Zach Fadem from Wells Fargo. Your line is open. Zach Fadem: Good morning. Could we start with your take on broader category performance from Q2 to Q3 and whether you saw underlying improvement there? And then just curious, stepping back, how you would frame the improvement we've seen in furnishings in your category relative to some of the broader macro and pressures that we've seen in home improvement and other bigger ticket categories? Laura Alber: Thanks, Zach. We're really pleased with our continuing improvement across quarters and brands, and in particular, the West Elm increase in comps is really exciting for us to see because we expected it to happen. And there's nothing more fulfilling when you see a strategy come to fruition. And I still think there's a lot of room left to go in West Elm as they build out certain categories and the seasonal assortments. We've been continuing to improve our in-store experiences, and that's been really helping. But in terms of the broader merchandise categories across brands, we have been aware, as everyone is, that the housing market has not recovered. And that is really most correlated with furniture. And to be able to improve our furniture comps without a significant improvement in housing is a really strong sign. We love that because a furniture collection that we introduced in the season this year, we can build upon for next year with new piece types and also better inventory stocking positions. The continuation of our furniture strength is very important to the short term and the longer term. In the holiday seasons, the categories that are exciting. We saw storm pick up from Q2 to Q3. Back to school, you know, is the broader category for that. It was a strong season and really, really a good season for us. The Halloween product categories were strong. Autumnal and Thanksgiving. Also, you know, we're not done with Thanksgiving yet, obviously, but we're close. So we've been pleased with our results there. It's too early to comment about holiday. We're actually on the call a week earlier than we were last year. So for those wondering, those of you who are wondering about the lack of comments there, it's just a little bit too early to comment. But based on what we've seen with the other seasonal holidays, we can see that that's a competitive advantage for us. You know, there's not many other people out there that have the assortment that allows customers to really decorate and entertain for the holidays, and especially at this time of year, it's a real strength of the traffic driver for us. Operator: Your next question comes from the line of Cristina Fernandez from Telsey Advisory Group. Your line is open. Cristina Fernandez: Hi, good morning. So I want to follow up a little bit on that last comment on holiday. If you look at the implied Q4 revenue guidance, it's pretty wide. So could you comment on the low end versus high end and your ability to continue this comp trend as you face a more difficult year-over-year comparison? Laura Alber: Thank you, Cristina. Holiday is the last season, and then it includes January. We are really focused on very price solid. This has been an important part of our margin profile all year and the improvements that you've seen. Amazingly, we've had great success in our margin improvement even with the tariffs on top of everything. As we go into the holiday season, we continue to have opportunities from a year-over-year perspective in pulling back on promotions. Jeff Howie: We're focused on right price selling, and hope to have fewer promotions than last year. Hence the wide range of comp performance. That's one piece of it. The second is when you look at the multiyear numbers, we're mindful of our strong holiday last year. Operator: Your next question comes from the line of Peter Benedict from Baird. Your line is open. Peter Benedict: Hey guys. Thanks for taking the question. I guess two, one would be the market seems to be really concerned about how you're going to be able to digest these tariffs as they ultimately come through. Despite your ability to do so to date. I think expectations next year for operating margins to be lower in the first half of the year. But maybe Jeff, I'm not asking for specific guidance, but just how should we think about the ability of the business to just even maintain operating margins in the face of what you know about tariffs as they sit today. That's my first question. And then my second question would be around unit growth. Laura, it sounded like maybe a little bit more of an offensive posture. There, particularly around West Elm. We know that in aggregate, your units have been kind of coming down. Are you signaling a change there? Should we be thinking about I'm just thinking about the magnitude of unit growth we might expect as we look out on the horizon. Thank you. Jeff Howie: Good morning, Peter. So where is the operating margin going? That's a great question. But if we look beyond our current guidance, that's not really a question we're going to answer today. It's too early to start discussing 2026 guidance. Our focus is on the holiday season delivering Q4. The real reason here is the tariff landscape has been incredibly volatile. Just look at what's happened over the past several quarters. Every quarter, there's been new tariffs, repeal tariffs, everything is changing. There's a lot of uncertainty on this front. I would point out that India is one of our largest sources of goods, and where that tariff is going, which is currently at 50%, is an open question. We also have the Supreme Court decision on I.E. EPA tariffs pending. We'll see where that goes. So it's a little hard to understand beyond our current guidance and beyond this year in Q4 where the tariff landscape is going to impact us. We believe that our six-point mitigation plan that Laura and I have been articulating all year combined with the power of our operating model, will allow us to offset a large portion of the tariffs. But the ultimate amount depends upon where the tariffs ultimately land. What we're really focused on is delivering the current quarter, and everything we know about our ability to offset the current tariffs is embedded within our guidance. In terms of your second question, Peter, where is unit growth going? Look, we've been saying all along that we have done an incredible job, and I want to complement our entire organization regarding our retail repositioning strategy. There's been multiple legs of the strategy. There's been closing underperforming stores, which I think everyone knows we've closed about 17% of our stores since 2019. About repositioning stores, from some of the tired indoor malls to more vibrant lifestyle centers. It's also been about opening new stores. We see opportunity for new store growth, particularly in the West Elm brand, with Rejuvenation, with Greenrow potentially. There's a lot of opportunity for us to continue to grow stores. In terms of where overall store count growth is going, as we've been saying all year, it will be mid-single-digit closures this year. I think we're not necessarily guiding 26%, but I don't think we'll see a substantial change in the overall store count as we look towards 2026. There's still more room to go on our repositioning strategy, but there's also white space opportunity to infill, and there's some great new locations that we're working on that will come online in 2026 and in 2027. Operator: Your next question comes from the line of Christopher Horvers from JPMorgan. Your line is open. Christopher Horvers: Thanks. Good morning. So two quick ones. So I guess playing devil's advocate on the compare in the fourth quarter, Laura, furniture pull forwards behind you, there's a lot of momentum around self-help initiatives and obviously there's a tick of pricing coming through here. So you think about where we are in the cycle particularly with housing not helpful you know, why couldn't the growth rate just stay at the growth rate considering where we are? And then a quick one on gross margin, understanding there were some shifts on timing, but asking the question another way, did the drivers in terms of the fourth quarter in terms of the expected tariff headwind versus the expected benefit from the mitigation strategies? Did you change those at all in your outlook? Thanks very much. Laura Alber: Yeah. Hey. Go forward. First, I don't want to see that. I don't see any reason to believe we've seen pull forward of anything for that matter. We absolutely could be at the same cost, if not higher. We have a wide range. I was just explaining the differences of why you know, you might look at it and say it's a little bit lower than where you've been. It's very important that, you know, we don't play the promotional game. A key aspect of our strategy. At the same time, we're going to have great deals for Black Friday. We have great deals right now for early Black Friday. We bought into them. We have vendor partnerships on them. But we're not going to have as much. We hope we're not going to have as many needs to promote as we did last year. That's the only hesitation on the comp side. In terms of the tariff impact in Q4, it's sizably more than Q4 because the way that the cost flows through every single quarter. We did a fantastic job. Great success with everything planned in Q3 and throughout the year, and we will continue to do that. In fact, you know, it's amazing to see new opportunities that we're finding in supply chain. Supply chain has been just a tremendous positive this year in delivering up margins. What's great about it, as you know, is it means the customer is getting their product delivered more smoothly and on time and without damage. That's all good for the brand. It's fantastic for the P&L on the op margin side and the supply chain savings. There's still room, you know, if you look at Q4, there's more to go there. We're really optimistic about our ACDC, which is our new PC that came up last year and honestly, we're doing better than we have done with that, and that could be that could really help us, especially because, you know, the calendar this year for Christmas, similar to last year, pretty tight. So we want to be able to ship it late and ship perfectly and not disappoint anyone. That's why people come to us and shop online later with us like they do Amazon and others because they trust us to deliver before Christmas. There's a lot of really good things happening, but in terms of the impact of tariffs, you know, please don't get ahead of us on Q4. In terms of the margin. Because the tariffs are going to have a greater impact as you can see in our guidance and the implied Q4 guidance, than they did in Q3. If you look at our op margin ex-tariff, it's expanding. For all those that are, you know, worried about this, just realize that this goes into the base and we're done with it and we move forward. It's about outperforming our competition and continuing to deliver for our shareholders and most importantly, for our customers. Getting them incredibly beautiful, well-designed, high-quality products at the best price in the market. Operator: Your next question comes from the line of Jonathan Matuszewski from Jefferies. Your line is open. Jonathan Matuszewski: Great. Good morning. I had one question, one follow-up. The first question was just on the consumer. You mentioned a better response to full-price selling. It seems like what you planned for. So just from like a strategy perspective here, how does that minimal elasticity kind of inform your customer targeting efforts going forward? Is what you're seeing giving you more confidence to target a higher-end consumer, a higher-income consumer more in the future than in the past? Are there strategies in place to do that? That's my first question. Laura Alber: That's a great question. You know, we're lucky where we sit. But we love all our customers. So we're going to give them the best price. You know, if it's the first apartment, first baby, or just their fifth house. We do see when we look at our two tax toes owning a home, that we haven't covered the real super high end at scale yet. It's not surprising to me that the origination is doing so well. Know, why we have this great growth? It's expensive. It's absolutely gorgeous. High-quality product, I hope that you've all visited a store, bought products, or seen it in someone's house because when you see it, you understand why you're really growing that business and why we believe so strongly it's their next billion-dollar brand. That sits at the high end. Green Brook sits at the high end. We haven't talked about Alexis Dining. But we're seeing that it's a new aesthetic. It's very, very original. That is not in the marketplace and it is entirely green product and people care about that. At least that customer cares about that. And so that's at the highest. We see that we can have retail stores in that brand, which tells me it's bigger than you might think. Then there's Lance on the home. Which we continue to see as an opportunity for us into the future. But don't, you know, mistake the importance of us also covering, you know, the upper middle customer, the Pottery Barn, the West Elm, and making sure that also those brands are so appealing people trade into them. You know, if I can decorate your house, more beautifully, and more affordably than the high end wouldn't you come to us? By the way, we'll do the whole thing for you. We'll set it up. I think you'll see that we can do it for a fraction of the price of what other people do and have it be super interesting and gorgeous. So we're going after all those pieces. There's opportunity right across that tic-tac-toe bar from what we define as our value customer, which is different than the market all the way to the high-end consumer. Operator: Your next question comes from a line of Simeon Gutman from Morgan Stanley. Your line is open. Simeon Gutman: Hey, Laura. Hey, Jeff. Can I ask on tariffs again? The six-point plan seems to be beneficial and it sounds like the elasticities aren't awful. What's the chance that we get to the fourth quarter or even the first quarter as this inventory turns? That the impacts are going to be a lot more minimal than we think. I'm just trying to size up the conviction that we haven't seen anything yet. If some of this Aipa stuff gets, I don't know, invalidated, do you suspect that industry prices go back down? Or do you think retail prices, especially ones that have already changed, they're just going to hold? Laura Alber: First of all, I just want to say that the last thing I want you to think is that we're immune to tariffs. We've done a really great job of offsetting them so far, but the amount that they hit us in Q4 is slightly different than it was in Q3. So just that's why look at our guidance, please. Understand the impact. I even, you know, there's other tariffs. I'm not focused on that. We're focused on how we get the current tariff environment the greatest value to our consumers. Where should we be pricing things and where should we be moving things? So I wouldn't spend a lot of time worrying about that. I think it's just one more thing that could change and be kind of distracting in the short term. You know, there's also really good things that like, the India tariff is repealed that or reduced by half, that would be great for us. You know, all that is backdrop that affects the entire industry. Once it's in, and it's rolled through on a yearly basis, we're done with it. So I just as I said, just to recap, please don't think that we are moving Q4 and beyond. We will offset as much as we possibly can. We've done a better job than anything we even thought we could do. In offsetting all of it this quarter. But we have a few things going on in Q4 that I want to make sure Jeff reminds you in his prepared remarks. I'll let him remind you again about the fifty-third week. Jeff Howie: Yeah. I mean, a couple of other things that I want to highlight too, Simeon, is and as Laura said, don't get ahead of us there. We did have improvement in our merchandise margins, particularly against what we expected in Q3. But it goes back to the timing factor that I talked about I think, the first question. The effective dates were delayed for all the tariffs. As we get to Q4, there will be a substantially larger impact on our operating margin than there was in Q3. Our guidance embeds in there our best estimates of what that impact is, inclusive of all of our tariff mitigation efforts. So I can't say it any other way other than we do not expect a repeat of Q3 and Q4, which is what our guidance is. In terms of the fifty-third week, I do want to remind everyone that this is a fifty-third week for Williams. We are coming up against a fifty-third week for Williams-Sonoma, Inc. On the year, it was worth 150 basis points to revenue growth and 20 basis points to operating margin. But in Q4 where the fifty-third week comes into play, it had a pretty big impact at five to ten basis points of revenue growth and 60 basis points of operating margin growth. So just on that, the fifty-third week and those 60 basis points, we would be down normally on a year-over-year thirteen-week sorry, yeah, thirteen-week to thirteen-week comparison. Operator: Your next question comes from the line of Steven Zaccone from Citigroup. Your line is open. Steven Zaccone: Great. Good morning. Thanks very much for taking my question. I wanted to ask on Pottery Barn. Because the business decelerated a little bit there on the two-year stack. It's actually lagging the rest of the segments of the business. You referenced some pullback in promotions. Can you just talk about what's new this year? Because I think that's been a strategy for the past couple of years. When you think about the performance of that business, what are you seeing from a competitive perspective? Any sort of kind of trade down from the consumer and do you have some of these earlier questions around pricing, is there anything to call out from a pricing perspective competitive-wise? Laura Alber: Pottery Barn's Furniture has improved. We haven't seen that yet. Pottery Barn's Furniture, this year, especially on the multi-year stack, and that's been good to see. They did have more promotions to reduce out of their base than you might have expected. So we continue to work on that, and there's still opportunity. Operator: Your next question comes from the line of Chuck Grom from Gordon Haskett. Your line is open. Chuck Grom: Hey, thanks very much. Just Laura, just bigger picture, a lot of people have asked about tariffs. I want to ask a little bit about category growth and how you see sustainability moving into 2026? Probably speaking, a lot of your peers are doing better. Do you think that continues? And then one more near term, just cadence throughout the quarter. Some of your peers have had a lot of volatility. Anything you want to highlight for us? Anything you want to speak to so far in November? Thank you. Laura Alber: Yeah, you know, we don't talk about the month. Sunday is I do want to talk about excitement we have as we look forward. We have not seen a house in regard. Like the worst housing market in the last four years. And, you know, and that is a big deal. Now there's really not a lot of great finds, but it's getting better quickly. But there are some green shoots. I personally am very optimistic about housing next year. That'd be a big change for us if that happens because we know that when you move, you buy a lot. When you refresh your house, and we've been very good at getting the remodeler and the redecorator to come to us, but we're excited to be ready with a much more powerful furniture supply chain than we ever had before. When those sales come to us. We know that when that turns and you see upside again, it's a really big deal. Some people don't think you're going to be ready for it. But the things we've done to really improve our supply chain are so strategic. I believe and I've always believed that the person that owns the furniture network is the one who wins the whole thing. That is where we've been focused and continue to build and have all sorts of tech projects in play to make that happen. You can see it in our numbers this year. How much improvement year on year. I read through last year's script, and it's funny when you read it because we were talking about all the supply chain improvements then. I think if you'd ask me, I wouldn't expect it that we would have this much more. Yet we still have more, and that's what's exciting when you think about the power of our operating model, and it's a multi-brand, multi-channel company. Where this could go in the future as for insured coverage. Operator: Your next question comes from the line of Michael Lasser from UBS. Your line is open. Michael Lasser: Good morning. Thank you so much for taking my question. Laura, of the interpretations of some of your comments over the last hour is that Williams-Sonoma has gone through this significant change where it's reduced promotion, improved its profitability, while it's been able to drive consistent sales growth. Now it may be at the point at which it can no longer lower promotional activity without it having some impact on the sales. Is that the right interpretation of what has been said on this call? Second, was the magnitude of the benefit to your margin in the third quarter from selling older lower-cost inventory at new higher price equal to or greater than it might have been in the second quarter, such that we should think about these not repeating in 2026, understanding you're not providing any guidance on 2026 at this point. Thank you very much. Laura Alber: In terms of your first question, I mean, you took some liberty there going. I think, you know, what I'm saying is that key strategies for our company continue to work. Then a focus on innovative process design, high quality, high service, and a regular price business. Investing in our brands, investing in our tech staff, our supply chain, to deliver great operating margins. But I will remind you, our key, our first initiative this year was to return to growth. I kept joking. It's one, two, and three, return to growth. We are obsessed with where we can grow, what brands it is, which categories it is, and how we outperform. So do not mistake that that is where our head is and what we're driving towards. On the second question, I'll hand it to Jeff. Jeff Howie: Yeah, Michael. Honestly, I'm not tracking with you on the question because actually, margin expansion year over year in Q2 was 200 gross margin was 220 points. There's only 70 basis points in Q3. With the difference of course being the impact of the tariffs. So not sure I understood your question but there was a greater impact of the tariffs in Q3. While certainly, we have our mitigation efforts the tariff impact will increase sequentially quarter over quarter every year this year. As we said on the call, it will have an impact on us in Q4 in a much more substantial way than it did in prior quarters this year. Operator: Your next question, and this will be the final question, comes from the line of Oliver Wintermantel from Evercore ISI. Your line is open. Oliver Wintermantel: Thanks very much guys. Yes, I think the message on gross margin in 4Q came across. I just want to focus on SG&A. You guys have lowered general expenses for the last several quarters. Especially in 4Q, I think there was 80 basis points in incentive comp headwind and advertising was also up a headwind of 30 basis points in the fourth quarter. So maybe could you talk a little bit about SG&A moving parts into the fourth quarter, how you expect that to shake out? Thank you. Jeff Howie: Yes, Oliver. I mean, as you know, we don't guide to specific lines. We guide the top line and the bottom line. Because it gives us the flexibility to pull different levers as we see results come in. In Q3, our higher employment expense was really almost entirely attributable to higher incentive compensation due to our strong performance year to date. Then as I explained in our prepared remarks, advertising deleveraged about 20 basis points because we saw some opportunities. During Q3 to spend some additional advertising in the digital space. One of our competitive advantages is our in-house marketing team that has the ability across our portfolio of brands to test, scale, and optimize our spend. They saw some opportunity to spend in Q3 that gave us great returns. Drove incremental traffic to the web and higher revenue per visit, and so we leaned into that. As we think about Q4, we don't guide the specific lines, but our approach is always the same as we're looking to control our SG&A, but where we see opportunities are going to give us a good return on investment, we will, of course, lean into those. But it all depends upon the overall macro. Laura Alber: I thought that it might be worth studying on a minute even though we're a couple of minutes past the hour. I'm talking about our SG&A reductions due to our AI initiatives. Because, you know, if you're joking earlier that we have a fixed point mitigation plan for tariffs, but I think maybe we should launch our seventh as AI because we're seeing some really exciting results both on the sales side and also on market time. Let me make a few comments about that before we close the call. Sameer Hassan: Sure. Thank you, Laura. Like Laura mentioned earlier, in Q3, we are seeing really, really impactful results. She shared a couple of the data points around our customer service automation, She shared our launch of Olive, our AI agent customer facing. If you haven't used that, I really encourage you to go on the Williams-Sonoma site. Today. It's super helpful for planning for the holidays and is driving sales, driving engagement, driving loyalty. It's really exciting. We're already just on the topic of SG&A, we're already seeing payroll costs where automation absorbs AI automation absorbs repeatable work. Reduced vendor costs when we streamline external spend, and we're also seeing the same tech grow the top line. In supply chain, we're cutting out-of-market shipments, improving routes, lowering damages replacements, trimming shipping costs, inventory, we're using AI to raise in-stock rates on key items, all the stuff supports conversion. It's driving down costs, but it's also driving the top line. Digital guided journeys, better content coverage, all of this is driving SG&A leverage, it's all of it's driving reduced costs, but it's also driving demand leverage, which is really exciting to see it impact both on the cost side as well as the top line side. So we really see this compounding benefit as we head into 2026. I'm really excited about the continued impact we're seeing from our roadmap. Operator: And we have reached the end of our question and session. I will now turn the call back over to Laura Alber for closing remarks. Laura Alber: Yes. Thank you all for joining us today. As I said earlier, wish you all a very happy Thanksgiving. With your families. Hopefully, you get a chance to stop by our stores and do some shopping. Look forward to talking to you in the New Year. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Dycom Industries, Inc. Third Quarter 2026 Results 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 would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ms. Callie Tommaso, Dycom's Vice President of Investor Relations and Corporate Communications. Please go ahead. Callie Tommaso: Thank you, operator, and good morning, everyone. Welcome to Dycom Industries, Inc.'s Third Quarter Fiscal 2026 Results Conference Call. Joining me today are Dan Peyovich, our President and Chief Executive Officer, and Drew DeFerrari, our Chief Financial Officer. Earlier this morning, we released our fiscal 2026 third quarter results, along with certain outlook information. We also announced a definitive agreement to acquire Power Solutions, a premier data center electrical contractor in the Mid-Atlantic. Both press releases and accompanying materials are available in the Investor Relations section of our website. These materials, which we will discuss during today's call, include forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our discussion and these statements reflect our expectations, assumptions, and beliefs regarding future events and are subject to risks and uncertainties that could cause actual results to differ materially. A detailed discussion of these risks and uncertainties is included in our filings with the SEC. Forward-looking statements are made as of today's date, and we undertake no obligation to update them. Additionally, we will reference certain non-GAAP financial measures during today's call. Explanations of these measures and reconciliations to their most directly comparable GAAP measures can be found in our press release and accompanying materials. With that, I will turn the call over to Dan Peyovich. Dan Peyovich: Good morning, everyone, and thank you for joining us. Today marks a pivotal moment for Dycom Industries, Inc. We are announcing both a record-setting third quarter that reinforces our leadership in telecommunications infrastructure and our agreement to acquire Power Solutions, which immediately positions Dycom Industries, Inc. at the heart of the explosive demand for digital and AI infrastructure. I will start by reviewing our third quarter results and then move to further discuss our pending acquisition. Our third quarter performance was exceptional. We delivered all-time record revenue of $1.45 billion, an increase of 14.1% compared to Q3 FY 2025. Adjusted EBITDA was $219 million, and EPS was $3.63, both setting new all-time highs. Adjusted EBITDA margin was 15.1%, a 169 basis point increase over the prior year, and our DSOs were 105 days, an improvement of fourteen days year over year. Our backlog was $8.2 billion, an all-time high with strong diversified bookings throughout the quarter. As a result of our strong performance, we are increasing the midpoint of our full-year revenue outlook, expecting revenue of $5.35 billion to $5.425 billion, representing a range of 13.8% to 15.4% total growth over the prior year. This outlook excludes any results from the pending acquisition, expected to close in our fiscal Q4, as the impact is dependent on the date of completion. Looking forward, telecommunications demand drivers have never been stronger. Fiber-to-home builds continue at a fever pitch and will further accelerate next year. The demand for fiber infrastructure to support data center growth continues to strengthen at an incredible rate. Our strong market position is validated by deepening engagement across our customer base. We are seeing robust activity from our long-standing traditional carrier partners, complemented by accelerating demand from the world's leading hyperscaler providers. We believe we are in the very early stages of a generational deployment of digital infrastructure, and we project that the construction of new outside plant data center networks will begin a significant ramp-up in calendar year 2026, leading to substantial growth throughout calendar 2027 and well into the future. Crucially, these are highly complex, large-scale builds that require specialized expertise. This complexity favors Dycom Industries, Inc., given our scale, national footprint, and sophisticated operational capabilities. We are exceptionally well-positioned to capitalize on what we estimate to be a $20 billion addressable market for outside plant data center network construction over the next five years. I want to emphasize that this significant $20 billion opportunity is separate and distinct from any potential opportunities related to our pending acquisition, which provides an even broader and more substantial foundation for our future growth. Our wireless work remains strong, with the current build programs going through calendar 2027, positioning us well for future equipment upgrades or densification. BEAD is close to becoming a reality, with revenue currently projected in Q2 of next fiscal year. Just yesterday, the NTIA announced it has approved final BEAD deployment plans for 15 states and three US territories, and one state, Louisiana, officially has access to its BEAD funding. NTIA approval is one of the last steps before states can start signing contracts and projects can get underway. $29.5 billion in total spending is expected from the states and territories based on preliminary subgrantee results, split between grants and subgrantee match amounts. Of that, $26 billion will be used to serve roughly two-thirds of total locations with fiber or HSC infrastructure, creating a large addressable market. And importantly, we are seeing the benefit of our positioning. We have already secured over half a billion dollars in verbal awards related to BEAD deployments, which is not yet reflected in our backlog. This speaks to our strong ability to capitalize on the significant spending on fiber and HSD networks over the next four-plus years. Lastly, underpinning it all, we continue to grow our service and maintenance business, which is a recurring and durable component of our annual revenue. Subsequent to the quarter, we executed additional service and maintenance agreements totaling over $500 million. While these agreements won't be in our backlog until next quarter, they demonstrate our ability to maintain our position as a service provider of choice while prioritizing profitable growth and shareholder return. Transitioning to our pending acquisition of Power Solutions, the telecommunications infrastructure space continues to evolve as hyperscalers and other large, data-driven technology companies drive the need for new and enhanced fiber networks to connect their data centers and data center campuses nationwide. These changes are creating new demand drivers around long-haul and middle-mile fiber networks and data center interconnects within campuses to address growing data usage, needed compute capacity, and the AI race. With these new demand drivers, we developed relationships with a new customer set: technology companies with significant CapEx commitments to meet their evolving needs. Analysts estimate that $6.7 trillion of CapEx will be cumulatively deployed in data center infrastructure globally from 2025 to 2030, including $100 billion for network infrastructure and $600 billion for labor. More than 40% of this spend will be deployed in the US, implying $240 billion of data center labor spent over the next five years alone. In a short time, we have extended our reach to capitalize on this, ultimately bringing fiber inside the fence and inside the data centers to the MeetMe room. Bringing Power Solutions into the Dycom Industries, Inc. family is the logical and critical next step. It enables us to immediately offer a comprehensive service that extends from the core network to the heart of the data hall, providing full electrical and low-voltage services throughout the data center. This is a significant milestone for Dycom Industries, Inc. that enhances our position and capability to address the fast-growing digital infrastructure market, extends our platform for long-term growth, and does so in a way that is immediately accretive to our financials. Power Solutions is one of the largest providers of mission-critical electrical infrastructure solutions for data centers and other vital industries in the Greater Washington DC, Maryland, and Virginia area. Referred to as the DMV, it constitutes the world's largest data center region. The acquisition will combine Power Solutions' leadership in electrical infrastructure with Dycom Industries, Inc.'s scale and expertise in fiber, putting us at the center of the powerful secular trends driving growth in digital infrastructure services and considerably enhancing our potential to generate meaningful long-term value creation for our customers and our shareholders. Let me briefly outline the transaction, and Drew will go into more detail. The total purchase price is $1.95 billion, consisting of approximately $293 million payable in Dycom common stock and the remainder of the consideration payable in cash, subject to customary closing and post-closing adjustments. We expect to close the transaction this fiscal year. The transaction is expected to be immediately accretive to our adjusted EBITDA margin and adjusted diluted EPS and improves free cash flow for the combined company. Our long-term fiscal disciplines are unchanged, and the combined business is anticipated to provide a clear path to delever to 2x net leverage in the next twelve to eighteen months. Power Solutions will further solidify Dycom Industries, Inc.'s long-term growth potential in four significant ways. First, it will expand our exposure to rapidly growing mission-critical data center demand by leveraging Power Solutions' deep expertise in electrical infrastructure for data center construction, which comprises over 90% of its revenue. This complements Dycom Industries, Inc.'s strong fiber network expertise and will enable us to capitalize on a substantial and critical infrastructure investment that is driving durable growth in the attractive DMV region and in the industry overall. Second, it will further diversify our services by adding Power Solutions' leading electrical contracting capabilities. Third, it will unlock significant opportunity to scale Power Solutions' operations and cross-sell services across digital infrastructure players, giving us the ability to expand our combined capabilities into additional targeted, high-growth regions and opportunities over time. And finally, it will add substantial skilled labor capacity, providing self-perform electrical contracting capabilities with a highly skilled workforce of over 2,800 employees, extending our capacity to execute large and complex projects. Now I'd like to take a moment to give you more color on Power Solutions. The company has established itself as one of the largest electrical contractors in the Greater DMV region. For more than twenty-five years, they have delivered high-quality execution and developed deep customer and end-user relationships. We share similar cultures. Like Dycom Industries, Inc., most of their operational leadership started their careers in the skilled trades, and their commitment to safety, quality, and operational excellence raises the bar with their customers. Their focus on and success in data center solutions is unique. As I mentioned, over 90% of their revenue year after year comes from data centers with repeat customers and end-users. They differentiate in their ability to scale and deliver the highest level of service in a highly complex, technical space. Power Solutions is a fantastic financial fit. They bring a track record of strong, profitable growth with an impressive 15% four-year revenue CAGR, and EBITDA margins consistently in the mid to high teens. With 2025 revenue expected to be approximately $1 billion, this is a high-quality, high-margin business that we expect to be immediately accretive to our performance. Power Solutions' current backlog is over $1 billion, solidifying their strong position in the DMV region. The DMV is the largest data center region in the world, representing 27% of total operational capacity in US markets today. The DMV is projected to capture 30% of US data center capacity currently under construction and planned, providing Dycom Industries, Inc. with substantial opportunities for growth in the world's fastest-growing data center region. In addition, data center infrastructure demand is poised for significant growth across the country, providing opportunities to further scale our enterprise. While AI-led demand for infrastructure CapEx is reaching all-time highs, it's important to recognize that data consumption has been rising annually for decades, and with it, the need for additional compute capacity, including new data centers and the digital infrastructure to connect them. Backed by persistent underlying drivers such as cloud migration, mobile usage, and the Internet of Things, this trend is projected to continue well into the next decade as industry participants predict non-AI-related data center construction will grow at a 16% CAGR through at least 2030. The expansion of Dycom Industries, Inc.'s business adds to our enterprise strength, furthering our relationships and expanding opportunities with the hyperscalers and other technology companies. Combining our vast telecommunications infrastructure services with Power Solutions' data center electrical expertise positions Dycom Industries, Inc. squarely in the center of the digital and AI infrastructure space. Finally, let's talk about execution. With the addition of Power Solutions' talented team of over 2,800 to our current team of over 16,100, we will have a combined highly skilled workforce of 19,000 people. This is a massive competitive differentiator that enables us to meet the growing needs across our collective customers. Dycom Industries, Inc.'s vast history of acquisitions means we've built a robust integration edge. The people, systems, and processes are already working to bring Power Solutions into our fold. Our time-tested approach preserves the culture, autonomy, and local leadership that make our acquired companies successful and applies Dycom Industries, Inc.'s scale, financial resources, and operational expertise to both deliver results and drive further growth opportunities. Let me close by saying that we have never been more excited about Dycom Industries, Inc.'s position and the opportunity set in front of us. Our diversified platform will be aligned to multiple attractive long-term growth vectors. We will benefit not only from the explosive demand for data center infrastructure and the fiber and electrical work that it requires but also see continued strong growth from our other telecommunications demand drivers. Our commitment to our telecommunications services and our carrier customers is unchanged and, in fact, is emboldened by our expanded platform with this transaction. Our strategy is clear, and we work every day to raise the bar for our customers and communities. We continue our focus on creating long-term value for our shareholders and providing long-term opportunities for our people. We are thrilled to add the Power Solutions brand to the Dycom Industries, Inc. family of companies and welcome their strong leadership and teammates. I'd like to thank all our Dycom Industries, Inc. team members for your commitment to delivering excellence every day as we pursue our vision to be the people connecting America. And now I'd like to turn the call over to Drew for a financial review and further details on the pending acquisition. Drew DeFerrari: Thanks, Dan, good morning, everyone. I echo the excitement about a record quarter and the pending acquisition of Power Solutions, which we expect to generate considerable long-term value for our shareholders. First, on the quarter, we are pleased that we outperformed the high end of our expectations for Q3, delivering solid top-line and adjusted EBITDA growth and margin expansion. Third-quarter total contract revenues of $1.452 billion grew 14.1% over Q3 of last year. Organic revenue grew 7.2%. Revenues were driven by continued execution of fiber-to-the-home programs, wireless activity, fiber infrastructure programs for hyperscalers, and maintenance and operations services. Adjusted EBITDA of $219.4 million increased 28.5% over Q3 '25, and we outperformed the high end of our expectations. Adjusted EBITDA was 15.1% of contract revenues, an increase of 169 basis points as a percentage of contract revenues over Q3 2025 as we performed well and continued to benefit from operating leverage. Net income was $106.4 million, and diluted EPS was $3.63 per share, also exceeding the high end of our expectations. We are pleased with the strength of our relationships and diversification across our customer base. AT&T and Lumen each exceeded 10% of total revenues for the quarter. AT&T revenue was $361.9 million, and Lumen revenue was $170.3 million. Customers exceeding 5% of total revenues for the quarter were BrightSpeed, Charter, Comcast, Frontier, and Verizon. Backlog at the end of Q3 was $8.22 billion, including $4.99 billion that is expected to be completed in the next twelve months. As Dan highlighted, after the end of the quarter, we executed additional service and maintenance agreements, both renewals of existing markets and expansion into new markets, that total over $500 million that will be reported in our Q4 backlog. Operating cash flows were strong at $220 million. The combined DSOs of accounts receivable and contract assets net improved to 105 days, a reduction of fourteen days over Q3 2025. We made great progress year over year, and strong cash flows remain a key focus area for the company. We are implementing a comprehensive ERP to upgrade and standardize our information technology systems. I am pleased to report that during Q3, we successfully completed the first phase of deployment across our business. We expect to complete additional phases during fiscal 2027, enabling further operational efficiencies and equipping our teams with the latest powerful technologies. We continue to observe strong demand across a diverse set of industry drivers, creating significant opportunities for our company. We have increased the midpoint of our revenue outlook for the year, and we expect our full-year fiscal 2026 revenue to range from $5.35 billion to $5.425 billion. Our outlook for Q4 reflects normal seasonal factors such as fewer available workdays due to the holidays, reduced daylight work hours, and winter weather conditions. For Q4, we expect contract revenues of $1.26 billion to $1.34 billion, adjusted EBITDA of $140 million to $155 million, and diluted EPS of $1.30 to $1.65 per share. Beginning in Q4, we expect to also report non-GAAP adjusted EPS, excluding the impact of intangible amortization expense. Non-GAAP adjusted EPS, excluding the after-tax impact of intangible amortization expense, is expected to range from $1.62 to $1.97 per share. Our outlook excludes any results from the pending acquisition and related financing. While we expect to close in our fiscal Q4, impacts are dependent on the timing of completion. Now moving to more detail on the pending acquisition. We are excited to bring Power Solutions into the Dycom Industries, Inc. family. The purchase price is $1.95 billion on a cash-free, debt-free basis and consists of approximately 1 million shares of Dycom common stock valued at approximately $293 million, and the remainder of the consideration is payable in cash, subject to customary closing and post-closing adjustments. We anticipate the transaction to close before the end of our fiscal year on January 31, 2026. The purchase price represents a multiple of approximately 9.7 times Power Solutions' trailing four quarters of adjusted EBITDA. The acquisition will be treated as an asset purchase for tax purposes and is expected to generate sizable tax-deductible intangible assets and goodwill. The estimated net present value of the future cash benefit of the tax amortization further reduces the implied multiple paid by over one time based on the trailing four quarters of adjusted EBITDA for an estimated net multiple of approximately 8.5 times. We believe the purchase price and related future tax benefits support meaningful value creation for our shareholders. We plan to fund the cash portion of the transaction with a mix of cash on hand, a committed $1 billion senior secured term loan A facility, and proceeds from a committed $700 million senior secured 364-day bridge loan facility. Pro forma net leverage is expected to be below three times at closing, and the free cash flow profile of the combined business is anticipated to provide a clear path to delever to approximately 2x net leverage in the next twelve to eighteen months, maintaining our financial flexibility for continued strategic growth. Total borrowings will be determined at closing, and the weighted average estimated interest rate is based on 6%. In the event we borrow and maintain outstanding the committed debt amount of $1.7 billion for the entirety of fiscal 2027, we estimate incremental cash interest expense of approximately $96 million and non-cash amortization of debt issuance cost of approximately $5 million for fiscal 2027. This transaction is directly aligned with Dycom Industries, Inc.'s capital allocation priorities. It deploys capital in a high-return enterprise that enhances our scale, capabilities, and exposure to rapidly growing data center demand. It supports disciplined capital allocation by acquiring a business with a strong balance sheet, bolsters free cash flow generation supporting continued high-return strategic investments, and extends Dycom Industries, Inc.'s long-standing customer partnerships, enabling comprehensive telecommunications and electrical infrastructure solutions. Power Solutions' annual revenue is expected to be approximately $1 billion for calendar 2025. The company's compounded annual revenue growth has been approximately 15% over the past four years, a trajectory that is expected to continue in calendar 2026. Total backlog for the company currently exceeds $1 billion, giving us confidence in their continued growth. The anticipated results of Power Solutions are expected to be immediately accretive to Dycom Industries, Inc.'s adjusted EBITDA margin and adjusted diluted EPS, excluding non-cash intangible amortization expense. Power Solutions has consistently delivered adjusted EBITDA margins in the mid to high teens, and we expect this level of profitability to be sustained in calendar 2026. We see opportunities for synergies over time, but we have not yet included any of these potential benefits in our outlook. As I mentioned earlier, the transaction is expected to generate sizable intangible assets that will be determined upon the closing of the transaction and amortized on an accelerated basis. Our preliminary estimate of non-cash amortization expense from the acquisition is approximately $185 million in fiscal 2027 and declines annually thereafter. Beginning in Q4, we expect to present non-GAAP adjusted EPS that will exclude intangible amortization expense. Our estimates of all of these expected results are preliminary and subject to change as we work to complete the transaction. The acquisition of Power Solutions positions Dycom Industries, Inc. for accelerated growth in digital and data center infrastructure services. We are honored to welcome Power Solutions employees to Dycom Industries, Inc., where together we will continue to be dedicated to serving customers and connecting America. This is a significant milestone for our company, and we are confident in our ability to execute our strategy as we seize the opportunities ahead. Operator, this concludes our prepared remarks. You may now open the call for questions. Operator: Thank you. The first question comes from the line of Frank Louthan with Raymond James and Associates. Your line is now open. Frank Louthan: Great. Thank you. Quickly, the fourteen-day improvement on the DSOs, is that a new normal there? Was something in the quarter that helped? And then looking forward, what do you think about the expansion of Power Solutions to Texas and other areas with some significant data center activity? What are your thoughts on kind of future growth plans for them with your scale? Thanks. Dan Peyovich: Good morning, Frank. As we talked about when we started the year, cash improvement was definitely a priority and something that we were focused on. And you've seen that improvement throughout quarter over quarter. Obviously, we're very pleased with the fourteen-day year-over-year improvement in DSOs. We've had significant efforts and strong disciplines that we've built in the business. We do feel good that we're in a much better place overall. It's not always going to be perfect, but we certainly like the range that we're in going forward. Shifting to Power Solutions, obviously, there's a lot to talk about there. A large part of this is really about adding a skilled workforce to what Dycom Industries, Inc. has today. Over the years, we've gotten closer and closer with the hyperscalers, closer and closer to the data centers. It was a couple of quarters ago we started talking about going inside the fence. This really is just that next natural step inside the fence, and now we're just crossing over the wall to bring skilled services to really meet the growing demands of the hyperscalers and the growing demands of data. I talked about it in the prepared remarks and just want to reiterate again, data consumption has been growing significantly for decades. That's nothing new. Data center growth has been nothing new for decades. That's continued. What we see around AI obviously is a huge influx and a huge inflection point, but there is this really built-in data center growth underneath it all. We see that on our side of the business with the telecommunications infrastructure, and we certainly see that on the power side as well. When you bring those together, and you are over that entirety of the skilled workforce, I would say it this way: the AI race runs straight through the skilled workforce. That's how we're positioning Dycom Industries, Inc. for our next ten years of growth, plus, and that's how we're positioning ourselves with our customers. Frank Louthan: Great. Thank you very much. Operator: Thank you. Our next question comes from the line of Sangita Jain with KeyBanc. Your line is now open. Sangita Jain: Great. Good morning. Thanks for taking my questions. So if I can ask one more on Power. Are there some anchor customers that Power has that you already have relationships with? And other opportunities will be new build, or is it more also retrofit O&M? Dan Peyovich: Primarily, they're contracted general contractors, so not customers that we have today. But the end users are very much aligned with the hyperscalers that we've moved inside the fence with and expanded capabilities and expanded what we're doing today. So certainly overlap in the end users. Pleased to get some customer diversification, of course, as well. A few things that are unique about Power Solutions. We've been looking at this space for some time. I think I've mentioned before, in my past career, I started on my first data center in 1998 and pretty much built them for over two decades. What you normally see with the electrical, whether it's electrical, mechanical, just a lot of these skilled workforces, is only going to be a portion and usually a much smaller portion. 25%, maybe 35% of their work is going to be data center specific. What really attracted us to Power Solutions, first and foremost, was the culture. This is a fantastic leadership team, many of whom came up through the trades, great cultural fit with Dycom Industries, Inc., talked about it being accretive across metrics. But importantly and uniquely, 90% of their revenue year over year has come from the data centers themselves. To your question, the majority of that is new data center builds, but they also do renewals as well. They go in and retrofit and upgrade data centers in addition to that. So we're excited about that concentration. They're also in the largest data center market in the world and certainly one of the largest electrical infrastructure providers in that market. It's projected to grow and really consume over 30% of the future growth in the US data centers. Positioned well for future growth, Sangita. Positioned well from how much data center work they do. And the scope and coverage across customers and across end users is also a positive. Sangita Jain: Great. And then can I ask one on BEAD? You said the NTIA approval was one of the last steps. What is the last step? And given that 15 states approved yesterday or the day before, like you mentioned, what is the likelihood that the revenue comes before fiscal second quarter for you guys? Dan Peyovich: So the last step is the actual funding that happens. And that did happen with Louisiana yesterday in the news. So exciting to see that progress. I think it affirms our Q2, and you heard in prepared remarks, you heard us talk about we have over half a billion verbal awards already. That number is increasing quite quickly, in fact. So we do feel good about starting to see revenue in Q2. Again, there is going to be a ramp to it. Not going to be all at once. Sangita Jain: Great. Thank you so much. Dan Peyovich: And expect to see awards, if not in this Q4, certainly in Q1. Operator: Thank you. Our next question comes from the line of Alex Waters with Bank of America. Your line is now open. Alex Waters: Hey, good morning, guys. Thanks so much for taking my question. Maybe just first off, Dan, you kind of hit on it in your prepared remarks, but with the $20 billion data center TAM that you guys gave, gosh, a couple of quarters ago, can you just talk about perhaps how additive this acquisition is to that? And then, secondly, just thinking about kind of the skilled labor force and synergies there between the existing Dycom Industries, Inc. labor base. Can you just talk about that too? Dan Peyovich: Happy to. All I said, there's been a lot of press from our customers that really reinforced the $20 billion addressable market that we talked about over the next five years. Specific to the outside plant, right? That's inside the fence work. It's long haul. It's middle mile. Completely separate and distinct from what we will see with Power Solutions joining the Dycom Industries, Inc. family. So that $20 billion we really believe is a conservative number and continues to grow, and we didn't mention it specifically because we had a lot to talk about. But we did have additional awards this quarter in that space as well. So excited there. This acquisition and the opportunity with Power Solutions, it just expands that in multiple ways. One, we have cross-sell opportunities with the hyperscalers. We can have a different level of conversation on how ultimately we need to meet the needs that they have, which everybody knows are significant. And really, in the most conservative estimates of what the AI race could yield, even in the most conservative estimates, we're talking about massive infrastructure. I would say that the companies that are going to succeed in the AI race are the ones that are positioned to deliver on that infrastructure, and we've set Dycom Industries, Inc. squarely in the center of that going forward. So the $20 billion, if you bring it into the data center side, so I mentioned they're in the largest market in the world. They're certainly the largest market in the US. Over 27% of total data center capacity right now is in the DMV. And the growth prospects in front of that are significant. There's a lot of different numbers out there about what that addressable market could be, Alex. I think the one that quoted in my prepared remarks is the one that we like. $240 billion on labor in the next five years in the US alone to meet that infrastructure needs. Obviously, that's a significant number. Again, that's going to be heavily weighted to the DMV market. So we think we're set up well. So the skilled workforce, again, this is what attracts us to Power Solutions, and this is where we differentiate overall. We have one of the largest distributed skilled workforces in the country. We're across all 50 states, meeting the needs across numerous customers, certainly our carrier customers, certainly the hyperscaler customers. This adds to that collective. Now, there's certainly a different skill set, right? They're going to come in and do the electrical components inside. But ultimately, when mobilizing a skilled workforce of this size to do projects of this kind of complexity and this kind of magnitude, how you manage that and how you do it are very, very similar. So we feel extremely comfortable about the match. We feel extremely comfortable about the discipline and the strategy that we have about continuing to build that workforce as we grow together. And again, just really excited to bring Power Solutions into the Dycom Industries, Inc. family and excited to get to spend more time as we look to grow the business collectively. Alex Waters: Perfect. Thanks, Dan. Operator: Thank you. Our next question comes from the line of Richard Cho with JP Morgan. Your line is now open. Richard Cho: Hi. I just have two questions. One regarding the fourth-quarter guidance. The revenue range is a little bit wider than previous quarters. Just wanted to get a sense of what the puts and takes there might be as you look into the fourth quarter. And then on Power Solutions, can you give a sense of what the contracts are like in terms of the billion dollars in backlog? Dan Peyovich: Absolutely. So on Q4 revenue range, coming into Q4, as you know, is a seasonal quarter for us. I've often talked about how if you think about the lower end of the range and higher end of the range in a normal quarter, looking at the speed of some of these programs. And I want to come back to fiber to the home and make sure that we get enough airtime. Fiber to the home programs continue to increase. You know, we've seen that. That's a large part of the outperformance that we had this quarter is the growth that we saw in fiber to home builds. And we see that increasing considerably as you look towards next year. Many of our customers continue to reiterate that growth, continue to reiterate what their plans to build are. So that's performing very well. That in large part is how fast those programs go, how quickly we move into that is how we think about the range at the top and the bottom and the midpoint. You know, we felt that we needed to add something in considering the seasonality. If you look at Q4, we've also got holidays that are midweek again this year, which we know from last year. We're going to have a lot of folks that are taking extended periods of time off. All that's factored in, so the range is just a little bit wider. But as you know, we did move the midpoint considerably. I think the second question is on what kind of how they contract. So, again, because over 90% of their work is in the data center space, what that means is they have dozens and dozens of data centers that they're working on at one time. They are typically going to be a relatively finite build over that work. They could be generally six or twelve months that they're spending doing work out in the field. And these are massive crew sizes that are coming into buildings over a very quick period of time. Highly sophisticated, highly complex work that Power Solutions, again, has proven time and time again that they really deliver at the highest level in their space. I would point to their 15% growth CAGR over the last four years and our confidence in being able to continue that next year. The contracts themselves, like I said, they're with the general contractors. So a little bit different from how we look at our work. And again, there's other synergies that we see in the business as we think about it. They're not going to have the same kind of seasonality. They are more capital light than the telecommunications business, where the equipment costs for us are more significant. So really more pieces that optimize Dycom Industries, Inc. as a whole going forward. Richard Cho: And following up on the kind of new markets for Power Solutions, you know, I think with the DMV, there's been a long history and steady demand, and it continues to see that. But as you look to new markets, I think there is some worry with some of these builds that some new markets are going to be long-term markets and others are going to maybe not have the same gravity and long-term strength that a DMV will. So, you know, Dallas and Atlanta and maybe certain markets seem that way, but there's others that are less certain or on that outcome. Can you give us a little sense of how you would think about expansion to new markets? Dan Peyovich: Yeah. And I think I missed that one of the earlier questions. So thanks for bringing it up again, Richard. The first thing I would say is all of this is centered around our strategy for long-term shareholder returns. As we think about all of these parts and pieces, they come together. As we think about the significant acquisition, we're thinking out multi, multi-years out into the outer decades about how this can be accretive and how it has strong value creation overall. Hopefully, people have seen we're not ones to move quickly and react to things. We want to be very thoughtful about how we grow that business and how we grow the business that we've been growing for some time now. As we look to other markets, there's a number of different factors. The first is Power Solutions is in the largest market, it's a proven market, it's got a large skilled workforce, and it's got huge growth opportunities, even if we just stay there. So we can continue to work with them to expand. We're going to bring our balance sheet behind. We're going to bring relationships with our equipment. And as I said, there are going to be other ways that we can leverage combined relationships, even if we just stay in that greater DMV space. At the same time, we will certainly look at other M&A opportunities on how we can leverage the whole of the enterprise, and that could include moving to new areas. Of course, we will factor in, you know, where that is in a growth cycle, how long that can continue to grow. As you know, there are many markets in the country that have been growing for a long time and have continued growth, maybe not as large as the DMV, but still significant opportunities. All of that is part of the strategic discussions that we've been under for some time and excited to continue to further that as we think forward. So I would just end it with great opportunities for organic growth, great opportunities for combined growth, bringing our customers together. And certainly, we'll be looking at M&A as well. Richard Cho: Yeah. Sorry to follow-up on it, but it was just something that I won't make. Operator: Thank you. Our next question comes from the line of Steven Fisher with UBS. Your line is now open. Steven Fisher with UBS. Your line is open. Please check your mute button. Steven Fisher: Thanks. Sorry. You cut out. I sure that was calling on me. So thank you for that. Appreciate it, and congrats on the deal here. Just, Dan, relative to the 90% of Power Solutions' revenues coming from data centers, I'm curious what that mix was, say, five years ago when the revenues were probably around $500 million. Was it still 90% in data centers then when we were sort of in a different stage of data center development? And if not, you know, what happened? What was the rest of the business then? What happened to it? Know, because I guess, obviously, today, it's great to have 90% be focused on data centers. And I know you view this data center opportunity as many of us do for many years, but just thinking about because you mentioned long-term shareholder value, what is this business set up to do beyond the data center market? Dan Peyovich: The key point around this is working in data centers is a highly complex, mission-critical environment. So it's a unique skill set. It requires training. It requires a sensitivity to both the speed and again, Steven, as you know, I spent a couple of decades in this space contracted to many electrical contractors. And we really understand how this whole space works collectively. But if you think about it, it's about how sophisticated they are to build and deliver on that work. To answer your question directly, I don't have the exact number on where they were three, five years ago, but, in a general term, they've been at 90-ish percent, certainly the majority of revenue for a long time in that space. And I think that's where they differentiate. Their ability to handle that complexity. You've heard me say many times that complexity favors Dycom Industries, Inc. It favors Power Solutions as well, and that's what attracted us to them. And we think that together, we're even better poised to address the growing needs of the customer set broadly. So it is unique, you think about electrical contractors, for sure. It's unique that they're so concentrated. That is absolutely a benefit and something that separates our ability as we look forward and certainly, again, made it very attractive for us when we started having conversations with Power Solutions. Steven Fisher: Great. And just maybe to talk about the $500 million of service and maintenance agreements that you talked about after the quarter. Can you just put maybe that into context a little bit? You're doing around $1 billion of new awards per quarter. Is the point here that it's, say, you know, 30% of awards on service is an indication of the importance and growing mix of service and maintenance, or is it that you're an indication that you're setting up for another strong quarter of bookings already in Q4, or is it both? Dan Peyovich: So a few points to make. One, please overall with our book to bill. We had significant service and maintenance awards within the backlog that we reported in the quarter as well. Call them out specifically, like I said, we kind of kept got a lot of things to talk about, and we have to pick. The reason we call this out twofold. One, to accentuate the importance of service and maintenance as we think about our business and think about how we move forward. Two, it really shows our scale and our ability to continue to be in front of this work with our customers. And how we can solve further growing needs as, you know, they install more fiber around the country. So it sets us up well for all of those things. I also want to point out, again, our backlog, our total backlog, different from a lot of the peer set or other competitors. Because of the nature of the timing of our agreements. We're just continuing to try and show that it's not always going to be perfectly timed to the quarter. Very pleased with the all-time high. I would certainly point to the next twelve months of $5 billion. Again, another all-time high. And really shows the overall momentum of the business. Yes, to answer your last question, definitely sets us up well for backlog as we think about coming into Q4. Wanted to point that out. But really, this is about cementing where we are in the service and maintenance space. Steven Fisher: Perfect. Thanks very much. Operator: Thank you. Our next question comes from the line of Adam Thalhimer with Thompson Davis. Your line is now open. Adam Thalhimer: Hey, good morning, guys. Congrats on the record results and the acquisition. Dan Peyovich: Thank you. Adam Thalhimer: First of all, on the organic business, is it too early to talk about fiscal 2027 and maybe broad strokes for revenue growth and margin improvement? Dan Peyovich: On the new business, you know, we gave an outlook for that. 15% growth based on their CAGR. So you have that side. We're not going to give you a lot of detail overall in the business yet. We will, of course, as we come towards the end of the year, just like we did last year. The point I made last quarter, and you saw that come through this quarter with the 7.2% organic growth. And of course, now that the Buck Wireless business that we did, that's fully in the business as we think about Q4. It's going to be strong organic growth to lead to get to the numbers that we showed for Q4. That sets us up very well coming into FY 2027, calendar 2026. So we're excited about how we're positioned there. We're excited about the diversification within the telecommunications business. How we are picking up already starting to talk about BEAD awards, how we are continuing to increase the amount of work that we're doing with hyperscalers and all middle mile and inside the fence opportunities. As we talked about, the wireless work is performing well. So, there's just all of those growth drivers continue to be strong, continue to we continue to capitalize on the opportunity set. You can see we're also improving margins as we go, and all that sets us up well looking into next year. Adam Thalhimer: Sounds good. And then, Dan, can you give a little bit more background on the acquisition? How did the discussion start with Power Solutions? Dan Peyovich: Yeah. It's our strategy, as I talked about, it's always been centered around long-term shareholder returns, long-term opportunities for our people. It would be no surprise to anybody I've been in the seat nearly a year that as we the seat, we did a top-down strategic review of the business and where we are and conversations we've been having for some time. Part of that has been, you know, as these hyperscale relationships have developed, as we've gotten closer and closer to the data centers, what is the next natural step? And this really made a lot of sense because we're already there. We're already on the campus. We're already working with the end users. We already have a skilled workforce doing highly complex work. This is just really a matter of crossing into the wall, crossing the wall, and moving into the data center itself. This is a space that we know and understand extremely well. We understand how the projects flow. We understand the landscape from a competitive set. So as we looked at different opportunities, you know, when we first met Power Solutions, it really came down to the culture and the relationships. That is so incredibly important to us, and that's really been the cornerstone of the success that we've had in the acquisitions we've done over the decades, and certainly, that we've done over the last few years as well. It comes down to culture. If you get the right fit, if you get the right mindset around how we can grow together and how we can lever further into growth together, that's where you really start to see the magic start to happen, so to speak. So again, incredibly impressed with the strength of the leadership team with Power Solutions. Incredibly impressed with everybody that we've met so far. They run a fantastic operation. They're going to fit extremely well with our existing subsidiaries. And really embolden us on how we think about growth in the next decade. Adam Thalhimer: Thanks, Dan. Operator: Thank you. Our next question comes from the line of Eric Luebchow with Wells Fargo. Your line is now open. Eric Luebchow: Great. Thanks for taking the question. So, Dan, as you think about kind of the landscape and the data center contracting space, I mean, could you maybe just talk a little bit about how concentrated it is? Is it still pretty fragmented? And do you see more opportunity there to do future M&A, maybe compare and contrast it to your traditional telecom business where you see more opportunity over time to gain scale? Dan Peyovich: Thanks, Eric. This acquisition for us really widens the aperture as we think about our place in digital infrastructure as we move forward. And as I said earlier, this puts us squarely in the middle of, and I want to be clear, it's not just about AI. There's a natural cadence. There's a natural growth that occurs on whether it's the telecommunications infrastructure or whether it's the data centers themselves. So we're stepping further into that. And believe that there's significant upside opportunity in addition. As I'm sure everybody has seen, there's been a number of acquisitions in this space. Again, Power Solutions is unique, and both the size that they have and the presence that they have in a very large region. The growth that they've had and the concentration in the data center, proven expertise that they have overall. But it is a continue to be a fragmented space. You know, there are not very many contractors, and against all this my past career, not a lot of contractors that are covering across data center markets or even the majority of data center markets. So there are opportunities out there. There are definitely opportunities to continue to think about that and how we move. There's opportunities for us to grow organically, you know, with our new business. There's also opportunity to continue on from an M&A front. So all of that is front and center to what we're thinking about. Excited to move into this. We're certainly focused on integration and have built a strong integration engine to get ahead of it. And looking towards that close, towards the end of the year, we will certainly come out and give a lot more insight on how we're thinking about the business and growth opportunities then. Eric Luebchow: Great. Thanks. And maybe just one follow-up for me. You touched on the BEAD program a little bit earlier. We've seen, I think, a vast majority of the awards have gone to fiber, and a lot of the capital will be fiber-related. Have you seen any of the BEAD awards go into your backlog at this point? I know you've talked about Q2 as kind of a starting point for revenue contributions, but just wondering if you've been having conversations and you're starting to see demand flow in already so that you can get started in Q2. Dan Peyovich: Yeah. So to date, two-thirds of the locations are going to be served by either fiber or HSE infrastructure. So we're excited about that. It really lined up well with how we've been thinking about it to date. That addressable market is probably going to be in the neighborhood of $20 billion to include the matches from the subgrantees. Significant spending to do over the four or five years. We are front and center there. We've been talking to the states for years. We've been talking to our customers for years. I mentioned in the prepared remarks, we have well over $500 million in verbal awards today. We don't have any in our backlog. But significant opportunities that now as the funding starts to flow that we hope to move from verbal into backlog for next quarter. Operator: Thank you, Dan. Thank you. Our next question comes from the line of Brent Thielman with D.A. Davidson and Company. Your line is now open. Brent Thielman: Great, thanks. Yes, had a question just on the margin progression. Mid to high teens is notable, Dan, but want to understand how those margins progressed over the last few years, what you think is sustainable. And I guess as a follow-up to that, can you sort of quantify the cash conversion cycle related to the acquisition, especially as we think about the business sort of driving deleveraging efforts? Dan Peyovich: Happy to. Happy to. On margin progression, so in that business, absolutely, they get operating leverage just as we do in the business. So growth certainly helps from a margin contribution. They've been strong margin for a long period of time, to find somebody that's accretive to our strong margin profile again, that we're very pleased with overall. We certainly believe that to be able to maintain strong margins, it's not always going to just like our business, not always going to be perfect. It depends on exactly how the projects stack. It depends on what the growth curve looks like. But that mid to high teens is a good range to think about. Certainly how we're thinking about next year and how we're thinking about the deal. On cash conversion cycle, again, this is a positive from a cash perspective for us. Their DSOs are typically in the 60 plus day range. So that will be a positive impact for overall. And again, strong operating cash. And from a free cash flow, they're not as capital intensive, as I mentioned. So really, when you look across the fundamentals and the deal really does come down to the fundamentals, fundamentals are strong all the way across the board. Brent Thielman: Okay. And maybe one more if I could. You know, your inside the fence strategy maybe you could argue, at least for the core Dycom Industries, Inc. business is kind of early days. I know starting from a relatively low point. Does this accelerate it? As you leverage these customer relationships that Power Solutions has such that you know, we could see some real revenue synergies with that strategy as you sort of combine the two companies? Dan Peyovich: Absolutely. Absolutely. Really, a cornerstone to how we thought about this acquisition. Those relationships have continued to build and stronger, and it's with more than one hyperscaler, I should be specific about that. But we continue to do more and more work. We are doing work in the same DMV region where Power Solutions operates. So, you absolutely can start talking about synergies. You can start talking about how can we collectively together provide more, even more value for the end users than we would apart. We can talk about what that means, for again, there's so much growth in that space that's out in front of hyperscalers. The question is who's going to be there to meet that? And I said before, the companies that are going to succeed in the AI race are the ones that are positioned to deliver on that infrastructure. We're already well-positioned, and that's why we've continued to move closer and closer and further and further inside the fence. This just takes us another step even further, right? Makes those relationships even stronger. And if you think about it from a long-term perspective, the opportunities just get much, much broader and deeper overall. Brent Thielman: Got it. Okay. Thank you. Operator: Thank you. Our next question comes from the line of Laura Maher with B. Riley Securities. Your line is now open. Laura Maher: Hi, good morning. Thanks for taking the question. My first question, Verizon recently announced potential large layoffs. Is this related to any kind of project that Dycom Industries, Inc. is involved with? Dan Peyovich: Honestly, we're following the news. Verizon's been a great customer for us for a long time. We continue to do a significant amount of work for them. We see that continuing overall. We haven't seen impacts for it yet on, you know, what their new CEO, and congrats, Dan, for taking the helm. We haven't seen anything on our side of the business, and we look forward to just continuing to partner with them to make sure that we can meet their needs and stay up front of their builds. Laura Maher: Okay. Great. Thanks. And then in regard to the latest fiber buildout, how much more sophisticated is this buildout in the support of the growth of AI versus the previous fiber buildout that was driven by the Internet? Dan Peyovich: Just so I'm sorry. You're talking about the work the Power Solutions does? Or... Laura Maher: No. Just the fiber work in general. Not necessarily Power Solutions. Dan Peyovich: Yeah. If you think about, and again, this I'll say it for, again, you know, really favors Dycom Industries, Inc. If you think about these long haul and middle mile routes, this high capacity, high density fiber bundles, they are more complex. They are more difficult to install. They require a lot more sophistication in how you're thinking about the work, planning the work, getting out for other work. That's where we specialize. That's where we differentiate. So it's been a positive for us. You know, we were really, I would say, first at bat, but certainly first inning. And getting out there to do that work. We've been out doing overbuilds now with Lumen for the bulk of the year. And so we really have a ton of experience and a ton of lessons there that position us well to continue that. And we continue to book further awards there across customers. We talked about calendar 2027 as really being a ramping period, but I don't want that to be mistaken. There's we're doing significant work today. I think there's going to be significant work next year. It's just when you think about new construction, that is not overbuilding existing conduits. New construction takes a while to get planned, to get permitted, and to really build that work plan itself for crew continuity and the flow of work. So excited about all that. It's going to continue to build over time and a fantastic driver to augment the other extremely busy drivers in the business. Laura Maher: Great. Thanks. Operator: Thank you. And I'm showing no further questions from our phone lines. I'd now like to turn the conference back over to Mr. Dan Peyovich for closing remarks. Dan Peyovich: Absolutely. I'd just like to again comment on the strength of the demand drivers in the telecommunications space. Obviously, with the acquisition announcement today, we spent a lot of time talking about that, but I want to make sure that we really recognize that these demand drivers continue to be strong, whether fiber to the home, now the rural is coming even stronger with BEAD work. Our service and maintenance continues to grow. We serve our customers well across the business. And excited to continue to do that. If we think about the acquisition, really, this just makes us stronger for all of our customers and widens the opportunity set across all of our customers to make sure that we can meet their needs because it's an active space. The amount of infrastructure that needs to get built in the coming years and in the coming decades is significant, as we talked about really generational level deployment. Excited and honored to be partnered with our customers and want to make sure that we can stay in front of all that. We think that this acquisition and all the work that we've been doing to make Dycom Industries, Inc. stronger, to become more efficient. Really, at the end of the day, it's about our customers. About serving them well, and serving our communities well. So thanks to them. Thanks to all of the Dycom Industries, Inc. employees for their hard work in continuing to differentiate us. And to our future Power Solutions partners, excited to get to the close and to welcome you officially to the family. Thank you all for joining the call today. I look forward to seeing you next quarter. Be safe, and be well. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation Third Quarter Earnings Release Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will invite you to participate in a question and answer session. At the close of prepared remarks, we will open the queue for the Q and A session. As a reminder, this conference is being recorded Wednesday, November 19, 2025. I would now like to turn the conference over to Mr. John Holbert, Vice President, Investor Relations. Please go ahead, sir. John Hulbert: Good morning, everyone, and thank you for joining us on our third quarter 2025 earnings conference call. On the line with me today are Brian Cornell, Chair and Chief Executive Officer; Michael Fiddelke;, Chief operating Officer; Rick Gomez, Chief Commercial Officer; and Jim Lee, Chief Financial Officer. In a few minutes, Brian, Michael, Rick and Jim will provide their insights on our third quarter performance and outlook for the rest of the year. Following their remarks, we'll open the phone lines for a question-and-answer session. This morning, we're joined on this conference call by investors and others who are listening to our comments via webcast. Following the call, Jim and I will be available to answer your follow-up questions. And finally, as a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in this morning's earnings press release and in our most recently filed 10-K. Also in these remarks, we refer to non-GAAP financial measures, including adjusted earnings per share. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this morning's press release, which is posted on our Investor Relations website. With that, I'll turn it over to Brian to kick things off. Brian? Brian Cornell: Thanks, John, and good morning, everyone. This is my final earnings call as Target's CEO, and I plan to keep my comments brief this morning. but I wanted to take a moment to thank all of you for your ongoing engagement and support over the last 11 years. It's been the highlight of my career to lead this great company and our business has undergone many important changes since I arrived in 2014. We entered into an innovative partnership with CVS to run our pharmacy business. We changed our operating model in food and beverage, paving the way for explosive growth in that part of the business. We invested in our product design, development and sourcing capabilities and launched several new billion dollar owned brands. We pioneered the Stores & Subs model for digital fulfillment, remodeled well over 1,000 of our existing stores and added nearly 200 net new locations in the U.S. All told, this year's top line is expected to be well over $30 billion higher than the year I arrived. In that 2014 fiscal year, GAAP and adjusted EPS both came in around $4 a share. And the upper end of this year's expected range for adjusted EPS is double that number. I am proud that our team could deliver this top and bottom line growth while building a solid foundation of operating capabilities, including one of the nation's largest [indiscernible] programs and Target Circle and a rapidly growing retail media business in Randell. That said, our business has not been performing up to its potential over the last few years. And I am singularly focused on supporting Michael and the entire leadership team as they make changes to the way we work, enhancing our merchandising authority, our retail experience and investing in technology to accelerate our business. In the call today, you'll hear how the team is working quickly to get the company back to profitable growth. And while we're not there, yes, I'm confident we're on the right path and Michael is the right person to lead the next chapter of Target's growth. So with that, I want to thank all of you for your participation today and for your thoughtful engagement over the years. And finally, I want to thank the entire Target team. It has been a privilege to work with you in support of this great brand. Now I'll turn the call and today's Q&A over to Michael. Michael Fiddelke: Thanks, Brian, and good morning, everyone. We have high but achievable aspirations for Target's future, and we're acting with urgency to make the changes and investments to position Target for sustainable and profitable growth over time. While our third quarter performance came in as expected, we're far from satisfied with our current results, and we won't be satisfied until we're operating at our full potential. To get there, we've set 3 distinct but highly interrelated priorities for our team. First, we must solidify our design-led merchandising authority leading with incredible product in a way that is distinctly target. Second, as a retailer that believes that the shopping experience is every bit as important as the products we sell, we need to offer a more consistently elevated experience across our stores and digital platforms. And third, we need to more fully use technology to improve our speed, guest experience and efficiency throughout the business. Together, these priorities are in service of one goal, getting back to sustainable growth as quickly as possible. They guide every decision we make, and I want to spend a few minutes to help clarify what these priorities are, why each matters and share some of our progress to date. Before I expand on these priorities, I want to pause and acknowledge our recent restructuring headquarters, in which we eliminated approximately 1,800 roles or about 8% of our headquarters footprint, a difficult but necessary step forward. While Jim will walk through some financial aspects of this decision, I want to make it clear that this move wasn't about cutting costs. Instead, by removing layers that have added complexity to the way we work, we're aiming to work with greater agility making it clear [indiscernible] decisions and empowering our team to operate with greater authority and speed in support of our strategy. So let's discuss how we're making progress in solidifying our merchandising authority and elevating our shopping experience. And you'll also see the critical role that enhanced technology is playing in support of both, helping us progress quickly, efficiently in industry-leading ways. We are a design-led company. And that starts with our authority and merchandising. Our ability to build a unique assortment of the right, stylish on-trend products at incredible value that's so central to who we are and key to our differentiation and future growth. At Target, we believe that offering an assortment that's distinctly ours is essential to maintaining our merchandising authority with our guests. Not every category plays the same role towards these efforts, but together, they create an assortment and experience that feels unmistakably target. A great example is the transformation of our hardlines business into FUN 101 an evolution in bringing greater cultural relevance, style authority and trend-right energy to the assortment, reinforcing what makes shopping at Target so special. And while we have much more change in FUN 101 to come, it builds our confidence to see the categories that have seen the greatest change driving some of the strong sales performance already. Rick will have more details to share later. And within each category, merchandising authority means staying incredibly close to our guests by knowing what they want next, reacting to, predicting and even setting new trends and tech will play a critical role in helping us get there. We're enhancing our capabilities by equipping our teams with new tools that provide them with AI-enabled consumer insights at their fingertips. Our merchants now have real-time access to advanced data from what is currently trending on social media to which products and styles are resonating with consumers at Target and across the industry today, to what future trends our guests are most likely to care about, helping our team forecast needs, anticipate trends and buy both smarter and faster. New tools also include our recently developed target trend brain, our new internal creative platform, which uses Gen AI technology to help our teams identify and react to emerging trends faster and predict future trends. By leveraging AI to capture color, material, style and product details in applying consumer research and our brand principles, we can deliver unique and on-trend products to our guests faster than ever before. To further enhance our speed to market, we've also created synthetic audiences, AI-driven models that simulate real consumer populations to preview how different groups could respond to campaigns and products before they ever launch. This allows our marketing and design teams to test, learn and refine products, promotions and messaging with incredible speed and efficiency. And while you'll see us continue to accelerate our use of technology, it's our talented team that brings this work to life, and we are investing intentionally in our team and how we approach our work. We're redefining roles throughout the cross-functional team that supports our assortment planning and buying decisions, what we call our merchant roundtable to better equip our teams to make bolder decisions even faster. I'm also excited to share we welcome new leaders to the team in areas like our home business to bring new ways of thinking and accelerate change in the signature category. These steps forward are examples of how we're solidifying our design-led merchandising authority by using people, process and technology to drive greater levels of newness and differentiation across our entire assortment more quickly reacting to emerging trends and amplifying these trends faster than ever before. Let's turn now to our team's efforts to elevate the guest shopping experience, both in stores and digital, a great guest experience means a lot of things, but it starts with a warm, friendly and helpful team. In stores, we're making changes to give our team members more time to focus on what matters most, spending time helping our guests. Through enhanced digital tools, we're reducing time devoted to backroom tasks through more efficient truck unloading and stocking. Every hour we save is being reinvested to allow more guest interaction with a focus on friendliness and service that makes target. An elevated shopping experience also means consistently finding the products you want to need every time you shop. This holiday season, we're using our expertise and deep consumer knowledge in a new gene E-powered gift finder available on our website and our app, allowing guests to ask questions on the app and help them find the perfect gift this holiday season by simply asking something as generic as what is a good present for my mother in law, to something more specific like I have a 5-year-old son that loves Dynasores? What gifts are available for under $20? Our app will provide recommendations or ask clarifying questions to quickly and easily help guests find the right presence for every person on their holiday shopping list. For guest shopping in our stores and online, we're also investing resources to ensure we have the right product in the right place at the right time all year long. This includes modernizing the technology that forecasts, orders and positions our inventory, using machine learning to optimize flow from supplier to shelf. It's helping us move inventory more efficiently, improve reliability for everyday frequently purchased items and further improve in-stocks. We've coupled these tech enhancements with process improvements some great root cause problem solving by the team and clear measurements that show where we have the most room to improve. All in, we've seen meaningful progress on this front. In fact, this past quarter, the on-shelf availability of our 5,000 top items, the ones for which being in stock is most important to our guests and which represent 30% of our total unit sales saw a more than 150 basis point improvement compared to this time last year. But even with this meaningful progress, I want to emphasize that we have much more room to improve and we're not slowing down. An elevated store experience also means meeting our guests when, where and how they want to shop. To do this, we're reconfiguring the role each of our stores plays within a market to optimize fulfillment speed and capabilities and in the process also better supporting the in-store shopping experience. Our pilot in the Chicago market has demonstrated the effectiveness of new operating models that govern each location's mix of in-store and digital fulfillment, helping to improve the guest experience and operational performance at each store at the same time. For those stores with high foot traffic volume, reducing their mix of brown box fulfillment, allowing those teams to spend more time interacting with in-store guests. For lower volume stores in the same market with big back rooms that are perfectly suited to ship product, we're pushing more digital fulfillment volume their way. And, of course, more labor hours to support this work, creating economies of scale in a more optimized workload for each node within a market. With the changes we've made, we're getting guests the products they want faster than ever while reducing average fulfillment costs. As a reminder, we already reached around 80% of the U.S. population with same-day delivery powered by Target Circle 360, where sales grew more than 35% again this past quarter, and around 99% of the U.S. population is already eligible for 2-day shipping. And now with our evolving market fulfillment strategy that includes expanding these learnings to an additional 35 markets, more than half of the U.S. is eligible for next-day shipping, and we expect to meaningfully expand that reach in the coming year. Elevating experience also means staying ahead of new ways our guests want to shop. We're leading in the next wave of digital engagement by partnering with the world's biggest Gin AI platforms, through an initiative we call conversational curation. Building on the apps for chat GPT experience previewed in early October, we're curating the shopping experience directly from the guest's own conversation. Guests tell us what they want or even what they're trying to solve for, and open AI will offer personalized recommendations. Through this partnership, we expect to be one of the first retailers on Open AI platforms to offer the purchase of multiple items in a single transaction, offer fresh food products on the platform, and the ability to choose drive up and pick up fulfillment options in addition to the conventional shipping options offered by others. Finally, I'd like to touch on important investments that will drive both merchandising authority and an elevated experience. Our investments in new stores, store remodels and chain-wide category changes aimed at providing greater inspiration in joy for our guests every time they shop. Our new larger-format stores are outpacing our initial sales expectations and continue to be a strong source of growth. Given current real estate opportunities, we expect to continue opening these bigger boxes in more and more markets across the U.S. Additionally, we're formulating plans for next year that will bring greater changes to key floor pads throughout the store, which will accelerate both our merchandising authority and our experience. To support this change, we'll be increasing our CapEx plans for next fiscal year, spending about $5 billion, about $1 billion more than this year to bring the latest and greatest of target to new and existing markets. Rick and Jim will have more to share on this in a moment. So now before I get ready to pass things over to Rick, I want to thank the Target team, you power our progress, and it is together as a team that will write Target's next chapter. While we're not yet where we want to be, we're making change to lay the foundation for a stronger, faster and more innovative target, one that's grounded in our purpose, fueled by our team and focused on growth. I'm proud of the progress we've made and confident in the opportunities ahead. And to those of you listening this morning, if you leave having heard nothing else, I'd leave you with the following thoughts. We are not satisfied with our current results and are relentless in our pursuit of returning to growth. Our 3 priorities around merchandising, experience and technology have us on the right path. And we know what needs to be done and are actively making progress towards being the best version of ourselves for our guests, our team and our stakeholders. With that, I'll turn the call over to Rick to share more about our third quarter performance and all we have planned for this holiday season. Richard Gomez: Thanks, Michael, and good morning, everyone. Our third quarter results underscore that we still have work to do but they also show us that the actions we're taking are the right ones for our guests and for our business. We're focused on improving performance, particularly in discretionary categories, listening closely to our guests and moving with greater agility to bring them the newness and affordability they expect from Target. In Q3, results were in line with expectations and similar to second quarter performance, with the exception of Q2 benefiting from the Nintendo Switch 2 launch, Q3 comp sales were down 2.7%, reflecting continued softness in discretionary categories like home and apparel, partially offset by growth in food and beverage and FUN 101. Digital comparable sales grew 2.4%, fueled by more than 35% growth in same-day delivery, powered by Target Circle 360 and continued growth in Drive-Up. We saw the strongest sales around seasonal moments like back to school, back to college and Halloween, highlighting once again the importance of these holidays to our business. Across categories, one theme is clear. Our guests continue to respond to newness and style-forward assortments. FUN 101 delivered another quarter of growth led by a nearly 10% comp in toys and double-digit growth in music, video games and our expanded selection of sporting equipment. All categories where we've invested in unique to target assortments that are clearly resonating. Food & Beverage also delivered another quarter of comp growth with notable strength in beverages, which were up nearly 7% in Q3 as guests leaned into our trend forward health and wellness assortment from prebiotic sodas to better-for-you energy drinks, we also saw strength in candy categories, particularly as the Halloween holiday approached. While apparel comps were down 5%, we delivered meaningful growth in denim and sleepwear categories, driven by style, forward newness, that helped to offset softness across the portfolio. This tells us that while there is still plenty of work to do, where we have made our biggest bets in terms of on-trend, design-led newness, consumers are reacting positively giving us confidence in our approach and the path ahead. Turning to the consumer. Many of the themes remain largely consistent with what we shared in prior quarters. Guest ARE choiceful stretching budgets and prioritizing value, they're spending it matters most, especially in food, essentials and beauty, while looking for trend-right deals in discretionary categories. They want quality and price to coexist, something we do particularly well through our balance of must-have national brands, our exclusive owned brand portfolio and our curation of emerging brands. As part of our work to solidify our merchandising authority, we will continue to elevate our assortment to lead with trend while always considering affordability and value. As we approach the holidays, we know consumers remain cautious Sentiment is at a 3-year low amid concerns about jobs, affordability and tariffs. Yet they remain emotionally motivated. They want to celebrate with loved ones without overspending. Our job is to help them do just that. Given our focus on affordability, we recently lowered prices on thousands of everyday food and essential items to help families further manage their budgets. And for the next major holiday around the corner, our Thanksgiving meal deal this year is one of our most affordable yet, feeding a family of 4 for less than $20 with Good & Gather Turkey at just $0.79 per pound as well as potatoes, staffing and other seasonal sides for less than $5. And while we are, of course, standing tall for the traditional Thanksgiving Fair, guests are also embracing new food trends like Good & Gather seasonal empanadas, gourmet host gifts from Marks & Spencer, Stonewall Kitchen, Sugarfina, and Hearth and Hand with Magnolia Table and new to target brands like Little Spoon, everyday dose and protein pop. As a percentage of our total Food & Beverage sales, we are selling twice the volume of new products compared to the industry, a sign that our trend bets are paying off. We're also accelerating newness in women's apparel, leaning into lux fabrics and trending athleisure at affordable prices. Inspired by our sourcing trip to the Swiss Alps, our latest Cashmerlike sweater start at just $30 and deliver the on-trend casual yet chic Opreski look. [indiscernible] at leisure fans, JoyLab is launching new patterns and fabrications in mid-December, earlier than ever this year. Perfect for gifting are those New Year fitness goals. In holiday decor, we're offering upscale and festive design at unbeatable prices from contemporary collections to nostalgic Christmas Classics, we have styles for every home. Ornaments start at $1, $3 and $5 price points, with holiday throws at $10 in Reeves and Fo greenery at $12, bringing incredible design and quality within reach. And once the tree is trimmed, it's time to think about what goes under it. As I've shared before, trading cards have been a huge trend that we have been leaning into. And this holiday season, we will be offering new product drops nearly every week, including Pokemon, MAGIC: THE GATHERING, NFL, MLB and WNBA cards. This includes highly anticipated exclusives, already hitting shelves and continuing to be released throughout December as well. This year, we've also expanded our assortment of affordable and on-trend toys, including thousands under $20 with many starting at just $5. As the #1 market share player for LEGO, we are partnering with this iconic brand to offer exclusive to target sets starting at just $10. And for Barbie fans of all ages, we're offering 2 exclusive Barbie collaborations with Joanna Gaines, a collectible doll and her perfectly designed townhouse to live in. All in, we are introducing 20,000 new items into this year's holiday assortment, twice as many as last year, with over half exclusive to Target. Before turning it over to Jim, I want to share how Michael's new enterprise priorities are taking shape across our commercial organization. In partnership with the Enterprise Acceleration Office, we've been modernizing how our cross-functional teams support all buying decisions at Target, what we refer to as our merchant roundtable. To clarify roles, streamline accountability and empower teams to make bold data-driven decisions allowing us to move faster and infuse newness into assortments more frequently. But not all newness is created equal. It isn't just about offering new products for the sake of newness. It's about leaning into the emerging trends in culturally relevant moments. When we do, this is when we see the strongest reaction from our guests. For the perfect example, look no further than our Stranger Things 5 assortment. We have the largest assortment of exclusive products in retail in the U.S. along with throwback marketing campaigns that transport guests back to the 1980s Nostalgia. Plus, we're dropping new items into the assortment every week to align with the new episode releases. This is yet another example of the incredible work we are doing to reimagine our hardlines assortment into FUN 101, a year-round celebration of culture, trend and style, served up in an only target way. And next year, we're planning to take these learnings and make bold investments to transform the in-store shopping experience and assortment. In fact, we already have plans to introduce more changes to our stores than we have in any year in the past decade. We will have far more details to share at our Financial Community Meeting this spring. With that, I'll turn the call over to Jim to walk through our third quarter financial results and updated expectations for the balance of the year. James Lee: Thanks, Rick. Our financial results in Q3 were in line with our expectations as our team continues to focus on what we can control and manage the business with discipline, despite continued softness on the top line, volatility in weekly and monthly trends, and uncertainty in the external environment. Third quarter net sales were 1.5% lower than a year ago, slightly better than our year-to-date performance, but about 60 basis points softer than in Q2. Category sales trends were relatively consistent between Q2 and Q3, with the exception of hardlines, where we saw continued growth but at a slower pace, following an outsized boost from the launch of the Nintendo Switch 2 in the second quarter. Across our selling channels, comp sales in our stores were down about 4%, while comparable digital sales grew 2.4% on top of nearly 11% a year ago. Within our first-party digital sales, we saw mid-single-digit growth in our same-day services, led by more than 35% growth in same-day delivery. Beyond our first-party digital platform, we saw a significant step up to nearly 50% growth in GMV of our Target Plus marketplace and mid-teens growth in Roundel ad sales, demonstrating the breadth and growing relevance of our digital ecosystem. Top line results during the quarter were quite volatile with net sales close to flat in August and October and down about 4% in September. This pattern reinforces many of the consumer themes we've been highlighting for some time. as guests shopped around back-to-school and back to college in August and around Halloween in October, but pulled back in September in between those key seasons. In addition, September apparel sales were hampered by unusually warm weather across the country while October benefited from the response to our most recent Target Circle week as consumers continue to focus on value. On the gross margin line, our Q3 rate of 28.2% was about 10 basis points lower than last year. Among the drivers, we saw about 1 percentage point of pressure in merchandising, reflecting the impact of higher markdowns. This pressure was offset by about 70 basis points of favorability from lower inventory shrink versus last year. In addition, we saw about 20 basis points of favorability from supply chain and digital fulfillment as the benefit of higher productivity and the lapping of last year's supply chain challenges was partially offset by the deleveraging impact of lower sales. Regarding our outlook for inventory shrink. Consistent with our prior commentary, we expect that shrink improvements will account for approximately 80 to 90 basis points of gross margin rate favorability for the full year. This would bring it fully back down to pre-pandemic levels, marking a dramatic turnaround over the last 2 years. One other note, our Q3 ending inventory was about 2% lower than a year ago. This is in line with recent trends in our Q4 sales outlook and reflects growth in our frequency businesses that was more than offset by lower levels in our discretionary businesses. Moving back to our third quarter P&L. Our SG&A expense rate of 21.9% was about 60 basis points higher than a year ago. However, this rate reflected about 60 basis points of impact from onetime business transformation costs. Excluding these costs, our third quarter SG&A expense rate was approximately flat to last year. On the bottom line, our business delivered third quarter GAAP EPS of $1.51 compared with $1.85 a year ago. Adjusted EPS, which excluded business transformation costs was $1.78 in the third quarter, about 4% lower than a year ago. While this is far short of where we aspire to be over time, it is solid profit performance in a quarter where our top line was down more than 1% and reflects stronger relative performance versus the first half of the year, consistent with our prior commentary. I'll turn now to capital deployment and reiterate our priorities, which we've consistently followed for decades. First, we look to fully invest in our business in projects that meet our strategic and financial criteria. Second, we look to support the dividend and build on our record of more than 50 years of consecutive annual increases. And finally, we look to deploy any excess cash beyond those first 2 uses to repurchase shares over time within the limits of our middle A credit ratings. Regarding our first priority, we've invested about $2.8 billion in capital expenditures so far this year and continue to expect full year CapEx of around $4 billion. Regarding the second priority, we paid $518 million in dividends in Q3, which was $2 million higher than last year as a 1.8% increase in the per share dividend was mostly offset by a lower average share count. Regarding the last priority, we deployed just over $150 million to repurchase our shares in the third quarter, following a pause in Q2. While we ended the quarter with a healthy cash position and expect to have continued capacity within the limits of our middle A ratings, we'll continue to exercise caution in our repurchase program in the face of continued uncertainty in the external environment. Now I want to turn to our outlook for the fourth quarter and the full year. While our Q3 results were consistent with our expectations, we've continued to see a high degree of volatility in our business. In addition, we're mindful of the challenges facing consumers as exemplified by recent declines in consumer confidence. As such, while our top line expectations for Q4 are in line with our prior guidance and recent performance, we've narrowed our full year EPS ranges and moved our adjusted EPS range to the bottom half of the prior range. With that as context, on the top line for the fourth quarter, we're continuing to expect a low single-digit decline in our comparable sales. in line with our year-to-date performance. On the adjusted EPS line, our updated range is from $7 to $8 for the full year. The expected range for GAAP EPS is about $0.70 higher than for adjusted EPS reflecting the benefit of the first quarter litigation settlement, partially offset by business transformation costs. Against the backdrop of a very difficult environment, I am proud of the team's hard work this year to navigate a very high level of complexity including their work to mitigate the impact of tariffs and navigate challenging consumer conditions. Over the past several months, we've also been hard at work to drive prioritization and outline key investments to return Target back to sustainable growth. Looking ahead to next year, we expect to ramp up our capital spending meaningfully in support of our store experience and remodel program, a step-up in technology and digital fulfillment capabilities and investment in new stores. Our current plan envisions 2026 CapEx dollars increasing by approximately 25% or $1 billion versus 2025. In addition, we are planning to leverage a continuous pipeline of productivity initiatives and approximately $180 million of expected annualized savings from our recent business transformation efforts to invest in key areas in support of our 3 strategic priorities. We will share more details on our plans for 2026 and beyond at our financial community meeting in March. While we know there's much more work to do, I'm confident that we are rapidly moving in the right direction and positioning our business to get back to sustainable, profitable growth in the years ahead. With that, I'll turn the call back over to Michael. Michael Fiddelke: Thanks, Jim. Before Rick, Jim and I take your questions, I want to emphasize some of what you've heard from us today and to underscore where we're headed as a team. There is no question that this is a period of transformation for Target. The environment around us continues to evolve, whether it's shifting consumer demand, changing competitor dynamics or broader macroeconomic pressures. But let me be clear, we are not waiting for conditions to improve. We are driving the change ourselves right now. We are taking bold decisive steps to reshape how we work and reignite growth with urgency, focus and confidence in who we are and who we can be. We know what makes Target special, an unmatched merchandising authority and the ability to create joy through an elevated and inspiring guest experience all enabled by the power of technology to amplify both speed and connection across every part of our business. These are more than ideas on a page. They are the pillars of our strategy, shaping every decision we make, and they are coming to life right now across the company. We're hard at work to simplify how we work to make faster, smarter decisions. We're laser-focused on strengthening our foundation in our supply chain, our stores, our digital experience and our technology capabilities. We're relentlessly striving toward greater authority in merchandising by combining data-driven insight with a design leadership and creative spark that makes target. And together, these actions are paving the way for what comes next, a return to sustainable profitable growth. While many out there have questions about where we'll go next, we are confident we're on the right path. That's because we're building from a strong foundation, a brand that guests love, a culture that's resilient and a team that's united behind a shared mission to help all families discover the joy of everyday life. As we look ahead, we're not just talking about getting back to growth. We're talking about building a stronger, more innovative target that's ready to lead in the next era of retail, one that moves faster, connects deeper and stands taller in the hearts and minds of our guests. And to our investors, partners and the financial community, thank you for your continued engagement. And if you're frustrated with our recent performance, we are too, and our entire team is working incredibly hard to return to growth and live up to our full potential. Finally, in the spirit of thinking and working differently, I'm excited to share that this year's financial community meeting will take place right here in Minneapolis on March 3. It will be a peak behind the curtain to help bring to life what we've talked about today in a more tangible way, providing a first-hand look at how we're evolving our assortment and technology, all in service of returning to growth. We look forward to seeing you all in Minneapolis this spring, and we'll be sending out more information very soon. And now we'll move to Q&A. Rick, Jim and I will be happy to take your questions. Question & Answer Session Operator: Our first question comes from Simeon Gutman with Morgan Stanley. Simeon Gutman: And Brian, best of luck. My question, Michael, for you, I think in 2016 or '17, there was a reset of margin during a prior investment phase that helped reposition Target for the next several years. At this stage, I guess can we rule that out, how have you thought about taking maybe a deeper investment in, I guess, margin in order to reinvest? Or should we now assume that -- this is the plan, it goes forward, and there doesn't need to be one? Michael Fiddelke: Yes. Thanks for the question, Simeon. We've got a pretty big Q4 holiday season that we'll get through before we unpack the specifics for next year. But what I can tell you is we're committed to making the right investments to get the outcomes we want when it comes to leading with merchandising authority and elevating the experience. We also have a lot from which to draw on there. The team is doing a wonderful job of finding efficiency within the business and changing some of how we work to reinvest. I mean, an example of that is some of what we found in elevating the store experience, we've taken a lot from our fulfillment market tests in Chicago. And as a reminder, that's about changing kind of how we organize stores against the work to be done. We found that making some stores round box shipping specialists because they've got the capacity, they've got the big back room. They might be a little lower volume in general, let them ship that brown box product so that we can free up our busiest in-stores our busiest in-store guest experiences to focus on serving that in-store guests. And so changes like that, we've seen good results in. We're rolling out some of the learnings from that test to 35 more markets here before the year is out. And that's the type of change we believe can fuel the step-up in experience that we want. And so we're excited about doing the work to get better outcomes when it comes to leading with merchandising authority and elevating the guest experience, and we feel like we're on the right path. The other thing I might add is you heard us describe our capital investments for next year. And that's putting capital to work and direct support to the priorities that we've laid out. And like we always have, we chase returns. And so the places where we're excited to step up investment are places where we expect really strong returns. That starts with investments in our stores, and those come in a couple of forms. You've heard us talk about the strength of our new store pipeline. That pipeline continues to be as strong as ever. It's been just a delight to watch the new store openings this year, especially those bigger boxes that continue to outperform our expectations. And there's nothing more fun than walking a brand newly opened store in a market that maybe didn't have a target or didn't have a target close to that neighborhood and to see the response in the community when we open a store. And that response is great on the faces and voices of those guests, and it's also great in terms of the incremental sales it provides and the high returns we see in those new stores. The second place where you'll see us continue to lean in is in store remodels and refreshing the existing fleet of stores. And while we've been talking about that for several years, we've been hard at work, as Brian even touched on in his opening remarks of remodeling the chain, that work isn't yet finished, and we want to make sure that we're investing in some of the stores that when we bring our latest and greatest store experience we see a reliable strong response from guests. We continue to see strong sales lifts that justify the investment in those remodels. And so for the stores that haven't yet seen a remodel, we think it's imperative that we bring our latest and greatest thinking. That's a direct investment in the store experience itself back to the strategy. And the merchandising authority because when we do a remodel, we reallocate the space up to our latest and greatest thinking by strategy, and that helps the merchandising drive some of that sales lift. And then importantly, technology will continue to be an area of focus for investment. We know the power of technology to help the humans and the humans that we focus on most there are obviously our guests and our team. And so wherever we can lean in and use technology. And again, it generates returns when we make things more delightful for our guests and the way technology can help with personalization on the app or help us get product to their doorstep faster and then for our team where we can allow the process-focused work of the team to get a boost from technology that frees up our store teams to better serve guests. And so there's a lot of examples within that CapEx investment. But at its core, or does it directly support the areas of focus within the strategy and do we like the returns. And then the answer to those 2 questions is yes, you're going to see us invest. Simeon Gutman: The quick follow-up, and you partially addressed it. I wanted to ask about the gaps and capabilities. You mentioned the different focus is merchandising experience. what are the most urgent gaps and capabilities? And then what are you most excited about, meaning things that can get addressed in the near term? Michael Fiddelke: And the things that I'm most excited about are some of the places where we're seeing momentum already. Take, for example, the work that we're doing in FUN 101. That's a perfect representation of us bringing real focused strategy to the categories that we used to call hard lines to say, what categories are what we do -- are the things that we do uniquely well, best positioned, how do we bring style and culture and design leadership to those categories. And so we've made more change in those categories. And we see response in those categories. It's good to see categories like toys is running an almost 10% increase in Q3. It's good to see the places where we've applied focus moving in the right direction. I think the same is true on experience. The work we're doing to create a consistently elevated experience, we like the trajectory there. That starts with the basic being in stock as part of a great guest experience, and we're seeing real meaningful progress from the team's incredible work to move the needle in the right direction there. And while on that front. We're not yet satisfied. We're not yet where we want to be. We like the direction of travel a lot. And so we'll continue to do the work and apply the focus to get improvement in the direction that we want there. Rick, I don't know if you want to add anything on the product side for some of the places where we've got changed and where we're seeing a strong guest response. Richard Gomez: Yes. I mean I can -- well, how about this. I'll talk a little bit about some of the capabilities that were the question addressed about which capabilities do we want to -- are a priority for us to evolve? And I want to highlight merchant -- roundtable evolution because it is so important to having those right products that are going to deliver the growth. And it is a cross-functional team that we've had in place. But if you think about the decisions that we made a couple of weeks ago to reduce the footprint in HQ, a big part of that was around simplifying the organization so we could make decisions faster. The next step in that is to outline how we're going to work differently, clarify roles written responsibilities, clarify decision-making. That's the work the team is doing now. And then what I'm really excited about is in adding in the automation and the technology so the team could spend less time doing the analysis and spend more time being creative coming up with those new ideas that are going to meet consumer needs and fuel growth like what we're doing in FUN 101. Michael Fiddelke: To build on Rich's last point there. I think the role that technology plays -- the technology will play is going to be incredibly important across the enterprise, but a huge shout out specifically to the pace at which Pratt and team are moving. I like the acceleration of the path forward in technology. I think you can see that in some of the AI examples that we shared today, but you can also see that in some of the core foundation base that we know we have work to do to make sure our teams have all the tools at their fingertips to build the right assortment, segment in that assortment, use technology more powerfully to automate how product moves through our supply chain. And so that continues to be a key area of focus for us. But the urgency with which we're moving that work along gives me a lot of confidence. Operator: Our next question comes from Corey Tarlowe Jefferies. . Corey Tarlowe: Great. And I wanted to ask on the level of investment that you're stepping up in the business in terms of the $5 billion for next year in CapEx. How do you think about the key levels or the key areas in which you will be investing? And then how do you think about whether or not that's the right level or if more may be needed to improve results to a greater magnitude across the business? Michael Fiddelke: Yes. Great question, Corey. And I think about it in 2 ways, and this is a conversation that Jim and I have regularly with input across the team, obviously. But it's 2 things. One is it starts with a focused strategy, investments needs to follow the path that we think drives the most growth for Target, and that starts with clarity on the strategy. And the second is we chase returns. And so the places where we're excited to step up investment are places where we expect really strong returns. That starts with investments in our stores, and those come in a couple of forms. You've heard us talk about the strength of our new store pipeline. That pipeline continues to be as strong as ever. It's been just a delight to watch the new store openings this year, especially those bigger boxes that continue to outperform our expectations. And there's nothing more fun than walking a brand newly opened store in a market that maybe didn't have a target or didn't have a target close to that neighborhood and to see the response in the community when we open a store. And that response is great on the faces and voices of those guests, and it's also great in terms of the incremental sales it provides and the high returns we see in those new stores. The second place where you'll see us continue to lean in is in store remodels and refreshing the existing fleet of stores. And while we've been talking about that for several years, we've been hard at work, as Brian even touched on in his opening remarks of remodeling the chain, that work isn't yet finished, and we want to make sure that we're investing in some of the stores that when we bring our latest and greatest store experience we see a reliable strong response from guests. We continue to see strong sales lifts that justify the investment in those remodels. And so for the stores that haven't yet seen a remodel, we think it's imperative that we bring our latest and greatest thinking. That's a direct investment in the store experience itself back to the strategy. And the merchandising authority because when we do a remodel, we reallocate the space up to our latest and greatest thinking by strategy, and that helps the merchandising drive some of that sales lift. And then importantly, technology will continue to be an area of focus for investment. We know the power of technology to help the humans and the humans that we focus on most there are obviously our guests and our team. And so wherever we can lean in and use technology. And again, it generates returns when we make things more delightful for our guests and the way technology can help with personalization on the app or help us get product to their doorstep faster and then for our team where we can allow the process-focused work of the team to get a boost from technology that frees up our store teams to better serve guests. And so there's a lot of examples within that CapEx investment. But at its core, or does it directly support the areas of focus within the strategy and do we like the returns. And then the answer to those 2 questions is yes, you're going to see us invest. Corey Tarlowe: Corey, if I can add just one more thing on top of that. When we add new stores, the added benefit for us is that we continue to build out our fulfillment footprint and capability and allows us to also expand our national digital reach as well, so that at a benefit of new stores. Corey Tarlowe: Great. And then I just have a quick follow-up to Michael. On your comments on change, I just wanted to double click on that, that word specifically, and the quotient and the multitude of change that you're thinking about making as we head into 2026 and the benefits that you're seeing from lowering prices on key frequency categories. And how you're thinking about the opportunity to cut further costs potentially because we did talk about investing in agility in terms of SG&A? So curious about how you think about the ability for the business to change today and how you're building for the future in that regard? Michael Fiddelke: And Corey, if I zoom out change is going to be incredibly important. And you've heard us say quite plainly, we're not satisfied with our performance over the last few years. While the third quarter came in as expected, you're not going to get a ton of satisfaction for us until that's accompanied by the growth that comes with a positive comp. And so we've got to do the work. There's no shortcut. And that means driving change to get different outcomes. We're starting all of that change with really clear priorities. We know how Target is best positioned to uniquely win. And when we lead with great product, when we're design-led and differentiated and we pair that with an excellent experience, that's what's driven Target's strength in the best of times before, and we think the modern version of that can get the growth outcomes that we want. And so that does mean doing the work. That means doing the work to make changes like we are in FUN 101 to get different outcomes on the merchandising side. That means making the right investments and driving the change so that, that experience can be great in every store, every day in stores and online, but we're doing the work and a huge credit to the team that you can see the progress of that work in ways that get us excited about what's to come even within those third quarter results because we can see where we've focused and made change. We're getting some of the outcomes that we want. And so next year, we'll be about expanding upon that to bring more of those wins across the business at greater scale. Operator: Our next question comes from Joe Feldman with Telsey Vicari Group. Joseph Feldman: I wanted to drill in a little bit more there on some of the changes. When you're talking about the in-store changes for next year. Are there any examples you can give us? I know you mentioned there are key pads within the store maybe. I'm assuming like the FUN 101, but broadening it out, maybe you could share a few examples. Michael Fiddelke: I'd be happy to share a few examples. Let me start with FUN 101 because we talk about it as a success story, and we are delivering growth, but it's just beginning. We still have more changes to make to FUN 101 to truly make that a family destination that's full of style, trend, design, pop culture. So you're going to see those changes come to life in '26. The other area that we're making some changes is in home. Home has been a challenged business for us. We are making changes to the product to elevate the style of the product but then we're also changing the store experience to facilitate more discovery to facilitate more inspiration and really stand tall for what will be a revamped a reinvented threshold brand. So those are some of the -- we're making changes. Obviously, our contract with Ulta Beauty ends August '26. So teams are working really hard and coming up with some great ideas for how we will expand our assortment and then how we'll also elevate the experience. We'll be able to share more specifics on that at the Financial Community Meeting. And we're making some changes in Baby. We think baby strategically is a really important category for us. We have historically done very well there. It's an acquisition kind of category, we bring people into Target and it starts kind of along several years of loyalty as their children grow up. But we have an opportunity to make that space a little bit more inviting, a little more inspiration and also bring more gifting into it. So those are just some headlines of what we're looking at. We'll be in a much better position at financial community meeting to share more specifics on those plans. But I got to tell you, I am really excited about these changes. And I think as we said in the prepared remarks, this is the most change we have made to the store floor pad in 10 years. So we're -- it's a lot of work, but we're really excited about it. Joseph Feldman: That's great. That was helpful. And then just a quick follow-up. With regard to the -- your Target Circle card, can you talk maybe about some opportunities there? It feels like it's been declining the penetration of Target Circle Card, I guess, has been declining a little bit. And I'm just curious as to if you have any reasons as to why that may be and what you can do to kind of recapture some of those customers, maybe where they've gone otherwise. Edward Decker: Sure. I'd be happy to talk about Target Circle. What we love about Target Circle is it's huge size. It's one of the biggest loyalty programs in the country. And now with Target Circle 360, we have a membership component to it. And what's really exciting about that is it's really helping to fuel our same-day delivery. Target Circle fueled a 35 comp growth in same-day delivery this past quarter, which is really encouraging. The conversations that we're having is now at, how do we continue to innovate and evolve on the platform. and things that we are looking at and trying or early access events with Target Circle 360. We did that this past October with Target Circle week, and it was really well received. So we'll be doing a lot more of that this holiday season. And the last point I would make is we're really excited to have the first-party data that we get through Target Circle and be able to leverage that for personalization, particularly through this holiday season. So that will be one of the tools in the toolbox that we'll be using. Michael Fiddelke: And Joe, if I can just build on the question also specifically on card. If you're referring to what you see in the results from profit sharing, we did see lower spend, a little bit lower penetration and overall lower balances in the card program. But what's important is what Rich has highlighted is that when you think about our whole loyalty program holistically across Circle 360 and the card program, and we're very pleased with the results we're seeing so far. Where we do have an opportunity, Joe, is to use where Rick started with that big base of target circle. It's a better on-ramp to folks for whom a circle card makes a lot of sense. And so that's a place where we haven't yet achieved our potential. And so making sure that we because we can know a guest and circle so well, that means we should be positioned to know which of them at the right point in time would most like a circle part too. And we've got work to do on that front. We haven't tapped into that to the degree that we would have hoped. And so you'll see that be an area of focus going forward for us. Operator: Our next question comes from Mike Baker with D.A. Davidson. Michael Baker: I think you said -- correct me if I'm wrong, but October flat, yet you're guiding to down low single digits to the fourth quarter. Is that indicative of a little bit of a slowdown post Halloween? And I guess, as a follow-up to that, a pretty wide range in terms of EPS for the fourth quarter. Can you talk about what you're expecting in terms of margins within that fourth quarter range and how you get to the low end versus the high end, et cetera? Michael Fiddelke: Yes. I'm happy to start, Mike, and Jim, feel free to add on. If you look at -- while the quarter came in where we expected it overall, we definitely did see volatility by month in Q3. And so that factors in to how we're thinking about our expectations, but we feel good that we've got the business positioned well heading into fourth quarter. We feel like our top line and bottom line guidance is prudent based on the volatility that we saw in Q3. And we start the quarter in a really good place, something we haven't unpacked as much yet. So I'll touch on it briefly is that inventory is in a great place as we step into the fourth quarter. on the balance sheet, it's down 2%. It's up in our frequency categories, which makes sense given the investments that we're making there and stronger inventory reliability and in-stocks and it's appropriately down, I think, in an appropriately cautious position in the discretionary categories. And so we start the quarter where we would want to be positioned from an inventory perspective, and we feel like it's the prudent place to be. Jim, feel free to add as we're thinking about profit for the fourth quarter or how we've reflected Q3 trends into that view. James Lee: Yes, Mike. And if I build up on that, I mean if you take a step back and look at Q3, obviously, we faced a pretty dynamic environment. And as our gross margins and percentage-wise was broadly flat, we're pleased with the performance, and that's in line with expectations and a big thank you to the team to manage and navigate and move quickly with agility to meet the needs of consumers and understand where things are heading. We expect that dynamic to continue in Q4. We do expect a continued volatile environment, which is why there's a little bit still, I guess, a wider range in place because we want to make sure we are -- we have the ability to react quickly to change this new environment that will represent the range that we're looking at. Michael Fiddelke: Only build I might have, and Rick, feel free to chime in here as -- we don't have a perfect crystal ball for exactly how it's going to play out by day or by week in Q4. But the thing we feel really good about is how we'll show up for the guests. You've -- we've touched a little bit on some of the questions on making sure that we meet the guests where they're at. And for us, that's always a couple of things because there's a couple of ingredients of how guests view value. It's the combination of great prices, and you heard us invest in 3,000 price cuts across Food & Beverage and Essentials we're really excited about a Thanksgiving meal for 4 under $20 as we step into Thanksgiving here right around the corner. And for Target, it's also pairing that great price with incredible product. And so I'm just as excited about the 20,000 new items that we'll have this coming fourth quarter, twice as many as last year as I am about the great pricing guests will find on those items. And so it's that combination for us that matters so much. And on that front, we feel really good about what guests are going to find as they travel the site and the store and the holiday season. Operator: Our next question comes from Kate McShane with Goldman Sachs. Katharine McShane: We wanted to drill down a little bit more on your commentary around inventory and in stocks. Is there any way you can kind of talk to how you feel about the inventory position going into holiday, how it looks versus last year? And just how you see the cadence of in-stocks improving over time. Michael Fiddelke: Yes, Kate, as I think about inventory broadly, we touched on a little bit of that, and Mike's question a second ago, but I do think it's important to spend a moment on in-stocks. And I would expect because being in stock matters so much to our guests, that's a topic you see us come back to over and over and over again in all of these earnings calls to come because it matters so much. If you've trusted us with a trip to the store, we can't let you down by being out of stock and we haven't been good enough over the last several years on that front. And so we're laser focused on improving that. And a huge credit to the team for the progress that we've seen so far. I can dimensionalize that just a little bit more here in a second. But I also want to emphasize that work is not done. The bar for the consumer for our guests is higher than ever before on that front. And so you're going to see us continue to lean in to make progress over time. Where we've started is with a really acute focus on those most frequently purchased items, where if we're out of stock, it hurts more, if you're a guess, and we've let you down. And so you heard in my remarks, the focus on our top items. So think of those as the 5,000 most frequently purchased items. They account for about 30% of our unit sales. And so a big piece of what guests are finding and buying every day at Target. And as the team has leaned in to make progress on that subset of items, it comes in a whole bunch of ways. It comes with embracing the use of technology to help us forecast better and being more in stock that way. It comes with us having a better view of how we're really performing. We've described it before. We've changed some of the measures we use for in-stocks that give us a clearer mirror than ever before where we're doing great and where we're falling down. And that's been really helpful because it's told us Okay, we might be okay on average in some places, but we're not good enough at the end of the day or we have a shortfall on weekends that we need to address. And so teams have been hard at work in moving the needle there. And on the measures that we move, you heard me describe a 150 basis point improvement in Q3. If you're not close to the work, it's maybe tough to appreciate how big that progress is. But what I like is that better year-over-year improvement in Q3, performance versus last year than we saw in Q2, which was better than we saw in Q1. And that trajectory gets me really excited that we're doing the right work to get a different outcome. And if we can keep that progress up and I have a ton of confidence that, that's exactly what we'll do. We'll be more and more in stock as we move through 2026 than we were in 2025. Operator: Our last question will come from Michael Lasser with UBS. Michael Lasser: You just outlined a lot of the progress that you're making on key operational metrics such as in-stocks and speed to market, yet we really haven't seen it trend ally to an overall improvement in the performance of the business. So the obvious question is, why not? And what -- as outsiders, is a reasonable time frame for holding the team accountable for showing that progress? Michael Fiddelke: Yes. Thanks for the question, Michael. Here's what I'd say. We're not satisfied with the top line performance of the business, even as it's come in as we expected in Q3. And so we're doing the work with urgency. As a team, our focus is to get back to growth. And we know that won't happen overnight, but we know what the path is. We're focused on making progress. We see momentum where we're making that investment a huge credit to the team to do the work that's going to get that outcome over time. And so we'll unpack more what our expectations for next year look like when we get to the financial community meeting in March. But I feel really good that we've got a team focused on doing the work now that will lead to growth over time. And rest assured, we are tackling that work with urgency. Michael Lasser: Okay. My follow-up question is -- if I could just add one more on... Joseph Feldman: Go ahead. Michael Lasser: Very much, Michael. I appreciate it. And I will add my best wishes to Brian. You've already outlined the $1 billion of incremental for next year, perhaps there might be some incremental operating investments that could take down the profitability a bit next year. How amongst those guardrails are you thinking about the commitment to the dividend and the importance of that to your certain shareholders moving forward? Michael Fiddelke: Well, and Jim, feel free to pile on to this one if you'd like. You've heard us describe our support and strong support over time of the dividend, Michael, you shouldn't expect anything to change there. We've been consistent in our capital priorities for as far back as I can remember in my 23 years here. And it starts with making the right investments in the business. The $5 billion we'll put to work next year. We're really excited. We'll generate the returns and the growth that warrant that level of investment. The dividend is always the second priority, and I think our track record speaks for itself in terms of our support of the dividend and share repurchases with what's left piece that we'll always adjust as appropriate, but the dividend sits second in that priority list for a reason. Thanks, Michael. That brings us to the end of today's call. Thanks, everyone, for your questions and engagement.
Operator: Good morning, and thank you for standing by. Currently, all of the participants are in listen only mode. After management's discussion, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Michael Poliview, Please go ahead. Michael Polyviou: Thank you, Ella, and welcome to IceCure Medical's conference call to review the financial results as of and for the 9 months ended September 30, 2025, and provide an update on recent operational highlights. You may refer to the earnings press release that we issued earlier this morning. Participating on today's call are IceCure Medical CEO at Eyal Shamir; and the company's CFO, Ronen Tsimerman. Before we begin, I will now take a moment to read a statement of our forward-looking statements. This call and the question-and-answer session that follows it contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Words such as expects, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations of so forth and intended to identify forward-looking statements. For example, we are using forward-looking statements in this presentation when we discuss but the FDA's marketing authorization process will drive meaningful growth for us and support broader access for patients. We believe the global interest following the FDA authorization will support international adoption the belief that ProSense will be the only [ cablation ] system cleared in the U.S. for blast cancer in the foreseeable future. The expectation that Terumo Corporation will submit regulatory applications for ProSense, in Japan in the first half the expectation that revenue and gross profits may continue to vary quarter-to-quarter as the company focused on building commercial scale sales and the belief that the company's cash, cash equivalents and short-term deposits, positions puts it in a stronger financial position to continue executing across regulatory, clinical and commercial initiatives. The forward-looking statements contained or implied during this call are subject to other risks and uncertainties, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company's annual report on Form 20-F for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 27, 2025, which is available on the SEC's website at www.sec.gov. The company disclaims any intention or obligation, except as required by law, to update or revise any forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, November 19, 2025. In addition, during the course of this call, was because certain metrics that are non-GAAP measures and refer you to affiliation tables and other information about these non-GAAP measures included in the earnings press release that we issued earlier this morning. I will now turn the call over to IceCure Medical's CEO, Eyal Shamir. Eyal, please go ahead. Eyal Shamir: Thanks, Michael, and hello, everyone, and thank you for joining us today to review our results for the first 9 months of 2025. During the third quarter, we remained focused and executed a growth multiplying front, including commercial operations, technology, intellectual property and regulatory matters. In October, we announced the most significant milestone in IceCure history, those for when the FDA granted marketing authorization for our [indiscernible] system to treat low-risk breast cancer. This authorization validates the clinical research we have invested in over many years and positions IQ at the forefront of minimally invasive breast cancer care. As a reminder, the authorization is for women aged 70 and older, with tumors up to 1.5 centimeters or receiving aggrevant endocrine therapy, including women who are not eligible for surgery. The indication cover a population of roughly 46,000 women in the U.S. over 70 years of age diagnosed each year. Lusan estimated 88,000 patients who are not candidates or willing to go through surgery and patients that can be treated for palliative purposes. By addressing the needs of patients, we cannot choose not to undergo surgery. Persons offer an important alternative to treat cancer that was not previously available to those patients. Additionally, 10% of women are diagnosed with benign restaurants annually and of this approximately 63,000 U.S. women operated to remove the benign breast tumors VI surgery treatment, which called lumpectomy. Collectively, this is a significant addressable market for process of roughly 200,000 patients annually, representing a significant opportunity ahead for IceCure. The response to the FDA decision has been extremely encouraging. We are seeing growing interest from the U.S. clinicians, including breast surgeons, interventional agents and breast geologists, many of whom are requesting demonstration and installation. Our U.S. commercial team is focused on expanding process installation, freezing volume and utilization. We believe IPO is the well positioned at this time for reasons including the fact that the FDA marketing authorization established that any other company wishing to file for a 510(k) marketing authorization for different cryoablation system to treat breast cancer will be required to submit 5 years of follow-up data, use a liquid nitrogen-based system and use probe [indiscernible] engage. To our knowledge, no other company is currently conducting a breast cryoablation study in the U.S. Given this significant barrier to entry, we believe ProSense will be the only cryoablation cleared in the U.S. for breast cancer in the possible future. In the U.S., we have other 20 commercial sites using ProSense prior to the FDA marketing authorization. We expect the number of commercial site will increase organically in addition to the 30 clinical site plan for our upcoming post-market study. We have submitted the study design to the FDA for review and will provide an update when we receive the FDA approvals to move forward with the post-market study. As a reminder, the FDA approval to move -- sorry, as a reminder, the clinical site while treating study patients with the benefit of reimbursement will also be available for any appropriate patients sticking ProSense [indiscernible] commercially. We expect this rollout to drive meaningful growth in both clinical use and product adoption. ProSense currently benefits from a CPT 3 code covering approximately 3,800 [indiscernible] costs. This is expected to increase to just over $4,000 in early January 2026. This improvement, combined with the FDA authorization should support broader access for patients. Beyond the U.S., we are experiencing a high level of global interest from clinicians in response to the FDA decision in markets where ProSense is already approved for breast cancer. Just a few days ago, we added Switzerland to our growing list of countries in which ProSense has been approved. As our office in Israel, we are currently hosting a visit from a distinguished Brazilian medical delegation their visit encompass a clinical overview and a roundtable discussion featuring meeting with the key opinion leaders and presentations regarding ongoing clinical trial for breast [indiscernible]. The delegation, which includes 5 interventional [indiscernible] and breast [indiscernible] also observe live clinical cases in [indiscernible] and Bellingan medical centers in Israel. In Brazil, the largest health care market in Sout America, Rosen is approved for breast cancer as well as other indications. And we have a distribution agreement with EUR 6.6 million expected over the next 5 years. Furthermore, our global marketing and clinical team have been approached by numbers medical societies to ensure our participation is in upcoming conferences in 2026. European and Asian medical societies are specifically adding breast cancer cryoablation master classes with ProSense. On the innovation front, we continue to make strong progress. In September 2025, our net generation probation system received regulatory approval in Israel for breast cancer and other indications. We recently secured a notice of patent allowance for Accent and its [indiscernible] product in the U.S. and in Japan, further strengthen the intellectual property portfolio. ProSense continue to gain significant visibility and at leading medical conferences around the world. Since the beginning of the third quarter, it was featured at [indiscernible] 2025 the Japanese Breast Cancer Society Conference, the European Society of Breast Imaging Congress and the aptitude restake the lead in the breast cancer care full summit in New Orleans. In addition, we have partnered with Karig Hospital in Florence, Italy, and conducted a 2-day course of theoretical and hands-on training for physicians from across the globe, helping to broaden adoption and expertise for breast cancer carioablation. Finally, an ongoing clinical validation continues to reinforce the safety and the effectiveness of our technology. During and following the end of the third quarter alone 13 independent study in breast cancer world presented and published as well as encouraging data in lung cancer and endometriosis, further demonstrating the growth activity and clinical value of ProSense. In addition to the recent improvement in Switzerland, we are also advancing our global regulatory strategy with our partner in Japan, Terumo Corporation plans to submit a regulatory application for the ProSense in the treatment of breast cancer in the first half of 2026, marking an important step expanding access to ProSense in new international markets. In summary, we believe ITO is entering an exciting growth phase. We are implementing our sales and marketing strategy in the U.S. to target a patient population of about 200,000 women annually to drive and accelerate growth, we will continue to expand clinical evidence, improve reinvestments and enter new markets. We are confident in the path ahead for both patients and shareholders. I will now turn the call over to Ronen. Ronen Tsimerman: Thank you, Eyal. For the 9 months ended September 30, 2025, revenue was $2.1 million compared to $2.4 million for the same period in 2024. Revenue for the first 9 months of 2024 included $100,000 from our exclusive distribution agreement and other services with Terumo, our distributor in Japan while [indiscernible] revenue was booked during the first 9 months of 2025. We had $316,000 decrease in sales during the 9 months ended September 30, 2025 due to a decrease in sales in Japan, other territories in Asia and North America. Partially offset by an increase in sales in Latin America. As we have said in the past, we expect fluctuations in quarterly revenue as commercial activities ramp in the U.S. and globally following the FDA's marketing clearance for process in low-risk breast cancer. Gross profit for the 9 months ended September 30, 2025, was $626,000 compared to $134,000 in the prior year period. This resulted in a gross margin of 30% versus 43% in the same period in 2024. As we previously communicated, we expect gross profit may continue to rise quarter-to-quarter and the company focuses on building commercial scale sales. Overall, total operating expenses decreased to $11.5 million for the 9 months ended September 30, 2025 compared to $12.2 million a year ago. This reflects our efforts to optimize spending without sacrificing commercial or regulatory execution. Net loss for the 9 months ended September 30, 2025, was $10.8 million or $0.18 per share, relatively the same as net loss of $10 million or $0.22 for the same period last year. As of September 30, 2025, we had $10 million in cash, cash equivalents and short-term deposits compared to $7.6 million as of December 31, 2024. In July 2025, we completed a rights offering, which was approximately 2x oversubscribed, raising $10 million in gross proceeds to support commercialization of Process Systems. During the first 10 months of 2025, we raised approximately $5.87 million in net proceeds from the sales of 5.4 million ordinary share through a market offering facility, bringing our cash balance as of October 31, 2025, to $11.8 million. We believe this puts us in a stronger financial position to continue executing across our regulatory clinical and commercial initiatives. Operator, we will now open the call for Q&A. Operator: [Operator Instructions] The first question is from Anthony Vendetti of Maxim. Anthony Vendetti: Ronen. I just want to just find out where it's at with the FDA for approval of the post-market study, I know you're awaiting that final approval -- has there been any communication with them? Or you're just kind of in a wait-and-see mode? Ronen Tsimerman: As I described in my part, we submitted the protocol to the FDA, and we started interactive communication with them in order to finalize it. But the official protocol with all other elements already submitted to the FDA. Anthony Vendetti: Okay. So there's -- they haven't indicated or there's not necessarily an expected time line of when they'll officially sign off on it. But you've identified 30 sites and well, there's 30 sites that you need I believe in the last quarter, you said 20 have been identified. Can you give us an update on those numbers, please? Ronen Tsimerman: Yes, we have about 20 sites that identified, we are adding more of that, but it's mainly around the clinical protocol, the statistical analysis plan and the claim database. So we are working on all elements. And I believe that more or less by the end of the year, maybe the shutdown delay a bit but by the end of the year, very early next year, we will get the final approval. And then by summer '26, we will need to -- or maybe before, but not later than summer '26, we need to recruit the first patient, 20% to reach 80 patients by end of 2026. Anthony Vendetti: That certainly seems like a very easy hurdle. In this press release, you mentioned that there might be even more patients that could benefit from cryoablation because the ones that are low risk over 70. I think was -- we originally -- I think it was originally identified as around 46,000. But in this press release, you said there's 88,000 additional patients that could benefit as well as another 63,000 that could be treated for benign tumors as well. Is that new information? And maybe just elaborate on that, please. Ronen Tsimerman: Yes. So part, Anthony, if you remember, part of our grand letter authorization letter that we got from the FDA contain like 2 parts. One of them is a low-risk early stage for patients who are 70 and older up to 1.5 centimeter. This, as you mentioned, represent about 46,000 new patients every year in the U.S. And the second part, which is due also to the breakthrough device designation that I still got in 2021 is patients who are not eligible for surgery. It could be patients with comorbidities that they cannot take them to the overall and put them under general patients who are not willing to do surgeries, patients that maybe even they are in stage that it's less cable, but more as the palliation treatment, according all the evidence from sales and other evidence, we believe that the number is the 88,000 new patients every year in the U.S. for those who are surgical or not willing to do. And the benign breast tumors that now our new users that the most drive is, of course, breast cancer. But those hospitals clinic, breast surgeons and breasts seeing also younger patients, again, 1 million new patients every year, mainly from the age of 21 to 35, suffering from benign tumors and about 63,000 of them are surgically removed So we believe that part of this addressable market could be replaced by cryoablation as the minimally invasive because those younger patients both the image bikini line is extremely important for them from the outpatient facility fee. It's the same coverage, which in January will be about $4,000 -- and for that, we have a specific indication and also a specific even CPT1 code for benign breast tumors. So all of that giving us a potential addressable market of over 200,000 new patients every year just in the U.S. Operator: [Operator Instructions] There are no further questions at this time. I will turn the call over to Eyal Shamir for concluding remarks. Eyal Shamir: Thank you for joining our call today and for the great questions. We believe the FDA marketing authorization has dramatically changed our growth trajectory. We look forward to keeping you all updated as we continue to execute on our commercial rollout of poses in the U.S. and globally. As a great day, everyone and for those in the U.S. Have a happy Thanksgiving. Thank you. Operator: This concludes the IceCure Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Welcome to the Global-E Third Quarter 2025 Earnings Conference Call. This call is being simultaneously webcast on the company's website in the Investors section under News & Events. For opening remarks and introduction, I will now turn the call over to Alan Katz, Global-E's Head of Investor Relations. Please go ahead. Alan Katz: Thank you, and good morning, everyone. With me on the call today are Amir Schlachet, Co-Founder and Chief Executive Officer; Ofer Koren, Chief Financial Officer; and Nir Debbi, Co-Founder and President. Amir will begin with a review of the business results for the third quarter of 2025. Ofer will then review the financial results for the third quarter, followed by the company's outlook for the remainder of 2025. We will then open the call for questions. Certain statements we make today may constitute forward-looking statements and information within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including, without limitation, statements regarding our future results of operations and financial position, growth strategy and plans and objectives of management for future operations including onboarding new merchants, expanding our offerings and introducing and integrating new solutions are forward-looking statements. These forward-looking statements reflect our current views with respect to the future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including those set forth in the section titled Risk Factors in our annual report on Form 20-F filed with the SEC on March 27, 2025 and other documents filed with or furnished to the SEC. These statements may reflect management's current expectations regarding future events and operating performance and speak only as of the date of this call. You should not put undue reliance on any forward-looking statements. Except as required by applicable law, we undertake no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Please refer to our press release issued today, November 19, 2025, for additional information. In addition, certain metrics we discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation from as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. For more information on these non-GAAP financial measures, please see the reconciliation tables provided in our press release today. Throughout this call, we'll provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release issued today. I will now turn the call over to Amir, our Co-Founder and CEO. Amir, please go ahead. Amir Schlachet: Thanks, Alan, and welcome, everyone, to our third quarter earnings call. We achieved another quarter of very strong results, coming in above the midpoint of our guidance for revenue and adjusted EBITDA and even exceeding the top end of our guidance range on GMV. This strong performance was a result of the entire Global-E team around the world continuing their relentless execution throughout the quarter, developing and providing best-in-class solutions and services to our merchants and their shoppers. Before we dive into the quarter, in terms of our forward-looking outlook, given what we see in the market today and the overall robustness of trading volumes we have witnessed in Q3 and Q4 to date, we are once again raising our midpoint outlook across all of our guidance metrics for the remainder of the year. As such, for the full year of 2025, we now expect GMV to be roughly $6.46 billion at the midpoint, representing just over a 33% annual growth rate. We're also raising our revenue and adjusted EBITDA guidance for the full year to $952.1 million and $192.8 million at a respective midpoint, representing 26.5% and 37% growth for the year, respectively. As in previous years, in 2025, we once again expect to surpass the full year guidance ranges that we shared with you in the beginning of the year, a testament to the durability of our growth algorithm. We believe this strong performance for 2025 keeps us on track to deliver the multiyear growth and bottom line profitability targets we shared with you during our Investor Day earlier this year. Back to our quarterly results. We finished Q3 with GMV of $1.51 billion, up 33% year-over-year and revenue of $221 million, up 25.5% year-over-year. In terms of profit, our adjusted gross profit for Q3 was $102 million, up 24% from last year and quarterly adjusted EBITDA was $41.3 million, up 33% compared to the same quarter of last year, resulting in an 18.7% margin, a 100 basis point improvement compared to Q3 of 2024. Our GAAP net profit for the quarter was $13.2 million, and we generated $73.6 million in free cash flow, an increase of almost 250% compared to last year. Now before I go through the current trading patterns and our Q3 new merchant launches, I want to provide a few broader business updates. First, on several previous calls, we have mentioned our duty drawback offering, a value-added service that we have provided in certain non-U.S. markets for some time now. By use of these value-added service and depending on the sales parameters, merchants can potentially reclaim import duties on goods that are exported outside of their home base as well as on return goods. Given the recent suspension of the de minimis exemption, we have seen increased interest in this offering also for the U.S. In parallel to other offerings, such as 3 B2C all aimed at helping our brands to navigate the stormy orders of international B2C trade. Within the quarter, we also got the permit to offer import duty drawback to our U.S.-based merchants for their exports out of the U.S., further supporting them in optimizing their cost of trade in times of change. Second, a quick update on our managed market solution. We've been working in close collaboration with our partners at Shopify, according to our joint plans. Over the past 6 months, most of the development has been completed for a rollout in 2026 and we are currently in beta testing for the new flow. As a matter of fact, new merchants that apply now to managed markets are already going through the new flow. We still have some tweaking to do on the back of what we will learn from the better merchants, but remain on track for the next phase of managed markets, moving to full commercialization. Third, we continue to make good progress on our borderfree.com offering. During Q3, we added a buy-now capability as well as advanced search functionality, enabling a more streamlined shopper experience and improving sales conversion rates. We also continue to see further growth in shopper sign-ups as well as an increase to the share of merchant sales attributable to the borderfree.com channel which now stands at over 4.5%, representing an increasingly valuable demand generation channel for merchants on the program. Lastly, during the quarter, we announced the authorization of a $200 million share repurchase program by our Board. Global-E is a highly cash-generative business. And given our strong balance sheet and our track record of generating sustainable cash flows, we see a share buyback plan as a logical use of cash, especially at the current market valuation. Given the blackout periods that we are subject to in Q3, we have not yet begun buying back shares but we expect to do so starting in the coming days. We will employ a thoughtful approach here to take advantage of any disconnect we see between our performance and outlook and the market valuation of our shares. I also want to spend a few minutes on how we are strategically approaching AI in general and agentic e-commerce, in particular, and what we are doing to make sure we are well positioned to capitalize on this upcoming market opportunity. Throughout this year, we've already been seeing some traffic to our merchant sites being initiated from ChatGPT and resulting in successful transactions processed by Global-E as well as agent-assisted in-chat checkout transactions. While both still represent a very small share of sales for our merchants, we believe these are exciting potential new sales channels for them. As brands focus more on selling within these third-party channels, we will continue to provide the same best-in-class support and service that we provide across all of our sales channels. Irrespective of the sales channel, the value of our expertise and capabilities do not change. We meet our brands wherever they spend online and provide support for them to transact internationally regardless of the source of traffic. Furthermore, we have deployed AI-powered use cases throughout the buying journey from demand generation, utilizing AI, both for brands using our agency services and for our own B2B marketing through to different aspects of trade and post-purchase support from classification, down to customer care. In parallel, we also have an internal team focused on making sure that our solutions will be positioned to work seamlessly across the agentic commerce platforms for Instant Checkout from both a merchant and a consumer perspective when such platforms are introduced to the market. As our partners look to work with agentic technologies to provide instant checkout capabilities, we will be there to provide a seamless, effective and compliant end-to-end international experience. This is all obviously very early in the life cycle. But as always, we will keep doing what it takes to remain at the forefront of Global-E commerce, and we utilize the advantages of our scale, know-how and sophistication to emerge a share gainer. By focusing on this early and engaging with key players in the space, we are aiming to maintain our [indiscernible] position for the enablement of seamless cross-border commerce within AI-led transactions in the future. Now let's move on to the broader business performance in the third quarter and what we're currently seeing in Q4. As I already mentioned, we saw consumer discretionary spending holding up during Q3 and Q4 to date. And we continue to see strong market traction with our largest merchants across different destination markets. The trading patterns we have seen in Q3 and the first half of Q4 give us confidence that we will end the year strong. In terms of new merchant launches within Q3, we continue to grow across geographies and within our cohort of merchants. We experienced continued strong demand for our services across different markets as a large number of brands went live with Global-E during the quarter. This included multiple brands that went live with us in the U.S., such as Everlane, the renowned high street online U.S. clothing retailer that recently moved to Shopify, chose Global-E to accelerate its international growth and Ashford, the luxury U.S. watch brand. In Canada, we launched with the online shop of Drakes fashion brand, October's Very Own, as well as Aritzia, the fast-growing clothing company which has shown a quick ramp-up of their conversion rates and international sales post launch with Global-E, as they mentioned in their current -- in their recent quarterly earnings call. In the U.K., we launched a renowned luxury brand Coach which is part of the Tapestry group of brands; with Browns Fashion formerly part of Farfetch; and with the Jewelry brand, Regal Rose. I'm also pleased to say that U.K.'s Marks & Spencer is back online as of October and their trading is back to normal patterns. In France, we launched with Chloe, the renowned luxury fashion brand, thereby extending our partnership with [indiscernible]. We also launched with [indiscernible], the classic French sportswear brand and with the fashion brand Hartford. Across other European markets, we launched a Sleeper brand, Kalida and dog wear brand CLOUD7 in Germany, and with D1 Milano watches in Italy, among others. In Asia Pacific, we launched Bandai Spirits, the famous Japanese toy and collectible company, as well as Japanese designer fashion brand, Mihara Yasuhiro, and Posse, the high-end Australian fashion brand. We also launched Beauty of Joseon, a Korean skin care company; and Paper Shoot, a consumer electronics brand, which is also the first Taiwanese brand to sign with us. Another exciting launch in the region during Q3 was that of Blackbough Swimwear, our first brand out of the Philippines. Within the sporting goods vertical, golfers around the world can now buy their [indiscernible] from Tacoma Grove, the finished D2C Golf brand, which went live with us during Q3. During the quarter, we also went live with Live Sports, a U.K.-based sports equipment brand and with Luke [indiscernible], a Scandinavian fly fishing gear company, which is also the first to integrate our services on a headless [indiscernible]. Besides many new merchant launches, during Q3, we also expanded our scope of business with quite a few existing merchants, such as FIGS where we expanded into South Korea in a number of Latin American markets. Helmut Lang, the New York-based fashion brand and the merchandise division of JYP Entertainment, one of the largest K-Pop labels and production companies which both expanded into Japan. Bang & Olufsen and Tom Ford, which both opened a number of new European markets with us in the quarter. Australian fashion brand Zimmerman, which went live with us with its [indiscernible] serving the APAC region and fashion brand Theory, which added support for several GCC countries out of its new U.K. [indiscernible] integration. Both Burberry and [indiscernible] Eyewear, who we worked with to expand into Mexico. Bach, we expanded with us into Norway and [indiscernible] which added more than 10 new countries, including Japan, Italy, Spain and several Nordic countries. Furthermore, as I mentioned earlier, in the face of higher tariffs and the suspension of the de minimis exemption in the U.S., we have seen heightened interest in our 3 B2C and multi-local solutions as well as our duty drawback value-added services. More and more merchants, both existing and new, continue to pivot to utilizing these advanced capabilities in order to mitigate as much as possible the effects of the new duty regimes on their business. The launch of new merchants and the continued expansion with existing merchants as well as our current pipeline, give us confidence that we are well positioned in terms of both our near-term and our long-term targets. We have good visibility to durable, profitable growth and a strong pipeline of cash flows into the future. Our results year-to-date would be impressive in any environment. But considering the uncertainty that the global e-commerce market faced at the start of 2025, I believe these results really showcase the resiliency of our business model and the value that we create for our merchants. I will now hand it over to Ofer to take us through the quarterly numbers in more depth and our increased 2025 guidance in Q4. Ofer Koren: Thank you, Amir, and thanks, everyone, for joining us today for our earnings call. As Amir just highlighted, we achieved another strong quarter of growth for globally. We delivered results at or above the top end of our guidance ranges for GMV, revenue and adjusted EBITDA, generated strong free cash flow and had another quarter that landed well above the Rule of 40. Before I go into the details of the quarter, I'd like to remind everyone again that in addition to our GAAP results, I'll also be discussing certain non-GAAP results. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release issued today. GMV in Q3 was $1.512 billion, up 33% year-over-year, 3% above the midpoint of our range for Q3. Trading volumes remained resilient in the third quarter despite some uncertainty due to ongoing changes in tariffs. As Amir discussed, we have also seen solid trading volumes through the first half of Q4, including significant contribution from some of the newly launched brands. The holiday shopping season is just getting underway, and we have seen initial sales volumes in line with expectations so far. In Q3, we generated total revenue of $220.8 million, up 25% year-over-year and 2% above the midpoint of our guidance range. Service fee revenue for the quarter was $103.5 million, and fulfillment services revenue for the quarter was $117.3 million. Service fee take rate was slightly lower than Q2 and in line with the first quarter, driven by mix, while fulfillment take rate was similar to last quarter and as expected, lower compared to the first quarter given the planned shift of certain volumes to multi-local and our growth within verticals that are multi-local by nature. Progressing through the income statement, non-GAAP gross profit was $102.1 million, up 24% year-over-year representing a gross margin of 46.3% compared to 46.7% in the same period last year. GAAP gross profit was $99.6 million, representing a margin of 45.1%. Moving on to operational expenses. In Q3, we continued to invest in the enhancement of our platform to further expand our offerings and add value for our merchants while leveraging our scale and AI tools and agents to gain efficiencies. R&D expense in Q3, excluding stock-based compensation, was $26.1 million or 11.8% of revenue compared to $22.8 million or 13% of revenue in the same period last year. Total R&D spend in Q3 was $30.8 million. We also continued to invest for growth within our sales and marketing organization, while remaining focused on cost and efficiency including by the growing use of AI-powered tools across our sales and marketing activities, such as demand generation, lead qualification and outreach. Sales and marketing expense, excluding Shopify-related amortization expenses, stock-based compensation and acquisition-related intangibles amortization, was $26.4 million or 12% of revenue compared to $21.5 million or 12.2% of revenue in the same period last year. Shopify warrant-related amortization expense was $8 million in the quarter, down from $37.4 million in Q3 '24. As I've discussed in the past several quarters, we expect this expense to remain at the same level for the remainder of the year and to be completely gone at the beginning of 2026. Total sales and marketing spend for the quarter was $38.4 million, down from $62.7 million in the same quarter last year. General and administrative expenses, excluding stock-based compensation, acquisition-related expenses and acquisition-related contingent consideration were $9.2 million or 4.2% of revenue compared to $7.7 million or 4.4% of revenue in Q3 of last year. Total G&A spend in the quarter was $13.4 million. Adjusted EBITDA was $41.3 million, up 33% from Q3 2024 and 5% above the midpoint of our guidance range. Adjusted EBITDA margin was 18.7% versus a 17.7% margin in Q3 2024, driven by lower operating expenses as a percent of revenue leveraging our scale and cost efficiencies. In Q3, our GAAP net profit was $13.2 million compared to a net loss of $22.6 million in the year ago period. The positive net profit was driven mainly by the reduced amortization expenses related to the Shopify warrants as well as our continued business growth and our growing efficiencies. Moving on to the balance sheet and cash flow statements. We ended the quarter with $552 million in cash and cash equivalents, including short-term deposits and marketable securities. Q3 was a strong quarter of cash generation with free cash flow of $73.6 million in the quarter, an increase of 245% compared with Q3 of 2024. We believe that our free cash flow margin adjusted for seasonality will continue to be strong in the coming quarters. As Amir highlighted, we expect to begin utilizing a portion of this cash to repurchase outstanding shares in the coming quarters in accordance with the Board authorization. We plan to start executing upon our buyback program in Q4, subject to market conditions and other applicable factors. We have a strong track record of cash generation and see an opportunity to return capital to shareholders to drive long-term value creation. We will also continue to look for opportunistic tuck-in acquisition opportunities to enhance our platform or offerings. Now let's go through our guidance for the remainder of the year. For Q4 2025, we're expecting GMV to be in the range of $2.195 billion to $2.315 billion. At the midpoint of the range, this represents a growth rate of 32% versus Q4 of 2024. We expect Q4 revenue to be in the range of $318.5 million to $334.5 million, representing a year-over-year growth rate of 24% at the midpoint. For adjusted EBITDA, we're expecting profit to be in the range of $74.3 million to $88.7 million or a margin of 25% at the midpoint. For the full year of 2025, this implies GMV to be in the range of $6.404 billion to $6.524 billion, representing a 33% annual growth rate at the midpoint of the range, an increase of 2% from our guidance in the start of the year. Revenue is expected to be in the range of $944.1 million to $960.1 million, representing a growth rate of 26.5% in the midpoint of the range, an increase of 1% from our initial guidance. And for adjusted EBITDA, we are expecting a range of $185.6 million to $200 million an increase of 37% versus 2024 at the midpoint and up 2% versus our initial guidance. We are excited by our guidance for Q4 and the full year of 2025 which reflects a strengthened outlook across all parameters. Furthermore, 2025 is expected to be our first GAAP profitable year as a public company. Our upward revised full year 2025 numbers demonstrate and reinforce our path to meet the medium-term targets that we provided at our Investor Day in March. To summarize, we believe the current environment represents exciting opportunities for Global-E to create value for our merchants by growing their sales while optimizing their costs and to continue growing at a fast pace for the foreseeable future. Given the increasingly complicated global e-commerce environment, we believe our services are becoming more and more integral to merchants every day. The market opportunity in front of us remains massive, and we plan to continue on our path to support merchants worldwide in expanding their direct-to-consumer business. Question & Answer Session Operator: [Operator Instructions] Your first question comes from Will Nance with Goldman Sachs. William Nance: [indiscernible]. I wanted to maybe touch a little bit on the commentary around the [indiscernible] product? It seems like you guys have continued to flag the function of the market with [indiscernible]. And maybe if you could talk more [indiscernible] the opportunity for the [indiscernible] services and any changes in how you're thinking about the longer-term trajectory of additional products [indiscernible]? Nir Debbi: Will, thank you for your question. It's Nir. Well, very excited with the developments we've seen obtaining -- updating the permission to offer duties or drawback in more jurisdictions to our clients. As the market becomes more complex for merchants, duty burden globally is rising. We've seen the changes already implemented on U.S. import [indiscernible]. We've seen some changes in the Canadian regulation. We are aware of the upcoming removal of de minimis also for EU that is expected sometime in the back half of 2026 for the entire European community. So the increase of -- in importance of duty drawback is clear because typically in e-commerce out of 100% that is being sold, you would see 10% to 15% that are coming back. Without duty drawback, it means that it's a loss of the duties on those sales, which typically account to 2% to 4%. So this is money that we can actually bring back home for our merchants, streamlining the cost effectiveness and in the current and foreseeable environment, that's a critical component to the trading. William Nance: That's great. It makes a lot of sense. And then, I guess, just separately, I was wondering if you could maybe speak to pipelines. I realize we're kind of done with implementation for this year heading into the holiday season. Was wondering if you could give some incremental color on just how pipelines heading into next year compared to this year, both in terms of the size and geography of merchants and just how you're seeing the [indiscernible]? Nir Debbi: Sure, Will. We continue to see high demand for new services supporting merchants doing 3 B2C, multi-local and other value-added services we deployed. Furthermore, there are multiple opportunities that we are seeing in global e-commerce as it becomes more complex. It's driven by what we spoke about just now from the extra complexity on duties, it's driven from other factors of complexity and cost structure aligning shipping, wanting to do a multi-local efficiently across geos, et cetera. So all in all, we are quite optimistic. We see development across the different stages of our funnel. We've seen it deployed into our Q4, which is part of the confidence we have in the guidance we gave. So all in all, we're quite optimistic going into 2026. Operator: And the next question comes from James Faucette with Morgan Stanley. Michael Fontan: It's Michael Fontan on for James. I wanted to ask on service fee take rates. How much of that sequential take rate decel is just due to the fact that you're continuing to win with larger merchants? And as you think about the path forward with some of the renewal impacts beginning to show up in Q4, how are you thinking about the path for service fee take rates from here if there are case-by-case pricing concessions that are made with those concessions presumably being absorbed in the P&L via some of those improvements in unit economics that you referred to in the past? Ofer Koren: Yes. So thank you for that, Michael. Regarding the first 9 months of the year, it has been slightly volatile, and it's mainly due to mix. So there are some mix shift between quarters. And in addition to that, as you mentioned, we see larger enterprise merchants, a higher share of larger enterprise merchants, which also have a certain impact. So when you look at Q3, similar levels to Q1, lower levels compared to Q2. And as we mentioned in Q2, we had some positive mix impact, that's on the service fee side. Going forward, as we mentioned in the past, we don't see any significant wide change we do see from time to time, we might reprice on specifications. But -- but we are not -- we do not expect a significant change on service fee take rate. On the overall take rate picture, what we have been doing for the last few years and in the last quarter as well, is expanding our TAM by developing new business models that allows us to further serve new and existing merchants. And our main financial focus in these efforts has been driving profit, both from a margin and reported dollar perspective, and some of these models by nature, have lower take rates. For example, as you know, multi-local is a good example for that. But important for us to note that they all meet our long-term profitability and support our long-term profitability goals. So on the fulfillment take rate side, we have seen some decrease over time. For the near future, we expect it to be around the levels that you've seen this quarter. Michael Fontan: Very helpful. And then just secondly, on managed markets. I know you've spoken in the past about harmonizing the domestic and international experiences. But can you just talk about what mechanically has sort of changed versus the prior implementation and what you expect to learn in the beta and perhaps how you're thinking about a little bit more of a material merchant push into next year post that beta testing? Amir Schlachet: Sure. Thanks, Michael. It's Amir. So as we mentioned already, we've been making great progress on the rollout of the new managed markets, the new flow. The main change there, there are a few updates to the service, but I think the main cornerstone is that we've shifted the flows to work through Shopify payments, [indiscernible] through the dedicated payment infrastructure that we had in the previous iteration. And what that is expected to allow us is for, as you mentioned, a much more streamlined experience for the merchants in minimal change, if any, from how they're used to managing their store today. So that should be the, I would say, the great benefit of this new build. And together with Shopify, we've done most of the development. It's pretty much ready for rollout in 2026. And we are already the -- better merchants that we mentioned, they're kind of live merchants because they're -- every new merchant as of the third quarter when we had the build in place, every new merchant that is signing up for a managed market is actually going through this new flow. So we are getting an increased volume of merchants and transactions. And this is serving as the kind of the better testing for this new flow. We use the learning from that to make some final refinements and we'll be ready for a full rollout next year. Operator: And the next question comes from Brian Peterson with Raymond James. Brian Peterson: So maybe high level, can we talk about post some of the changes in tariffs and everything else? Like what are you seeing in terms of the top of the funnel in kind of that white space or new merchants? Any update there in terms of the top of the funnel in terms of that progress? Nir Debbi: Brian, it's Nir. So all in all, I think that in line with our expectation, we have seen some effect on same-store sales, especially on the inbound U.S. corridor, where we've seen some weakness and also on the corridors between U.S. and Canada. However, on a global perspective, trading holds strong and resilient. So we're quite optimistic there. Taking it into what we forecasted in our pipeline and the [indiscernible] midterm onwards, we start to see it materializing as global trading becomes more complex, our funnel is actually being built up quicker than before, and we are quite optimistic that the extra complexities with the solutions and capability we built around duty drawback, import duty drawback, 3 B2C multi-local split shipments, et cetera, would create a sustainable business growth of new business in the coming quarters. Brian Peterson: Good to hear. And maybe just following up. For the ReturnGo acquisition, anything we should be thinking about in terms of contributions to revenue or expenses in the fourth quarter? Nir Debbi: Yes. So for now, ReturnGo doesn't have a significant impact. It will contribute up to $1 million of revenue in Q4. And it will have a slight negative impact on adjusted EBITDA, nothing worth mentioning. We are very optimistic about return go because since we acquired the company, we have been started to implement the ReturnGo solution into Global-E. It's early days, but we see good interest and traction from merchants. And we see some upside potential as it is still insignificant as I mentioned, but the run rate of revenue since we acquired the company has significantly grown and we are quite optimistic going into 2026. Operator: And the next question comes from Mark Zgutowicz with Benchmark. Mark Zgutowicz: Nir, I was just hoping maybe you can round out the commentary around same-store sales in terms of second half NDR trends sort of year-over-year and how you're thinking about first half next year and maybe also balancing that with just new deal pipeline growth? Nir Debbi: Thanks for the question. So as noted, same-store sales growth has been relatively stable throughout the year. And it continued despite the global tariff changes we've seen and the effect on key corridors. As I indicated, there was a slight weakness of the corridor of imports into the U.S. versus how other lanes are trading as well as some weakness between the Canada and the U.S. with imports into Canada. However, overall, it looks stable, and we do see some realization that started late Q3 in terms of, I would say, some adjustment of consumer behavior, maybe and merchants pricing to the new environment. So we expect it to stabilize also on those corridors going into 2026. In terms of the funnel, as I noted, we are quite optimistic. As we stated in the last quarter discussion, this year, indeed, we didn't have mega clients launching at the back half of the year. However, this was compensated and we expected it to be compensated with multiple smaller merchants launches that are trading very, very well. So -- and this is, of course, embedded into the numbers that you see that show our confidence in the growth that would come from new merchants. Mark Zgutowicz: Got it. That's helpful. And on Borderfree, just curious, it sounds like things are progressing there quite nicely. If you can maybe talk about trajectory into next year in terms of monetization? Is that perhaps more of a first half or a second half type modest inflection there on the monetization front, that would be helpful? Nir Debbi: We are very excited with the opportunity of borderfree.com. I think that when we set up acquiring Borderfree 2.5 years ago and then the building we did to the platform, our goal was to allow our merchants to have an effective brand awareness at a guaranteed ROI because we've seen the changes with back then with Google Cookie Policy, Apple iOS changes that actually made attribution harder on their media spend and actually cost of driving new traffic to our site was expensive and getting more expensive. This is even further accelerated with a lot of the eyeballs moving into ChatGPT, Gemini and others, which take -- again reduces the contribution and the attribution of paid media. And that further strengthen the model behind Borderfree. So we are very excited. We see continued adoption of new merchants. We see more and more returning customers using borderfree.com. We expect that with investments we're making now into a direct to checkout solution, optimizing traffic journeys through the site, the new cart that we just launched just a couple of weeks ago, allowing you to buy more than one product out of borderfree.com, et cetera. We will see much more conversion out of there. It's already increasing in its share of demand generation to participate in brands, and we expect it to continue to accelerate 2026. I'm not -- I don't see a material contribution to direct revenue, especially not in the first half of 2026. But if we meet our plans, I believe that over time, it will hold outside the direct revenue much more stickiness with our clients and even faster growth to their own same-store sales. Operator: And the next question comes from Samad Samana with Jefferies. Debanjana Chatterjee: This is Jeremy on for Samad. Congrats on the strong results. I guess, first, can you please give the FX impact on 3Q GMV and total revenue? And what FX impact are you baking into the 4Q guidance? Ofer Koren: So FX was much more stable in Q3 compared to Q2. We haven't seen any significant impact or on the top line and on the bottom line. And at least for now, it seems pretty stable in Q4 as well. So no big shifts and we don't expect any significant or material impact on [indiscernible] this quarter. Debanjana Chatterjee: Okay. And then on the enterprise integration with Shopify, have you seen any change to the competitive dynamics or any key learnings or takeaways from shifting to the new partnership? And then maybe can you help us size the uplift transitioning to preferred economics that you're expecting going forward? Nir Debbi: Samad, its Nir. In general, we haven't seen any material changes in the competitive environment. Over the last few quarters, we continue to clearly lead the market in the robustness, capabilities and offering of our platform and services. On Shopify specifically, we haven't seen notable changes since we signed a new agreement and transferred to the preferred status. Looking at the enterprise side, we don't see no one competes with us in a meaningful way today. There is another [indiscernible] provider that supports enterprise brands, however, the traction is low outside Shopify, and we expect it to be even lower within Shopify. On the smaller players, that are working on Shopify, those have been selling a [indiscernible] solution or point solutions even before the change and they haven't managed to take any enterprise merchants and only, I would say, very low traction within the smaller ones. So we haven't seen any material change to the dynamic. Ofer Koren: In terms of the Shopify rev share, it has the improved economics from the new contract began towards the end of Q3 and the full impact is reflected in the Q4 guidance. Operator: The next question comes from Patrick Walravens with Citizens Bank. Patrick Walravens: Great. At a high level, can you guys just explain how the duty drawback works like very simply for people who don't quite get it? And then also what you need to do in order to roll it out in a new country? Nir Debbi: Yes. So let's take into -- an example, a sale of a U.S. merchant to a Canadian shopper. Let's assume that the goods that were bought were USD 200. Once they hit the Canadian borders duty and tax applied, whether if they were paid in advance, paid at the border, duty and tax applies. The average duty rate, let's put it at 15%, would be another $30 that are paid on that -- on those goods and another 5% for sales tax, and you get $40 that are levied on this $20 or $200 parcel. Overall, this $40 are paid by the merchant or by the shopper, but they are part of what the merchant build into his pricing when he saw the goods. However, if I stated 10% of the goods are coming back or 15% even, it means that out of those $40 checks, on average, $4 to $6 are represented by returned goods. And actually, those dollars are lost today. With Global-E, for example, in Canada, where we have a CBSA approved credit program for our brands, we are actually able to reclaim those $4 to $6 for our brand, actually optimizing the cost structure selling into Canada around 2% for each transaction. Patrick Walravens: All right. That's great. Okay. So you shouldn't have to pay on the things you return. Got it. And then Ofer a follow-up for you. As I look at your 4-year plan versus where you are now, everything seems to make a lot of sense, except maybe the non-GAAP gross margins, your fiscal '25 to '28, guidance is high 40s and you are 46 this quarter, right? So I don't think that's high. So can we just address that a little bit? Ofer Koren: Yes. So I think that as we've mentioned in the Investor Day, we did not expect gross margins to increase over the levels that we have been able to reach. Basically, what we solve for is bottom line is cash generation and adjusted EBITDA that is more or less correlated to it. And as I mentioned, there are -- we have developed different models over time with different profiles that have some impact, different impact on [indiscernible]. So I think that we're actually, from our angle, we are on track to reach that target. We believe that we will be in the high 40s for gross margin. We're in that neighborhood now. And over time, we think that we can stay in similar levels, maybe likely improve over the term of the plan that we presented. Operator: The next question comes from Koji Ikeda with Bank of America. Koji Ikeda: I wanted to ask about agenetic commerce. And can you talk a little bit about how Global-E will help with the data flow to power agentic commerce? I mean do you envision globally plugging directly into the ChatGPT type agentic commerce experiences? And how, if at all, is agentic commerce changing sales cycles right now? Amir Schlachet: Sure, Koji, it's Amir. Thanks for your question. Again, I touched upon it a bit in the prepared remarks. We do believe that a agentic commerce is going to affect the entire value chain of e-commerce. And we're already starting to see signs of that today. As I mentioned, mean starting from the top of the funnel, kind of demand generation is being done today more with AI-enabled technologies, including marketing campaigns, even campaigns that we ourselves are doing for B2C. They are using the Meta Advantage Plus tools that are AI-driven and we're building custom generative AI-based tools to streamline many functions across the funnel from consumer support and [indiscernible] scoping and in targeting and outreach to merchants. So we think that the -- especially the high growth kind of D2C brands, they're probably the best position to work to leverage AI integrations and remove barriers that currently exist in marketing and selling and advertising and creating traffic from markets where previously it was very complex for them to create brand awareness with manual processes. So we're looking -- we're constantly looking at the new developments in the field. We're very impressed by what AI-supported platforms have been able to achieve in the relatively short time. And we're already seeing some transactions, not directly through kind of instant checkout, but transactions that are already initiated from ChatGPT and from agent-assisted in-chat checkout. And we believe this will grow in the future. In any case, given our expertise, given our unique know-how and our scale of data and capabilities, we believe we are best positioned to provide the kind of international and the cross-border layers that are required in order to enable these AI-powered transactions in the future. Koji Ikeda: Got it. And maybe a follow-up here. I look at the third quarter GMV growth, looks really strong and the 2025 GMV guide, that's really good, too. And so last year on the third quarter call, you did give some early look GMV growth color for 2025 of 30%. And clearly, the guide today implies that you're going to achieve that. So is there anything you can share today for 2026 GMV growth assumptions? Ofer Koren: Yes. We are very happy with the Q3 results and the growth trajectory we are seeing into Q4, and this will also support us going into 2026. As mentioned in the prepared remarks, we have seen very successful merchant launches in recent months and they're also trading very well. So we believe that this will provide us some tailwind going into '26. Generally speaking, we believe that we are on path to achieve our midterm targets. And I think this is sort of the framework that we are looking at going into '26. Operator: And the next question comes from Rob Wildhack with Autonomous Research. Robert Wildhack: To start on the repurchase, could you just give us some additional thoughts on your approach to like a time frame around the $200 million? Ofer Koren: So as we mentioned on the call, we have been in a closed window up till now, and we plan to start executing on the plan soon. The pace will depend on the market conditions and another aspect. But we do expect to start executing very soon and start to buy some of this plan in the coming months. Robert Wildhack: Okay. And then bigger picture, could you just remind us about how you're thinking about the bridge between adjusted EBITDA and free cash flow, both as it relates to the guidance, but also in the context of the longer-term target? Any numbers that you could put to the free cash generation maybe between 2020 -- the bridge between 2026 and that longer-term target for, I think, mid- to high 20% margins? Ofer Koren: Yes. So generally speaking, when we look at the full year, because we have seasonality for cash flow and free cash flow -- but when you look at the full year, it typically correlates with adjusted EBITDA, but it's higher. If you look at the previous years, and we expect it to continue to be somewhat higher compared to adjusted EBITDA. And this is supported mainly by working capital as long as we grow, this gives us some tailwind. And we expect it to continue on that path in the coming years as well. Nir Debbi: I think -- also important to note, as we guided on the longer-term targets, we do have efficiencies of scale as we continue to grow. You can see it on the long-term trajectory of improvement in our EBITDA and of course, out of it, you will see also the improvement coming on our free cash flow that is trading even slightly better. Operator: And the next question comes from Chris Zang with UBS. Chao Zhang: And I just have a question on the regional trends you've seen so far, and I'm talking about the merchant outbound region. And it looks like there's some softness in the U.S. that was offset by U.K. and European Union, even if you adjusted for [indiscernible] for U.K., can you maybe just comment on some of the regional trends versus the prior quarters and what are [indiscernible]? Nir Debbi: I think what you referred to is the fact that the share of the U.S. outbound was slightly lower this quarter. I don't think that it reflects a weakness on the U.S. trading outbound. It's much more reflects the mix of our new launches that is coming from additional origins, such as our great success in APAC and also some growth in Continental Europe that in share grew faster than the launches we had in U.K. And also some of the merchants have traded even better. But the combination of both yielded this result. It's not that we expect it to, over time, be consistent. So I wouldn't use the [indiscernible]. Operator: And that concludes our question-and-answer session. I'll hand it back to Global-E CEO, Amir for closing remarks. Amir Schlachet: Thank you. And on behalf of the entire global team, I would like to thank everyone for joining us today and for your ongoing support. Despite the uncertainty that the global commerce markets faced at the start of the year, we've continued to outperform every step of the way. Our outlook and market positioning is as strong as it's ever been, and we're excited to demonstrate continued performance for the remainder of 2025 and for years to come. We see tremendous opportunity within the market for our platform and services. As we grow in both new and existing merchants, our confidence in the value that Global-E is bringing to the e-commerce market remains reinforced. With a long runway of innovation and growth here at Global-E and by leaning into the opportunities ahead of us, we remain confident in our ability to achieve our growth targets across our key metrics for the foreseeable future. We look forward to speaking with many of you during the quarter and updating you on our future earnings calls. Until then, goodbye and take care. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, everyone. Welcome to the combined 9 months YTD 2025 results analyst briefing. I am Ian, and I will be your moderator for today. A few reminders before we begin. [Operator Instructions] Number four, please be reminded that this webinar is recorded. Allow me now to introduce our panelists for this afternoon. We are joined here today by Ms. Monica Ang-Mercado, San Miguel Food and Beverage Inc. CFO; Ms. Chesca Tenorio, VP and Head of Corporate Financial Planning and Investor Relations; Mr. Erich Pe Lim, Petron Corporation Investor Relations Head; Ms. Tina Garcia, SMFB Investor Relations Head. Also joining us on Zoom, we have Mr. Bryan Villanueva, SMC's Chief Finance Officer; Mr. Joseph N. Pineda, SMC's Treasurer; Mr. Paul Causon, San Miguel Global Power Holdings Corp. CFO; Mr. Ferdinand Constantino, Adviser to SMC; Ms. Tatish Palabyab, SMC Chief Sustainability Adviser; Mr. Erwin Hernandez, AVP and Head of Business Development, Project and Financial Planning of SMC Infrastructure. We'd also like to acknowledge the presence of other key executives of the group who will be joining us in this call. I now turn you over to Ms. Chesca Tenorio to discuss the SMC Group's financials and operational results. Chesca Tenorio: Good afternoon, and welcome to San Miguel Corporation's Combined 9 Months Year-to-Date 2025 Results Analyst Briefing. We're pleased to announce with pride that the San Miguel Corporation Group has demonstrated strong profitability and a resilient performance during the period. Before we begin further with the financial results of the company, we would like to first highlight a few key developments, which we will be discussing in detail throughout this presentation. As a macro backdrop, the Philippine economy in the third quarter of the year recorded a 4% GDP growth, slower than previous quarters. GDP decelerated amid governance concerns over infrastructure spending and slower domestic demand despite a cumulative 75 bps rate cuts by the BSP so far this year. While GDP growth slowed down, SMC exhibited resilience, recording strong year-on-year performance for the third quarter of the year compared even to the first 2 quarters of the year. The SMC Group maintained strong profitability despite recording lower revenues as the group worked towards margin expansion through cost disciplines, reduced material costs and operational efficiencies. These results underscore the group's ability to navigate market headwinds and other external pressures to deliver resilient performance. The Food, Hard Liquor, Power and Infrastructure businesses delivered the biggest improvements. During the period as well, SMC has earned recognition for its sustainability efforts. This is for both environmental stewardship and social impact. SMC has integrated ESG impact assessments into its capital expenditure review process and conducted physical climate risk evaluations of key facilities to ensure long-term business resilience. Alongside our sustainability initiatives, we continue to prioritize efficiency, financial discipline and key strategic actions, allowing us to maintain growth momentum amid external challenges. Equally important, beyond business performance and value creation, the group's long-term focus continues to center on nation-building, food and energy security and driving sustainable development. We remain committed to supporting the country's long-term growth by advancing critical infrastructure projects and expanding our energy portfolio to meet the increasing needs of our communities and industries. So that's basically our executive summary. So let's now turn to the group's respective earnings performance. On the slide, you'll see SMC's results. SMC delivered solid results for the 9 months ending September 2025. This is reflecting strong profitability and operational resilience amid persistent global headwinds and a looming local political concern. The company's strategic focus, cost discipline and efficiency initiatives supported earnings stability despite softer revenues and continued pressures in global commodities market. Consolidated revenues declined 7% to PHP 1.1 trillion, mainly due to, one, lower crude and commodity prices that has impacted the fuel and oil and power segments; two, reduced revenue contribution from the power business due to the deconsolidation of SPPC and EERI and lower average realization prices on lower coal and WESM prices. However, this was partially offset by solid contributions from the food, hard liquor and infrastructure businesses. Consolidated operating income increased 13% to PHP 137.4 billion, driven by lower raw material costs, pricing actions and improved operational efficiency, resulting in margin expansion from 10.3% to 12.6%. Profitability improvements were led by Food Group, Hard Liquor and Infrastructure, along with Power posting the largest improvement in margins. Net income rose significantly to PHP 78.6 billion during the period, supported by a gain from the fair valuation of investments and foreign exchange gains. Even excluding one-off and ForEx impacts, core net income improved by 54% to PHP 60.3 billion. Consolidated EBITDA finished at PHP 194.3 billion, and this is 16% higher than prior year. Now to walk us through the performance of San Miguel Food and Beverage, I'll turn the floor over to Tina. Kristina Lowella Garcia: Thank you, Chesca. For the 9 months ended September 2025, San Miguel Food and Beverage continued to deliver strong results with consolidated net sales reaching PHP 302.9 billion, up 4% from last year, supported by firm demand, efficient pricing and sustained brand initiatives across its Food, Beer and Spirits divisions. Operating income rose 12% to PHP 44.7 billion, while net income grew 11% from last year to PHP 33.7 billion, reflecting solid performance across all segments. EBITDA increased 13% to PHP 58.4 billion, driven by broad-based gains and improved margins across the businesses. Let me walk you through the Food businesses performance for 9 months period ended September 2025. San Miguel Foods maintained its solid performance with all key metrics exceeding last year's levels. Revenues grew 7% to PHP 143.5 billion, supported by strong volume growth across the segments. The Protein segment posted 11% revenue growth on higher volumes, backed by stable internal supply and continued favorable chicken prices. Animal Nutrition & Health revenue declined 1% year-to-date, a marked improvement from the first half shortfall of 5% as feeds volumes steadily recovered. Prepared and packaged food consisting of Purefoods, Magnolia dairy and coffee sustained strong momentum, delivering 9% revenue growth driven by higher sales volumes, favorable selling prices and an improved sales mix. Operating income increased 32% to PHP 13 billion, largely driven by Protein's sustained strong performance and continued favorable raw material prices. Net income rose 33% to PHP 8.9 billion, while EBITDA grew 27% to PHP 19.6 billion, reflecting broad-based margin improvements across the businesses. Moving on to the Beer business. San Miguel Brewery reported revenues of PHP 110.7 billion, almost matching last year's level. Operating income rose 2% to PHP 23.9 billion, reflecting effective cost management, supported by the September 2024 price increase, resulting in improved margins. EBITDA increased by 4% to PHP 30 billion with margins improving to 27%. Net income reached PHP 18.8 billion, up 1% from last year. Domestic revenues totaled PHP 98.3 billion, a slight 1% decline year-on-year. The performance reflected subdued discretionary spending, the impact from last year's pre-September price increase trade loading and the onslaught of successive typhoons affecting most regions. Operating income for the domestic business was flat at PHP 20.7 billion, while net income finished at PHP 18.5 billion. International operations registered modest growth with all key metrics showing improvement. Revenues reached $218 million, up 3% versus last year, driven by strong volume growth in exports, Thailand and South China as well as higher San Miguel brand sales in Vietnam. Operating income rose 15% to $56 million, supported by higher volumes, lower production costs and managed expenses. SMB continues to implement key initiatives to strengthen its brand presence. In the domestic operations, SMB reinforced equity building through the Oktoberfest kickoff event and the release of the new SMB Christmas campaign. Offtake boosting initiatives were also implemented such as thematic and digital campaigns, consumer and tactical promotions and product innovations, reinforcing flagship and premium brands. In the international operations, SMB boosted consumer engagement through channel-specific programs, modern trade expansion and sustained brand building through seasonal campaigns, merchandising drives, digital initiatives and product innovations. Amid a challenging market, SMB will continue implementing volume-boosting initiatives alongside prudent cost control, supply chain improvements and organizational capacity building. Turning now to our Spirits business. In the first 9 months of 2025, Ginebra San Miguel sustained its strong performance despite a challenging market with revenues reaching PHP 48.7 billion, a 7% year-on-year increase. Operating income rose 19% to PHP 7.5 billion, supported by higher selling prices, favorable molasses costs, improved distillery efficiencies and continued secondhand bottle usage. Notable volume growth was observed from the Vino Kulafu and Primera Light brands. Net income and EBITDA grew 17% and 19%, respectively, reaching PHP 6.3 billion and PHP 8.4 billion. That concludes the update for San Miguel Food and Beverage. I'd now like to invite Eric to present updates on Petron. Erich Pe Lim: Petron Corporation in the first 9 months of 2025 reported revenues PHP 594.9 billion, a 10% softening versus the same period last year. Revenues dropped mainly due to lower Dubai crude prices from an average of $81 per barrel in 2024 to $71 per barrel in 2025, a 13% drop. The decline in crude oil price was attributable to a significant buildup of crude supply by key producers compounded by geopolitical tensions and shifting policies. Despite the aforementioned external challenges, Petron was able to notably register double-digit growth in other key metrics with operating income finishing 20% higher at PHP 26.6 billion. This was driven by higher domestic sales, lower costs and improved plant efficiencies. Combined sales volumes from the Philippines and Malaysia reached 84.7 million barrels, up 3% versus the comparable period last year. Growth was fueled by strong domestic performance, particularly in the Philippines, where volumes in highly profitable retail segment continued to grow, registering a double-digit increase of 11%, allowing Petron to unceasingly corner the bigger share of the market. Finally, this led to a net income, which registered even higher gains, increasing 37% year-on-year to PHP 9.7 billion, underscoring the company's resilience in navigating persistent industry headwinds. Over to you, Chesca. Chesca Tenorio: Thank you, Erich. Let me now continue with the performance of the remaining businesses in the group, along with updates on our sustainability initiatives, overall business developments and outlook. San Miguel Yamamura Packaging Group maintained stable performance, posting September year-to-date revenues of PHP 28.4 billion. This is nearly unchanged from last year. Revenue was generated by serving key food and beverage customers of their plastics, beverage filling, flexibles, paper and glass packaging requirements. Operating income, though improved by 4% to PHP 2.2 billion, driven by the successful implementation of cost-saving programs and initiatives to improve productivity across all its operations. Meanwhile, EBITDA declined slightly to PHP 4.0 billion. Moving to the Power segment. San Miguel Global Power's revenues amounted to PHP 118.8 billion. That's 23% lower compared to previous years with offtake volumes dropping by 18% to 22,090 gigawatt hours. The decline, though, was primarily due to the divestment and resulting deconsolidation of the South Premiere Power Corp. or SPPC, owner of the 1,278 megawatts Ilijan Power Plant. This was made with the completion of the group's divestment of 67% interest in the underlying gas power generation assets last January 27, 2025. Moreover, the decline in the revenues reflected a downward adjustment in fuel tariffs to bilateral customers due to the continued softening of global coal prices. Excluding the impact of the SPPC deconsolidation, volumes were relatively stable, supported by the following: first, there's a full 9-month operation of 4 generation units of the 600-megawatt Mariveles greenfield power plant and 3 BESS or Battery Energy Storage Systems, facilities with a combined capacity of 110 megawatt hours, plus 5 additional BESS facilities with a total capacity of 140 megawatt hours, which began commercial operations in 2025. Second, strong offtake volumes from the Masinloc Plant contributing 6,571 gigawatt hours or 30% of the total volume. And third, there was higher generation volume from the San Roque hydroelectric power plant amounting to 929 gigawatt hours. That's up 125%. So overall, operating income for the power group rose to PHP 34.8 billion with operating margins expanding to 29% from only 22% last year. This improvement is a result of better margins from contracted capacities and significant contributions from BESS facilities. Such operating income does not include the share in the net earnings of SPPC and EERI, which owns the new Batangas combined cycle power plant units 1 and 2 with a net capacity of 425 megawatts each. This amounts to about PHP 5.9 billion to date, which the energy business continues to recognize from its remaining 33% interest in these gas power generation assets as part of its portfolio, even with the aforesaid deconsolidation. Meanwhile, EBITDA grew 22% to PHP 54.1 billion. Net income for the power group surged to PHP 42.4 billion, bolstered by the PHP 21.9 billion gain from the Chromite transaction and higher earnings from key operating power generation asset portfolio. Excluding the aforesaid gain from the Chromite transaction, core net income still improved significantly by 52%. Moving now to the Infrastructure segment. SMC Infrastructure sustained its growth trajectory with revenues rising by 7%, buoyed by the improved traffic volumes across all toll roads. Combined average daily traffic reached PHP 1.07 million, marking a 4% increase from the corresponding period last year. EBITDA grew by 8%, reaching PHP 23.8 billion with a sustained margin of 80%. Operating income rose by 12% to PHP 16.7 billion, supported by effective operational and management cost control. Moving to the Cement business. The Cement Group generated consolidated net sales of PHP 25.5 billion for the 9 months 2025. That's a 6% decrease from the comparable period last year. This is primarily due to the lower sales volume and weaker average selling price as a result of the continued influx of imported traded cement. Imports were estimated to account for 21% of industry volume as of the period. Despite the 3% decline in EBITDA to PHP 7.3 billion, margin though improved to 29% due to ongoing cost efficiency measures. Meanwhile, operating income fell by 4% to PHP 5.1 billion. A snapshot of our balance sheet, SMC's consolidated total assets as of September 30, 2025, stood at PHP 2.7 trillion, while total liabilities amounted to PHP 1.9 trillion. Stockholders' equity ended at PHP 733 billion. Consolidated cash balance stood at PHP 344 billion, while interest-bearing debt totaled to PHP 1.6 trillion. Next, we just want to highlight some 9 months 2025 sustainability performance for our group. The following are the highlights. SMC, along with the subsidiaries, Northern Cement and San Miguel Global Power Holdings were recognized for its sustainability initiatives. On September 23, 2025, SMC received recognition as one of the sustainability champions from Manila Times. On October 23, 2025, the Asian Water Awards recognized SMC for its water conservation initiatives of the year for Philippines, in particular, for Northern Cement Corporations reaping the rain and recycled water program. San Miguel Global Power also received recognition from the same award giving body for Outstanding Water Resources Contribution of the Year for the Philippines. This is for the Malita Power Plant's entry and integration of treated into non-potable domestic water supply systems. Also for Masinloc Power was awarded 3 Asian Power Awards. One is Environmental Upgrade of the Year Philippines, for its entry of clean chemistry, sustainable corrosion mitigation at Masinloc units; Operational Efficiency Initiative of the Year, for its entry of fuel flexibility in a cost-effective mill improvement project to promote industry innovation and customer satisfaction; and third, Circular Economy Leadership of the Year, for Philippines for its entry of cost-effective mill enhancement project, leveraging fuel flexibility to promote customer satisfaction and drive industry innovation. Overall, San Miguel Global Power was recognized then for Employee Engagement Initiative of the Year, Gold, for the company-wide sustainability month event. Other highlights of our sustainability performance. We continue to advance our environmental, social and governance commitments, focusing on embedding sustainability into our core business processes and decision-making. Under environmental stewardship for our 9 months '25, integration of sustainability and capital projects was done. We have formally embedded a sustainability questionnaire into our capital expenditure process. This ensures that environmental and social impacts are systematically assessed for all proposed projects, supporting responsible investment decisions. Second, climate risk assessment. This was completed in October 2025. So now our climate risk assessment has been completed. It's identifying potential physical and transition risks across our operations. Business units now are reviewing the final materials to develop targeted mitigation and adaptation strategies. Next, under capacity building and governance. For carbon markets readiness, this was completed in September 3, 2025. We conducted a carbon markets workshop for our management team to strengthen internal understanding and readiness. This initiative enhances our capacity to engage with emerging carbon pricing and trading mechanisms in the future. Lastly, as an energy update as of 9 months 2025, over the next decade, I'd like to reiterate that we will be shifting towards renewables by expanding hydroelectricity capacity, building solar plants and adding more battery storage systems. In June 2025, through GEA-3, San Miguel Global Power was awarded 4,200 megawatts of hydropower projects. And next in October 2025, under the GEA-4, we secured over 2,225 megawatts of new solar projects. This marks a major step in transforming our portfolio and supporting the country's clean energy transition. Lastly, we now move to the outlook and recent updates of the group. To reiterate, SMC is pressing ahead with its growth and expansion strategy backed by solid operating performance amid the country's current political situation and global economic challenges. For the new Manila International Airport, progress on the land development and ground improvement works are ongoing with areas ready for construction of key facilities. SMC continues to look for ways to optimize cost and overall project time lines. For the NAIA, completed improvements as of September 30, 2025 include the following: first, there are local road networks that have been upgraded with widened curbside areas to ease congestion and enhance traffic flow. A new automated parking system with expanded payment options has been installed to streamline entry and exit. Terminal 1 OFW lounge and multiphase prayer room, Terminal 3 dignitaries lounge and airside employee cafeterias in all terminals have been completed. Implemented new traffic management schemes and designated of outer lane as taxi-on lanes at Terminal 3 have also been completed. Upgraded and migrated to SAP for automation of business processes have been done. Heating, ventilation and air conditioning systems at Terminal 3 and lighting fixtures at Terminal 3 arrivals have also all been upgraded. Beyond the completed works, NAIA is also working on the following: in partnership with Collins Aerospace, ongoing rollout of modernized passenger processing and airport management systems, additional immigration e-gates, upgrading of key airport equipment such as elevators, walkalators, explosive detection systems, passenger boarding bridges, advanced visual docking guidance systems and lastly, terminal facilities such as expanded bus gates, lounges and retail and dining halls are all on works. For MRT-7, the railway components percentage completion is at 81.5%. For the depot site development and construction of other facilities are still ongoing. In addition, the submitted variation, which include the new location of Station 4 is approved by the San Jose Del Monte and DOTr. Consequent to the new approved location of Station 14, there is also an ongoing study on the realignment of the highway component. On the toll roads, we continue to advance our improvement projects for existing toll roads such as Skyway System, NLEX, SLEX and STAR. Upgrades include road widening, additional entry exits and interchange enhancements. Ongoing construction works on SLEX TR4 is progressing steadily well with the toll roads percentage accomplishment and right-of-way acquisitions at 49.4% and 85%, respectively. These projects would allow for greater development in Metro Manila and other fast-growing regions of Luzon by enhancing connectivity, easing congestion and improving traffic flow, supporting the country's overall social and economic development. Last, as of September 30, 2025, roughly 50% of the group's 1,000 megawatt hours of BESS projects are already in operation, delivering ancillary services to the National Grid Corporation of the Philippines under a 5-year Ancillary Service or ASPA or selling their spare capacities to the reserves through the independent electricity market operator to ensure grid stability. The remaining BESS projects in the pipeline are expected to commence commercial operations by 2026. SMGP is also expanding its renewable energy portfolio through hydropower and solar energy projects, as mentioned earlier. On updates on our sustainability front, SMC is finalizing a sustainable finance framework to align financing with ESG strategy of the group. The document is seen to establish the company's decarbonization road map and will enable us to access sustainability-linked financing options, supporting the transition toward a lower carbon and more resilient business model for the group. Other projects in the pipeline include an automated platform to track sustainability data across all business units and development of business level road maps for each of our 4 sustainability goals. And that brings us to the end of our presentation. Thank you for your time and attention, and we now open the floor and call for your questions. Operator: [Operator Instructions] We have a question from -- we have a raised hand from [ Tony Watson ]. Unknown Analyst: Okay. Can you hear me okay? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Great. Just one question on the Meralco claim. When I visited San Miguel Power a couple of months ago, they mentioned they're expecting a final ruling on the second claim sometime late fourth quarter, early first quarter. Any update on that? Paul Bernard Causon: May I take on that, Jessica? Chesca Tenorio: Yes, Paul. Thank you. Paul Bernard Causon: So thank you for your question. Let me update you first on the first claim. So the first claim is for PHP 5.1 billion. And pursuant to the ruling of the Supreme Court, which came out earlier this year, Meralco has paid already 2 out of the 6-month installments to date. Now with respect to the second claim, which is a little over PHP 29 billion, about PHP 15 billion of that is still unaccrued by the company. We we've had the hearing with the ERC yesterday basically to discuss the case. And the way that the way case went on, there were 2 things that were apparent from the meeting. Number one, we were able to get a confirmation from Meralco with respect to the amount. So there is no dispute at all with respect to the amount of the claim. The second one, the legal basis for the second claim is tightly linked with the first case, which has already been ruled upon by the Supreme Court. So those 2 critical elements of the case were put on record by the hearing officer from the ERC. And we expect that the results of such hearing will be elevated to the commission when it will be meeting -- and by early December. And I think with respect to the earlier assessment on the time lines, we will be a bit delayed with respect to the resolution, maybe not this year, but definitely early next year, most probably January. Operator: We have a raised hand from [ Ajay Sharma ]. Unknown Analyst: Can you talk about -- can you hear me? Chesca Tenorio: Yes, we can hear you. Unknown Analyst: Okay. So I want to know for both the Spirits and Beer business, the volume growth has been pretty modest. I guess, Spirits no volume growth, I guess, this year. So I'm just wondering, how much was the price increase for both of them this year and how much was the excise increase? And how do you see the fourth quarter shaping up? Chesca Tenorio: Well, Ajay, historically, for the fourth quarter, those are the months, the celebration months because Christmas is a big event for the Philippines. Normally for -- across our businesses, Food, Ginebra and Beer volumes tend to improve sizably. In terms of the excise taxes, it's around 6% annually, and most of that is usually passed on or declared in the beginning of the year. So by now, the volume performance of the Q3 or the first 9 months, I think really shows the challenged spirits and alcohol industry in the sense that the consumer habits have changed in terms of on-premise drinking and off-premise. We have more competitors as well as the earthquakes and the recent typhoons, they have had a very big effect as well as the economic effect on the consumption for nonessential goods, which is really our Spirits and Beer business. But for Food, you can see the volume is growing. Unknown Analyst: And are you gaining market share? How is the market share trend for both categories? Chesca Tenorio: We are still very dominant in Beer. As you know, we're 90-plus market share. I think to gain additional points is really difficult and challenging. However, we are trying to introduce more variants, more SKUs for -- to excite the market and to enter other more premium categories, and that's where we are trying to gain market share away from the foreign brands. Also for Ginebra or the Spirits business, we have been gaining market share steadily around close to 50-plus percent for the white. Of course, there's still plenty of room for us to try to grow. We're trying to really penetrate the brown spirits market. Operator: We have a question from [ Mark Anthony ] [indiscernible]. Congratulations on the results. Question for GSMI. After half a decade of volume growth for GSMI and considering the perpetual increase of excise taxes, do you see GSMI moving towards direction of growth in value due to higher prices and not necessarily in volume as we may already have seen in the 9 months of 2025? Or does the distribution network of GSMI still have a huge runway to drive volume growth? How does 4Q '25 volumes of GSMI look like? And is it reasonable to expect the cash dividends next year to grow by the same rate as income this year and maintain the payout ratio? Chesca Tenorio: Okay. For the first, well, we already explained some of that. Definitely, the past years, we have been surprised at the market's ability to absorb the higher prices. We've been passing on the increase in excise taxes to them and the volume has been growing. But yes, we do not rely on being able to pass on the prices. We still think that there is a lot of room for growth, not only for our flagship categories or brands such as the red or the low-cost gin, but we have many other SKU or category that we're trying to grow, especially in the Visayas and Mindanao or the Southern regions. In terms of the distribution network, we have many untapped areas yet. We have been increasing dealer routes and distributors or dealers to our network, not only for Ginebra, but also for Beer, because we feel that, that's really where we can improve, not only in increasing distributors, but also increasing wholesaler routes. We have also been increasing our CapEx for expansion related or production capacity-related projects. So we really do think there's still a lot of room to grow, especially for Spirits. For Q4, again, this is the best time for Ginebra, Beer and Food. Typically, the volume will really be very, very high average per day compared to the usual. And for the cash dividends, we don't really provide guidance or guarantee on what we will be announcing for the following year. But as you can see in the past years, our payout ratio has been steadily increasing. It really depends on the performance of the company. Operator: We have another question from Karissa Magpayo. On FB, can you share sales growth trends so far in 4Q '25? Are we seeing some improvements in demand across the 3 segments, namely Beer, Spirits and Food? Chesca Tenorio: Okay. This is almost the same question, but I'll maybe share more about the Food growth. As you know, we have commodities business, which is mostly poultry and feeds and those have been steadily growing very well. The thing is for poultry, prices of the poultry have gone down in the past few weeks. So that may be affecting our volume. But for our prepared and packaged food businesses, which are the branded or value-added, those are Purefoods canned goods and other timplados or ready-to-cook, ready-to-eat type of products. Magnolia, which are heavy into butter-margarine-cheese type or dairy type of businesses, those are heavily used by bakeries and the normal consumers or households because it is Christmas time. So they're having a lot of sweets or desserts. So that's what's going to be driving the Food business for Q4. Operator: We have a question from [ Sharmaine Co ]. Question for Petron. May I ask how much inventory holding gain losses were in the third quarter, both in 2025 and 2024? Erich Pe Lim: For inventory gains and losses, for year-to-date September 2025, inventory losses amounted for roughly around [ PHP 2 billion ]. So this is a little lower or flattish coming from the disclosed figure in the first half of 2025. This is particularly because crude prices, crude by crude, basically consolidated in the third quarter of 2025 at around $70 per barrel. So we didn't see that much volatility. Now if you compare it to the year-to-date September 2024, inventory losses during that period is a little more than PHP 4 billion. Operator: We have a question from an anonymous attendee. For Power, could you walk us through the expected baseload capacity additions coming online in 2026 to 2027? Paul Bernard Causon: Okay. That's sort of an industry question. And well, I will answer it from our perspective, nonetheless. So currently, the net reliable capacity in Luzon, which accounts for practically 70%, 80% of the country's supply and demand is around 14 to 15 gigawatts on a daily basis. And out of that number, roughly 62% is more than 20 years old in terms of operating life. So there's quite a bit of fragility on the supply side. But with the ensuing coal moratorium that's been imposed by the Department of Energy, there's been quite a bit of expansion on the baseload side. The Department of Energy has across committed projects of roughly 9 gigawatts in solar capacities for the next 3 years with expected plant factors ranging from 16% to 18%. From our end, what is for sure, would be we are putting up 700 megawatts in baseload capacity by next year from Masinloc Units 4 and 5. I would say that I have quite a bit of insight on other generators plans with respect to baseload capacities, but the total is relatively very small at 500 megawatts. Operator: We have a raised hand from [ Ashwaria Pai ]. Unknown Analyst: My question is, first, San Miguel Global Power. Now that the auctions are completed, is it possible to give a guideline on the solar and hydropower CapEx and the time line for it and the incremental EBITDA from those projects? And my second question is, what would be the funding source for the next maturities of dollar bond for San Miguel Global Power in 2026, which is close to USD 1 billion? Paul Bernard Causon: Okay. Several questions there. So on the first one, what's clear with respect to our hydropower projects that's qualified under GEA-3 would be a CapEx headline of around $12 billion to $13 billion. But that one, of course, is subject to cost optimization. So we have -- we're looking at various approaches on construction and also on how we will configure the EPC with respect to those projects that should significantly reduce the cost further. From our initial assessment, we're looking at somewhere between $5 billion to $6 billion. But the equity component or the amount that we expect to spend in the next 3 to 4 years should be way smaller, somewhere between $2 billion to $3 billion. Again, subject to ongoing detailed studies, technical studies on the sites and also depending on our ongoing negotiations with the OEM suppliers, particularly for the Francis turbines. With respect to our GEA-4 projects, which are the solar farms, that would entail a relatively smaller number in terms of CapEx. So it's more or less around $1.4 billion, which we expect to incur over the next 4 to 5 years for the awarded capacities of roughly 2,200 megawatts. But again, that amount is still subject to cost optimization depending on our ongoing negotiations on the panels. And considering that most of the civil works would be something that we can do already internally and also would entail relatively smaller costs as far as the sites that we've chosen are concerned. Because most of the solar projects are -- in terms of megawatts are located in the Angat water reservoir, which -- since it's floating solar, there's supposed to be minimal site development. And therefore, the time lines for its completion will be very -- a lot shorter than the other ones in terms of time lines. The COD for the solar projects would be -- with respect to the 2,200 megawatts should be completed within the next 3 years. And then our GEA-3 projects, the hydropower projects in 5 years' time. The first batch of the 4.2 gigawatts should be available, roughly 2 gigawatts by 2029, 2030. Second question on the refinancing. Well, the DCM markets definitely is something that we are closely looking at. Our preference, of course, is to have the expiring dollar perps refinanced in peso, DCM sources. Of course, we're looking at the dollar markets as well. But in any case, we have the existing liquidity to be able to backstop any refinancing activities that we will be doing next year. And we're fairly confident, at least for the perps that are expiring in January this year -- January 2026 and December 2026, that we should be able to easily have them refinanced. Operator: We have a question from an anonymous attendee. For Petron, what's your current outlook for crude oil market next year? Erich Pe Lim: To be perfectly honest, it's quite difficult to perceive into 2026, just given how fluid our business is and the confluence of factors that affect crude prices, right? But what I can share, I guess, how we see crude prices will be at least for until the end of 2025 and into the first quarter of 2026. So currently, Dubai crude prices at around $65 per barrel. So at least for -- until the end of the year until end of 2025, we see it range trading more or less plus/minus at $65 per barrel. So it's steady. And that's particularly because of 2 factors, right, which will keep prices supported and that particularly the persistent geopolitical risks and the sanctions that were imposed on Russia and Iran. However, in the first quarter of 2025, we could see it probably range between $60 to $65, maybe a little correction. And that's particularly because of the demand and supply dynamics which would pressure prices. On the demand side, as we all know, you can still see a lot of uncertainty in terms of tariffs, which, of course, has hampered economic activity. And on the supply side, you see OPEC+ continuously adding right into their production. This year alone incremental volumes brought upon by OPEC is already more than 2 million barrels. And based on their last announcement, in November and December, they would add incremental volumes of around 130,000 barrels per day each month. So these are basically the factors that might pressure prices. But nevertheless, we see it still more or less in a level around $65 to $60 per barrel. So it's not very volatile, relatively speaking. Operator: We have a question from [ Kiu Huang ]. How were the price increases in SMFB in Q3? Can you break down in each segment, including Food, Beer and Spirits? Any price increases planned in Q4? Chesca Tenorio: In Q2, so the price increases were very minimal. For Food, there was also -- there was around a small single-digit increase, Ginebra as well. For Beer, we did not do a price increase for Q3. Now for the Q4, I think the plan is to just maintain. If ever there will be some increases, it will be in a few months' time. Operator: We have another question for Power. What's San Miguel Global Power's plan for purchase equity shares at Meralco? Could you talk about the progress of securing and drawing down project debt at Project Chromite and Masinloc Units 4 and 5? And could you share a bit the outlook and funding requirement for San Miguel Global Power in 2026? What's construction and funding plan for solar projects at GEA-4? Paul Bernard Causon: Okay. So many questions. Let me go through them one by one. So on the Meralco shares, it remains to be a strategic investment of the group. We're quite happy, of course, with the dividend payout and the market value of these shares currently. But with respect to adding more to this remains to be opportunistic in nature and of course, depending on the circumstances presented to us. But at the moment, these shares remain to be a highly strategic investment of the group. With respect to the project debt for the Chromite entities, we are currently in the documentation phase with the lender banks. And we're very close to having the finalized and executed maybe later this year or early next year. The total debt that could be raised there is roughly PHP 145 billion in total. On the project level debt for Masinloc 4 and 5, it's progressing very well. We've been getting quite a bit of interest and commitments from local banks. We are more or less confident that we'll be able to raise at least PHP 50 billion to PHP 60 billion from this, and that should pretty much snap off any remaining debt on the EPC for Units 4 and 5. So as far as we are concerned, in as much as the EPC invoices are not yet due to date by virtue of the vendor financing arrangement that we have in place for these units. So this pretty much would have no significant impact to us in terms of cash flows at least in the next 2 years. Okay. Last question -- last 2 questions. Could you remind me again what was the -- what were the last 2 questions you asked? Chesca Tenorio: EBITDA outlook -- Paul, it's the EBITDA outlook and funding requirement for 2026 and construction funding plan for solar projects. Paul Bernard Causon: Okay. On the EBITDA outlook for 2026, well, what we've seen this year is pretty much indicative of what we expect to see next year, except that we will have full year contributions from battery projects that we have coming -- that we've commissioned and put into commercial operation early this year, bringing the total to around 500 megawatts. By next year, we expect the rest of the 500-megawatt pipeline to become fully operational as well. It's an opportune time to get into renewable -- into ancillary services, especially since the DOE is integrating quite a bit of intermittent capacities into the grid. As I mentioned earlier, over the next 3 years, it expects to integrate around 9 gigawatts of intermittent solar capacities. And our batteries are strategically positioned to be able to provide power quality services to NGCP to be able to allow such integration. With respect to the -- and then therefore, our profit outlook for next year should be at least around PHP 70 billion in terms of EBITDA. With respect to our funding plan for next year, a lot of those actually are refinancing activities. So the biggest debt that are maturing next year will be our January 2026 perps. So we have that pretty much pinned down. So we're looking at 2 very concrete financing activities that we are very confident to be able to have that refinanced over -- at least a 5-year period. The December 2026 perps, as I mentioned earlier, we're looking at peso DCM deal for that. We have to have it redenominated and financed also over the long term. The rest of the financing activities strategy would either involve syndication, involving foreign banks and also local banks, again, to be able to refinance roughly PHP 30 billion, PHP 40 billion in expiring debt next year. How to finance the solar projects? So I did mention the CapEx earlier. It's $1.5 billion, but that is expected to be incurred over a 4-, 5-year period. The primary method or approach that we're looking at to do this will be through the vendors. So because of the magnitude of the capacities that San Miguel Global Power is going to foray into, a lot of contractors, OEM suppliers for panels are actually offering us a lot of options with respect to vendor-initiated or vendor- financed deals. And that will give us a lot of flexibility in terms of financing these projects, not only with respect to the equity component, but also on the debt component. And as you know, given the nature of the Green Energy Auction Award, it's basically a government-sponsored offtake contract or set of contracts. So we are very confident that at some point in the next 2 years, once we paid at least the equity component of the $1.4 billion that we'll be able to raise the requisite OpCo level debt. And again, given the vendor financing that we have put in place, we are under no pressure to actually have this done at least in the next 5 years. So I hope I've covered all your questions. Let me know if there's anything else. Thank you. Operator: With the interest of time, we have one last question from an anonymous attendee. For San Miguel Corp., what is the net debt at the parent level as of 9M '25? Chesca Tenorio: Thank you, Ian. For that question, parent net debt of San Miguel Corp. is PHP 701.4 billion as of 9 months 2025. Thank you. Operator: All right. That concludes our Q&A. Thank you to everyone for your questions and to our panelists for providing detailed and informative answers to our queries. For those who have further questions, you may address it to us via e-mail at smcinvestorrelations@sanmiguel.com.ph. Thank you, and good day. Kristina Lowella Garcia: Thank you. Chesca Tenorio: Thank you, everyone. See you next briefing. Thanks for joining.
Roland Jones: Well, good morning, ladies and gentlemen, and welcome to the Schroder Oriental Income Fund plc Annual Results Webinar coming to you today from the Schroders' headquarters in the heart of the city of London. I'm Roland Jones. I'm responsible for the investment trust sales here at Schroders. And I'm pleased to be your host over the next 35 minutes or so. I'm also very pleased to be joined by your portfolio manager, Richard Sennitt. Good morning, Richard. Richard Sennitt: Good morning, Roland. Good morning, everyone. Roland Jones: Richard has got over 35 years' experience and has recently returned from... Richard Sennitt: Not quite Roland. Roland Jones: Okay. Richard Sennitt: Over 30. Roland Jones: Just returned from a trip to Australia. And over the next 35 minutes or so, we're going to talk about the performance of the trust over the results period, the positioning a little bit of outlook and our views for the region, but also very importantly, the importance of generating a dividend from a portfolio of Asian equity stocks. So we're going to spend a little bit of time over on that topic over the next 35 minutes. Now you will have plenty of time to ask questions. I have my iPad. Please fill them in, send them to me. You've also got the opportunity to download the annual results and today's presentation. So it's all there. There's also a survey at the end. We'll be very grateful if you could fill that in because that's really useful for us, so we can make sure that these presentations are sort of meeting your requirements in the future. So that's the agenda for today. Roland Jones: Richard, tell us a little bit about the team that we have in Asia because that's very important, isn't it? Let's cover that. Richard Sennitt: Yes. No, you're absolutely right. It is a key part of our investment process. And I think it's probably worth just touching on how we do manage the portfolio and the way that we approach investment in Asia because I think it is a really important part of the ability to deliver success over the long term. First of all, we think that markets are inefficient in Asia, which won't surprise you. And the best way to extract those inefficiencies is very much through a bottom-up fundamental process. And to that end, as Roland mentioned, we have a very extensive team based out in the region. Although I'm based here in London, you can see that we have a team based through 6 offices in Asia and 47 analysts. And they're going out visiting companies, writing reports, making recommendations, and I'm drawing on their best ideas from an income perspective to create a portfolio of roughly about sort of 60 names. I think it's probably what's worth highlighting is that what we don't do is screen the universe for the highest-yielding stocks and backfill the portfolio with those names. What we're looking to do is to buy into companies where there is most certainly an income rationale to go in the portfolio, but there is also hopefully upside to fair value as well. And that does mean that there are some areas of the market where we're probably going to have a little bit less exposure or not get exposure to. One of the most obvious areas that we are quite underweight in would be, for instance, the Chinese Internet platform companies would be an example of that. This does mean that, I guess, stylistically for the fund, there is -- given the characteristics of income and so on, it doesn't tend to mean that overall, we have a sort of a bit of a value bias to the portfolio. So that's really on the sort of the team and high-level process. And perhaps if I sort of give a bit of a recap about what's been going on in the markets because I guess this year has been a year when actually Asia has been a pretty good performer versus world markets. It's up over 20% year-to-date. And I suppose if you rewind 12 months ago, that may have been a bit of a surprise to people because if you think about it, we just were in that period when we're having Trump coming into being elected in the U.S., and he obviously had very clear views around tariffs, which obviously, it was going to have a big impact on Asia. And also, there was concern around the outlook for the Chinese economy. So looking at whether there was risk around a hard landing there. And I guess what we've seen since then has been that markets have got a bit more comfort around those things. So around enough is being done to sort of stabilize the Chinese economy. And I think also that some of the sort of initial talk around tariffs, I think people got more comfortable with some of the deals that are starting to come through on there, and that's allowed markets to do a bit better. The other thing, of course, which has been a real driver for markets globally has been around what's been going on with AI and obviously, Asia is very much an enabler for AI with its extensive sort of semiconductor companies and world-class names like TSMC, Samsung Electronics, these sorts of names. And they're obviously a part of that whole ecosystem, and that has been helpful for the markets. And then I'd say the final piece, which has sort of driven markets a bit higher has been a weaker U.S. dollar, which tends to be helpful for liquidity in the region and good for stock markets, at least historically. And with that, just looking at the chart that we've got here, you can just see that what each of the individual markets have done. And the reason that I put this chart up here is just to sort of show that actually most of the rise in markets is being driven by -- or has been driven by a re-rating rather than earnings growth necessarily being revised up or coming through. So this just breaks down the returns for each market and it says what proportion came from a re-rating, what came from earnings and the earnings being the green, the dark blue being the sort of re-rating. And you can see in most markets, it's been about a re-rating. And that's because the markets have been quite liquidity driven. They've been quite narrow. They've been quite thematic. And as we go through time, I'd expect to see a bit more of a broadening out from the sort of re-rating phase more to sort of earnings growth coming through. And this just sort of paints that picture a bit in a slightly different way. The chart on the left is just looking at the sort of the weight of the largest 5 stocks in the benchmark. And you can see that on the left-hand side, it's now over 25% of the market. So it's been quite a concentrated market rally, and that's been sort of a bit similar to what we've obviously seen in markets like the U.S. And the number of stocks that have been outperforming has come right down, which is the right-hand chart. So it's been quite narrow, and that's around that sort of thematic piece, which I was sort of talking to. And that's generally been not a great backdrop for income, I'd say, because it has been quite a bit more of a growth-focused rally and with growth outperforming value. So if we look at the sort of the performance of the trust over the sort of financial year, you can see that here, we've got -- so I think the first thing to point out is obviously that absolute returns have been pretty good over the year. And actually, if you look back through time, they've been relatively consistent. You can see they're generating roughly 10% per annum over the longer term. Against the index, the strategy has lagged the benchmark. And that has really been around a couple of things. Firstly, about the point about value has been a bit of a headwind in the market because growth has done better in what's been quite a liquidity-driven market. And some of the names which have done very well have been some of those Chinese Internet platform companies, so the likes of Tencent, which is hard to sort of own from a sort of -- with an income -- justify from an income rationale perspective. So that's been one of the sort of headwinds. That's partly offset by an overweight in the stock selection in sort of Hong Kong. And I'd say then from a sector perspective, sort of financials have been good for us, being overweight and stock selection within them and -- which has been partly offset by stock selection within IT. The other thing I should point out here is obviously that subsequent to that year-end, we have announced the full year dividend, and it's shown another increase there, and I'll talk a bit more about that in a second. If I bring it sort of a bit more up to date to the end of October, you can see that the markets have sort of continued to rally. And that has been driven again by very much a continuation of sort of strength in some of those AI names. And since the month end, there's been a bit of a sort of question mark around that, about the sort of the sustainability of the rally, but maybe we can talk about that a bit later. But generally, the market environment has obviously been positive for equities. And I think it's probably worth pointing out how if you're looking at this trust, how you should think about how the trust performs in different types of markets. So here, we just got the annual returns going back over the last 10 years and looking at -- and what I would tend to say is that when markets are sort of quite liquidity-driven or growth focused, that tends to be a bit of a headwind for relative performance, but you tend to do relatively well from an absolute sense. But when markets are falling or gently rising, there's a reasonable, hopefully, an opportunity to outperform versus the benchmark. And I think that's what you see over the sort of 10 calendar years that we've got here. The strategy has sort of underperformed in 3 of those years is 2017, 2019 and 2020. And they were years which were good from an absolute perspective. So you made good absolute returns but lagged the benchmark, and that's partly because they were focused on growth. Those markets, they tend to be quite growth-driven, quite liquidity driven. But in most other markets, you can see there, which are generally rising or falling, the trust has managed to outperform its benchmark. So that's sort of the way that you should sort of, I guess, think about that relative performance piece. And just talking a bit more, I suppose, just putting that piece, I mentioned that sort of higher-yielding stocks have basically had a bit of a challenge from a relative performance perspective. So this just looks at the relative performance by quartile of yield. And you can see -- so if you look at the right-hand side, any -- the bars above the line are stocks outperforming the benchmark. And you can see that the lowest yield quintiles, so Quintile 4 and Quintile 3 have performed well, whereas the highest-yielding quartile has been the sort of the weakest performing quartile. And that's coming back to what I was sort of describing earlier as to how you should expect. So high-yielding stocks have lagged the benchmark essentially. And then if we look at the sort of performance of the individual markets, and this is to the end of October, and it looks at the 12-month returns. I think it can almost be summed up in sort of in a relatively -- I mean, it's a bit of a generalization, but the areas that have done best over the last 12 months or so have been in those areas of sort of North Asia and around us sort of more of an AI focus. So if you look at sector returns, the best-performing sectors, information technology, I guess, not too much of a shock to many people. And then on the left, if you look at the country returns, the North Asian markets, in particular, Korea, Taiwan, China, all outperformed. And obviously, particularly Korea and Taiwan have that large semiconductor industry and that enabler of AI theme there. And then on the flip side, you've got the sort of, if you like, from a market perspective, those markets which have got relatively less in some of those more direct technology AI areas. So -- and perhaps a bit more impacted by what's been going on from a tariff perspective in some ways. So you're looking down at the sort of the -- some of the Southeast Asian markets, so like Thailand, Philippines, Indonesia, but also Australia, which, again, is another market where it hasn't got so much of that sort of IT exposure. And from a sector perspective, it's been the sectors that have lagged have been those which are sort of a bit more defensive, so utilities, consumer staples and health care and so on. So if you look at the sort of performance of the trust over the longer term, that -- and here, we've got the sort of light blue line, which is the sort of FTSE, the green line, which is the regional benchmark and the dark blue line, which is the trust, you can see over the long term, both the region and the trust have outperformed the U.K. market. So it has sort of, if you like, fulfilled a sort of diversification away from the U.K., if you like. So for someone who's got a lot of U.K. income, this is sort of potentially you could diversify through this and over the longer term, there are periods obviously when it doesn't outperform the U.K., but long term, it has outperformed. And I think the other thing just to sort of highlight is that the trust has outperformed the benchmark over the longer term. And I think that's a sort of -- is an argument, particularly when you're investing in Asia for sort of active fund management. And I think those sort of inefficiencies within the market that you can hopefully, over the long term, exploit to an extent. So if we look at the sort of the dividend per share over time, as I mentioned that's another increase this year in the dividend, and that's the latest in the line of increases, which have been going on now consistently every year since launch. And I think it's probably worth saying that in a sense, the trust is a bit plain vanilla in the way that it generates its income. It's not obviously paying out of capital. It's paying out of the income that's come through from the companies that we've owned through time. And it's also not trying to generate income through writing options or additional strategies. So in that sense, it's quite sort of, I guess, simple in its approach to the underlying income. And that does mean that you get that sort of value tilt to the portfolio. Roland Jones: So Richard, does that mean that every stock that you own in the portfolio is a yielding stock? And are you drawn towards those high yielders? Richard Sennitt: There has to be an income rationale for the stock to go into the portfolio, but it doesn't necessarily have to have a high yield today or it could indeed even not be paying a dividend today. But I have to see a clear progression to a decent dividend being paid out in the sort of forecastable future, if you like, rather than necessarily say, 10, 20 years down the line. So there is definitely an income rationale, but there is the ability to buy into companies where I think there's going to be an increase in dividend, which is material coming through over the forecastable future. So yes, it's -- so that you don't have to have a dividend, but in general, the very large majority do. Roland Jones: And are you naturally wary of those stocks paying a high dividend because that may not be sustainable? I presume the sustainability of dividend is an important factor as well. Richard Sennitt: Yes, sustainability is important, and we obviously consider that when we're looking at individual stocks. And I think it goes back to that point I made at the beginning where we don't just screen for the highest-yielding stocks because often some of those stocks can be ones where you do see dividend cuts because perhaps they're paying out more than they should. And we also want to buy into companies where there is potentially hopefully some sort of growth in the medium to long term and that potentially is a bit of upside to capital. So yes, we do focus on that point. It doesn't mean that we can always avoid dividend cuts, but it's obviously a consideration when we put stocks into the portfolio. Roland Jones: That's good. Thank you for clarifying that. Richard Sennitt: And I suppose this -- just to give a bit of context around where yields in the region are today. If you look at the left-hand chart, this just shows the dividend yield for the different regions. And then you can see the yield of Asia and the yield of the trust. And I guess if you look at the region, the yield is -- it's higher than the U.S. It's a bit higher than Japan, not as much as in the U.K. But if you look on the right-hand side there, you see that the trust does yield a premium, obviously, to the region, as you'd expect. And at the moment, it is a little bit above that, the yield of the U.K. market. And then the chart on the right, I guess, is instructive of sort of where relative yields are versus history versus the sort of different regions. So this just looks at the, if you like, the dividend yield premium of Asia versus the rest of the world, and you see it's relatively high at the moment versus its long-term history. So in that sense, relative to other markets, it doesn't look particularly extended at the moment. And then I guess, just to finish off with you on some of the drivers of income at the moment. On the left is just sort of consensus numbers for dividend growth at the moment, which coming through -- sorry, a lot of sort of small bars there, probably not very clear. But I guess the bottom line is that we're sort of -- we are getting dividend growth forecast to come through this year, sort of that mid-single-digit range of growth. It does vary between sectors. And then on the right, the other sort of influence of dividends, obviously around currency. So particularly the strength of sterling versus the regional markets. And obviously, if sterling is strong, that tends to act as a bit of a headwind for the translation of dividends back into sterling and vice versa. And over the last few years, actually, it's been a bit of a headwind at work. Very recently, it sort of just started to come off a little bit from currency. So if we see that continue, that would be favorable, but it has been a headwind, broadly speaking, over the last couple of years. And then to your point about sort of resilience of dividends. And I think one of the reasons that sort of Asia is sort of interesting or is, in my view, relatively reliable source of income is that it's not particularly extended from a sort of payout perspective. So the proportion of company's earnings that are being paid out is not that high. So if you look at the left-hand chart, you can see that green line, which is the payout ratio for the region, and that's sort of 30 -- it sort of goes in that sort of 30% to 40% range. So quite a big cushion if sort of earnings could come under pressure. And then on the right, gearing also for the region, and this just looks at the listed sector gearing versus other regions. And you can see that the Asian region, which is that light blue line is relatively low versus the other regions. So again, another sort of reason why you might get some sort of resilience there if things did slow down. So if I talk a bit more now about sort of, I guess, outlook and positioning and where we sort of have exposure within the fund and the outlook. I guess, first of all, here, what do we like in the region? I guess this slide is a reminder of some of the key themes as stocks that investors in the trust can get exposure to. We've got obviously some of the global leaders in tech, so things that we mentioned sort of TSMC and Samsung Electronics, but also -- and they're obviously benefiting from that structural AI growth theme. But we've also got some of the world's best manufacturers in Asia unsurprisingly. So you've got things like Shenzhou, which is focused largely around sort of sports apparel, that sort of thing. Hon Hai, which obviously does a lot of the manufacturing of -- increasingly of high-end servers for AI, but also people probably know it for a lot of the Apple product that it does. And then a good exposure elsewhere to some of the sort of domestic growth trends as well. And we look through sort of financials, so banks, insurance companies and some of the other names there. And if you look at the trust sort of positioning that we stand at the moment, I think the thing -- we haven't made any big shifts over the recent period. But I suppose the thing that stands out and continues to stand out would be that we remain very underweight China. That's partly offset by the overweight to Hong Kong that we have. And that -- part of that is around this point around some of the Internet platform companies that don't really pay much in the way of dividends. But -- and I'll talk a bit more about China and the outlook in a second. But we continue to like Singapore, although that size of that overweight, we have sort of brought down a little bit. And the other area, I'd say we have taken money out of over the course of the last 12 months or so or whatever has been in Korea, where we're now underweight. And that's partly a reflection of the market has done really well. It's re-rated up. And part of that re-rating up has been on the sort of value-up program, which you probably heard people talking about, which is sort of trying to focus a bit more on shareholder returns and improving sort of -- generally sort of improving corporate governance in different areas. So... Roland Jones: Are we seeing evidence of that's of working? Richard Sennitt: We're starting to see some of that coming through. But yes, I wouldn't say it's by any means universal at the moment. So -- and that's hence why one of the areas I've been taking a bit of money out of because stocks have moved up in anticipation of this happening. And yes, we have seen some things, particularly in some of the sort of -- actually in some of the financial sector, we've seen improvement in dividend payouts and such like. So that has been coming through. But we're now in a phase where a bit more of the sort of things that need to happen are a bit more tied into sort of changes in legislation and so on that need to come through, which take time. And hopefully, over the longer term, we will do, but there is some expectation that they will in prices at the moment in my view. And then I guess on sectors, again, we remain, I guess, overweight in sort of real estate and financials and IT but I would say that we have taken down the weight over the course of the last 12 months in financials and IT. IT has obviously done pretty well as an area, as we've described. So there, it's been a bit about relative value and taking money out for that reason. Financials, again, it's been a good performing area of the market. And we still like financials, but just some of the things which have done well, we've sort of taken money out of. And then I suppose on the underweight, consumer discretionary remains a big underweight, partly again, that's partly around sort of Chinese e-commerce companies and so on. And I guess we've been adding to some of the sort of sectors such as utilities and some of the sectors that have lagged a bit into staples. Roland Jones: So that's where the proceeds from some of the gains we made on the IT, financials and real estate are going into those particular sectors. Richard Sennitt: Yes, being recycled. Roland Jones: Yes. Right. Richard Sennitt: And actually, we did put some money into consumer discretionary. So we were more underweight there, but there have been some opportunities in places like China to increase our exposure. Roland Jones: That's a bit of active management. Richard Sennitt: Yes. And then just the top 10 holdings, and I guess I'm not going to go through these names, but just in the sense of reasonably diversified both by country and by sector. And I think it is worth just sort of from an overall standpoint, just commenting on how the sector or the region is quite heterogeneous. It's not just about China or exports or whatever. Within the trust, you do get exposure to a broad set of drivers. And so obviously, we get the exposure that I sort of described in North Asia to some of these exporters and tech companies, that's Korea, Taiwan, and that makes up just over 1/3 of the portfolio. That's, I guess, driven more by what's going on globally in the export cycle as well as obviously structurally in AI. And then obviously, we've got sort of about 30% of the portfolio in China and Hong Kong, where we'd say that still has some of the challenges, which we know about around demographics, overinvestment and so on. And so we as we sort of mentioned earlier, we are quite underweight versus the reference benchmark. But as an active manager, we can still find things that we want to buy in there. And then I guess the other 2 chunks are sort of ASEAN, which has got a large portion of which, I guess, or the bigger overweight comes from our position in Singapore, which has increasingly benefited from its increased importance as a financial center within the region and also acting as a sort of increasingly into the region outside of its hinterland, et cetera. So some of the smaller ASEAN markets, Indonesia, Philippines, Thailand, Vietnam, all those markets which are, to an extent, benefiting in a sense from the sort of supply chain diversification, which we've seen coming out of from corporates that have been very focused on producing in China, and they want to have alternative sources of production. So that's sort of whole China Plus One theme. And then Australia, which again, is -- you don't think of necessarily as the highest growth market, but is a market where shareholder returns have generally been pretty reasonable through time and again, acts as a good sort of diversifier there. Roland Jones: And you've just come up from Australia, haven't you? Any particular insights that's worth sharing at this point? Or will you come to those? Richard Sennitt: Well, I come to those. I mean, yes, because I guess Australia is a market, as I was sort of saying, it's not -- you don't think of it as a sort of a high-growth Asian market in the sort of traditional sense. So you sort of perhaps think how does that fit within sort of an Asia portfolio or whatever. But it obviously benefits from growth that is going on across Asia as a whole from an economic standpoint. So what's going on, obviously, with its large commodity sector and so on. And also, the other point is that actually, you think of the sort of demographics, you don't necessarily think of a sort of Australia as being at the forefront of that, but actually because they're growing their population pretty rapidly, the demographic profile is also pretty good for Australia as well. Roland Jones: Which is not the same for other. Richard Sennitt: Yes, for some of the other Asian countries, it's working the opposite way where the populations are obviously getting older and the sort of fertility rate has dropped a bit. So in some of those North Asian markets. Roland Jones: Interesting. Okay. Richard Sennitt: I guess quickly on time because I realize I've been talking quite a long time, but I'll swiftly move through these last slides. I mean, on China, our sort of general position in the sense of the way that we're viewing the market hasn't really shifted that much. And this is a slide I would have used last year, obviously updated. But I think it does tell you what's generally been going on, which you look at consumer confidence at the moment in China, it still remains pretty low, hasn't improved much. So the domestic economy in China, despite the sort of stimulus measures that have come through have not actually seen the economy pick up particularly strongly from a domestic standpoint. Exports has been pretty good. That's helped the economy overall. And instead, people instead of choosing to sort of invest in property, which has obviously been a pretty weak area, they've been saving and increasing their savings, which is that middle chart. And that has seen sort of -- that's a plus and a negative, I guess, in the sense that, obviously, if they're saving more, they're not spending. But I guess if they can sort of get things right and people spending, there's obviously an opportunity for consumers to draw down on those savings to spend more when confidence improves. And on the right-hand chart, it just shows how interest rates haven't actually started to see a pickup in household borrowing. So that mechanism hasn't yet sort of flown through into the economy. And then the other -- so we remain underweight in China, but the other area, of course, where is sort of an area of debate... Roland Jones: Very topical. Richard Sennitt: Yes, is obviously within IT and AI in particular. And I think we're all sort of familiar with the chart on the left, which is sort of U.S. hyperscaler CapEx. It's obviously been exceptionally strong. And as a proportion of sales, it's sort of up there now at sort of around 20%. So that's grown very rapidly, and that's sort of been driving, obviously, related names in semiconductors and so on, both in Asia and elsewhere, which is the right-hand part of the chart. And near-term growth continues to look very good. The question mark is more about are we nearing that peak now. And the real question mark is all this investment is how much return are we going to generate on that investment. And that's where the sort of the big question still remains. So we are less overweight in IT than we would have been sort of 12 months ago. So we've been gradually bringing our exposure down just really to reflect that sort of how well these things have done over the course of the last 12 months. And the other area, which I mentioned, which we continue to like is sort of financials. We're a bit less overweight than we were. Again, it's sort of not just banks, it's also insurance companies, exchange companies. Penetration of insurance products, which is on the left, is still very low versus sort of developed markets. And so there's an opportunity longer term for that to grow through time. So we quite like that. And then on the right-hand side, you just look at sort of some of the returns coming out of banks. The ROEs are reasonably good in these markets. and the yields are good as well. And although rates have come down or come down a bit, and that will have an impact on margins, as rates come down, it has a flow-through on obviously, credit cost, but also on just demand for loans as well. So you hopefully get some offset coming through from there. And then I mentioned the point about the U.S. dollar earlier, and that's the central chart here or this chart here. And you can just see the green line, which is the U.S. dollar index. So as it goes up, the U.S. dollar is strengthening, as it comes down, it's weakening. And you can see that it moves sort of inversely to the index, which is the -- which is a dark blue line, and you can see that particularly clearly in the sort of '90s and early 2000s. But -- and more recently, you can see, obviously, the market has gone up and the U.S. dollar has weakened. So there is a correlation there. If we continue to see U.S. dollar weakness, that could act as a bit of a tailwind if history is a guide. Roland Jones: And Richard, actually, we've had a question on the dollar weakness. And obviously, you've very well -- you've sort of explained the relationship between the dollar and Asian equities. But the question actually relates to does a weaker dollar -- is there any evidence to suggest that either an income strategy or a more value-orientated strategy benefits more from a weaker dollar? Is there any evidence to that to support that fact? Richard Sennitt: Yes, I'm not sure that there's necessarily evidence to support that direct link. I guess the way that the sort of transmission mechanism works, I think if you look at it as the U.S. dollar weakens, it tends to ease liquidity in the region itself, and that allows interest rates in Asia, the central banks can start to sort of ease rates, and that helps from a sort of economic standpoint to generate growth. So you could argue, I guess, that it should be better for the domestic economy in a relative sense perhaps vis-a-vis some of the more export-orientated areas just because rate cuts should benefit domestic growth to an extent. And obviously, some of the sectors which have got good yield are attractive at the moment, things like financials, which I mentioned, obviously are driven by the strength of the domestic sector. So there's a sort of a bit of a link there. And then just the final piece is just on -- quickly on valuations. And I should say, given the rallies that we've seen in the market and what I was saying about it's been more about re-rating up than sort of earnings necessarily coming through strongly at this stage. The chart on the left just shows the sort of PE of the region versus its history, and you can see that it's now above the long-term average. So not particularly cheap markets versus the longer-term averages, but versus developed markets, which is on the right, which just shows the sort of ratio of PE for the region versus developed markets, you can still see that on that basis, Asia still looks relatively attractive versus history. And then when you sort of dive down and get a bit more granular looking at the different markets, you can see that here, which is the sort of just looks the little blue diamond -- light blue diamond is the valuation -- current valuation of the market against its range. And you can see that for most markets, they're sort of above their longer-term averages. And you can also see that there's a big spread across markets. So again, I think one of the key things to take away is that, again, from a sort of an active strategy, you can take advantage of those relative differences in valuation, which are there from a market level. But also when you look and drill down at the individual stocks in those markets, there's -- they're not all at the same price. So you can find -- again, you can find good opportunities. And to that point, the sort of -- again, the left-hand chart is just that repeat of that sort of stocks outperforming, the index come down. So it's been a narrow rally. That means outside of that, there's stocks that potentially you can find. And if you look at income stocks, which is the right-hand chart here, so this just looks at the top 2 quintiles of yield, so the top 40% of stocks by dividend yield and how they're valued relative to the market. And you can see that, that discount that's there, so it's around about sort of a 25% discount at the moment, roughly speaking, from the chart is not extended versus history. So from a sort of, again, dividend names don't look particularly extended versus the market in my view. And that is the sort of -- I won't take you through all the slides there, but that's the conclusion of the presentation. Roland Jones: Well, that's great because actually very comprehensive. We've got a little bit of time left for a few of the questions that come through. We have some really good questions actually. We -- interesting, one of our listeners has asked about, is it now time to consider inviting Japan back into the fold into an Asian -- a pan-Asian trust, particularly one where one is generating a dividend and the valuations for, say, the Japanese market are looking a little bit more palatable compared to where they were 20 years ago. Any thoughts on that? Richard Sennitt: Yes. And I think that certainly has merit. I mean we have historically invested in Japan to a lesser or a greater degree for the trust. I mean it's never been a significant weighting, but... Roland Jones: The trust is allowed to get Japanese exposure... Richard Sennitt: Yes. So we have one name at the moment in Japan. It's certainly a small exposure. But -- so there is opportunities over time. And -- but yes, at the moment, it's relatively small. Roland Jones: That's good, okay. And we've had another -- quite a few questions about valuations, particularly related to the AI bubble in Asia. And I think we've sort of covered quite a bit of that. But I'm just interested to hear, how has the trust performed in the very short term? I know we don't focus on the short term. It's the medium, long term and it's important. But has there been a degree of resilience with the trust given some of the profit taking you took out of the technology stocks recently? Richard Sennitt: Yes. I mean... Roland Jones: Great timing, by the way. Yes. Richard Sennitt: Well, yes. No, I mean, obviously, there have been those market -- those stocks have done well. And there has been definitely over the last few weeks, there's definitely been an increase in volatility around those names as I guess people have become a bit more nervous about valuations and I think the whole idea of what is the return of all this investment going to be, where are we going to get those use cases. And that has seen a bit more volatility. And from a relative perspective, I think since the end -- I mean, in the very short term since the end of the month, I think the trust is up in a relative sense against the benchmark about 2% or so. And so it's broadly flat against the market, which is sort of a little bit down a couple of percent or so. Roland Jones: And we've always positioned the trust and not only been able to generate a very decent income from Asian portfolios, but also quite a good way of getting a lower risk, slightly more conservative way to approach the Asian market. Richard Sennitt: Yes. I mean the set of stocks generally tends to have -- if you took those stocks and looked at them individually against the market as a whole, they tend to be lower volatility in aggregate. And that through time is a bit why you get the sort of when the market is rallying hard, they tends to lag a bit. So it's a bit low beta and vice versa. Roland Jones: Understood. Okay. We just have time for perhaps one more question. We've got a question about -- relating to the comments you made on the ASEAN region and talking about the very diverse nature of the Asian market, but specifically about the Philippines, where we've got a little bit of an overweight. What's the rationale there? What do you particularly like about the Philippines? I presume it's a stock more than a sector -- sorry, a stock more than a country related, but please tell us. Richard Sennitt: Yes. I mean there, it's a holding which we've had for a while, which is has done reasonably well, which is -- it's actually ICTSI, which is a port operator. And it's not just a sort of a domestic Filipino story, although that's actually an important segment of its earnings. It's also sort of an emerging growth proxy in the sense of it has a lot of exposure to emerging market ports globally. And so as trade flows within that emerging market piece grow over time, hopefully, the company should benefit from that. The Philippines is an interesting market because at the moment, it's one of the markets that's really sort of, I guess, lagged to put it nicely, I suppose, lagged the region. And the region is one of the markets which is trading at a significant at a discount to its sort of historic longer-term range. So it's definitely becoming more interesting. I guess interest rates clearly an easing of interest rates clearly globally help the Philippines perhaps more than some of the other markets given the external finances and so on. But I should say that as that potentially becomes a bit more attractive, it's also not the most liquid market in the world, and it's quite volatile. So it's never going to be a really huge portion of the portfolio from that perspective. Roland Jones: Okay. Well, thank you. Useful. Well, ladies and gentlemen, we're sort of fast approaching quarter to 10:00. Thank you all very much for listening in today and for all of your questions. Richard, very comprehensive overview of the region, which -- looking at your summary slides, I mean, despite having some concerns about China and some of the technology stocks, there is a lot more to Asia than just those 2 sectors, a very diverse area. We talked about the interesting opportunities in Australia, in ASEAN, in Korea. The trust after 20 years still remains a great way of generating a growing dividend from a basket of Asian portfolios. And we're on track to, I hope, attain the dividend hero status showing a 20-year unbroken rise of dividend over the next -- over the last 20 years. So one more year to go. But ladies and gentlemen, thanks once again for all your questions. Please do the survey. The feedback form is really important for us. It just helps us tailor these types of presentations for the future to make sure that we continue to hit the mark. Please send that into us. Have a great rest of the day. Thanks very much. Good morning.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies, Inc. Third Quarter Fiscal 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press star 1. This conference call is being recorded, 11/19/2025. I would now like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir. Thanks, Courtney. Ernie Herrman: Before we begin, Deb has some opening comments. Operator: Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements. Deb McConnell: About our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward-looking statements as well as the full Safe Harbor statements included in the Investors section of our website, tjx.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the Investors section of tjx.com along with reconciliations to non-GAAP measures we discuss. Thank you. And now I'll turn it back over to Ernie. Ernie Herrman: Good morning. Joining me and Deb on the call is John. I'd like to start by thanking our global associates for working together to deliver our shoppers an exciting assortment of merchandise at excellent values every day. I truly appreciate their continued hard work and dedication to The TJX Companies, Inc. Moving to our third quarter performance, I am extremely pleased that comp sales, profitability, and earnings per share were all well above our plan. Our overall comp sales increase of 5% was driven by strong comp sales growth across each of our divisions. Clearly, our value proposition continued to resonate with consumers in The United States, Canada, Europe, and Australia. And we are confident that we gain market share across each of these geographies. With our above-plan results in the third quarter, we are raising our full-year guidance for sales and profitability. John will detail our results and guidance in a few minutes. As to the fourth quarter, we are off to a strong start and as always, we'll strive to beat our plans. I am very excited about the initiatives we have underway for the holiday season. We are convinced that we will keep attracting shoppers to our retail banners. Availability of quality branded merchandise has been exceptional and we are in an excellent position to flow a fresh assortment of goods to our stores and online. We feel great about the strength of our business and are confident that our flexibility, wide customer demographic, and focus on value will continue to be a tremendous advantage. I'll talk more about our fourth quarter opportunities in a moment, but first, I'll turn the call over to John to cover our third quarter results in more detail. Thanks, Ernie. I also add my gratitude to all of our associates for their continued hard work and commitment to The TJX Companies, Inc. John Klinger: Now I'll share some additional details on the third quarter. As Ernie mentioned, our consolidated comp sales growth of 5% came in well above our plan. This was driven by a combination of a higher average basket and an increase in customer transactions. Further, we saw strong comp increases in both our apparel and home categories. Third quarter pre-tax profit margin of 12.7% was up 40 basis points versus last year and well above our plan. Gross margin increased 100 basis points versus last year. This was due to an increase in merchandise margin, primarily driven by lower freight costs, expense efficiencies, and expense leverage on sales. Importantly, we are very pleased with our mitigation strategies which allowed us to offset all the tariff pressure we saw in the third quarter. SG&A increased 60 basis points versus last year. This was due to incremental store wage payroll costs, a contribution to the TJX Foundation, and higher incentive compensation accruals. Net interest income negatively impacted pre-tax profit margin by 10 basis points versus last year. Third quarter diluted earnings per share of $1.28 increased 12% versus last year and was also well above our expectations. Lastly, we are extremely pleased with our third quarter pre-tax profit margin came in 60 basis points above the high end of our plan. In the third quarter, merchandise margin was stronger than we expected driven by lower freight costs, and we saw a benefit from expense leverage on the above-plan sales. Further, with our above-plan results, we had higher incentive compensation accruals and made a contribution to the TJX Foundation. Now to the third quarter divisional performance. At Marmaxx, comp sales grew by an outstanding 6% with strong increases in both our apparel and home businesses. It was also great to see strength in our store performance across all regions and income demographics, which speaks to the broad-based appeal of our values. The comp increase was driven by a higher average and growth in customer transactions. Marmaxx's segment profit margin was 14.9%, up 60 basis points versus last year. We were also pleased with the results at our Sierra stores and U.S. e-commerce businesses which we report as part of this division. We are extremely pleased with Marmaxx's momentum and continue to see terrific opportunities for our largest division to grow its footprint and capture additional market share. At HomeGoods, we continue to see very strong sales momentum with comp sales up 5%. Segment profit margin improved to 13.5%, up 120 basis points versus last year. With our highly differentiated mix of home fashions from around the world, at our HomeGoods and HomeSense banners we are confident that consumers will continue to be drawn to our stores. Further, we see a significant opportunity to further grow our store base and attract more customers which we believe will allow us to capture a bigger piece of the U.S. home market. TJX Canada's comp sales increased an outstanding 8%. Segment profit margin on a constant currency basis was 14.9%, down 20 basis points versus last year. Which was driven by unfavorable transactional foreign exchange. As the leading off-price retailer in Canada, our Winners, HomeSense, and Marshalls banners have excellent brand awareness and strong customer loyalty. We believe our position as a top value retailer in Canada sets us up very well to continue our growth in this country for many years to come. At TJX International, comp sales grew 3% with increases in both Europe and Australia. Segment profit margin on a constant currency basis increased to 9.2%, up a very strong 190 basis points versus last year. Ernie Herrman: We are convinced that we will continue to gain market share across John Klinger: both Europe and Australia. Looking ahead, we're excited about our growth plans in our existing countries and our planned entry into Spain in 2026. Moving to inventory. Balance sheet inventory was up 12% and inventory on a per-store basis was up 8% versus last year as we've been buying into the excellent opportunities for quality branded merchandise we've been seeing in the marketplace. Availability of quality merchandise has been terrific. And we are strongly positioned to flow fresh assortments for our stores and online this holiday season. As to capital allocation, we continue to reinvest in the growth of the business while returning $1.1 billion to shareholders through our buyback and dividend programs in the third quarter. Now I'll turn it back to Ernie. Ernie Herrman: Thank you, John. Now I'd like to highlight some of the opportunities that we see to drive sales and transactions in the fourth quarter. First, I am convinced that our retail banners will be a shopping destination for value-conscious shoppers this holiday season. As always, we believe consumers will see compelling values throughout the store every time they visit us. We see this as a major differentiator as our customers can shop our excellent values every day and not have to wait for sales, or promotional days like they do for many other retailers. Second, we believe we are strongly positioned to be a top destination for gifts. With the excellent availability of merchandise we have been seeing, we are confident that we will have a very exciting assortment of gifts this holiday season. Importantly, we plan to have gifting options across good, better, and best brands so our shoppers can find something for everyone on their list. At prices that fit their budget. Additionally, after the holidays, we will remain focused on being a gifting destination year-round. Next, we will be flowing fresh selections to our stores and online multiple times a week throughout the holiday season. We believe this differentiates us from many other major retailers as our ever-changing mix of merchandise allows shoppers to see a new assortment every time they visit. Further, we believe this may encourage shoppers to visit our stores more frequently to see what's new. I am also excited about our post-holiday initiatives to transition our stores to the categories and trends that we believe consumers want. John Klinger: Lastly, Ernie Herrman: we are excited about our holiday marketing campaigns. We recently launched our campaigns across a variety of media channels with an emphasis on digital. At every division, we believe our campaigns position us as a destination for holiday decor and inspiring gifts at terrific values. John Klinger: Further, Ernie Herrman: we are targeting a wide consumer demographic to emphasize that our values are available to all shoppers, to all our shoppers every day. We believe our campaigns will keep our retail brands top of mind and may encourage cross-shopping of our banners and attract new customers this holiday season. John Klinger: Now I'd like Ernie Herrman: to quickly summarize the key reasons why I am so confident that we are in an excellent position to continue our global growth and increase market share over the short and long term. First, we're convinced that consumers will continue to seek out value. Our value proposition of brand, fashion, quality, and price sets us apart from many other retailers and has served us extremely well through many kinds of retail and economic environments over the course of our nearly fifty-year history. Second, we successfully operate stores across a very wide customer demographic. We curate each of our stores individually to appeal to shoppers across various income and age demographics. Further, we continue to see our customer growth driven by both attracting and retaining shoppers across age groups. Next, we are confident that the flexibility of our buying, planning, and allocation, store formats, systems, and supply chain will continue to be a key advantage. Operator: Fourth, Ernie Herrman: we still see significant store growth ahead with a long-term store target of 7,000 stores just for our current countries and Spain. Additionally, with our joint venture in Mexico and investment in The Middle East, we have further expanded our off-price reach around the world. All of this gives us great confidence that we have a tremendous opportunity to capture additional market share globally. Operator: Fifth, Ernie Herrman: I am extremely confident that there will be more than enough quality branded inventory in the marketplace to support our growth plans. As a growing retailer around the world, vendors can use our nearly 5,200 stores as a way to clear excess inventory, grow their business, and introduce their brands to new consumers. Next, we are convinced that the appeal of in-store shopping is here to stay. We see our treasure hunt shopping experience as an important advantage and believe it will continue to resonate with consumers. Further, we make it very easy for our customers to shop our banners by locating our stores in convenient, easy-to-access locations, and offering them the ability to shop multiple categories across our store very quickly. Most importantly, I truly believe the depth of off-price knowledge and expertise within The TJX Companies, Inc. is unmatched. We have many leaders across the company with decades of off-price experience who are laser-focused on driving the current business at a very high level while also teaching and developing the next generation of TJX leaders. We also have a very deep bench which gives us the ability to rotate talent between divisions and geographies. Finally, I am so proud of our culture. Which I believe has been a major contributor to our long history of strong performance. Summing up, we are extremely pleased with the overall performance of The TJX Companies, Inc. in the third quarter and the momentum of the business entering the holiday season. I am so proud of the continued execution of our teams around the world and their relentless focus on our value commitment to our shoppers. We remain convinced that we have significant opportunities for growth and believe we can continue to capture market share around the world for many years to come. Finally, I am pleased to share that during the third quarter, we published our 2025 Global Corporate Responsibility Report. The report covers our ongoing work across four key areas: workplace, communities, environmental sustainability, and responsible sourcing. We invite you to learn more by visiting our website tjx.com. Now I'll turn the call back to John to cover our fourth quarter and full-year guidance. And then we'll open it up for questions. John Klinger: John? Thanks again, Ernie. I'll start with our fourth quarter guidance where we are planning overall comp sales to increase 2% to 3%, consolidated sales to be in the range of $17.1 billion to $17.3 billion, pre-tax profit margin to be in the range of 11.7% to 11.8%, up 10 to 20 basis points versus last year's 11.6%. Gross margin to be in the range of 30.5% to 30.6%, flat to up 10 basis points versus last year. SG&A to be in the range of 18.9%, which would be 30 basis points favorable versus last year. We're assuming net interest income of $26 million which we expect to delever fourth quarter pretax profit margin by 10 basis points. Our fourth quarter guidance also assumes a tax rate of 25.4% and a weighted average share count of 1.12 billion shares. Based on these assumptions, we expect fourth quarter diluted earnings per share to be in the range of $1.33 to $1.36, up 8% to 11% versus last year's $1.23. Moving to the full year. We now expect overall comp sales to increase by 4%. We are increasing our full-year consolidated sales guidance to a range of $59.7 billion to $59.9 billion. This increase reflects the flow-through of the above-plan sales in the third quarter. We are increasing our full-year pre-tax profit margin guidance to 11.6%, up 10 basis points versus last year's 11.5%. Moving to gross margin, we now expect it to be 30.9%, up 30 basis points versus last year's 30.6%. We now expect full-year SG&A to be 19.5%, a 10 basis points unfavorable versus last year. We're assuming net interest income of $111 million which we expect to delever fiscal 2026 pretax profit margin by 10 basis points. Our full-year guidance assumes a tax rate of 24.5% and a weighted average share count of approximately 1.13 billion shares. As a result of these assumptions, we're increasing our full-year diluted earnings per share to be in the range of $4.63 to $4.66, up 9% versus last year's diluted earnings per share of $4.26. In terms of tariffs, we're assuming that the current level of tariffs on imports into The US will stay in place for the remainder of the year. As such, our guidance assumes that we will be able to continue to offset the tariff pressure on our business in the fourth quarter. In closing, I want to reiterate Ernie's confidence in our plans for the remainder of the year and our long-term opportunities going forward. I want to emphasize that we remain in an excellent position to continue to invest in the growth of our company while simultaneously returning cash to our shareholders. Now we're happy to take your questions. As a reminder, please limit your questions to one per person so we can answer as many questions as we can. Thanks and now we'll open it up to questions. Operator: Thank you. To join the queue, press 1. Our first question comes from Brooke Roach from Goldman Sachs. Good morning and thank you for taking our question. Ernie, I'd love to hear a little bit more about what gives you confidence in continuing to deliver the comp momentum as we come up into a tough compare for the holiday season. John Klinger: And then Operator: can you also give a little bit of commentary on what the benefit was to comp in the quarter from AUR and pricing growth and what your plans are for pricing and price gaps as you deliver value into the holiday season. Thank you. Ernie Herrman: Sure, Brooke. Well, in the comp momentum, you can see we've been kind of building momentum for a bit now, right? It's going back a number of months. I think when you look around the board here, at the opportunity to deliver a shopping experience and merchandise, that is branded at tremendous value across good, better, and best. And then you look at the lack of that customer mission being serviced really by anybody else around us. Nobody is really doing that. So, and I'm talking good, better, best, branded. At tremendous value. In a shopping environment, which I think over the last decade has become more important to consumers in terms of not only the merchandise but our shopping environment is very pleasant. Our associates are very accommodating. They're happy. We're providing, I think, an overall pleasant, exciting treasure hunt shopping experience. Even if they're running for treasure hunt. Our consumers, and we have data on this, really enjoy shopping. It's a very positive experience. And contrast that with what's happening around us, And I think ultimately that's why our formula just bodes well in terms of confidence in our comp momentum. Yeah. John, did you want to jump in? Yeah. I mean, just to give you some color on the cadence and the build of the comp. John Klinger: So the cadence in the quarter was very consistent by month, which was really nice to see. As to transactions, and basket, both transactions and basket were up with basket driving a little bit more of the comp within And within basket, ticket was the driver. Ernie Herrman: Does that help you, Brooke, with that part of that question? Deb McConnell: Yes. Very helpful. Thank you. Ernie Herrman: Yes. But you had kind of a third part which I believe was around the you know, the pricing gap, which, you know, it's on what John is getting at. But clearly, another component is our merchants are so driven by keeping a gap on our retail against the out the door We've talked about that many times. And I think that's what speaks to the third question you were getting at is, we will continue to shop aggressively competition, which by the way is clearly all retail, whether it's online, whether it's brick and mortar, at mass market, discount, or department stores or specialty, And then we will ensure, as we always do, that our out the door retail retail is below their, promotional retailer promotional retails. And we'll continue to do that regardless, you know, and that's where it gets down to item and SKU and that, you know, our teams are so good at staying laser-focused on executing that. So, that, by the way, I guess you could argue another component of being confident in our continued momentum. Operator: Thank you, Ernie. John Klinger: You're welcome, Brooke. Operator: Our next question comes from Paul Lejuez from Citi. Ernie Herrman: Hey, thanks guys. Just a John Klinger: follow-up on the traffic and ticket. I'm curious if if it was mix that drove the basket. When you think about the higher people? So I will Ernie Herrman: Sorry, Paul. That didn't come. Can you, repeat that first part? Paul Lejuez: Sure. I'm curious. If it was mix that drove the basket. In terms of higher AUR, higher ticket. Or are you seeing true true price increases? Based on what's happening in the competitive landscape? Are you seeing that opportunity to take prices higher across the assortment because others are doing the same? And then I'm also just curious if you could talk about the income demographic comment. I think you said consistent performance. Was curious if you were referring to The United States specifically, or if you could maybe talk about income demographics in other geographies as well, any differences that you're seeing? Ernie Herrman: Sure. Yeah. Paul Lejuez: So when you break down the ticket, John Klinger: it was a bit more of the price versus the mix. That drove that. Don't know if Ernie, do you want to expand on that? Yeah, sure. Yeah, Paul, I think it was Ernie Herrman: combination, but I think a little bit more was due to, yes, some of the pricing, that's gone up, as selectively throughout as other prices have gone up around us. I think you've seen many reports about other retailers talking about having made some price adjustments on certain items, categories Again, we and some of those cases have followed suit. Based on what we've had to pay. In retail. But again, I go back to what I had said to Brooke at the end of that question, her third question, is we are extremely diligent on making sure we're providing in some cases, at least as good a value as we were prior. In fact, our value perception scores, which we are always monitoring, extremely strong. Of course, one would probably guess that when you look at sales, you would say that if the value perception wasn't strong, we probably wouldn't be doing these pump sales. Paul Lejuez: So I think as John said, that was probably the chunk Ernie Herrman: of the reason. But merchandise mix does certainly impact Again, I wanted to emphasize we do not top down drive the retail ticket. We're insisting on the right value. And then our down at the buyer and level, the ones that really determine where the retail should be. Right. There's a John Klinger: a good part of our mix that you know, we're not buying, you know, the same thing over and over Yeah. When when we look at ticket, we're really looking at, it within the department. And so sometimes it can be a little challenging to read. Paul Lejuez: But Ernie Herrman: But Getting back to your income demographics, John Klinger: the vast majority of our geographies, it was it was close. I mean, it's both income demographics that we kind of break it down and how we look at it, we're very, very close. But it was the lower income demographic that was driving the comp in the majority of our geographies. Paul Lejuez: Got it. Thank you, guys. Good luck. Ernie Herrman: Which Paul brings up know, because you hear you're I'm sure all of you have heard many different reports on in some cases articles about the upper end or luxury retail driving some of the, you know, again, I always emphasize the strength in our business model is that we're have a balanced approach. Right. Where we have all we try to appeal to all ages and all in condemn And we never veer off that mission really for times like this and times when things get better or times where people are struggling. We want to appeal to all income demographics. Which is why we're seeing consistent across all the income demographic bands we look at. Paul Lejuez: All right. Just as a follow-up, is that unusual that it would be the lower income demos that are outperforming at the same time that you're seeing ticket go higher? John Klinger: No. It's been like that for the last number of quarters. I mean, because really for quite a long time, we've been seeing strong across all income demographics that sometimes it'll tip one way or the other. That's what we're seeing is just a tipping of of it rather than a trend. Ernie Herrman: It's not a long term trend, yeah. Yeah, so and Paul, we have Paul Lejuez: we have Ernie Herrman: and when John says the strength, you know, all the income demos are healthy. It's just that one's nudging a little bit In other words, a lot of we we are happy with the all the different income groups. That one's just nudged up a bit. In the in the recent. Paul Lejuez: Broadcast. Thanks, Gus. Welcome. Operator: Our next question comes from Alex Straton from Morgan Stanley. Deb McConnell: Great. Thanks so much. I've got one for John and then maybe one for Ernie. Alex Straton: So John, just on the gross margin guidance for the fourth quarter, can you talk about what changes to make that year over year expansion a little bit less than what we've seen in the last couple of quarters? And then for Ernie, a bigger picture question. A lot of discussion around AI disintermediation in retail. Especially with the use of personal digital shoppers. So I'm just wondering how you think about what these developments mean for TJ and what your broader kind of AI strategy might be more generally? Thanks so much. Ernie Herrman: Yes. Go ahead, John. So John Klinger: on the gross margin for the fourth quarter, the reason why is it's really how we are handling our shrink accrual for the year. Because we had a favorable shrink came in last year, so we're up against the adjustment in the fourth quarter that that brought the shrink rate down from our plan. So we have favorable shrink comparison to last year for Q1, Q2, Q3. And in Q4, we're up against a negative comparison last year. Does that make sense? Or I'm sorry. We're up against the positive adjustment last year, this year, which creates a negative compare Paul Lejuez: Is that good, Alex, on that? Yeah. Alex Straton: Yep. It is. Thank you. Okay. Paul Lejuez: So and on the, yeah, the bigger picture AI question, which of course Ernie Herrman: no topic is highlighted more than AI and the world we're in today. Our teams are all over this from a couple's perspectives. But let me emphasize that we're doing it in a TJX approach manner. In terms of where would it dovetail into helping us without us swinging a pendulum and doing something that could be counterproductive. So we are pretty aggressively evaluating and testing and deploying AI really across our business to help us work more efficiently and enhance and augment really the work our associates are doing. So you had mentioned I think, some example, but areas we would look at it right now testing is enhancing our fraud detection and security. There are aspects to that that could work out well. In store analytics, really helping with that process. Enhancing customer service. I'll give you another one. HR, where I think we're going to get some really big benefit. Is in some HR processes. Where there's a lot of information that could be somewhat cumbersome. As big as we are today, I think that's going to help streamline a lot of a lot of work for some of our HR associates there. Enhancing customer service, I think I mentioned. Marketing, a recent discussion we just had is marketing optimization. This is something going on around us. And we are taking a look. It's really at the beginning to see what processes there would benefit from us implementing AI. So we are can't tell you details, but we are taking a hard look and we'll be testing some services there. To see if we can move that further. Obviously it goes without saying we'd be looking at supporting buying and planning in a way, again, in a way that's still allows our merchants to function with the secret sauce that we do not want to be impacted by AI if that's not appropriate. So we're always very careful with that. But of course, we wanna be aware of it and look at it. And then helping IT teams deliver and operate more efficiently that would was one of the first places we were looking at this a number of years ago. And the last thing here, Alex, I would say is are also, the teams are really terrific and are I give our IT area credit that they're always looking at what are other people doing with AI. So that we're always aware competitively speaking so that we don't get blindsided on something we should have been looking at and somebody else is. So that's probably a little more info than you needed. But I think that kind of explains to you we're on John Klinger: Part of that last comment that I already made, you know, have established cross functional governance that process that just ensures that we are thoughtfully proceeding on looking at AI. Alex Straton: Great. Thanks so much. Good luck. Ernie Herrman: Thank you. Operator: Our next question comes from Matthew Boss from JPMorgan. Paul Lejuez: Thanks and congrats on a nice quarter. John Klinger: Thanks, Matt. Thanks, Matt. Paul Lejuez: So Ernie Herrman: Ernie, could you elaborate on just on the overall acceleration Matthew Boss: at Marmaxx, new customer acquisition, relative to expanded basket from your existing core And and if you could elaborate on the strong start to the fourth quarter, have you seen any softening in business or just opportunities that, that you see for holiday this year? Paul Lejuez: So Ernie Herrman: you're you're you're laying it up for me here, Matt. It's a new Always early. John Klinger: Yeah. I appreciate it. Now the new customer Ernie Herrman: acquisition, clearly, we're it's funny. We just talked about this a week ago, I do it my marketing team in the analysis group there. We're clearly capturing new customers consistently and above the balance that we did before. We're getting equal equal momentum from that as well as our infrequent and frequent customer spending. I think we have I give the Marmaxx team credit on just really terrific execution. They have right now, if you look in the store, a very balanced mix across all the families of business. And that's one reason I think we're capturing the market share we're capturing, which is apparel has kicked in. By the way, we sometimes talk when weather has been against us. I would tell you right now weather has helped us recently. So, that certainly is a plus in Marmaxx on certain categories. But when you look at our apparel and non-apparel business there, it's healthy across the board. So yeah, I think you start to touch on this, Matt. There is no area that's really lagging too much. Otherwise, by the way, we wouldn't it's hard to have Marmaxx run a six comp if we did have a high liability department that wasn't performing. So that's been you know, really strong. Their inventory position, now you go to kind of the root of what's going on and why I have the continued confidence back a little bit back to Brooke's first question is the availability in the market is just, I've used this before, the off the charts. I didn't use it in the script, but it's off the charts. So we have so much availability across the brands in many categories. And some more availability in some of the categories that we haven't seen in a while. So I think that is going to bode well for our next quarter. And when you're consumer right now, given the lack of excitement at retail around us, that's making them very open to trying us. Which is why, you know, we have really strong holiday marketing campaigns set up that really talks to our value leadership over next couple of months. And that's why I mentioned on the script, we're so excited about the different marketing creatives, which are really aimed at keeping us top of mind with consumers and are encouraging consumers that haven't tried us to try us for the first time. And that's why I think the new customer and infrequent customers in customers that may have shopped us a year ago and haven't been back That's what our marketing is aimed at, taking advantage in this environment. John Klinger: And then I'll just reiterate what Ernie has said upfront. John Klinger: Earlier in the call that we continue fund payroll appropriately in the stores We continue to invest in remodels in the stores. We've got fixtures that make it easier for customers to shop the stores Operator: Thanks. Good morning. Ernie, are there any categories Morning. Ernie, are there any categories or customer demographics where raising prices has been less successful? And how quickly can you pivot if you see pushback to some of this price over the holidays? David: Yes, great question. We we Ernie Herrman: actually I won't say what it is. We have one category, only one, you know all the categories we have, where we weren't happy. We pivoted back and brought the retails right back to where they were pre the adjustment. Other than that, would say we're 95% successful on the pricing strategy. Again, we don't lead the pricing strategy. We wait for the market around us. So even on that one category, what must my guess is our competitors on that category probably had to adjust their retails too, because we only went up when their retails were going up. And then we found out if it wasn't good for us, there's there's no way it was good for them. So, no, other than the one I'm thinking about, we have been successful across the board Having said that, just on some we've had couple of items. I'll hear it from a couple of the merchants where we tried this one and this one SKU, even though it was in a category where it's worked across the board. We might have a SKU that didn't work because it might just not, it might be bumping up against something or whatever. In our own mix. Because sometimes they have to compete in our own mix And even the pricing, if it went up around us, and we try to take it up because it went up around us it's still hanging with our other goods. Sometimes it doesn't work. So But absolutely, Lorraine, 95% success And very few, we're very careful on it. Which is why not only do we judge it off the actual hard data where we watch selling by SKU, every week. We also use our value perception scores. We keep a constant pulse on that. And the speed at which we turn our inventory gives us the flexibility to react quickly. Great point, John. Yep. Yep. Thank you, guys. Good question, Lorraine. Yeah? Operator: Our next question comes from Ike Boruchow from Wells Fargo. Hey, good morning guys. Congrats Ernie Herrman: Two from me. Similar to Lorraine's question, Ernie, Deb McConnell: are there categories that you've intentionally deemphasized or pushed harder because of tariffs because you look at the economics of each category. Just kind of curious how you think about that. And then, look, clearly, business is not seeing any issues. But you know, very high level, I'm sure you guys have tons of KPIs or markers you look at to kind of judge The U. S. Consumer Is there anything that you've seen over the past couple months kind of going into holiday that at all shows you that The US consumer is under some level of pressure. I think it's still a debate at this point. Just kind of curious how you guys view that at a high level. Ernie Herrman: Sure, Ike. On the first one, the d, you know, the d deemphasizing category, so to speak, if we were running into a tariff We have done that to a little degree. What's happened though, the cycle tends to come back because when they're imported like that, eventually their other accounts kind of back up And so if people back off enough, again, we're not not the importer. So we're able to negotiate through the third party. And we just might have a lag. We don't consciously deem deemphasize over the long term. We just might take what's called our internal sales and inventory plans. They're called ladder plans. We might take those down for a couple of months, but then the market cycles back. We've seen that happen in numerous times. Because you know, we're not ready to take a big price increase if the vendors are coming to own a category if we can't show the great value. So it kind of works its way through the system. So a great question That's in those cases, and yes, we have done it in a couple of cases, we just wait for the cycle to come back to us in a couple of months. Tariffs overall, I mean, we we don't really get different data than what all of you get. We can see that prices have been going up across many retailers and many categories. And it's been talked about as either it's been done or they're looking at doing it. And I would, my barometer for our other retailers struggling a little is the fact that the availability of merchandise across the board is so high across good, better and best that would lead us to believe that other retailers are struggling with some of the impact of the tariffs, I guess. So but again, we don't get any outright. That's just a pulse from what we what we see in the market. Yep. Deb McConnell: Very helpful. Thanks. Operator: You're welcome. Our next question comes from Michael Binetti from Evercore ISI. Deb McConnell: Hey guys, great quarter. Thanks for taking our questions here. Ernie Herrman: I had a couple on the margin. First, on the gross margin, John Klinger: So in third quarter, you'd I think you'd started the guidance at about five to 15 basis points of improvement on a two to three comp. You obviously beat it by a lot. Sounds like freight was a key upside driver. So a couple of questions on that. Just since the shrink dynamic should be kind of contained to fourth quarter, does that freight benefit roll off in fourth quarter? Could you talk a little bit about what's driving freight, if that's something that could contribute after fourth quarter? Secondly, I'm also curious if there was a mismatch of any kind in the quarter between tariff costs and pricing, also what that dynamic looks like in fourth quarter. Sounds like you expect to offset tariffs. But I'm wondering if that if the tariff headwind does get tougher in fourth quarter. And then finally, just on I guess, the pretax margins more broadly, are there any early signals of margin headwinds we should keep in mind as we look at our models for next year, either across the company or at the Marmaxx or HomeGoods divisions. Deb McConnell: Yeah. So Michael, just on the freight piece. So for for freight, it was a combination of favorable ocean rates and efficiencies that we Ernie Herrman: we implemented as far as movement of our merchandise. Deb McConnell: And that's really what drove that freight piece. John Klinger: And then as far as tariffs go, Deb McConnell: I mean, q '2, Q3, Q4, I mean, John Klinger: tariffs are pretty consistent as far as Deb McConnell: what we're seeing. We have every confidence that we can do exactly what we did in the second and third quarter in the fourth. So as I said in my Ernie Herrman: closing comments, Deb McConnell: we are very confident in our ability to continue to navigate the tariff environment. John Klinger: Is that freight dynamic something you think continues after fourth quarter? Or is that something that's just contained? It's really up to the freight Deb McConnell: the ocean freights providers. I mean, John Klinger: if they start taking ships off Ernie Herrman: off offline and try to John Klinger: decrease the surplus or availability, I mean, it's hard for me to answer that. Deb McConnell: It's asking me to look into the future. Can say that what we've been seeing in the John Klinger: third quarter is that we did see a savings in the ocean freight container rate. Okay, so it sounds like it's more related to SPOT than contracts. A little less visibility. And then any other new, headwinds to think about as we look at the models next year? Operator: No. Deb McConnell: Yeah. The what I'm I'm not prepared to talk about next year right now. John Klinger: We're still in the process of Ernie Herrman: of pulling our plans together. Okay. Best of luck in the holidays, guys. Thanks a lot. Thank you. John Klinger: Our next Operator: question comes from Cory Tarlow from Jefferies. Ernie Herrman: Great. Thanks and good morning. Ernie, you commented on the value perception scores Curious how you think about your value gaps today versus historically, within the context of what you've seen from competitors and then also kind of the shape of the comp throughout the year. Given your comp was initially driven very much by traffic to start the year. Deb McConnell: Mhmm. And sort of the commentary has felt Ernie Herrman: a way that it's evolved John Klinger: to be a little bit more driven by price, Ernie Herrman: but not so much so that it's eroded your value gaps is what it I think is is the point, but curious to get your perspective on that. Thanks so much. Yeah, Corey, spot on. That you summed that up, very balanced is the way we would look at. The value gap today, by the way, I would tell you has improved from where it was even a couple of years ago in terms of a couple of things. I still believe part of the value equation, which is kind of evolved, over the last number of years, is the shopping environment that we provide to go along with the merchandise is creating I think an even larger value gap. Between us and the other retailers. And I think if you look at our shopping in our store versus other off pricers or other specialty stores or department stores or larger discount stores. I think you would find a very efficient, clean, organized and then treasure hunt all at the same time. Combined with believe the perceptions are spot on where our values have even improved out the door retail versus others. The gap has improved. So across the board, I would say we have improved there versus historic comparisons on terms of total value The shape of the, I think you were asking about the shape of the comp and that being driven, it would have been a little bit more transactions you were feeling, but part of this is the retail. It was only I think it was only HomeGoods where the right Well, home goods was essentially flat. Right? And the others were still up. Yeah. So that's why I said your comment was spot on where it's kind of an in between, and we're feeling really good about it. Because again, I think there is major value gap between us and everybody else. And as John said, we've had we've had these pricing things, but clearly it does not impact any value per perception at all. Deb McConnell: Exactly. Again, driving a five comp and being strong across Ernie Herrman: every Yes, every bond. Our division. Yes. Deb McConnell: It was was, you know, really positive to see. Ernie Herrman: I would throw in a bigot. Now you can appreciate that this hasn't come up yet, but my biggest challenge, for this organization is when you have such strong sales momentum, which keeps getting better is for us to not get over our skis and buy too much too soon. So I think we've talked about that before, even a year ago. One reason we are delivering the year we're having is keeping a lot of liquidity. And our merchants are able to be very entrepreneurial and very on their buying. And that's when we provide the most exciting value branded off price closeout goods to the consumer. And so that continues to be a focus is to make sure with all this availability that's out there, and combined with our strong sales, we just need to fight urge to buy too much too soon. Know what I mean, Corey? That would probably be our biggest challenge right now because that's the number one way we still can continue to drive our sales. And profitable sales. Yeah, certainly. That makes a lot of sense. And then I just had a quick follow-up for John. You mentioned in Q4 that SG&A was, 30 basis points I believe, favorable or expected to be. Could you just unpack that for us a little bit? Thanks so much, and and best of luck. Yeah, sure. So it's it's gonna be a combination of incentive accrual favorability versus last year and expense savings. So last year we adjusted our our incentive accruals in the fourth quarter So we're comparing to that. So Deb McConnell: have a year over year favorability there. Okay, great. Thank you and best of luck. Ernie Herrman: Thank you. Operator: Our next question comes from Jay Sole from UBS. Ernie Herrman: Great. Thank you so much. Deb McConnell: Ernie, my question is if you just take a step back and think about this has been a year with an unprecedented level of tariffs. And you're talking about availability of inventory. I think you just said it was off the charts. Ernie Herrman: Does it surprise you at all Deb McConnell: that in the year when you would think people would be making less product, importing less product, that you have seen someone should go availability. And if it does, you know, how do you explain it? Ernie Herrman: Yeah. No. Great question, Jay. I have to tell you, yeah, a little surprise on the degree to which the availability is there. Because to your point, back when I go back in the spring, when all of this was just starting to evolve, and we get you know, we there were some categories where by the way, some categories back then, we wouldn't have worried about availability, only because they're they wouldn't have been impacted as much by the tariff. It would have been a more moderate tariff. And then there are others where we might have expected a little less availability. And so, a little bit. We always thought they'd be good availability. Remember, you're never gonna hear from me. A concern about not having enough goods across the board. Maybe in a category at the but you're never gonna hear a concern, even with tariffs. About us not having enough goods the way the model works. And the way, by the way, and the way we have we have seasoned pros in all of these areas in merchandising and planning that can bob and weave to dynamics out there. But yes, to your point, I think the degree to this, how do I explain it? I think part of the reason you explained it is you have public companies that are retailers that still have to bring in, whether it's the e com players, that still have to bring in goods. They're not shutting down their websites. So they're having to buy goods eventually. Maybe they've massaged it and moved from one category or less with one brand or more with another because of the tariffs, but still creates excess inventories. It is still a down the supply chain when things slow up at retail, again, they're public. They just, they can't afford to have a 20% decrease. In their So they're not cutting their spending. Do you know what I mean there, Jay? They can't cut their ordering as a extreme as the tariffs would maybe tell them they do. So I think what happens is they might be less bring in less units but they're gonna bring in the dollars that equate given the tariff. And then if those sales don't materialize, we still end up with the extra supply of closeouts. And that's what I think is, as well as I think retail across the board has been a little choppy and that's creating the excess inventory. So the yeah. Interesting dynamic. Again, this is where I like to give credit to our teams because bottom up the teams assess in each area how much because we buy in a few different ways. So they know how to weigh their core flow is coming from with certain vendors, and yet all the opportunistic side. We wouldn't be in this really good inventory position. We'll still be in liquidity if our teams weren't so good at executing. At that level. So that's where, again, very proud of what they've done in this environment. As you said, very challenging year. Got it. Thank you so much. Thank you. Operator: Our next question comes from Adrienne Yih from Barclays. Good morning. Let me add my congratulations. Ernie, we've been in the store throughout the quarter. And I was wondering I mean, they're extraordinarily long lines. I was wondering if you had been seeing sort of earlier cadence to the holiday shopping behavior and or promotionality Obviously, Walmart pulled forward their Black Friday. Just wondering what you're seeing there and if you expect a shift in the holiday season And then, John, for you on you've done a ton of work on supply chain and transfer transportation logistics over the past couple of years. Outside of the freight tailwind, are you expecting to see sort of a longer term go forward positive impact And does that change the leverage point of on gross margin? Thank you. Ernie Herrman: Questions, Adrienne. Yeah, no, we haven't we don't believe there's necessarily a perp on our part, there's no purposeful shift to thinking we're doing earlier. Again, as we've said, we're off to a strong start. We like the way we're positioned in November. Already. Which obviously indicated we were happy with our traffic, and you've been witnessing it evidently. I think what's also happening is I didn't get to talk about this earlier, but we, every year, our Q4, as you've seen, has been one of our steadiest performing quarters where we have become more of a gift giving destination. And I think that's at the root of it. I think all of the we've also talked about this. The social media, the the coolness of shopping at The TJX Companies, Inc. store, whether it's Marshall's or Sierra or HomeGoods or TJ Maxx, you probably I don't know if you see them. A lot of our reusable bags show up with shoppers that bring them to their supermarkets because we've made such an impact on consumers. And they find us to be a desirable place to show their brand. So I think as they've gotten acclimated and more desirable to shop our brand, I think that makes them think of us more for gift giving than ever before. Which is also a reason I think you're you're seeing that. It's nothing that we purposely did for an event per se or a timing thing. I think it's the nature of the brand equity and the coolness factor that we've developed over the last handful of years. That's yielding a little bit of an earlier earlier shop of us in November. John Klinger: Okay, thanks. Yeah. And so Deb McConnell: getting to the second part of your question, Ernie Herrman: I mean, of all, the leverage point we still see again, just repeating on a three to four comp, Deb McConnell: with no outsized expense increases. We still anticipate being flat to John Klinger: 10 basis points. That's not changing. We don't see that changing right now. As far as the supply chain goes, Deb McConnell: I mean certainly with Ernie Herrman: a higher ticket, we just have to, we Deb McConnell: we were more efficient in our operational areas. There's less units to move to hit the same top line. But, you know, Ernie Herrman: in addition to that, we're always looking for ways to increase the Paul Lejuez: efficiency of our facilities. And John Klinger: looking to Paul Lejuez: rather than open up a new facility as sales go up, which we still have to do. But where we can, if we can expand a facility to increase the capacity, that certainly is something we always look to do as well. Operator: Fantastic. Best of luck for holiday and see you in December. Ernie Herrman: Thanks. Thank you. Operator: Our last question comes from Mark Alschwager from Baird. Great. Good morning. Thanks for taking my question. Paul Lejuez: First, on segment margins, the delta between HomeGoods and Marmaxx is the narrowest we've seen in some time. Just talk about the key drivers to narrowing that gap and whether you expect that convergence to continue? Deb McConnell: Thank you. Paul Lejuez: I mean, so I mean, both divisions are performing, you know, doing outstanding job at driving both the top and bottom line. Certainly some of the freight benefits that we've seen over time, I mean, because of the size and nature of the product have benefited HomeGoods a little bit more. But look, we're very pleased with with both of our US divisions. Both our US segments. But nothing more to add. It's just driving the top line. I mean home goods has been very consistent at driving that top line. And and that's one of the biggest levers we have to increase the pre tax profit. Ernie Herrman: Yeah, Mark, I think I would jump up. Mark, just adding a little flavor to the merchandising to what John was saying is they've also they're constantly creating newness of vendors there. And And always super fast turning business, as you know. And so I think they've been, you know, they're very in terms of the merchandise vendor content. I think has been able to help them on their merchandise margins, which probably is also a big benefit terms of their operating income getting a little closer. To Marmaxx. Paul Lejuez: Excellent. Best of luck this holiday. Ernie Herrman: Thank you. Thanks. I'd like to at this point thank you all for joining us today. We look forward to updating you again on our fourth quarter earnings call in February. You everybody. Operator: That concludes today's conference. Thank you for participating. You may disconnect at this time.
Gunnar Pedersen: Good morning, everyone, and welcome to this third quarter presentation for Vow. For technical issues with the network in the auditorium, we had to do our last minute move into this conference room. So it's a bit packed in here, but we certainly hope everything is working out to your satisfaction and that everyone is receiving this webcast. So today, I have Cecilie Hekneby, with me, our CFO, to do the presentation of the financials. My name is Gunnar Pedersen. I'm the CEO of Vow. So I'm going to share with you some highlights first. Cecilie will take you through the financials. I'll come back with the market and business update before we go into summary and outlook and finally, open up for questions. So starting off with Q3. So Q3 was a very busy quarter across the whole company, especially in Maritime Solutions, where we had record high revenues. We also continued our structured assessment of the company. And in Q3, specifically, we did some deep dive into the big industrial projects. What we found was that there was 2 big projects that had underestimated cost to completion, which has impacted the margins and also leading to a reversal of revenue. Cecilie will take you through the details of that. And also it's been published in a notice earlier in October. So in the Maritime Solutions segment, we've had record high revenue and also a very positive development on the margins, perhaps a bit on the very high side compared to what you normally should expect. This is due to a reduced share of legacy contracts, but also the project mix. So a lot of equipment deliveries, different types of equipment have different margins, and this quarter has been very fortunate in -- or favorable in terms of the mix. The Aftersales segment continues its positive development, improving margins, whereas the volumes is about the same as the third quarter last year. Year-to-date, however, is a good growth on Aftersales. Our Industrial segment has been facing challenges in terms of underestimated cost of completion, as mentioned. On a high note, what we've formally talked about as the large reactor from Evensen that was finally delivered to follow last week. So very pleased with that. Some questions have come across on this. It doesn't have a big impact on the revenue, but it does have a very positive effect on the cash flow, as it triggers some payment milestones. Liquidity has improved significantly with very good inflows. And also, we've been able to settle outstanding payments to our vendors. And also it's worth noticing that the covenants were waived for Q3. Our total order backlog stands at NOK 1,449 million with another NOK 134 million in options. So this provides us with a very good visibility into the future. Order intake as of end third quarter is NOK 1,082 million. I should perhaps mention that the delivery of the reactor was subsequent to the quarter. And by that, I think I can leave you with Cecilie to do the financials, and I'll come back for the market update. Cecilie? Cecilie Margrethe Braend Hekneby: Good morning. I will give you an update on the financial numbers. This is just an executive summary that actually summarize what Gunnar just said. So before I start with the walk through of the financial numbers, I would like to address the notification published in October, and there are specific events that led to the announcement. As explained in the stock market announcement, a review of the 2 major circular solution projects reveal that total cost to completion next year had been underestimated. The reduced project margins and technical reporting of progress on costs led to a reversal of revenue in the quarter. The 2 projects constitute a major part of -- in the Industrial Solutions segment and the preliminary consolidated numbers for the group, indicated a lower-than-expected EBITDA for the quarter. This was still at an early stage in our preparation for the third quarter reporting, but we consider this as inside information that could not be delayed and issued a trading update. Phase 1 of Follum and Rhode Island represent significant milestones for our pyrolysis technology, and an SVP Program Director was appointed at the end of September to strengthen coordination, execution and financial control for the projects, reporting directly to Gunnar. He and his team then performed a total review of the remaining scope, risks and handover requirements and found that total cost of completion was underestimated. And as a result of this reassessment, a onetime cost increase was recognized in the Q3. So how does this impact revenue? Revenue from projects is recognized based on estimated total gross margin for the project according to technical reporting of progress. The contracts for these 2 projects are predominantly fixed price with limited flexibility for price adjustments. The updated cost estimates, therefore, led to a reduction in total gross margin and hence a reversal of previously recognized revenues but with no cash effect. Circular Solutions is a key area within the Industrial Solutions segment, delivering to the industrial scale pyrolysis market, which is still maturing. With these 2 projects now entering the final stage, we expect increased cost visibility and tighter cost management going forward. We aim to be transparent in our reporting, but I understand that it may be challenging to follow the financial development for the last quarters. Vow has been in a challenging financial position. And since I started in May, my team and I have worked diligently to secure consistent and precise reporting to get control and provide insight. So this slide sums up what I just have explained, and I will now go through the numbers for the quarter, starting with the key financial for the group. The reporting currency is in Norwegian kroner. So reported revenue for the quarter was NOK 214 million compared to NOK 267 million 1 year earlier. And on the graph on the left-hand side, you can see minus NOK 6 million in revenue for the Industrial Solutions segment, following the reversal of revenue and softer performance in the remainder of the segment, with higher revenues in the Maritime Solutions segment and steady numbers in Aftersales. Moving on to the graph in the middle, we have adjusted EBITDA of negative NOK 29 million, heavily impacted by the financial performance in the Industrial Solutions segment. The order backlog of NOK 1.4 billion remains strong and gives good visibility. Total revenue was NOK 214 million, down NOK 53 million from Q3 '24 heavily impacted by the Industrial Solutions segment. But revenue in the Maritime Solutions segment of NOK 166 million is all-time high following progress on large newbuilding contracts and up NOK 73 million from last year. The year-to-date numbers for Maritime Solutions are impacted by the catch-up effect in Q2. Aftersales make a solid contribution with NOK 54 million in the quarter. This is up 3% from third quarter last year, but up 11% year-to-date. Revenue in the Industrial Solutions segment is down NOK 128 million from Q3 last year and NOK 136 million from year-to-date following the cost of kits and reduced margins for the 2 projects, in addition to the soft performance in the remainder of the segment. Moving over to the operational key figures for the quarter. Revenue is, as explained, heavily impacted by the updated cost of completion estimates that overshadowed the strong performance in the Maritime Solutions and Aftersales segments. I would like to highlight the development of gross profit and employee expenses. Being a project organization, employee hours linked to specific projects are attributed to the cost of goods sold. The group has during the year improved its time tracking and hourly rate position. With a more accurate attribution of employee hours to specific projects, a larger share of personnel cost is now currently classified under COGS as recovery hours. This, in turn, improves the alignment between project costs and actual resource usage, which provide better insight and basis for pricing of projects. Reported employee expenses, hence vary with project activity and hours allocated to projects and are down NOK 17 million from Q3 last year. Gross employee expenses, including the recovery hours amounted to NOK 58 million in the quarter compared to NOK 64 million last year. Employee expenses are also impacted by a change in the allocation of holiday payment compared to last year, with a higher cost in the second quarter this year and lower this quarter following when employee actually were on holiday, impacting production. NOK 2.5 million of nonrecurring items in the quarter are related to employee expenses. Other operating expenses amounted to NOK 21 million, up NOK 3 million from last year. EBITDA for the group was negative NOK 31 million, which is slightly higher than the preliminary EBITDA from the trading update in October. EBITDA adjusted for nonrecurring expenses were minus NOK 29 million. Let's look into the development of the segments. Vow has 3 business segments, Maritime Solutions, Aftersales and Industrial Solutions, in addition to Administrative, which consist of expenses not allocated to the business segments. There were no nonrecurring items in the business segments. The nonrecurring expense of NOK 2.8 million in the quarter is related to the Admin segment. Adjusted EBITDA for the Maritime Solutions segment was NOK 29 million in Q3, up from NOK 7 million 1 year earlier, following strong revenue development stemming from high delivery volumes in addition to increasing margins as the share of legacy contracts are decreasing and replaced with new contracts with revised terms and conditions. The backlog of NOK 1.2 billion is firm and provide long visibility. Gunnar will share some details on this in his part. Aftersales continue to grow with an increasing number of vessels in operation equipped with Vow systems. Adjusted EBITDA amounted to NOK 10 million in the quarter, up from NOK 7 million last year, indicating an adjusted EBITDA margin of 17%, up from 13% 1 year earlier. The Industrial Solutions segment was impacted by the cost updates and reduced margins in addition to soft performance in the quarter in the remaining parts of the segment, leading to a negative EBITDA of NOK 65 million in the quarter. Focus forward in this segment is on selected opportunities with reduced risk and exposure profiling. Moving over to the financial performance in the quarter. We see that financial costs have been reduced. Financial items in the quarter of negative NOK 13 million or NOK 1 million lower than last year. Interest costs amounted to NOK 12 million, which is down NOK 5 million from Q3 last year. There was a net foreign exchange loss of NOK 1 million in the quarter, while there was a gain of NOK 3 million last year. Vow reports in Norwegian kroner, but most of the contracts are in euro. About 60% of the project costs are in the contract currency and is a natural hedge. Fluctuation in foreign currency exchange rates may, however, have an impact on key financial figures, and we have started to look into alternatives to mitigate the risk. Depreciation in the quarter of NOK 12 million is down NOK 2 million from third quarter last year. And I also would like to highlight that following the sale of Vow's shares in Vow Green Metals in June, the share of net loss of NOK 3 million and a gain NOK 1 million is recognized in the year-to-date numbers. Looking at the balance sheet. I would like to highlight the development of trade receivables and trade creditors. Since I started in May, managing working capital with improved processes for collection of debt and payment to vendors has been a key priority. Trade receivable bills have been reduced by NOK 75 million year-to-date, the cash collected has been used for settlement of overdue supply debt and other liabilities. And trade creditors are reduced by NOK 102 million year-to-date. Prepayments to vendors are also significantly reduced. Having managed now to settle overdue debt, our working capital is steadily improving and net working capital has been reduced by NOK 32 million year-to-date. Interest-bearing debt of NOK 557 million including leasing has increased by NOK 87 million year-to-date due to the increased utilization of the credit facilities, partly offset by reduction in borrowings. The DnB term loan amounted to NOK 195 million at the end of September, down from NOK 262 million at year-end '24. The group obtained a waiver for the 12 months rolling EBITDA ratio covenant, and we are in close and constructive dialogue with DnB. Looking at the cash flow development, we started 2025 with NOK 46 million in cash and at NOK 34 million in cash at the end of June. At end of September, cash amounted to NOK 23 million, with an additional NOK 26 million in available liquidity. There has been high activity in the quarter, and the illustration highlights the main development in the quarter. During the quarter, there has been an inflow from trade receivables of NOK 80 million. In addition to milestone payments, we have succeeded in collecting overdue receivables. The cash has been used to repay overdue trade payables and other current debt in line with management's focus in addition to repayment of loans and interest. Having resolved the overdue payables, the overall financial position has improved. Liquidity is significantly improving in the fourth quarter, following a large milestone payments, both from the maritime side and industrial side, and I am satisfied to see that measures taking are starting to show results. At the Q2 presentation in August, we informed that we had initiated a profit improvement program. The target of the program is to strengthen cost control, improve profitability and increase operational efficiency. And we have identified concrete measures and defined several hypothesis. Example of this are related to cost down, operational efficiency, service cost and indirect spending. The program is under implementation and is part of the budget process for next year. It is implemented based on feasibility and expected effect and several actions are already taken. This was a rather detailed walk-through of the financial developments in the quarter, and now Gunnar will give you a market and business update. Gunnar Pedersen: Thank you, Cecilie. So we're going to start this market and business update with Maritime Solutions. And as you can see on the bottom left-hand graphics, Maritime makes up about 53% of the revenue so far this year with NOK 365 million. The main contract entered into in this period is EUR 11.5 million for advanced environmental systems. Additionally, there's several smaller contracts amounting to a total of EUR 2.9 million for various other deliveries. Order backlog stands at a very strong NOK 1.2 billion, which is 49%, up from the third quarter last year. And also margins, as I mentioned, in the quarter at 17.7%, EBITDA are very positive. And as I said, it's due to very high delivery volumes of equipment also with a favorable mix of the deliveries. So looking into the Maritime contract development and a little bit more about the backlog. We have been talking about legacy projects in earlier presentations, and we have received questions about these legacy contracts. So how much of the revenue is made from legacy contracts, and at what time are you going to be completed with those deliveries. And on the lower right-hand graph, you can see how this plays out. The top dark blue one from the left, is from new contracts, whereas the lower part is from legacy contracts. So looking at Q3, there is 35% of the revenue coming from new contracts whereas the remaining 65% is coming from legacy contracts. And you can also see, and this is based on estimates of when deliveries are taking place and so on, we have made an estimate how this is going to play out through 2026 and into 2027. So you can see that, for example, in fourth quarter, new contracts will be about 43% and so on. It can vary a bit up and down. That depends on the contracts and the delivery time of these contracts. That's why you see a bit fluctuation on the split between new and legacy contracts. It is also a fact that we may even enter into new contracts that are legacy contracts, so that would be options, options that are binding to us in terms of price, but options that are valid from quite some years back. Currently, there is one remaining option that we will classify as a legacy contract. Yes, I think that's about as good explanation as I can give here now on the legacy contracts and that part. So looking at the backlog and the pipeline, this graph on the right-hand side shows when the vessels are scheduled for delivery from the yard to the cruise line. And typically, we deliver equipment 18, 24 months before, sometimes it can be as little as a year or even less than that, depending on the type of project. But this is typical. So this year, there's 10 vessels, next year in '26, another 10. '27, there are 7 vessels to be delivered that are under contract, there's 2 that we're bidding for. And you can see going out in time how this grows. So '28, bidding for 7, another 3 -- no, 7 under contract and another 3 that we are bidding for. And '29, 1 under contract, 1 option and 13 that we are bidding for. So currently, the backlog is 37 confirmed orders for cruise ships and 1 option. The tendering activity, currently activity tenders, 59 new builds and 4 retrofits. So it is a very active market, and it has a very good visibility. So we hold a leading position, and we are maintaining our market shares. Looking at where we have delivered equipment this year, in total, we are going to deliver to 18 vessels, 13 have been delivered, another 5 systems remain to be delivered in Q4. So Q4 is also going to be very active for us. And on the lower left-hand side, you can see what cruise lines we have delivered to you or are delivering to this year. So it's all the major ones basically. So on your right-hand side, you can see Norwegian Aqua. It's commissioned in February this year. So handed over to the customer in February this year. It can hold about 5,200 people, passengers and crew all in all. It was built at Fincantieri at the Marghera yard, and we have delivered a full scope of traditional systems, both for advanced wastewater processing but also for waste disposal on this vessel. This is number 3 in a series of 6 vessels that they build for NCL. So this year, we have commissioned 9 vessels. There is 1 more to go for the fourth quarter. And you can also see here on the bottom, which cruise lines, they are being commissioned for or delivered to them. So all the major ones on this as well. And of course, that's another 10 vessels entering into aftersales. I've had the opportunity to meet with the several of the big cruise lines in the third quarter. And it's been, of course, very interesting meetings and conversations. It is very obvious that well-functioning systems is critical to their operation. In some cases, if these systems don't work, they cannot operate the vessels. Actually, that's in quite many of the cases. Our customers generally express that they are very satisfied with our systems as well as with our aftersales support. But as always, there is room for improvement, and thus, we see this as opportunities, and we are working on these opportunities to make sure that our customers are even more satisfied in the future. As you can see, bottom left-hand side, aftersales accounted for 25% of our revenue so far in 2025. We see a strong development over time on the right-hand side, Q3 54 versus 53 in Q3 last year. That's not a big jump. But if you see the year so far, it's quite good growth on that as well. It varies a bit over time when they order spare parts, when they order services and also in terms of chemicals for the systems. So strong development over time. Also in the graph, the metrics, you can see very healthy margins now, and we're very satisfied with that. Part of it comes from high volume over the year, giving an effect. So -- but this is a healthy level, I believe. So for the Industrial Solutions. The Industrial Solutions segment again, as you can see on the bottom left, it accounts for about 22% of our revenue as per third quarter, so NOK 150 million. It consists of the main subsegments Circular Solutions and Thermal Heat Treatment. With 2 major projects within Circular Solutions that make up the majority of the revenues. We already touched on the deep dive and the effects on the margins on that. It is, of course, very unfortunate when we find such issues in the projects. And of course, we have taken a few steps to ensure that we learn from these. These are first of a kind projects both of them. So this is really important that we spend our time wisely and learn as much as possible from them. The effects I think we have talked about earlier in the presentation. Just to touch on thermal heat treatment, still see a soft market in Q3 not so much due to energy prices anymore, but other uncertainties. But we do see positive indications related to both defense industry and aluminum, and we'll probably get back to that on the next slide. So industrial contract development, again, circular and thermal heat treatment, order backlog stands at NOK 212 million, of which, NOK 152 million is circular and NOK 60 million shared among the other subsegments. So we've been asked sometimes about some of these projects that have been talked about in earlier presentations such as end-of-life tires. I chose that example just to give you an update on that specifically. So we have completed FEED studies, and we are waiting for final investment decisions from one of the major customers. And they are in turn now waiting for the final piece of the puzzle, which is the permitting. And the permitting for that is expected to be due by the end of the quarter. What we see in thermal heat treatment, we see an improving pipeline with opportunities and some of these opportunities have resulted in RFQs and some of the RFQs have also resulted now in active bids in thermal heat treatment. So the volume of active bids is actually quite high, and we are pleased to see that development. VGM, Vow Green Metals have been mentioned earlier today. And I must say they are gaining momentum now, commissioning is ongoing at Follum for Phase 1. Engineering activities are ongoing with ourselves and VGM and others for Phase 2. The large reactor, which is actually part of Phase 2 was delivered last Thursday. That's what you see on the picture. The big is white plastic that is wrapped in. So it's 60 tonne of equipment being lifted into the production facility. So it is looking good. It is also worth mentioning, I think, that VGM was awarded EUR 26.2 million from EU Innovation Fund to build a new large-scale biocarbon production facility in Norway. So of course, this is very interesting for us. It is strengthening the positive development for the metallurgic market segment for biocarbon. And I think we are well positioned to continue playing in that development. We also mentioned that we're revisiting our strategies in the second half of the year, even though they are not concluded yet. I think I can share a few glimpses of where we're headed with you here today. It will come as no surprise that within the Maritime segment, we really want to strengthen our competitiveness. We also continue to introduce new technology, new and sustainable technology also into the waste disposal part of that market. We will continue developing our aftersales services. Within industry, then supported by a more defined strategic direction, I would say. We will exercise a more selective approach with regards to the type of prospects we go after and also the contract formats within the industry segment. And then with a solid operational foundation, I think we are prepared for moving from analysis and into execution, delivering improvements, capturing opportunities and also then creating long-term values. Also, we believe that it is important for us as well as for our investors that we can also deliver on an improved overview and predictability for the development and for the values that we are creating. It is very helpful internally. I can tell you to understand the cost of the deliveries, allocating the cost to the right place and so on. So that work will continue. And I certainly hope that you will see the results of that as well as we move along. The strategy work is scheduled to be concluded by the end of Q4. So we'll get back with more info on that. So finally, summary and outlook. Our customers confirmed a very strong market development in cruise and yards are actually still expecting to conclude on several contracts that we are actively bidding for during the fourth quarter. We have maintained our strong market position. And also, we see a positive development of the margins. And we will see that continue as the share of legacy contracts is going down as we saw on the earlier slide. We have healthy margins in aftersales and a growing active fleet will continue to bring growth to that segment. The revisit of our strategy will be concluded in the fourth quarter. And I think with a much better oversight and control of the financial situation, I'm confident we will also see a very positive development continue on our liquidity. And of course, we do this in a very close collaboration with our bank. So that concludes the presentation, and now we open up for questions. Unknown Attendee: Thank you. There are quite a few questions already from the online audience. I just remind you that if you are watching this online, you can add your or send in your questions by typing it on your screen. But first, let me see, are there any questions from the audience here in Oslo. Seems not. While you're thinking about that, let's turn to the online audience. First question is regarding the backlog and pipeline in Maritime Solutions. One observant viewers says, he has compared the Q2 presentation with the current presentation, it seems that some of the bidding, some of the contracts that you're bidding for '26 and '27 has been removed from the chart this time. Is that correct? Gunnar Pedersen: I'm actually not sure about the details, but if I understand the question correctly, if we -- for contracts that we do not win, I expect they will disappear from the charts, not ending up as contracts. External analysts tell us that within advanced wastewater processing, we have had indications anything from 60% to 80% market share. So there are contracts we do not win. And within waste disposal, it's slightly lower. Unknown Attendee: Then there's a question about liquidity. You -- so you have NOK 22.7 million in cash at the end of the quarter. Will you need to raise more money? Cecilie Margrethe Braend Hekneby: We see an improving situation regarding liquidity and -- and we -- I am very satisfied with the development in the quarter that we have now settled overdue payments to vendors and that we have managed to collect receivables. That also was overdue. And now with significant milestone payments coming in in the fourth quarter, we see a very positive development on liquidity. Unknown Attendee: And will there be more surprises in industrials? Or do you now have a better understanding on the underlying problems? Gunnar Pedersen: It would be quite stupid on me to guarantee anything. These are first-of-a-kind projects. But what we've done with a thorough deep dive on them, I'm quite confident that we know what the remaining work is and we know the cost of the remaining work. So not what we have seen here. And then I think everyone who deals with new technologies and new markets understand that there may be smaller hiccups along the way. We're well prepared for that. We're actually planning for some of these and to find them as early as possible. And in most cases, I think I can say we have also alternative solutions to that ready. So I don't expect any big ones. Unknown Attendee: You also talked about a large customer in industrials waiting for permitting. Do you have any signals that they will move forward with you if that permit is given? Gunnar Pedersen: Yes. Unknown Attendee: Then there are -- you have mentioned in the past quite a few studies going 4 or 5 years back studies with names like Unipetrol, Repsol, what can you say about these studies and early projects? What is the status? Gunnar Pedersen: Yes. They are very interesting. All these studies because it's studies based on different types of feedstock and how you process and what you want to come out of the process. And I think certainly, our customers learn from those. In some cases, we actually do test runs for them, and we take tests of whatever comes out to certify quality, to look at types of emissions and so on, and that is used as part of the permitting process. So I would say that we've learned a lot about different types of applications of the technology. And it is also very clear to me that our customers are learning along the way, learning what is going to be a business case for them or not. And I think if you look across the industry and different studies that are made, it's kind of coming together what everyone think is going to be a very profitable one, at least to begin with and what could potentially become very profitable later on. Unknown Attendee: There are 2 more questions from the online audience. So we're, I guess, nearing the end of the Q&A session, but let's take the next one. What is the installed base of Maritime Solutions in terms of number of vessels as well as number of systems? Gunnar Pedersen: I've heard a number, but I cannot remember it, but it is quite a significant number of systems. So in the hundreds. Unknown Attendee: And there is a follow-up on the cash and liquidity situation. Can you be more specific in terms of what you expect in terms of cash inflow in Q4? Cecilie Margrethe Braend Hekneby: We do not guide on the cash position at year-end. But as I already presented, we are -- I'm satisfied with the development. It has been quite challenging for the company over time. But we see a significant improvement. So I'm looking forward to report the fourth quarter. Unknown Attendee: Then there is actually one more. You have previously talked about return to 15% EBITDA. Now you report 17% to 18% for both cruise projects and aftersales. What do you expect in terms of margin expansion going forward? Gunnar Pedersen: I don't think we guide on that either, but we are seeing healthy margins in some areas. And we are definitely working to continuously improve. I think it is also important to say that when we are able to, for example, reduce cost on producing and delivering equipment, some of those improvements, we need to use those to improve our competitiveness to ensure that we are still competitive. We have high market shares, there is only one thing you can be really sure of, and it's that your competitors are hungry, and they will do everything they can. So you need to be forward leaning and work on the cost and you need to be prepared to share some of your improvements. Unknown Attendee: And there is one more. With covenants based on 12 months rolling net interest-bearing debt over EBITDA, you're likely to be in breach several quarters ahead. How will you address this problem? Cecilie Margrethe Braend Hekneby: Well, we are in close and constructive dialogue with the DnB. We are working on -- we see an improved liquidity. We are working on the -- to build a more profitable company. And I'm sure that we together find a good path. Unknown Attendee: Thank you. There are no further questions. Back to you. Cecilie Margrethe Braend Hekneby: Thank you . Gunnar Pedersen: Okay. Thank you, everyone, for watching.
Roland Jones: Well, good morning, ladies and gentlemen, and welcome to the Schroder Oriental Income Fund plc Annual Results Webinar coming to you today from the Schroders' headquarters in the heart of the city of London. I'm Roland Jones. I'm responsible for the investment trust sales here at Schroders. And I'm pleased to be your host over the next 35 minutes or so. I'm also very pleased to be joined by your portfolio manager, Richard Sennitt. Good morning, Richard. Richard Sennitt: Good morning, Roland. Good morning, everyone. Roland Jones: Richard has got over 35 years' experience and has recently returned from... Richard Sennitt: Not quite Roland. Roland Jones: Okay. Richard Sennitt: Over 30. Roland Jones: Just returned from a trip to Australia. And over the next 35 minutes or so, we're going to talk about the performance of the trust over the results period, the positioning a little bit of outlook and our views for the region, but also very importantly, the importance of generating a dividend from a portfolio of Asian equity stocks. So we're going to spend a little bit of time over on that topic over the next 35 minutes. Now you will have plenty of time to ask questions. I have my iPad. Please fill them in, send them to me. You've also got the opportunity to download the annual results and today's presentation. So it's all there. There's also a survey at the end. We'll be very grateful if you could fill that in because that's really useful for us, so we can make sure that these presentations are sort of meeting your requirements in the future. So that's the agenda for today. Roland Jones: Richard, tell us a little bit about the team that we have in Asia because that's very important, isn't it? Let's cover that. Richard Sennitt: Yes. No, you're absolutely right. It is a key part of our investment process. And I think it's probably worth just touching on how we do manage the portfolio and the way that we approach investment in Asia because I think it is a really important part of the ability to deliver success over the long term. First of all, we think that markets are inefficient in Asia, which won't surprise you. And the best way to extract those inefficiencies is very much through a bottom-up fundamental process. And to that end, as Roland mentioned, we have a very extensive team based out in the region. Although I'm based here in London, you can see that we have a team based through 6 offices in Asia and 47 analysts. And they're going out visiting companies, writing reports, making recommendations, and I'm drawing on their best ideas from an income perspective to create a portfolio of roughly about sort of 60 names. I think it's probably what's worth highlighting is that what we don't do is screen the universe for the highest-yielding stocks and backfill the portfolio with those names. What we're looking to do is to buy into companies where there is most certainly an income rationale to go in the portfolio, but there is also hopefully upside to fair value as well. And that does mean that there are some areas of the market where we're probably going to have a little bit less exposure or not get exposure to. One of the most obvious areas that we are quite underweight in would be, for instance, the Chinese Internet platform companies would be an example of that. This does mean that, I guess, stylistically for the fund, there is -- given the characteristics of income and so on, it doesn't tend to mean that overall, we have a sort of a bit of a value bias to the portfolio. So that's really on the sort of the team and high-level process. And perhaps if I sort of give a bit of a recap about what's been going on in the markets because I guess this year has been a year when actually Asia has been a pretty good performer versus world markets. It's up over 20% year-to-date. And I suppose if you rewind 12 months ago, that may have been a bit of a surprise to people because if you think about it, we just were in that period when we're having Trump coming into being elected in the U.S., and he obviously had very clear views around tariffs, which obviously, it was going to have a big impact on Asia. And also, there was concern around the outlook for the Chinese economy. So looking at whether there was risk around a hard landing there. And I guess what we've seen since then has been that markets have got a bit more comfort around those things. So around enough is being done to sort of stabilize the Chinese economy. And I think also that some of the sort of initial talk around tariffs, I think people got more comfortable with some of the deals that are starting to come through on there, and that's allowed markets to do a bit better. The other thing, of course, which has been a real driver for markets globally has been around what's been going on with AI and obviously, Asia is very much an enabler for AI with its extensive sort of semiconductor companies and world-class names like TSMC, Samsung Electronics, these sorts of names. And they're obviously a part of that whole ecosystem, and that has been helpful for the markets. And then I'd say the final piece, which has sort of driven markets a bit higher has been a weaker U.S. dollar, which tends to be helpful for liquidity in the region and good for stock markets, at least historically. And with that, just looking at the chart that we've got here, you can just see that what each of the individual markets have done. And the reason that I put this chart up here is just to sort of show that actually most of the rise in markets is being driven by -- or has been driven by a re-rating rather than earnings growth necessarily being revised up or coming through. So this just breaks down the returns for each market and it says what proportion came from a re-rating, what came from earnings and the earnings being the green, the dark blue being the sort of re-rating. And you can see in most markets, it's been about a re-rating. And that's because the markets have been quite liquidity driven. They've been quite narrow. They've been quite thematic. And as we go through time, I'd expect to see a bit more of a broadening out from the sort of re-rating phase more to sort of earnings growth coming through. And this just sort of paints that picture a bit in a slightly different way. The chart on the left is just looking at the sort of the weight of the largest 5 stocks in the benchmark. And you can see that on the left-hand side, it's now over 25% of the market. So it's been quite a concentrated market rally, and that's been sort of a bit similar to what we've obviously seen in markets like the U.S. And the number of stocks that have been outperforming has come right down, which is the right-hand chart. So it's been quite narrow, and that's around that sort of thematic piece, which I was sort of talking to. And that's generally been not a great backdrop for income, I'd say, because it has been quite a bit more of a growth-focused rally and with growth outperforming value. So if we look at the sort of the performance of the trust over the sort of financial year, you can see that here, we've got -- so I think the first thing to point out is obviously that absolute returns have been pretty good over the year. And actually, if you look back through time, they've been relatively consistent. You can see they're generating roughly 10% per annum over the longer term. Against the index, the strategy has lagged the benchmark. And that has really been around a couple of things. Firstly, about the point about value has been a bit of a headwind in the market because growth has done better in what's been quite a liquidity-driven market. And some of the names which have done very well have been some of those Chinese Internet platform companies, so the likes of Tencent, which is hard to sort of own from a sort of -- with an income -- justify from an income rationale perspective. So that's been one of the sort of headwinds. That's partly offset by an overweight in the stock selection in sort of Hong Kong. And I'd say then from a sector perspective, sort of financials have been good for us, being overweight and stock selection within them and -- which has been partly offset by stock selection within IT. The other thing I should point out here is obviously that subsequent to that year-end, we have announced the full year dividend, and it's shown another increase there, and I'll talk a bit more about that in a second. If I bring it sort of a bit more up to date to the end of October, you can see that the markets have sort of continued to rally. And that has been driven again by very much a continuation of sort of strength in some of those AI names. And since the month end, there's been a bit of a sort of question mark around that, about the sort of the sustainability of the rally, but maybe we can talk about that a bit later. But generally, the market environment has obviously been positive for equities. And I think it's probably worth pointing out how if you're looking at this trust, how you should think about how the trust performs in different types of markets. So here, we just got the annual returns going back over the last 10 years and looking at -- and what I would tend to say is that when markets are sort of quite liquidity-driven or growth focused, that tends to be a bit of a headwind for relative performance, but you tend to do relatively well from an absolute sense. But when markets are falling or gently rising, there's a reasonable, hopefully, an opportunity to outperform versus the benchmark. And I think that's what you see over the sort of 10 calendar years that we've got here. The strategy has sort of underperformed in 3 of those years is 2017, 2019 and 2020. And they were years which were good from an absolute perspective. So you made good absolute returns but lagged the benchmark, and that's partly because they were focused on growth. Those markets, they tend to be quite growth-driven, quite liquidity driven. But in most other markets, you can see there, which are generally rising or falling, the trust has managed to outperform its benchmark. So that's sort of the way that you should sort of, I guess, think about that relative performance piece. And just talking a bit more, I suppose, just putting that piece, I mentioned that sort of higher-yielding stocks have basically had a bit of a challenge from a relative performance perspective. So this just looks at the relative performance by quartile of yield. And you can see -- so if you look at the right-hand side, any -- the bars above the line are stocks outperforming the benchmark. And you can see that the lowest yield quintiles, so Quintile 4 and Quintile 3 have performed well, whereas the highest-yielding quartile has been the sort of the weakest performing quartile. And that's coming back to what I was sort of describing earlier as to how you should expect. So high-yielding stocks have lagged the benchmark essentially. And then if we look at the sort of performance of the individual markets, and this is to the end of October, and it looks at the 12-month returns. I think it can almost be summed up in sort of in a relatively -- I mean, it's a bit of a generalization, but the areas that have done best over the last 12 months or so have been in those areas of sort of North Asia and around us sort of more of an AI focus. So if you look at sector returns, the best-performing sectors, information technology, I guess, not too much of a shock to many people. And then on the left, if you look at the country returns, the North Asian markets, in particular, Korea, Taiwan, China, all outperformed. And obviously, particularly Korea and Taiwan have that large semiconductor industry and that enabler of AI theme there. And then on the flip side, you've got the sort of, if you like, from a market perspective, those markets which have got relatively less in some of those more direct technology AI areas. So -- and perhaps a bit more impacted by what's been going on from a tariff perspective in some ways. So you're looking down at the sort of the -- some of the Southeast Asian markets, so like Thailand, Philippines, Indonesia, but also Australia, which, again, is another market where it hasn't got so much of that sort of IT exposure. And from a sector perspective, it's been the sectors that have lagged have been those which are sort of a bit more defensive, so utilities, consumer staples and health care and so on. So if you look at the sort of performance of the trust over the longer term, that -- and here, we've got the sort of light blue line, which is the sort of FTSE, the green line, which is the regional benchmark and the dark blue line, which is the trust, you can see over the long term, both the region and the trust have outperformed the U.K. market. So it has sort of, if you like, fulfilled a sort of diversification away from the U.K., if you like. So for someone who's got a lot of U.K. income, this is sort of potentially you could diversify through this and over the longer term, there are periods obviously when it doesn't outperform the U.K., but long term, it has outperformed. And I think the other thing just to sort of highlight is that the trust has outperformed the benchmark over the longer term. And I think that's a sort of -- is an argument, particularly when you're investing in Asia for sort of active fund management. And I think those sort of inefficiencies within the market that you can hopefully, over the long term, exploit to an extent. So if we look at the sort of the dividend per share over time, as I mentioned that's another increase this year in the dividend, and that's the latest in the line of increases, which have been going on now consistently every year since launch. And I think it's probably worth saying that in a sense, the trust is a bit plain vanilla in the way that it generates its income. It's not obviously paying out of capital. It's paying out of the income that's come through from the companies that we've owned through time. And it's also not trying to generate income through writing options or additional strategies. So in that sense, it's quite sort of, I guess, simple in its approach to the underlying income. And that does mean that you get that sort of value tilt to the portfolio. Roland Jones: So Richard, does that mean that every stock that you own in the portfolio is a yielding stock? And are you drawn towards those high yielders? Richard Sennitt: There has to be an income rationale for the stock to go into the portfolio, but it doesn't necessarily have to have a high yield today or it could indeed even not be paying a dividend today. But I have to see a clear progression to a decent dividend being paid out in the sort of forecastable future, if you like, rather than necessarily say, 10, 20 years down the line. So there is definitely an income rationale, but there is the ability to buy into companies where I think there's going to be an increase in dividend, which is material coming through over the forecastable future. So yes, it's -- so that you don't have to have a dividend, but in general, the very large majority do. Roland Jones: And are you naturally wary of those stocks paying a high dividend because that may not be sustainable? I presume the sustainability of dividend is an important factor as well. Richard Sennitt: Yes, sustainability is important, and we obviously consider that when we're looking at individual stocks. And I think it goes back to that point I made at the beginning where we don't just screen for the highest-yielding stocks because often some of those stocks can be ones where you do see dividend cuts because perhaps they're paying out more than they should. And we also want to buy into companies where there is potentially hopefully some sort of growth in the medium to long term and that potentially is a bit of upside to capital. So yes, we do focus on that point. It doesn't mean that we can always avoid dividend cuts, but it's obviously a consideration when we put stocks into the portfolio. Roland Jones: That's good. Thank you for clarifying that. Richard Sennitt: And I suppose this -- just to give a bit of context around where yields in the region are today. If you look at the left-hand chart, this just shows the dividend yield for the different regions. And then you can see the yield of Asia and the yield of the trust. And I guess if you look at the region, the yield is -- it's higher than the U.S. It's a bit higher than Japan, not as much as in the U.K. But if you look on the right-hand side there, you see that the trust does yield a premium, obviously, to the region, as you'd expect. And at the moment, it is a little bit above that, the yield of the U.K. market. And then the chart on the right, I guess, is instructive of sort of where relative yields are versus history versus the sort of different regions. So this just looks at the, if you like, the dividend yield premium of Asia versus the rest of the world, and you see it's relatively high at the moment versus its long-term history. So in that sense, relative to other markets, it doesn't look particularly extended at the moment. And then I guess, just to finish off with you on some of the drivers of income at the moment. On the left is just sort of consensus numbers for dividend growth at the moment, which coming through -- sorry, a lot of sort of small bars there, probably not very clear. But I guess the bottom line is that we're sort of -- we are getting dividend growth forecast to come through this year, sort of that mid-single-digit range of growth. It does vary between sectors. And then on the right, the other sort of influence of dividends, obviously around currency. So particularly the strength of sterling versus the regional markets. And obviously, if sterling is strong, that tends to act as a bit of a headwind for the translation of dividends back into sterling and vice versa. And over the last few years, actually, it's been a bit of a headwind at work. Very recently, it sort of just started to come off a little bit from currency. So if we see that continue, that would be favorable, but it has been a headwind, broadly speaking, over the last couple of years. And then to your point about sort of resilience of dividends. And I think one of the reasons that sort of Asia is sort of interesting or is, in my view, relatively reliable source of income is that it's not particularly extended from a sort of payout perspective. So the proportion of company's earnings that are being paid out is not that high. So if you look at the left-hand chart, you can see that green line, which is the payout ratio for the region, and that's sort of 30 -- it sort of goes in that sort of 30% to 40% range. So quite a big cushion if sort of earnings could come under pressure. And then on the right, gearing also for the region, and this just looks at the listed sector gearing versus other regions. And you can see that the Asian region, which is that light blue line is relatively low versus the other regions. So again, another sort of reason why you might get some sort of resilience there if things did slow down. So if I talk a bit more now about sort of, I guess, outlook and positioning and where we sort of have exposure within the fund and the outlook. I guess, first of all, here, what do we like in the region? I guess this slide is a reminder of some of the key themes as stocks that investors in the trust can get exposure to. We've got obviously some of the global leaders in tech, so things that we mentioned sort of TSMC and Samsung Electronics, but also -- and they're obviously benefiting from that structural AI growth theme. But we've also got some of the world's best manufacturers in Asia unsurprisingly. So you've got things like Shenzhou, which is focused largely around sort of sports apparel, that sort of thing. Hon Hai, which obviously does a lot of the manufacturing of -- increasingly of high-end servers for AI, but also people probably know it for a lot of the Apple product that it does. And then a good exposure elsewhere to some of the sort of domestic growth trends as well. And we look through sort of financials, so banks, insurance companies and some of the other names there. And if you look at the trust sort of positioning that we stand at the moment, I think the thing -- we haven't made any big shifts over the recent period. But I suppose the thing that stands out and continues to stand out would be that we remain very underweight China. That's partly offset by the overweight to Hong Kong that we have. And that -- part of that is around this point around some of the Internet platform companies that don't really pay much in the way of dividends. But -- and I'll talk a bit more about China and the outlook in a second. But we continue to like Singapore, although that size of that overweight, we have sort of brought down a little bit. And the other area, I'd say we have taken money out of over the course of the last 12 months or so or whatever has been in Korea, where we're now underweight. And that's partly a reflection of the market has done really well. It's re-rated up. And part of that re-rating up has been on the sort of value-up program, which you probably heard people talking about, which is sort of trying to focus a bit more on shareholder returns and improving sort of -- generally sort of improving corporate governance in different areas. So... Roland Jones: Are we seeing evidence of that's of working? Richard Sennitt: We're starting to see some of that coming through. But yes, I wouldn't say it's by any means universal at the moment. So -- and that's hence why one of the areas I've been taking a bit of money out of because stocks have moved up in anticipation of this happening. And yes, we have seen some things, particularly in some of the sort of -- actually in some of the financial sector, we've seen improvement in dividend payouts and such like. So that has been coming through. But we're now in a phase where a bit more of the sort of things that need to happen are a bit more tied into sort of changes in legislation and so on that need to come through, which take time. And hopefully, over the longer term, we will do, but there is some expectation that they will in prices at the moment in my view. And then I guess on sectors, again, we remain, I guess, overweight in sort of real estate and financials and IT but I would say that we have taken down the weight over the course of the last 12 months in financials and IT. IT has obviously done pretty well as an area, as we've described. So there, it's been a bit about relative value and taking money out for that reason. Financials, again, it's been a good performing area of the market. And we still like financials, but just some of the things which have done well, we've sort of taken money out of. And then I suppose on the underweight, consumer discretionary remains a big underweight, partly again, that's partly around sort of Chinese e-commerce companies and so on. And I guess we've been adding to some of the sort of sectors such as utilities and some of the sectors that have lagged a bit into staples. Roland Jones: So that's where the proceeds from some of the gains we made on the IT, financials and real estate are going into those particular sectors. Richard Sennitt: Yes, being recycled. Roland Jones: Yes. Right. Richard Sennitt: And actually, we did put some money into consumer discretionary. So we were more underweight there, but there have been some opportunities in places like China to increase our exposure. Roland Jones: That's a bit of active management. Richard Sennitt: Yes. And then just the top 10 holdings, and I guess I'm not going to go through these names, but just in the sense of reasonably diversified both by country and by sector. And I think it is worth just sort of from an overall standpoint, just commenting on how the sector or the region is quite heterogeneous. It's not just about China or exports or whatever. Within the trust, you do get exposure to a broad set of drivers. And so obviously, we get the exposure that I sort of described in North Asia to some of these exporters and tech companies, that's Korea, Taiwan, and that makes up just over 1/3 of the portfolio. That's, I guess, driven more by what's going on globally in the export cycle as well as obviously structurally in AI. And then obviously, we've got sort of about 30% of the portfolio in China and Hong Kong, where we'd say that still has some of the challenges, which we know about around demographics, overinvestment and so on. And so we as we sort of mentioned earlier, we are quite underweight versus the reference benchmark. But as an active manager, we can still find things that we want to buy in there. And then I guess the other 2 chunks are sort of ASEAN, which has got a large portion of which, I guess, or the bigger overweight comes from our position in Singapore, which has increasingly benefited from its increased importance as a financial center within the region and also acting as a sort of increasingly into the region outside of its hinterland, et cetera. So some of the smaller ASEAN markets, Indonesia, Philippines, Thailand, Vietnam, all those markets which are, to an extent, benefiting in a sense from the sort of supply chain diversification, which we've seen coming out of from corporates that have been very focused on producing in China, and they want to have alternative sources of production. So that's sort of whole China Plus One theme. And then Australia, which again, is -- you don't think of necessarily as the highest growth market, but is a market where shareholder returns have generally been pretty reasonable through time and again, acts as a good sort of diversifier there. Roland Jones: And you've just come up from Australia, haven't you? Any particular insights that's worth sharing at this point? Or will you come to those? Richard Sennitt: Well, I come to those. I mean, yes, because I guess Australia is a market, as I was sort of saying, it's not -- you don't think of it as a sort of a high-growth Asian market in the sort of traditional sense. So you sort of perhaps think how does that fit within sort of an Asia portfolio or whatever. But it obviously benefits from growth that is going on across Asia as a whole from an economic standpoint. So what's going on, obviously, with its large commodity sector and so on. And also, the other point is that actually, you think of the sort of demographics, you don't necessarily think of a sort of Australia as being at the forefront of that, but actually because they're growing their population pretty rapidly, the demographic profile is also pretty good for Australia as well. Roland Jones: Which is not the same for other. Richard Sennitt: Yes, for some of the other Asian countries, it's working the opposite way where the populations are obviously getting older and the sort of fertility rate has dropped a bit. So in some of those North Asian markets. Roland Jones: Interesting. Okay. Richard Sennitt: I guess quickly on time because I realize I've been talking quite a long time, but I'll swiftly move through these last slides. I mean, on China, our sort of general position in the sense of the way that we're viewing the market hasn't really shifted that much. And this is a slide I would have used last year, obviously updated. But I think it does tell you what's generally been going on, which you look at consumer confidence at the moment in China, it still remains pretty low, hasn't improved much. So the domestic economy in China, despite the sort of stimulus measures that have come through have not actually seen the economy pick up particularly strongly from a domestic standpoint. Exports has been pretty good. That's helped the economy overall. And instead, people instead of choosing to sort of invest in property, which has obviously been a pretty weak area, they've been saving and increasing their savings, which is that middle chart. And that has seen sort of -- that's a plus and a negative, I guess, in the sense that, obviously, if they're saving more, they're not spending. But I guess if they can sort of get things right and people spending, there's obviously an opportunity for consumers to draw down on those savings to spend more when confidence improves. And on the right-hand chart, it just shows how interest rates haven't actually started to see a pickup in household borrowing. So that mechanism hasn't yet sort of flown through into the economy. And then the other -- so we remain underweight in China, but the other area, of course, where is sort of an area of debate... Roland Jones: Very topical. Richard Sennitt: Yes, is obviously within IT and AI in particular. And I think we're all sort of familiar with the chart on the left, which is sort of U.S. hyperscaler CapEx. It's obviously been exceptionally strong. And as a proportion of sales, it's sort of up there now at sort of around 20%. So that's grown very rapidly, and that's sort of been driving, obviously, related names in semiconductors and so on, both in Asia and elsewhere, which is the right-hand part of the chart. And near-term growth continues to look very good. The question mark is more about are we nearing that peak now. And the real question mark is all this investment is how much return are we going to generate on that investment. And that's where the sort of the big question still remains. So we are less overweight in IT than we would have been sort of 12 months ago. So we've been gradually bringing our exposure down just really to reflect that sort of how well these things have done over the course of the last 12 months. And the other area, which I mentioned, which we continue to like is sort of financials. We're a bit less overweight than we were. Again, it's sort of not just banks, it's also insurance companies, exchange companies. Penetration of insurance products, which is on the left, is still very low versus sort of developed markets. And so there's an opportunity longer term for that to grow through time. So we quite like that. And then on the right-hand side, you just look at sort of some of the returns coming out of banks. The ROEs are reasonably good in these markets. and the yields are good as well. And although rates have come down or come down a bit, and that will have an impact on margins, as rates come down, it has a flow-through on obviously, credit cost, but also on just demand for loans as well. So you hopefully get some offset coming through from there. And then I mentioned the point about the U.S. dollar earlier, and that's the central chart here or this chart here. And you can just see the green line, which is the U.S. dollar index. So as it goes up, the U.S. dollar is strengthening, as it comes down, it's weakening. And you can see that it moves sort of inversely to the index, which is the -- which is a dark blue line, and you can see that particularly clearly in the sort of '90s and early 2000s. But -- and more recently, you can see, obviously, the market has gone up and the U.S. dollar has weakened. So there is a correlation there. If we continue to see U.S. dollar weakness, that could act as a bit of a tailwind if history is a guide. Roland Jones: And Richard, actually, we've had a question on the dollar weakness. And obviously, you've very well -- you've sort of explained the relationship between the dollar and Asian equities. But the question actually relates to does a weaker dollar -- is there any evidence to suggest that either an income strategy or a more value-orientated strategy benefits more from a weaker dollar? Is there any evidence to that to support that fact? Richard Sennitt: Yes, I'm not sure that there's necessarily evidence to support that direct link. I guess the way that the sort of transmission mechanism works, I think if you look at it as the U.S. dollar weakens, it tends to ease liquidity in the region itself, and that allows interest rates in Asia, the central banks can start to sort of ease rates, and that helps from a sort of economic standpoint to generate growth. So you could argue, I guess, that it should be better for the domestic economy in a relative sense perhaps vis-a-vis some of the more export-orientated areas just because rate cuts should benefit domestic growth to an extent. And obviously, some of the sectors which have got good yield are attractive at the moment, things like financials, which I mentioned, obviously are driven by the strength of the domestic sector. So there's a sort of a bit of a link there. And then just the final piece is just on -- quickly on valuations. And I should say, given the rallies that we've seen in the market and what I was saying about it's been more about re-rating up than sort of earnings necessarily coming through strongly at this stage. The chart on the left just shows the sort of PE of the region versus its history, and you can see that it's now above the long-term average. So not particularly cheap markets versus the longer-term averages, but versus developed markets, which is on the right, which just shows the sort of ratio of PE for the region versus developed markets, you can still see that on that basis, Asia still looks relatively attractive versus history. And then when you sort of dive down and get a bit more granular looking at the different markets, you can see that here, which is the sort of just looks the little blue diamond -- light blue diamond is the valuation -- current valuation of the market against its range. And you can see that for most markets, they're sort of above their longer-term averages. And you can also see that there's a big spread across markets. So again, I think one of the key things to take away is that, again, from a sort of an active strategy, you can take advantage of those relative differences in valuation, which are there from a market level. But also when you look and drill down at the individual stocks in those markets, there's -- they're not all at the same price. So you can find -- again, you can find good opportunities. And to that point, the sort of -- again, the left-hand chart is just that repeat of that sort of stocks outperforming, the index come down. So it's been a narrow rally. That means outside of that, there's stocks that potentially you can find. And if you look at income stocks, which is the right-hand chart here, so this just looks at the top 2 quintiles of yield, so the top 40% of stocks by dividend yield and how they're valued relative to the market. And you can see that, that discount that's there, so it's around about sort of a 25% discount at the moment, roughly speaking, from the chart is not extended versus history. So from a sort of, again, dividend names don't look particularly extended versus the market in my view. And that is the sort of -- I won't take you through all the slides there, but that's the conclusion of the presentation. Roland Jones: Well, that's great because actually very comprehensive. We've got a little bit of time left for a few of the questions that come through. We have some really good questions actually. We -- interesting, one of our listeners has asked about, is it now time to consider inviting Japan back into the fold into an Asian -- a pan-Asian trust, particularly one where one is generating a dividend and the valuations for, say, the Japanese market are looking a little bit more palatable compared to where they were 20 years ago. Any thoughts on that? Richard Sennitt: Yes. And I think that certainly has merit. I mean we have historically invested in Japan to a lesser or a greater degree for the trust. I mean it's never been a significant weighting, but... Roland Jones: The trust is allowed to get Japanese exposure... Richard Sennitt: Yes. So we have one name at the moment in Japan. It's certainly a small exposure. But -- so there is opportunities over time. And -- but yes, at the moment, it's relatively small. Roland Jones: That's good, okay. And we've had another -- quite a few questions about valuations, particularly related to the AI bubble in Asia. And I think we've sort of covered quite a bit of that. But I'm just interested to hear, how has the trust performed in the very short term? I know we don't focus on the short term. It's the medium, long term and it's important. But has there been a degree of resilience with the trust given some of the profit taking you took out of the technology stocks recently? Richard Sennitt: Yes. I mean... Roland Jones: Great timing, by the way. Yes. Richard Sennitt: Well, yes. No, I mean, obviously, there have been those market -- those stocks have done well. And there has been definitely over the last few weeks, there's definitely been an increase in volatility around those names as I guess people have become a bit more nervous about valuations and I think the whole idea of what is the return of all this investment going to be, where are we going to get those use cases. And that has seen a bit more volatility. And from a relative perspective, I think since the end -- I mean, in the very short term since the end of the month, I think the trust is up in a relative sense against the benchmark about 2% or so. And so it's broadly flat against the market, which is sort of a little bit down a couple of percent or so. Roland Jones: And we've always positioned the trust and not only been able to generate a very decent income from Asian portfolios, but also quite a good way of getting a lower risk, slightly more conservative way to approach the Asian market. Richard Sennitt: Yes. I mean the set of stocks generally tends to have -- if you took those stocks and looked at them individually against the market as a whole, they tend to be lower volatility in aggregate. And that through time is a bit why you get the sort of when the market is rallying hard, they tends to lag a bit. So it's a bit low beta and vice versa. Roland Jones: Understood. Okay. We just have time for perhaps one more question. We've got a question about -- relating to the comments you made on the ASEAN region and talking about the very diverse nature of the Asian market, but specifically about the Philippines, where we've got a little bit of an overweight. What's the rationale there? What do you particularly like about the Philippines? I presume it's a stock more than a sector -- sorry, a stock more than a country related, but please tell us. Richard Sennitt: Yes. I mean there, it's a holding which we've had for a while, which is has done reasonably well, which is -- it's actually ICTSI, which is a port operator. And it's not just a sort of a domestic Filipino story, although that's actually an important segment of its earnings. It's also sort of an emerging growth proxy in the sense of it has a lot of exposure to emerging market ports globally. And so as trade flows within that emerging market piece grow over time, hopefully, the company should benefit from that. The Philippines is an interesting market because at the moment, it's one of the markets that's really sort of, I guess, lagged to put it nicely, I suppose, lagged the region. And the region is one of the markets which is trading at a significant at a discount to its sort of historic longer-term range. So it's definitely becoming more interesting. I guess interest rates clearly an easing of interest rates clearly globally help the Philippines perhaps more than some of the other markets given the external finances and so on. But I should say that as that potentially becomes a bit more attractive, it's also not the most liquid market in the world, and it's quite volatile. So it's never going to be a really huge portion of the portfolio from that perspective. Roland Jones: Okay. Well, thank you. Useful. Well, ladies and gentlemen, we're sort of fast approaching quarter to 10:00. Thank you all very much for listening in today and for all of your questions. Richard, very comprehensive overview of the region, which -- looking at your summary slides, I mean, despite having some concerns about China and some of the technology stocks, there is a lot more to Asia than just those 2 sectors, a very diverse area. We talked about the interesting opportunities in Australia, in ASEAN, in Korea. The trust after 20 years still remains a great way of generating a growing dividend from a basket of Asian portfolios. And we're on track to, I hope, attain the dividend hero status showing a 20-year unbroken rise of dividend over the next -- over the last 20 years. So one more year to go. But ladies and gentlemen, thanks once again for all your questions. Please do the survey. The feedback form is really important for us. It just helps us tailor these types of presentations for the future to make sure that we continue to hit the mark. Please send that into us. Have a great rest of the day. Thanks very much. Good morning.
Operator: Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura. Laura Chen: Thank you. Hello, everyone. Welcome to the third quarter 2025 Earnings Conference Call of GDS Holdings Limited. The company's results were issued via Newswire services earlier today and are posted online. A summary presentation, which we'll refer to during this conference call, can be viewed and downloaded from our IR website at investors.gdsservices.com. Leading today's call is Mr. William Huang, GDS Founder, Chairman and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS CFO, will then review the financial and operating results. 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 is included in the company's prospectus as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that GDS' earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn over the call to GDS Founder, Chairman and CEO, Mr. William Huang. Please go ahead, William. William Huang: Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. During the third quarter, our revenue increased by 10.2%, and our adjusted EBITDA increased by 11.4% year-on-year, maintaining the healthy growth trend since our business began to recover last year. During 3Q '25, our gross additional area utilized was around 23,000 square meters. We are on track to achieve our highest every year of move-in. We continue to deliver the long-term backlog. In addition, we are now delivering the 40,000 square meter, or 152-megawatt order which we won in the first quarter of this year. By being selective with new business, we have successfully shortened the book-to-build period and brought down our backlog. Nonetheless, we still have visibility for over 70,000 square meters of move-in from the backlog next year. Our total new bookings for the first 9 months is 75,000 square meters or 240 megawatts. We expect to achieve nearly 300 megawatts for the full year, which is a big step-up from the level of the past few years. Around 65% of our bookings in 2025 are AI-related. Nonetheless, AI demand in China is still at a very early stage. If we look at the big picture, the domestic tech industry has reached a critical juncture with major players making unprecedented financial commitment to AI infrastructure. This marks a definitive end to the previous downturn and signals the beginning of a robust recovery for the data center sector. All of our major customers are committed to the massive scale of this new investment cycle, with CapEx plans of hundreds of billions, underscoring the intensity of the new AI arms race. Leading local chip companies are making continuous development progress in terms of performance, efficiency and capacity. The growth of the domestic chip segment will secure the long-term growth of the AI infrastructure industry. We have unwavering confidence in the AI demand to come basis on the development and the ramp-up of domestic technologies. We believe that new bookings in the coming years could be better, and this is what we are preparing for in our strategic plan. There are 2 essential ingredients to win big in AI, powered land and access to capital. We have already secured around 900 megawatts of powered land in and around Tier 1 markets, which is suitable for AI demand, particularly for AI inferencing. In addition, based on our communications with our customers, we are in the process of securing more powered land in complementary locations, and we believe that 900 megawatts will not be enough. On the financing side, we recently completed first IPO of a data center REIT in China. The transaction was a huge success. We intend injecting more assets in the REIT next year and establishing a continuous pipeline of asset monetization. The REIT gives us a significant competitive advantage in terms of accessing capital from the domestic equity market. It enables us to monetize assets efficiently, repeatedly and at the lowest possible cost. The China market is at an inflection point. The outlook for the data center industry is very exciting. Our market position is as strong as ever. Over the past few years, we have taken a conservative approach. We improved our asset utilization and significantly strengthened our balance sheet. Going forward, we will maintain our financial discipline while, at the same time, taking a more aggressive approach to new business. I will now pass on to Dan for the financial and operating review. Daniel Newman: Thank you, William. Starting on Slide 15. As William mentioned, in 3Q '25, our reported adjusted EBITDA grew by 11.4% year-on-year. At the end of 1Q '25, we deconsolidated the data center project companies, which we sold to the ABS. And then during 3Q '25, we deconsolidated the data center project companies, which we sold to the C-REIT. In order to present a consistent trend, we have adjusted historic numbers to take out the EBITDA contribution of the deconsolidated companies for the first 9 months of 2025 and for the comparative period. On this pro forma basis, our adjusted EBITDA for the first 9 months grew by 15.4%. Turning to Slide 16. Our C-REIT started trading on the Shanghai Stock Exchange on the 8th of August. As of yesterday's close, the C-REIT units were priced at RMB 4.375, 45.8% up from the IPO price. At this level, the C-REIT is trading on 24.6x EV to the projected 2026 EBITDA as disclosed in the C-REIT offering memorandum. The implied dividend yield is 3.6% based on the projected cash available for distribution, also as stated in the offering memorandum. It is our strategic objective to grow and diversify our C-REIT so that it is a viable option for us to recycle capital on a repeated basis, thereby unlocking value for GDS shareholders and freeing up funds for new investment. Under current regulations, we are permitted to apply for approval for the first post-IPO asset injection 6 months after the IPO date, i.e. during 2Q '26. Thereafter, it will take some time to complete the regulatory review process. For the first IPO -- post-IPO asset injection, we are preparing assets with a target enterprise value of around RMB 4 billion to RMB 6 billion. This compares with an enterprise value of RMB 2.4 billion for the assets which we injected into the C-REIT at IPO. With the creation of the C-REIT platform, we have the opportunity to invest in new data centers, ramp up, operate and then, once the track record qualifies, to monetize over a 5- to 6-year investment cycle. Even if we take a very conservative view on potential future exit multiples into the C-REIT, the return on new investment is still very compelling. This could not have happened at a better time as we address the upcoming AI demand wave. We think it's a game changer. Turning to Slide 17. For the first 9 months of 2025, our organic CapEx was RMB 3.8 billion. We still expect our organic CapEx for the full year to be around RMB 4.8 billion. However, net of the cash proceeds of the asset monetization, our CapEx will be around RMB 2.7 billion. As shown on Slide 18, our operating cash flow for the full year will be around RMB 2.5 billion. Therefore, after taking into account the asset monetization proceeds, our China business is almost self-funding. Turning to Slide 19 and 20. Our net debt to last quarter annualized adjusted EBITDA multiple decreased from 6.8x at the end of 2024 to 6.0x at the end of 3Q '25. The decrease is mainly due to the cash proceeds of the asset monetization and the deconsolidation of debt of the project companies sold to the ABS and C-REIT as well as the offshore equity capital raise, which we did in 2Q '25. We are benefiting from the favorable interest rate environment in China, with our effective interest rate dropping to 3.3%. Turning to Slide 22. After 9 months, we are on track to achieve the midpoint of our revenue guidance and at or above the top end of our EBITDA guidance for the full year of 2025. Our growth rate during the current year has clearly benefited from the strong new bookings in 1Q '25 and a short book-to-bill period. This gives a clear illustration of how our growth rate can accelerate with a pickup in demand. The relatively subdued new bookings since 2Q '25 will affect our growth rate next year. However, in our internal projections, we foresee higher bookings next year, leading to gross acceleration thereafter. We'd now like to open the floor to questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Yang Liu of Morgan Stanley. Yang Liu: I have 2 questions here. The first one is regarding the China market inflection. As William just mentioned, the China market is approaching the inflection point. What do we need to see to see that really happen in the near future? And in terms of your strategy to go a little bit more aggressive in China, could you please elaborate more, for example, with location or what type of project, et cetera, are you planning? The second question is regarding the overall investment profile because now we have a C-REIT platform, and it is a very effective way to recycle capital. And what is the new overall investment return with C-REIT scheme? William Huang: Okay. I think number one question is, yes, I think how to explain the aggressive approach. I think what we see in the market, demand is very strong in China. I think our customer announced their big investment in the next 5 years. I think now another signal is domestic chip is catching up. Just as what I mentioned, I think in terms of the efficiency, chips efficiency and production capacity, I think they all improved a lot. That means the real data center opportunity is coming. So we are well positioned. As I just mentioned, we still have the large -- I think the largest land bank -- powered land bank in and around Tier 1 market. This is very good for the future inferencing. Another is, I think, the China tech player, they will continue to do massive training. So I think in order to capture this opportunity, we will acquire more land in some very cheap power location and more -- as much close to, let's say, the Tier 1 city, yes. So I think this is our strategy. And we are -- a lot of the land acquisition is in process. And maybe something will happen, we can announce in next earnings call. This is number one. Number two, I think Dan may can explain about the REITs. Daniel Newman: Sure. The unit economics of the data center investment in China is very solid. The selling price is stable. The unit development cost has come down to a level which is very efficient. And this allows us to generate typically 11% to 12% cash on cash yield on new investment. What has changed is the way that we can look at and evaluate investment. If we take the approach of investing, which maybe takes 1 year to construct and then 1 year for the customer to move in fully, we have to hold the asset and operate for 3 years to establish the track record, which is required before assets can be injected into C-REIT. But then in the year -- the following year, which would be year 5 or 6, we can consider an asset injection. But even if we use a exit multiple, a cap rate, which is being very conservative compared with even where we IPO-ed our C-REIT. If we look at the IRR over a 5- to 6-year period, then it is in the low to mid-teens. And the levered IRR, the return on equity, is well into the 20s. I think fundamentally, this is very attractive. William Huang: Yes. I'll add 1 more point. I think we believe now is the right timing to step in the market because, number one, I think the price is more stable; number two, I think the development cost is almost at the bottom of the -- in terms of history, right? So I think this is the right timing to maintain very good return. It's the right timing, yes. Operator: Our next question comes from Sara Wang of UBS. Xinyi Wang: Congratulations on the solid results. It's glad to hear that GDS is being more aggressive in acquiring new business opportunities. So I have actually 1 question, but 2 parts. So I think Dan just mentioned, we are expecting higher booking next year. So regarding this booking, does that include our potentially new powered land acquired in relatively -- like regions with relatively lower power tariffs? And the second question is that, if we are going into complementary markets on top of our 900 megawatts resources then how shall we think about the -- like is there any difficulties in acquiring new power quota? Because this year, we have heard [indiscernible] like NBRC, they're actually relatively rationalizing or controlling the new power quota release in China in general? Yes, that's my question. William Huang: Okay. The first question, I think that was new booking next year, right? We're not fully relying on the new acquisition of the land. Definitely, we will -- if we can success to secure the land, power the land, we can do more, right? So this is our focus base. The second -- what's the second... Laura Chen: How difficult... William Huang: I think power quota always -- I mean, in general, always not easy, right? But based on our track record and the reputation, I see a lot of governments willing to work with us. So for us, it's not that challenge for us. We have a lot of the experience in the past -- in the last 10 years to build up the right relationship with the government and the power company. Operator: The next question comes from the line of Frank Louthan from Raymond James & Associates. Frank Louthan: Can you give us an update on DayOne on private round funding and potential updates for a possible IPO? And then what is the outlook on your customers getting GPUs and be able to ramp their installs going forward? When do we expect that to crack open? William Huang: Yes, I think I answer and maybe Dan can add more color. I think -- I have to say, I think after Series B, I think DayOne is fully independent. So we cannot represent DayOne anymore since that time, right? But we still can give some highlight information, right, about DayOne because we quite enjoy the equity value increase, right, for our shareholders. I think all business in Asia Pacific and in Europe, which we already announced the market what we already stepped in, remain very, very good, very, very positive, and the demand still remains very, very strong. So I think the DayOne's business is on the right track and could be better. So that's all what I can tell you. Maybe if you are interested, maybe we can introduce to the DayOne's right people to explain in more detail. Frank Louthan: Okay. And on potential for additional installs to ramp? Daniel Newman: Frank asked about the new business in DayOne I think. William Huang: Yes. I just can -- what I can tell you is they remain very, very strong, positive view for the future, yes. I cannot tell any detail more. I cannot represent -- this is a GDS earnings call, right? Sorry about that. Operator: The next question will come from Michael Elias from TD Cowen. Michael Elias: So in the U.S., when we think about the training workloads that we're seeing, we're seeing gigawatt scale projects getting deployed. And I'm curious, when you think about what training will look like in China, are you seeing the opportunity to deploy at that kind of the scale, i.e., in the gigawatt range? And then second question is, can you give us an update, as you think about these AI data centers that you expect to build, what the time to build those data centers are and how that varies from traditional cloud data centers? And if I can squeeze it in, any notable constraints or long lead time items that we should be aware of? William Huang: I think scale-wise, I think our client talk about gigawatt level, I mean, new demand, right? So I think this is just like 3 years ago in -- what happened in the U.S. And the number-wise, we are talking -- every big player talk about gigawatt size new demand. So I think that it's catching up. That's what we have been seeing -- we have seen. So in terms of time to market, right, I think, in China, we can build very fast. I think normally 9 months to 12 months is very normal start from the piling to deliver, right? The extreme, I mean, case, we can build -- let's say, even built within 8 month. So that's our record in China. Daniel Newman: Any bottlenecks or... William Huang: No, I don't think the -- in terms of development, yes, supply chain in China is not an issue. Operator: The next questions will come from the line of Daley Li of Bank of America Securities. Huiqun Li: I have 2 questions here. First one is about we got new orders for the China market, like a near 30 megawatts. Could you share what's the... William Huang: 300. Huiqun Li: Can you hear me? Sorry. Laura Chen: Go ahead. William Huang: Go ahead. Sorry. Yes. Huiqun Li: Yes. Yes. Could you give some color about the AI exposure? What's the percentage from AI? And is this about inferencing model training for the recent order? Number two, for the second cone is about the -- we heard the China government gave some window guidance in 2Q this year to tighten the data center supplier in China? And do you see any impact to us and to the market? William Huang: Yes, I think, new order from -- Yes, go ahead. Daniel Newman: Okay. In our prepared remarks, we commented that we will probably reach nearly 300 megawatts in terms of new bookings for the whole of 2025. I think we hit 240 megawatts up to the end of the first quarter, and there's some good new business in the fourth quarter. We also stated that, by our estimation, around 65% of the new bookings this year are AI related. We are -- only have a presence in Tier 1 markets. So that is AI in Tier 1 markets. So that's going to be mainly AI inferencing or it can be a combination of AI inferencing and training, and it's being deployed within the established cloud regions and cloud availability terms. The second question was... William Huang: Window guidance about the carbon quota. I think this has always happened in the Tier 1 market, right? So -- but we are lucky. We already prepared for that. And that's why I mentioned we still have almost 900 megawatts powered land. This power is all gathered carbon quota in or near Tier 1 market. It's very difficult to apply new around the Tier 1 market. But in a remote area, I think I didn't hear any about the window guidance because the power in those place, it's -- the big problem is how to sell, right? It's not -- so the power is -- capacity is very large in a remote area. So get the power, I think it's not very, very difficult. And the local governments are very encouraged the data center -- the operator built a data center in those places, location. Operator: Our next question comes from Timothy Zhao of Goldman Sachs. Timothy Zhao: Congrats on the solid results. I have 2 questions. First is about the pricing trend. Just wondering if you can share some color on how you think about the MSR trend into fourth quarter and next year, especially given that probably the company is entering to a peak renewal period for the contract that were signed maybe 5 to 7 years ago, then how should we think about the MSR trend into next year? Second is about the overall market and the competitive landscape. I think right now, you have been emphasizing time-to-market quite a lot. If you remember, I think maybe 5 years ago when there was a wave about the cloud data centers and 5G network, there was also a wave of increased data center supply in China. Just wondering if you think, from where we are right now, how do you think about the overall industry supply and demand dynamics? Daniel Newman: The first part of your question about the downward price reset when our installed base contract come up for renewal. And this has been going on for a few years and will continue for a few years more. And the impact of that gets reflected in our MSR. And I was -- give some comment on future expectations. Now I'd say that, over 2026, we expect the MSR to decrease by 3% to 4%. That's on average, comparing 1Q versus 1Q, 2Q versus 2Q and so on. And that is not only a function of the downward price reset, we also have elevated higher levels of move-in. And that also has a dilutive effect on MSR. So that 3% to 4% reflects the combination of those factors. William Huang: Yes. I think I add a little bit of my points. I think all the new build data center, the price is quite stable since 2 years ago. Nothing changed. I think this is very good. But in the meanwhile, I think the cost is more stable, right? So if you look at all the new-build asset return, it's very decent. So I think this is a way to look at the MSR, right? Because the new campus, new building is, in general, I think compared with like edge data center, the enterprise data center, even cloud data center, the price definitely go -- went down a lot. But if you look at the asset return since 2 years ago, it's very, very similar, very -- and this price is very, very stable. Return is also very stable. It's 100% fit the REITs to inject to the REIT. Daniel Newman: Tim asked about the competitive landscape. William Huang: Competitive landscape, I think the new competition, I think, if you try to get your customer trust and reliable, you should show your financial capability. Now our customers more care about the financial capability, not just the capability you can build. Everybody can build easily, right? So I think if you try to commit a customer 500-megawatt or 1-gigawatt campus in the future, I think the financial -- our customers definitely will consider about do you have the capability to access the capital market, what's the cash position you have right now? So this is very -- this is the new competitive advantage. In terms of this, I think we are more -- much more way ahead than any competitor else, right? So I think this is not just a land/power competition. It's also the capability to access capital market. So in terms of this, if I look around, I think not that much company, both has the land capability -- power the land capability and well position and let's say, financing capability. Operator: Thank you for the questions. Due to the time limits of today's call, I would like to now turn the call back over to the company for any closing remarks. Laura Chen: Thank you once again for joining us today and see you next time. Bye. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you.
Gunnar Pedersen: Good morning, everyone, and welcome to this third quarter presentation for Vow. For technical issues with the network in the auditorium, we had to do our last minute move into this conference room. So it's a bit packed in here, but we certainly hope everything is working out to your satisfaction and that everyone is receiving this webcast. So today, I have Cecilie Hekneby, with me, our CFO, to do the presentation of the financials. My name is Gunnar Pedersen. I'm the CEO of Vow. So I'm going to share with you some highlights first. Cecilie will take you through the financials. I'll come back with the market and business update before we go into summary and outlook and finally, open up for questions. So starting off with Q3. So Q3 was a very busy quarter across the whole company, especially in Maritime Solutions, where we had record high revenues. We also continued our structured assessment of the company. And in Q3, specifically, we did some deep dive into the big industrial projects. What we found was that there was 2 big projects that had underestimated cost to completion, which has impacted the margins and also leading to a reversal of revenue. Cecilie will take you through the details of that. And also it's been published in a notice earlier in October. So in the Maritime Solutions segment, we've had record high revenue and also a very positive development on the margins, perhaps a bit on the very high side compared to what you normally should expect. This is due to a reduced share of legacy contracts, but also the project mix. So a lot of equipment deliveries, different types of equipment have different margins, and this quarter has been very fortunate in -- or favorable in terms of the mix. The Aftersales segment continues its positive development, improving margins, whereas the volumes is about the same as the third quarter last year. Year-to-date, however, is a good growth on Aftersales. Our Industrial segment has been facing challenges in terms of underestimated cost of completion, as mentioned. On a high note, what we've formally talked about as the large reactor from Evensen that was finally delivered to follow last week. So very pleased with that. Some questions have come across on this. It doesn't have a big impact on the revenue, but it does have a very positive effect on the cash flow, as it triggers some payment milestones. Liquidity has improved significantly with very good inflows. And also, we've been able to settle outstanding payments to our vendors. And also it's worth noticing that the covenants were waived for Q3. Our total order backlog stands at NOK 1,449 million with another NOK 134 million in options. So this provides us with a very good visibility into the future. Order intake as of end third quarter is NOK 1,082 million. I should perhaps mention that the delivery of the reactor was subsequent to the quarter. And by that, I think I can leave you with Cecilie to do the financials, and I'll come back for the market update. Cecilie? Cecilie Margrethe Braend Hekneby: Good morning. I will give you an update on the financial numbers. This is just an executive summary that actually summarize what Gunnar just said. So before I start with the walk through of the financial numbers, I would like to address the notification published in October, and there are specific events that led to the announcement. As explained in the stock market announcement, a review of the 2 major circular solution projects reveal that total cost to completion next year had been underestimated. The reduced project margins and technical reporting of progress on costs led to a reversal of revenue in the quarter. The 2 projects constitute a major part of -- in the Industrial Solutions segment and the preliminary consolidated numbers for the group, indicated a lower-than-expected EBITDA for the quarter. This was still at an early stage in our preparation for the third quarter reporting, but we consider this as inside information that could not be delayed and issued a trading update. Phase 1 of Follum and Rhode Island represent significant milestones for our pyrolysis technology, and an SVP Program Director was appointed at the end of September to strengthen coordination, execution and financial control for the projects, reporting directly to Gunnar. He and his team then performed a total review of the remaining scope, risks and handover requirements and found that total cost of completion was underestimated. And as a result of this reassessment, a onetime cost increase was recognized in the Q3. So how does this impact revenue? Revenue from projects is recognized based on estimated total gross margin for the project according to technical reporting of progress. The contracts for these 2 projects are predominantly fixed price with limited flexibility for price adjustments. The updated cost estimates, therefore, led to a reduction in total gross margin and hence a reversal of previously recognized revenues but with no cash effect. Circular Solutions is a key area within the Industrial Solutions segment, delivering to the industrial scale pyrolysis market, which is still maturing. With these 2 projects now entering the final stage, we expect increased cost visibility and tighter cost management going forward. We aim to be transparent in our reporting, but I understand that it may be challenging to follow the financial development for the last quarters. Vow has been in a challenging financial position. And since I started in May, my team and I have worked diligently to secure consistent and precise reporting to get control and provide insight. So this slide sums up what I just have explained, and I will now go through the numbers for the quarter, starting with the key financial for the group. The reporting currency is in Norwegian kroner. So reported revenue for the quarter was NOK 214 million compared to NOK 267 million 1 year earlier. And on the graph on the left-hand side, you can see minus NOK 6 million in revenue for the Industrial Solutions segment, following the reversal of revenue and softer performance in the remainder of the segment, with higher revenues in the Maritime Solutions segment and steady numbers in Aftersales. Moving on to the graph in the middle, we have adjusted EBITDA of negative NOK 29 million, heavily impacted by the financial performance in the Industrial Solutions segment. The order backlog of NOK 1.4 billion remains strong and gives good visibility. Total revenue was NOK 214 million, down NOK 53 million from Q3 '24 heavily impacted by the Industrial Solutions segment. But revenue in the Maritime Solutions segment of NOK 166 million is all-time high following progress on large newbuilding contracts and up NOK 73 million from last year. The year-to-date numbers for Maritime Solutions are impacted by the catch-up effect in Q2. Aftersales make a solid contribution with NOK 54 million in the quarter. This is up 3% from third quarter last year, but up 11% year-to-date. Revenue in the Industrial Solutions segment is down NOK 128 million from Q3 last year and NOK 136 million from year-to-date following the cost of kits and reduced margins for the 2 projects, in addition to the soft performance in the remainder of the segment. Moving over to the operational key figures for the quarter. Revenue is, as explained, heavily impacted by the updated cost of completion estimates that overshadowed the strong performance in the Maritime Solutions and Aftersales segments. I would like to highlight the development of gross profit and employee expenses. Being a project organization, employee hours linked to specific projects are attributed to the cost of goods sold. The group has during the year improved its time tracking and hourly rate position. With a more accurate attribution of employee hours to specific projects, a larger share of personnel cost is now currently classified under COGS as recovery hours. This, in turn, improves the alignment between project costs and actual resource usage, which provide better insight and basis for pricing of projects. Reported employee expenses, hence vary with project activity and hours allocated to projects and are down NOK 17 million from Q3 last year. Gross employee expenses, including the recovery hours amounted to NOK 58 million in the quarter compared to NOK 64 million last year. Employee expenses are also impacted by a change in the allocation of holiday payment compared to last year, with a higher cost in the second quarter this year and lower this quarter following when employee actually were on holiday, impacting production. NOK 2.5 million of nonrecurring items in the quarter are related to employee expenses. Other operating expenses amounted to NOK 21 million, up NOK 3 million from last year. EBITDA for the group was negative NOK 31 million, which is slightly higher than the preliminary EBITDA from the trading update in October. EBITDA adjusted for nonrecurring expenses were minus NOK 29 million. Let's look into the development of the segments. Vow has 3 business segments, Maritime Solutions, Aftersales and Industrial Solutions, in addition to Administrative, which consist of expenses not allocated to the business segments. There were no nonrecurring items in the business segments. The nonrecurring expense of NOK 2.8 million in the quarter is related to the Admin segment. Adjusted EBITDA for the Maritime Solutions segment was NOK 29 million in Q3, up from NOK 7 million 1 year earlier, following strong revenue development stemming from high delivery volumes in addition to increasing margins as the share of legacy contracts are decreasing and replaced with new contracts with revised terms and conditions. The backlog of NOK 1.2 billion is firm and provide long visibility. Gunnar will share some details on this in his part. Aftersales continue to grow with an increasing number of vessels in operation equipped with Vow systems. Adjusted EBITDA amounted to NOK 10 million in the quarter, up from NOK 7 million last year, indicating an adjusted EBITDA margin of 17%, up from 13% 1 year earlier. The Industrial Solutions segment was impacted by the cost updates and reduced margins in addition to soft performance in the quarter in the remaining parts of the segment, leading to a negative EBITDA of NOK 65 million in the quarter. Focus forward in this segment is on selected opportunities with reduced risk and exposure profiling. Moving over to the financial performance in the quarter. We see that financial costs have been reduced. Financial items in the quarter of negative NOK 13 million or NOK 1 million lower than last year. Interest costs amounted to NOK 12 million, which is down NOK 5 million from Q3 last year. There was a net foreign exchange loss of NOK 1 million in the quarter, while there was a gain of NOK 3 million last year. Vow reports in Norwegian kroner, but most of the contracts are in euro. About 60% of the project costs are in the contract currency and is a natural hedge. Fluctuation in foreign currency exchange rates may, however, have an impact on key financial figures, and we have started to look into alternatives to mitigate the risk. Depreciation in the quarter of NOK 12 million is down NOK 2 million from third quarter last year. And I also would like to highlight that following the sale of Vow's shares in Vow Green Metals in June, the share of net loss of NOK 3 million and a gain NOK 1 million is recognized in the year-to-date numbers. Looking at the balance sheet. I would like to highlight the development of trade receivables and trade creditors. Since I started in May, managing working capital with improved processes for collection of debt and payment to vendors has been a key priority. Trade receivable bills have been reduced by NOK 75 million year-to-date, the cash collected has been used for settlement of overdue supply debt and other liabilities. And trade creditors are reduced by NOK 102 million year-to-date. Prepayments to vendors are also significantly reduced. Having managed now to settle overdue debt, our working capital is steadily improving and net working capital has been reduced by NOK 32 million year-to-date. Interest-bearing debt of NOK 557 million including leasing has increased by NOK 87 million year-to-date due to the increased utilization of the credit facilities, partly offset by reduction in borrowings. The DnB term loan amounted to NOK 195 million at the end of September, down from NOK 262 million at year-end '24. The group obtained a waiver for the 12 months rolling EBITDA ratio covenant, and we are in close and constructive dialogue with DnB. Looking at the cash flow development, we started 2025 with NOK 46 million in cash and at NOK 34 million in cash at the end of June. At end of September, cash amounted to NOK 23 million, with an additional NOK 26 million in available liquidity. There has been high activity in the quarter, and the illustration highlights the main development in the quarter. During the quarter, there has been an inflow from trade receivables of NOK 80 million. In addition to milestone payments, we have succeeded in collecting overdue receivables. The cash has been used to repay overdue trade payables and other current debt in line with management's focus in addition to repayment of loans and interest. Having resolved the overdue payables, the overall financial position has improved. Liquidity is significantly improving in the fourth quarter, following a large milestone payments, both from the maritime side and industrial side, and I am satisfied to see that measures taking are starting to show results. At the Q2 presentation in August, we informed that we had initiated a profit improvement program. The target of the program is to strengthen cost control, improve profitability and increase operational efficiency. And we have identified concrete measures and defined several hypothesis. Example of this are related to cost down, operational efficiency, service cost and indirect spending. The program is under implementation and is part of the budget process for next year. It is implemented based on feasibility and expected effect and several actions are already taken. This was a rather detailed walk-through of the financial developments in the quarter, and now Gunnar will give you a market and business update. Gunnar Pedersen: Thank you, Cecilie. So we're going to start this market and business update with Maritime Solutions. And as you can see on the bottom left-hand graphics, Maritime makes up about 53% of the revenue so far this year with NOK 365 million. The main contract entered into in this period is EUR 11.5 million for advanced environmental systems. Additionally, there's several smaller contracts amounting to a total of EUR 2.9 million for various other deliveries. Order backlog stands at a very strong NOK 1.2 billion, which is 49%, up from the third quarter last year. And also margins, as I mentioned, in the quarter at 17.7%, EBITDA are very positive. And as I said, it's due to very high delivery volumes of equipment also with a favorable mix of the deliveries. So looking into the Maritime contract development and a little bit more about the backlog. We have been talking about legacy projects in earlier presentations, and we have received questions about these legacy contracts. So how much of the revenue is made from legacy contracts, and at what time are you going to be completed with those deliveries. And on the lower right-hand graph, you can see how this plays out. The top dark blue one from the left, is from new contracts, whereas the lower part is from legacy contracts. So looking at Q3, there is 35% of the revenue coming from new contracts whereas the remaining 65% is coming from legacy contracts. And you can also see, and this is based on estimates of when deliveries are taking place and so on, we have made an estimate how this is going to play out through 2026 and into 2027. So you can see that, for example, in fourth quarter, new contracts will be about 43% and so on. It can vary a bit up and down. That depends on the contracts and the delivery time of these contracts. That's why you see a bit fluctuation on the split between new and legacy contracts. It is also a fact that we may even enter into new contracts that are legacy contracts, so that would be options, options that are binding to us in terms of price, but options that are valid from quite some years back. Currently, there is one remaining option that we will classify as a legacy contract. Yes, I think that's about as good explanation as I can give here now on the legacy contracts and that part. So looking at the backlog and the pipeline, this graph on the right-hand side shows when the vessels are scheduled for delivery from the yard to the cruise line. And typically, we deliver equipment 18, 24 months before, sometimes it can be as little as a year or even less than that, depending on the type of project. But this is typical. So this year, there's 10 vessels, next year in '26, another 10. '27, there are 7 vessels to be delivered that are under contract, there's 2 that we're bidding for. And you can see going out in time how this grows. So '28, bidding for 7, another 3 -- no, 7 under contract and another 3 that we are bidding for. And '29, 1 under contract, 1 option and 13 that we are bidding for. So currently, the backlog is 37 confirmed orders for cruise ships and 1 option. The tendering activity, currently activity tenders, 59 new builds and 4 retrofits. So it is a very active market, and it has a very good visibility. So we hold a leading position, and we are maintaining our market shares. Looking at where we have delivered equipment this year, in total, we are going to deliver to 18 vessels, 13 have been delivered, another 5 systems remain to be delivered in Q4. So Q4 is also going to be very active for us. And on the lower left-hand side, you can see what cruise lines we have delivered to you or are delivering to this year. So it's all the major ones basically. So on your right-hand side, you can see Norwegian Aqua. It's commissioned in February this year. So handed over to the customer in February this year. It can hold about 5,200 people, passengers and crew all in all. It was built at Fincantieri at the Marghera yard, and we have delivered a full scope of traditional systems, both for advanced wastewater processing but also for waste disposal on this vessel. This is number 3 in a series of 6 vessels that they build for NCL. So this year, we have commissioned 9 vessels. There is 1 more to go for the fourth quarter. And you can also see here on the bottom, which cruise lines, they are being commissioned for or delivered to them. So all the major ones on this as well. And of course, that's another 10 vessels entering into aftersales. I've had the opportunity to meet with the several of the big cruise lines in the third quarter. And it's been, of course, very interesting meetings and conversations. It is very obvious that well-functioning systems is critical to their operation. In some cases, if these systems don't work, they cannot operate the vessels. Actually, that's in quite many of the cases. Our customers generally express that they are very satisfied with our systems as well as with our aftersales support. But as always, there is room for improvement, and thus, we see this as opportunities, and we are working on these opportunities to make sure that our customers are even more satisfied in the future. As you can see, bottom left-hand side, aftersales accounted for 25% of our revenue so far in 2025. We see a strong development over time on the right-hand side, Q3 54 versus 53 in Q3 last year. That's not a big jump. But if you see the year so far, it's quite good growth on that as well. It varies a bit over time when they order spare parts, when they order services and also in terms of chemicals for the systems. So strong development over time. Also in the graph, the metrics, you can see very healthy margins now, and we're very satisfied with that. Part of it comes from high volume over the year, giving an effect. So -- but this is a healthy level, I believe. So for the Industrial Solutions. The Industrial Solutions segment again, as you can see on the bottom left, it accounts for about 22% of our revenue as per third quarter, so NOK 150 million. It consists of the main subsegments Circular Solutions and Thermal Heat Treatment. With 2 major projects within Circular Solutions that make up the majority of the revenues. We already touched on the deep dive and the effects on the margins on that. It is, of course, very unfortunate when we find such issues in the projects. And of course, we have taken a few steps to ensure that we learn from these. These are first of a kind projects both of them. So this is really important that we spend our time wisely and learn as much as possible from them. The effects I think we have talked about earlier in the presentation. Just to touch on thermal heat treatment, still see a soft market in Q3 not so much due to energy prices anymore, but other uncertainties. But we do see positive indications related to both defense industry and aluminum, and we'll probably get back to that on the next slide. So industrial contract development, again, circular and thermal heat treatment, order backlog stands at NOK 212 million, of which, NOK 152 million is circular and NOK 60 million shared among the other subsegments. So we've been asked sometimes about some of these projects that have been talked about in earlier presentations such as end-of-life tires. I chose that example just to give you an update on that specifically. So we have completed FEED studies, and we are waiting for final investment decisions from one of the major customers. And they are in turn now waiting for the final piece of the puzzle, which is the permitting. And the permitting for that is expected to be due by the end of the quarter. What we see in thermal heat treatment, we see an improving pipeline with opportunities and some of these opportunities have resulted in RFQs and some of the RFQs have also resulted now in active bids in thermal heat treatment. So the volume of active bids is actually quite high, and we are pleased to see that development. VGM, Vow Green Metals have been mentioned earlier today. And I must say they are gaining momentum now, commissioning is ongoing at Follum for Phase 1. Engineering activities are ongoing with ourselves and VGM and others for Phase 2. The large reactor, which is actually part of Phase 2 was delivered last Thursday. That's what you see on the picture. The big is white plastic that is wrapped in. So it's 60 tonne of equipment being lifted into the production facility. So it is looking good. It is also worth mentioning, I think, that VGM was awarded EUR 26.2 million from EU Innovation Fund to build a new large-scale biocarbon production facility in Norway. So of course, this is very interesting for us. It is strengthening the positive development for the metallurgic market segment for biocarbon. And I think we are well positioned to continue playing in that development. We also mentioned that we're revisiting our strategies in the second half of the year, even though they are not concluded yet. I think I can share a few glimpses of where we're headed with you here today. It will come as no surprise that within the Maritime segment, we really want to strengthen our competitiveness. We also continue to introduce new technology, new and sustainable technology also into the waste disposal part of that market. We will continue developing our aftersales services. Within industry, then supported by a more defined strategic direction, I would say. We will exercise a more selective approach with regards to the type of prospects we go after and also the contract formats within the industry segment. And then with a solid operational foundation, I think we are prepared for moving from analysis and into execution, delivering improvements, capturing opportunities and also then creating long-term values. Also, we believe that it is important for us as well as for our investors that we can also deliver on an improved overview and predictability for the development and for the values that we are creating. It is very helpful internally. I can tell you to understand the cost of the deliveries, allocating the cost to the right place and so on. So that work will continue. And I certainly hope that you will see the results of that as well as we move along. The strategy work is scheduled to be concluded by the end of Q4. So we'll get back with more info on that. So finally, summary and outlook. Our customers confirmed a very strong market development in cruise and yards are actually still expecting to conclude on several contracts that we are actively bidding for during the fourth quarter. We have maintained our strong market position. And also, we see a positive development of the margins. And we will see that continue as the share of legacy contracts is going down as we saw on the earlier slide. We have healthy margins in aftersales and a growing active fleet will continue to bring growth to that segment. The revisit of our strategy will be concluded in the fourth quarter. And I think with a much better oversight and control of the financial situation, I'm confident we will also see a very positive development continue on our liquidity. And of course, we do this in a very close collaboration with our bank. So that concludes the presentation, and now we open up for questions. Unknown Attendee: Thank you. There are quite a few questions already from the online audience. I just remind you that if you are watching this online, you can add your or send in your questions by typing it on your screen. But first, let me see, are there any questions from the audience here in Oslo. Seems not. While you're thinking about that, let's turn to the online audience. First question is regarding the backlog and pipeline in Maritime Solutions. One observant viewers says, he has compared the Q2 presentation with the current presentation, it seems that some of the bidding, some of the contracts that you're bidding for '26 and '27 has been removed from the chart this time. Is that correct? Gunnar Pedersen: I'm actually not sure about the details, but if I understand the question correctly, if we -- for contracts that we do not win, I expect they will disappear from the charts, not ending up as contracts. External analysts tell us that within advanced wastewater processing, we have had indications anything from 60% to 80% market share. So there are contracts we do not win. And within waste disposal, it's slightly lower. Unknown Attendee: Then there's a question about liquidity. You -- so you have NOK 22.7 million in cash at the end of the quarter. Will you need to raise more money? Cecilie Margrethe Braend Hekneby: We see an improving situation regarding liquidity and -- and we -- I am very satisfied with the development in the quarter that we have now settled overdue payments to vendors and that we have managed to collect receivables. That also was overdue. And now with significant milestone payments coming in in the fourth quarter, we see a very positive development on liquidity. Unknown Attendee: And will there be more surprises in industrials? Or do you now have a better understanding on the underlying problems? Gunnar Pedersen: It would be quite stupid on me to guarantee anything. These are first-of-a-kind projects. But what we've done with a thorough deep dive on them, I'm quite confident that we know what the remaining work is and we know the cost of the remaining work. So not what we have seen here. And then I think everyone who deals with new technologies and new markets understand that there may be smaller hiccups along the way. We're well prepared for that. We're actually planning for some of these and to find them as early as possible. And in most cases, I think I can say we have also alternative solutions to that ready. So I don't expect any big ones. Unknown Attendee: You also talked about a large customer in industrials waiting for permitting. Do you have any signals that they will move forward with you if that permit is given? Gunnar Pedersen: Yes. Unknown Attendee: Then there are -- you have mentioned in the past quite a few studies going 4 or 5 years back studies with names like Unipetrol, Repsol, what can you say about these studies and early projects? What is the status? Gunnar Pedersen: Yes. They are very interesting. All these studies because it's studies based on different types of feedstock and how you process and what you want to come out of the process. And I think certainly, our customers learn from those. In some cases, we actually do test runs for them, and we take tests of whatever comes out to certify quality, to look at types of emissions and so on, and that is used as part of the permitting process. So I would say that we've learned a lot about different types of applications of the technology. And it is also very clear to me that our customers are learning along the way, learning what is going to be a business case for them or not. And I think if you look across the industry and different studies that are made, it's kind of coming together what everyone think is going to be a very profitable one, at least to begin with and what could potentially become very profitable later on. Unknown Attendee: There are 2 more questions from the online audience. So we're, I guess, nearing the end of the Q&A session, but let's take the next one. What is the installed base of Maritime Solutions in terms of number of vessels as well as number of systems? Gunnar Pedersen: I've heard a number, but I cannot remember it, but it is quite a significant number of systems. So in the hundreds. Unknown Attendee: And there is a follow-up on the cash and liquidity situation. Can you be more specific in terms of what you expect in terms of cash inflow in Q4? Cecilie Margrethe Braend Hekneby: We do not guide on the cash position at year-end. But as I already presented, we are -- I'm satisfied with the development. It has been quite challenging for the company over time. But we see a significant improvement. So I'm looking forward to report the fourth quarter. Unknown Attendee: Then there is actually one more. You have previously talked about return to 15% EBITDA. Now you report 17% to 18% for both cruise projects and aftersales. What do you expect in terms of margin expansion going forward? Gunnar Pedersen: I don't think we guide on that either, but we are seeing healthy margins in some areas. And we are definitely working to continuously improve. I think it is also important to say that when we are able to, for example, reduce cost on producing and delivering equipment, some of those improvements, we need to use those to improve our competitiveness to ensure that we are still competitive. We have high market shares, there is only one thing you can be really sure of, and it's that your competitors are hungry, and they will do everything they can. So you need to be forward leaning and work on the cost and you need to be prepared to share some of your improvements. Unknown Attendee: And there is one more. With covenants based on 12 months rolling net interest-bearing debt over EBITDA, you're likely to be in breach several quarters ahead. How will you address this problem? Cecilie Margrethe Braend Hekneby: Well, we are in close and constructive dialogue with the DnB. We are working on -- we see an improved liquidity. We are working on the -- to build a more profitable company. And I'm sure that we together find a good path. Unknown Attendee: Thank you. There are no further questions. Back to you. Cecilie Margrethe Braend Hekneby: Thank you . Gunnar Pedersen: Okay. Thank you, everyone, for watching.
Stephen Heapy: Good morning, everyone, and welcome to our interim results presentation for the period ended 30th of September 2025. The format this morning will be, I'll go through the first half highlights. I will then pass over to Gary Brown, our Chief Financial Officer, who will give a financial update, and then, Gary will return the microphone to me. And I'll go through a strategy update. There will then be a period after that for any questions, which we would be pleased to answer. So first of all, record passenger numbers, revenue and profitability. Further growth in the first half across all our key metrics, we delivered record numbers. Passenger numbers were 6% higher, including encouraging first summer performance at our Bournemouth and Luton bases. Strong financial performance with group profit before FX revaluations at 1% and earnings per share 8% higher following our GBP 250 million share buyback program. We are also pleased today to announce a further share buyback program of GBP 100 million. We have a strong balance sheet and access to ample liquidity, which are vital in this fast-paced, capital investment -- intensive industry. GBP 3.4 billion of cash gives us financial resilience and supports investment in our growing fleets. We operated 23 Airbus A321neo aircraft in summer 2025, and that represented 17% of our total fleet. We're also delighted to announce the launch of operations at Gatwick Airport, a once-in-a-generation opportunity to accelerate our growth. Next slide. Our growth strategy is to be the U.K.'s leading and best leisure travel business. We've made strong progress against all of our strategic pillars, supported by our fantastic colleagues, who are dedicated to delivering exceptional customer service. Our brands continue to be recognized by a leading, independent, customer-focused organizations, including Which?, TripAdvisor, Trustpilot, Feefo, and of course, the U.K. Institute for Customer Service. Our customers love us, and they come back time after time. Through initiatives like myJet2, we now know them better than ever, and our key metrics in this area show exactly this. We continue to invest in our digital and operational infrastructure, the retail operations center, our revenue management system, and of course, our second maintenance hangar at Manchester Airport. Our fleet renewal program is delivering against our sustainability targets, and we expect to operate 31 Airbus A321neo aircraft in Summer '26, and that represents 22% of the total fleet, which is 5 points higher than Summer '25. Next slide. Gatwick truly is a once-in-a-generation opportunity to accelerate our growth. Gatwick is the busiest single-runway airport in the world. And a once-in-generation opportunity came our way through the release of additional slots at Gatwick Airport. We will have access to 50 million people within a 60-minute journey by road or rail of Gatwick Airport. We have flights and the holidays on sale from March 2026 to 29 destinations across the Mediterranean, the Canary Islands and European leisure cities. The program will consist of 6 aircraft, and we hope to be able to grow that organically as we become established. We expect the new base to be profitable in financial year '29, and it should deliver meaningful profit growth thereafter. In September '25, the DfT approved the Gatwick expansion program to operate a dual runway subject to a 6-week appeal process. The new Northern runway is anticipated to be operational by the early 2030s, enabling the capacity of the airport to rise from 45 million to 60 million passengers per annum. That will present us with a fantastic opportunity to grow significantly. So the next part of the presentation, I will pass you over to our Chief Financial Officer, Gary Brown, who will give you our financial review. Gary Brown: Thanks, Steve. Good morning, everyone. I'm Gary Brown. I'm group CFO here at Jet2, and I'm pleased to present our financial results for the 6 months ending 30th of September 2025, together with some thoughts on how we think about capital allocation here. So moving to Slide 7. We've included this slide, as it's often easy to lose sight of where the business was relatively recently and where we are now. We flew 19.8 million passengers in the financial year ended 31st of March 2025, which means we've been growing at just under 8% a year since 2019. Our revenue has gone up even faster, averaging about 16% since 2019, mainly because more of our customers have been choosing package holidays. In fact, in 2025, these made up 66.5% of our total passengers, up 17 percentage points as compared to 2019, with package holiday revenue making up over 80% of our total revenue. Back then, we had 9 U.K. bases and an aircraft fleet of 90, primarily mid-life Boeing aircraft, a composition that is rapidly changing, as you heard from Steve, underpinned by our firm Airbus delivery schedule. The A321neo is making up 17% of our fleet in Summer '25. Operating profit has more than doubled, up 118% to GBP 447 million in 2025 from GBP 204 million in 2019. And we're also making more operating profit per sector seat, which has risen from around GBP 15 to GBP 20, a 35% increase. Our basic earnings per share are up 132% compared to 2019, and our average return on capital employed over the 3 years since the pandemic is 17%, one of the best in the industry. As you will hear, the strong financial track record and the continuing evolution of our business, ongoing confidence in our future growth prospects. On to Slide 8. Our key stats illustrate how our flexible, fully integrated operating model is capable of adapting to changing consumer trends. They also demonstrate our clear focus on optimizing profitability through a combination of volume, pricing and product mix. First things first, more people are choosing Jet2, an extra 750,000 passengers or 6% up on last year. This summer, more people chose flight-only, which was up by 16% as customer booking trends continue to be late, and we saw more of those last-minute price-sensitive deals. We've consistently stressed that both our products are vital importance, and it's great to see customers recognizing the clear value that our flight-only offering brings, friendly flight times, an industry leader for not canceling flights and with the added benefits of our Red Team of customer helpers, providing their outstanding customer-first service. Package holidays are still a hit, growing 1% to a record 4.73 million customers. And as you know, they bring in a higher profit per customer. Prices for package holidays held up well, rising 3%, as we were able to pass on most of the cost increases from our suppliers. On the flights-only side of the business, the average ticket price dropped 7% to GBP 122 because we ran more promotional offers, which was supported by the targeted reallocation of marketing investment to optimize load factors in a pretty competitive market. Pleasingly, we also made 4% more per passenger from our non-ticket revenue streams, having more flight-only passengers meant we earned more hold baggage income, whilst our in-flight retail offers saw spend per head grow further 4% due to consistently strong onboard product availability, made possible by our in-house retail operations center plus the launch of a new onboard product range. Looking now at Slide 9. Revenue was up by 5%, primarily due to the growth in passenger numbers, but also helped by the increase in the package holidays price. What I would describe as our underlying operating cost base was well controlled and up by 4.8%. Some of the main influences on this growth were in terms of our hotel accommodation costs. They represent about 45% of our full-year cost base. They were up 7% with inflationary rate increases of 6%, plus an increased proportion of bookings to higher-star rated and all-inclusive hotels, as customers treated themselves being the main drivers. Excluding the impact of SAF premiums due to the SAF mandate increase, our fuel costs, which are just over 10% of our cost base, were down 3% on a like-for-like basis, as a 7% increase in flying activity was offset by a 5% reduction in the blended fuel price, a 3% efficiency improvement from the growing A321neo fleet plus some FX benefits. Landing, navigation and third-party handling costs, which are towards 9% of our cost base, rose 10%. The growth above flying activity linked to average rate increases across the U.K. and European airport bases with notable increases in EUROCONTROL charges and third-party handling costs in Turkey. We also saw efficiencies in marketing spend coming through as investments we've made in our digital marketing technology infrastructure helped improve underlying cost per acquisition. Beyond our underlying cost base, we incurred over GBP 30 million of additional costs, including the increase in employer NI and national minimum wage imposed by government of about GBP 11 million, an extra GBP 17 million in premiums for sustainable aviation fuel as the SAF mandate jumped to 2%. Finally, we invested to firmly establish ourselves at our 2 new bases at Bournemouth and Luton in the first summer of operation. In total, these additional costs added a further 0.7% of overall cost growth. That said, our EBIT or operating profit margins were still healthy at 13.4%, whilst our basic earnings per share were up by 8%, aided by our GBP 250 million share buyback program. Return on capital employed sat at 23.5% halfway through the year, though it will dip a bit by year-end due to second half losses, which are normal for our business. Turning the page to Slide 10. Our EBITDA was up by 2% compared to last year, with our net cash generated from operating activities still strong at approximately GBP 700 million, although down on last year due to the later customer booking curve. Our capital expenditure investments included payments for 6 owned Airbus A321neo aircraft, a spare LEAP-1A engine to support the growing Airbus fleet plus normal maintenance on our existing Boeing aircraft. In addition, our second maintenance hangar at Manchester Airport opened in August, which means we can now support 6 lines of aircraft maintenance across both of our hangars. First half free cash flow was GBP 370 million, meaning that since the pandemic we've generated approximately GBP 2.5 billion of free cash, which enables us to confidently support our strategic capital allocation. We also chose to pay off certain aircraft loans for 4 of our Boeing 737-800NG aircraft with 6 last year because they were more expensive than what we can now achieve in the JOLCO market. On top of that, we bought back and canceled GBP 231 million worth of our own shares as part of our GBP 250 million share buyback program, which completed just after the end of the reporting period. Moving to Slide 11. First thing to say is that we have one of the strongest balance sheets in the industry with access, as Steve has said, to ample liquidity, which we think is essential in what is a fast-paced, capital-intensive industry. We took delivery of 9 new A321neo planes, 6 from our long-term aircraft order; and 3, we've leased to fill short-term gaps in the delivery profile. We also used the JOLCO market to finance 4 of the 9 new aircraft raising GBP 191 million. Our total cash was down GBP 242 million compared to last year, mostly due to capital allocation decisions, which included the majority of the GBP 250 million share buyback and the repurchase of the convertible bond in the second half of last financial year. Customer cash was broadly flat year-on-year due to the late booking curve and higher mix of flight-only bookings. As you've seen in the past, when we quickly capitalized on the demise of Thomas Cook and also during COVID, when we were able to make the right decisions for our colleagues and customers, this strong financial foundation has, on this occasion, allowed us to confidently pursue our growth ambitions at London Gatwick in the full knowledge that meaningful start-up investment will be required to provide a solid operational platform, which over time will enable us to fully capitalize on the scale of that opportunity. Finally, in a further demonstration of the confidence in the group's sustainable cash-generative business model and the Board's conviction and the prospects for the business, we have today announced an on-market share buyback program of up to GBP 100 million. Shares will be canceled following purchase, providing a further positive enhancement to earnings per share. Turning to our capital allocation framework on Slide 12. Let me quickly walk you through how we think about capital allocation. It's really all about making sure we invest in our business to ensure it remains resilient and keeps evolving to the ever-changing consumer landscape. It's about keeping our balance sheet in good shape to service our debt obligations and keep the cost of debt down, and it's to make sure we're well protected if anything unexpected comes along. On the flip side, it also means we've got the flexibility to invest in exciting growth opportunities as and when, whilst providing good returns for our shareholders. As you've seen, we're continuing to deliver solid operating and free cash flow, which means we can invest in the business, recently launched in both Bournemouth and London Luton Airports. We've been encouraged by their performances and are looking forward to continuing to grow in these regions by building our brand awareness and understanding and steadily growing a loyal customer base. Looking ahead, we're now gearing up for Gatwick to get underway in March '26, which is a fantastic opportunity for us to further accelerate our growth. Bear in mind that, as Steve has said, the catchment area is over 15 million people within 60 minutes of it by road or rail. And we continue to invest in tech and infrastructure with our AI-led revenue management system pilot underway, our second maintenance hangar at Manchester operational and our groundbreaking retail operations center now fully automated. Our total and net cash position remains strong, allowing us to be flexible around our debt obligations to reduce the overall cost of debt, whilst giving the JOLCO market the confidence to continue to do plenty of business with us. And in terms of shareholder returns, we bought back GBP 250 million of shares or approximately 10% of the current market cap of the company, which helped push our EPS, earnings per share, up by 8% and by 132% since 2019. And we've also increased the interim dividend, whilst announcing another buyback of GBP 100 million today, which will take us cumulatively to over 13% of the current market cap return to shareholders. Finally, on Slide 13, how are we thinking about the medium term? We know there are many companies in this industry who have flown too close to the sun in the way they run their balance sheet and leverage position. From our perspective, we believe remaining at less than 2x net debt to EBITDA on an owned cash basis brings a pragmatic balance between protecting the business, but also manageable levels of leverage to maximize returns. As of today, we've got plenty of headroom against this target, but as we take more aircraft and finance, then this level will drift up. We've said previously that we learned a lot during COVID, where we went into that period with just over GBP 0.5 billion of our own cash and an undrawn RCF of GBP 100 million. This allowed us to treat customers with respect and returning their deposits quickly and gave us the breathing space to make the right decisions for our business, and in particular, our colleagues. As you've heard, our business has grown by over 100% since then, and we believe that an own cash balance of between GBP 600 million and GBP 700 million at our year-end, which is a low point in the cash cycle, plus an undrawn RCF of GBP 500 million, gives us the necessary breathing space should we ever encounter something similar. Just to stress, we don't expect to grow this own cash target as the business continues to get bigger, as we feel this is the right level. Average capital expenditure from FY '27 to '30 is in the region of GBP 950 million, given current visibility of our Airbus fleet pipeline, and we believe financing approximately 50% of these aircraft is very much in line with our historical business philosophy of wanting to own a good proportion of these valuable capital assets, which we intend to fly through to end of life. This would mean approximately 65% of our total aircraft fleet would be unencumbered by the end of 2030. Finally, and has been seen recently, subject to maintaining our capital allocation principles and assuming satisfactory financial performance, we would look to return excess capital to our shareholders. I'll now hand back to Steve, who will talk you through the other slides. Stephen Heapy: Thank you very much, Gary. I'm sure you'll all agree, a very impressive set of results and some very clear messages. So next slide, Jet2's investment case. Our investment case clearly demonstrates why Jet2 is an attractive prospect for investors, both today and for the future. We have a growing market. Although holidays are classed as a discretionary purchase, many, many people within the U.K. class them as an essential purchase and prioritize that above many other things, including lottery ticket sales, streaming services, nights out, social occasions, et cetera. Over the last couple of years, we've added more bases; Liverpool, Bournemouth, Luton, and laterly, our 14th U.K. base Gatwick, and this increases the reach from 58 million to 61 million people. That covers 90% of the U.K. population. Size and scope of the offer. We're the #1 tour operator in the U.K. We've got a great product range. It's over 75 destinations across the Mediterranean, Canary Islands and European leisure cities. We're adding more and more hotels every year in response to the demands of our customers. We speak to our customers. We listen to what they say, and we act on what they tell us. We've got a fully integrated operating model. We control our seat supply. We do self-handling at many bases. We have our own training facilities. And of course, we have the retail operations center, which is now fully automated. Our tour operator only uses one airline, jet2.com. Why? Because it's the best airline in the U.K. according to TripAdvisor, the best airline in Europe according to TripAdvisor and the fifth best airline in the world according to TripAdvisor. Why would we trust our customers on any other airline? We have a customer-led offering. Our Net Promoter Score is in the mid-60s. That's on a par with some of the best brands in the world. We have a 62% repeat booker rate for package holidays. On sustainability, we remain committed to our sustainability targets outlined in our strategy document, and our fleet renewal program is progressing in line with expectations. This will aid a reduction in our carbon intensity ratio. We have a clear path to growth. We've received 23 Airbus A321neo aircraft, the most fuel-efficient and quietest aircraft in its class. And we have over the next 10 years, another 132 Airbus aircraft that will provide us with the ability to replace retiring aircraft and also provide a guaranteed stream of aircraft to fuel our growth ambitions. You've heard from Gary, consistently strong financial delivery. We have a strong balance sheet with which to underpin our growth at Gatwick and other bases, and this will continue with the prudence that we have shown over the last few years. Our growth agenda. Our growth agenda consists of 2 pillars. The first one, defend and strengthen the core. We have a committed firm aircraft order. This will facilitate further growth at our recently opened bases and will position us to capitalize on potential expansion at Gatwick. This order was done during the pandemic period and provides us with a guaranteed delivery stream, and this will help us to provide very accurate plans as to our activity in the future. Our reach, we have an ATOL license for 7 million customers, and this represents a 20% share of ATOL licenses. We over-index in the over 50s and people with a higher disposable income, and this gives us protection in economically challenging times. 33% of our customers were defined as affluent achievers as compared to 22% of the U.K. population. We're leveraging technology. We have the pilot for our revenue management system underway, and this will cover 5% of our flights. As a reminder, our revenue management system uses artificial intelligence and many external data points in which to price our flights competitively within the market. The early results are encouraging, and assuming continued positive performance, we plan to progressively roll out across the majority of flights in the forthcoming financial year. The next pillar is to extend our reach and diversity. Personalization and customer diversification is key. myJet2 has helped increase share of bookings through the app to 31%. That's 5% up year-on-year. myJet2perks has recently been refreshed, giving members the chance to access new exclusive discounts as well as giveaways across a range of popular brands and retailers. Tomorrow's reach. Following the Gatwick launch, we will expand our market presence to 61 million people, attracting new customers, thanks to improved reach, but we also have strong retention rates, underlining our strong customer-first approach. Leveraging technology. The leading-edge automation equipment installed at the retail operations center, alongside data intelligence will in time support an improved onboard retail experience for all our customers. We will aim to have the right products at the right time every time, further optimizing our in-flight's revenue potential. We've also invested heavily in our marketing technology, and there'll be more details on this in a future slide. Next slide, fleet. We're committed to growing and replenishing our fleet to support our growth agenda. We will get additional ACMI aircraft for Summer '26 to enable the allocation of 6 aircraft at Gatwick. But the Airbus delivery program is unchanged and will support any further growth at Gatwick or any other bases. By Summer '32, you can see from the chart, we'll have a total fleet of 161 aircraft, of which 124 will be CFM-powered A321neo aircraft. In our opinion, this is the best narrow-body aircraft in the world today in terms of fuel efficiency and noise. The average seat gauge will increase from 197 in Summer 2025 to 223 in Summer 2032, as the proportion of 232-seat neo aircraft increases. We, therefore, expect total seat capacity to increase at a compound annual growth rate of 4.4% across the period. Investing in our fleet. Investing in our fleet is key to maintaining our competitive advantage. As we increase the mix of A321neo aircraft in our fleet, it's important to recognize the significant benefit this brings to the group. For example, a Boeing 737-800 aircraft seats 189 passengers. However, the A321neo seats 232 passengers. Quite simply, we'll be able to take more people on holiday with less emissions per passenger. The A321neo is a crucial part of our climate transition plan. Additionally, the average cost per seat saving of GBP 10 was realized over Summer '25, primarily driven by fuel and carbon savings. And these savings will increase over time with the increase in the numbers of aircraft. To summarize, 23% more seats on neo, 20% fuel and carbon usage reduction per seat, 50% less noise than our existing fleet, which makes it a very attractive aircraft for many airports and a GBP 10 average cost per seat saving. Next slide, size and scope of offer. We have a diversified flying program at Jet2, and we operate to 25 countries, over 800 resorts from 14 U.K. bases, that's 75 destinations and over 600 routes. We operate to the Mediterranean, the Canaries and European leisure cities. We've offered more destinations in Summer '25, Pula in Istria and Riviera, Agadir, Marrakech and Jerez in the South of Spain. For Summer '26, we'll be launching Samos in Greece, La Palma in the Canary Islands and Palermo in Sicily. This shows that we're continuing to diversify our offer, respond to our customers and give them the destinations they have asked for. You can expect more destinations to be announced in the coming months. Next slide, driving loyalty across our customer base. Quite simply, our goal is to guide customers from their first booking to becoming loyal advocates of the brand and move them up the loyalty ladder. First rung on the loyalty ladder, new customers. We welcome new bookers with a seamless experience and personalized follow-up. From the moment they contact us on the website or in the call center, we make our customers feel welcome. Our customer service starts there. We look after them pre-travel, on holiday and when they return from holiday through a robust and comprehensive communication program, making our customers feel special before, during and after travel. The next rung on the ladder is repeat. We nurture customer engagement through tailored messaging, relevant content and unrivaled product that encourages repeat booking. This, of course, is aided by our significant investment in marketing technology, which we'll talk about in a little while. This is a very important stage in our booking. Some people will try us once, maybe based on price, and we need to make sure that we get the customer, we nurture them, we keep them interested. We send them relevant content and make sure they don't look somewhere else. The final stage on the ladder is loyal. As customers move up, we strengthen the emotional connection with them by providing exclusive benefits and recognition, turning them into loyal bookers who choose us first and recommend them to others. The more people experience Jet2 and Jet2holidays, the more loyal they become. By successfully moving our customers from new bookings right through to loyal status, this increases their lifetime value, boost booking frequency and reduces acquisition costs. Loyal customers are more likely to engage with the brand when they get tailored offers and share their positive experiences, ultimately amplifying the brand's reputation and reach. Next slide, win new customers. First of all, reaching new audiences. We have shown at our recent base launches at Liverpool, Bournemouth, Luton and Gatwick that we are very adept in reaching new customer audiences. However, there's an opportunity to do more to grow our audience by targeting younger demographic customers, springboarding off our highly successful nothing beats meme to increase relevance with this demographic, which is key to deepening our engagement through aspirational social-first content that taps into their interests and passions. Adding Gatwick base allows us to grow our reach to over 90% of the U.K. population, that's 61 million people. The focus of the messaging will be on the breadth of offering, the value that is offered by our products, our credentials and VIP service to drive engagement. We continually strive to improve the size and scope of our offering. We are the #1 tour operator in the U.K. to destinations across the Mediterranean, the Canaries and European leisure cities. We have an unrivaled product choice in excess of 5,600 quality properties spanning over 800 fabulous resorts across more than 75 destinations. And this is increasing every month, as we add more in-demand product to our portfolio. We have a variety of brands. Our beach, cities, villas, indulgent escapes and vibe brands provide relevant experiences for different types of customers. Fantastic range of properties, from 2-star to 5-star, from self-catering to all-inclusive. We provide our customers with the choice they want. We don't try to squeeze our customers into the products we want them to book, we let them choose. We offer fully flexible durations. We allow people the ultimate choice. They can go on the day they want. They can stay for as long as they like. It's up to them. The customer is in charge. Remember, Jet2holidays is the company that pioneered flexible duration holidays. All in all, we've got an award-winning proposition. What we have is very highly rated by our customers. You've seen the awards we win, our TripAdvisor ratings, our awards from the Institute of Customer Service. This is highly valued by our customers, and we continue to strive to provide them with the best experience possible. A happy customer will tell other customers of the experience they've received with Jet2holidays. Word of mouth has proved to be very important. Building on the nothing beats meme, we had over 80 billion global video views across TikTok. The song was named TikTok's official Sound of the Summer 2025. We saw celebrity activity from Jeff Goldblum, Mariah Carey and Drake, who visited our hangar with a combined 173 million followers. An estimated 13 million earned media value through the summer. And a 12% year-on-year increase in spontaneous brand awareness amongst 18- to 34-year-olds. All in all, we are #1 for brand awareness, #1 for branding, #1 for ad recall, #1 for consideration and the Jet2 brand, Jet2holidays has an 86% awareness. We've taken a long-term, consistent approach to building brand equity with our strong visual and sonic branding. We're the only U.K. travel brand to use a triple platinum chart-topping single as our instantly recognized sonic identity. With our effective marketing strategies, we ensure we tap into cultural moments that can be top of mind amongst consumers. Next slide, retain customers through end-to-end service excellence. We at Jet2 and Jet2holidays are famed for our customer service, multi-award winning throughout the years, we aim to build on that further. We offer 4 easy ways to book. Our smooth airport experience is famous. Go to one of our airports and be welcomed by our Red Team who are there to help you through the journey. We offer a VIP service to everybody in the sky. When you get to resort, you meet our Red Team there who will welcome you, put you on your resort transfer and then look after you in resorts. They are there for you 24/7 along with our telephone line. We've spoken to our customers, and 92% of them are satisfied or very satisfied. And the customer service scores have increased. Our Net Promoter Score is 64 for jet2.com, 66 for Jet2holidays. Compare that with some of the best brands in the world, Jet2.com and Jet2holidays are firmly there building a loyal customer base. Our total marketable database stands at over 11 million customers. Over half of these customers are considered active and have previously booked or traveled with us in the last 25 months. Our database has grown at a compound average rate of 13% since financial year '22. And this enables a more targeted personalized marketing experience, along with the investments we have made. We provide holidays that are relevant to customers' needs, and this helps drive effective and efficient bookings. We have leveraged our extensive database and myJet2 loyalty scheme to deliver data-led marketing to grow bookings from our loyal customer base and new customers. This, with the aid of our technology investments, enables smarter targeting, increased retention and deeper brand affinity. Our myJet2 membership program now has over 8 million subscribers with more than 99% of mobile app bookers being members. The program complements our customer retention strategy and is designed to encourage more users to book through either web or app channels by providing tailored browsing, exclusive discounts and rewards, a streamlined booking process, enhanced pre-travel support and in-resort experiences. In the last 13 months, we can see that retention rates are 7.5% higher for myJet2 members, so we know this is working. On myJet2perks, this now includes more offers from brand partners across a range of categories as well as price draws, which will continue to be updated weekly. In addition, our twofold investment in the mobile app and myJet2 scheme should also reduce reliance on more expensive third-party marketing tools. Together, these form our strategic approach to driving bookings. On the subject of technology and personalization, adopting technology to leverage real-time personalization and automation across the customer journey is essential. We provide real-time triggered e-mails and app push notifications to a highly personalized web and app experience and targeted paid media. This is done by enabling an omnichannel customer experience using state-of-the-art Adobe products. This suite of products enables us to market to the right customer at the right time via the right channel with the right content, the right images with the right price. This will prove essential in providing a highly targeted and personalized marketing experience to all our customers. And finally, on to the outlook. For year ended 31st of March 2026, our winter capacity is up 8% to GBP 5.5 million. The latter booking profile continues with average pricing following the Summer 2025 trend, and we will have additional Gatwick short-term start-up investments. To summarize, operating profit is in line with market expectations, excluding the Gatwick investment. On to year ending 31st of March 2027, Summer 2026 seat capacity is up 8.9% to GBP 20.1 million. That includes the Gatwick capacity. Existing bases are up by 3.9%, and Gatwick is 900,000 seats, and we have a healthy proportion of cost certainty locked in. Near term, there will be operating profit margin dilution from the Gatwick investment, but of course, this is a significant long-term opportunity. Final summary, we have a clear path to deliver further profitable growth underpinned by our trusted brand, loyal customer base and proven business model, which gives us ongoing confidence in our growth prospects. That's the end of the presentation. Thank you very much for listening, and we will go on to questions and answers. Thank you. Operator: [Operator Instructions] We'll now take our first question from Damian Brewer of Canaccord Genuity. Damian Brewer: Two questions; one for Steve, one for Gary. Steve, Gatwick, undeniably, it's a huge market and except for Jet2 -- sorry, except for TUI who are still quite small there, and now seems to be covered mostly by seat-only airlines that seem to have very transactional relationships with hotels rather than deep, long-standing ones. Can you expand a little bit more about how your hotel operators and providers have reacted to Jet2 expanding into Gatwick? How they've reacted? What they're saying to you? And what the opportunity there is? And then the second question, I'll do more on go, Gary. I know the GBP 600 million to GBP 700 million minimum net liquidity within the in-year cycle and the net debt-to-EBITDA remaining below 2x for the capital allocation policy, what would cause you not to consider further share buybacks beyond the next GBP 100 million? Stephen Heapy: Good morning, Damian and everybody else. Thanks for the question. Our hotel partners have reacted extremely positively and very well. On the day of the announcement, I had several e-mails and text messages and some phone calls from hoteliers that were very pleased that we had announced the start of operations from the end of March. They already received customers from all our other 13 bases in the U.K., and they like our operation. They like that the fact that customers come on our airline, we cancel very, very few, hardly any flights, the lowest of all the airlines. We look after our customers in the airport, on the aircraft and when they get in resort with our Red Team of customer helpers, and the customers arrive at the hotels very happy. And a happy customer, of course, is someone that looks for less things to complain about. We've got our customer helpers in many of our hotels, and they help diffuse situations. So it's easier for the hotel. They don't have to deal with angry customers at the reception desk because they contact us and we sort out any issues that arrive before they get to the hotel. So it's a much easier and seamless experience for the hotel. And they are really looking forward to receiving guests that come from Gatwick Airport. I think Gatwick in the past, to your earlier point, has been quite heavily orientated to flight-only. But we are expecting to build our package holiday operation from Gatwick. And so far, the response from customers, and indeed the hotels, has been very, very positive. So I'm very encouraged and very excited, Damian, and I think, we will see our operation grow, and we'll be taking many people from the Gatwick catchment area in one of our holidays. Gary Brown: Damian, it's Gary. Thanks for your question. I think, as you know, and as you've seen over the last 12, 18 months, we're very much open to returning capital to shareholders. Why wouldn't we consider doing that in the future? I think first things first, we have talked about that return of capital to shareholders depends very much on trading. So assuming that continues in that positive vein, then we would definitely consider it. I think secondly, we've got to continue to invest in the business. It's an evolving consumer landscape out there. And inevitably, if you don't invest, you haven't got a resilient business in front of you, but strategic projects that gave us a better return than we could get in the market at the time and for a share buyback would definitely take precedence. Today, though, based on the valuation out there, we believe that returning capital to shareholders is a very good use of funds, the GBP 100 million. And just the third thing to say is that based on our best thinking at the moment, and with the CapEx profile coming down the road, it's about GBP 600 million in FY '27, over GBP 1 billion in '28-'29. We're fully expecting the own cash at the low point in the cycle to start to approach the numbers you mentioned before, GBP 600 million, GBP 700 million. So that all being said, I think there's a very good chance that in the future, there will be more buybacks. But I'm not going to pin the tail on the donkey on this call. Operator: And we'll now move on to our next question from Jarrod Castle of UBS. Jarrod Castle: Just sticking with the Gatwick theme, but broader than that. I mean, how do you see the existing competition with easyJet at Luton, Bournemouth? I mean, they are a different product, but just to get your views on that. They're also having a mini CMD next week, Friday, so I'm sure they will explain how they can compete with you. And then, Steve, you spoke a bit about AI. I just wanted to get your thoughts on AI agentic. We're seeing kind of these big deals being signed this week, I think it was Google with Booking and some of the hotels, like Marriott, IHG and others tying up with OpenAI. How do you see that developing and the ability of these providers to connect to hotels so that you can make the booking directly even if they're not the merchant of record? So just a little bit about that rather than AI in terms of revenue management and CRM. Stephen Heapy: Okay. Thank you. In terms of the first point, competition, we're very confident in our products. We have a well-established package holiday operator. Don't forget, we were the pioneers of variable duration holidays, completely flexible holidays. And we also consistently deliver best-in-class customer service, which has been demonstrated through our multi-award winning record over the last few years. So I think people will be attracted to our product. We've had many, many people within the Gatwick catchment area asking for our flights on holidays there for some time. We've finally been able to do it this year. And I think the response will be very good. As to your point, what will be the competitors' response? I don't know. We'll see. We keep our head on our own game, which is providing best-in-class customer service, looking after our customers, listening to our customers, giving them the ability to book through whichever channel they want to by looking after them on the ground, in the air and in resort. And I'm confident that will shine through and make the operation from Gatwick a success as it is in our other 13 bases. In terms of the AI question, there's been a few announcements over the last few days, as you said, as to what might happen. You have to bear in mind, these are largely trials, the things that have been released, and they're largely in the U.S. The U.S. doesn't really have a package holiday market. People tend to, what we call, self-package, that's booked individual elements separately. And the trials with some of the AI tools are relating to one of those components. I think there's a long way to go before we reach something that would provide a tool for people to book package holidays. That will come, but it will take time. I think there will be further developments in the industry. There may be consolidations. There will be new products, products that are in the market now that are relevant that become superseded and obsolete. So what we have to do is keep our eye on what's happening in the market and all the developments, keep up our regular conversations with tech companies, which we do. We spend a lot of our time talking to tech companies to see what's coming down the track. But as we saw in the early 2000s, it's very tempting to jump on whatever bandwagon is passing and put all your eggs into one basket, but we're being very careful and very considered on our choice in technology. We have signed deals with big, robust, financially sound, market-leading technology companies, and we are working our way through to see how the environment changes over the coming years. So I'm very confident that we're back to the right horses. And with our methodical approach, we will come up with the right solutions for customers. Operator: And we'll now take our next question from Alex Paterson of Peel Hunt. Alexander Paterson: You described the performance at the new bases as being encouraging. Can you just sort of give a bit more color on that, perhaps describe the load factors and package holiday mix relative to the group average and the profiles of other bases when they opened? And what sort of start-up losses you've incurred there? And secondly, as a West Sussex resident, I'm absolutely delighted that you're opening a base at Gatwick. Do you think Gatwick would make any more slots available to you before the second runway opens? Gary Brown: Alex, it's Gary. Just in terms of the new bases, yes, we -- as I say, we're very encouraged. And I'll take you back to even Liverpool, which is still a new base. We put a 5th aircraft in the -- this summer. And Liverpool had a load factor of about 85%, but a package holiday mix of 73%. So you can see that particular region is outperforming the average. And bearing in mind, you put in quite a significant increasing capacity, and a load factor of 85% is pretty good, to be honest with you. In terms of Bournemouth and Luton, remember, Luton went on sale a lot later than any of our other bases, and they've come in at about 80% load factor. But again, the package holiday mix is very encouraging, about 60% for those new bases. And what we find is that if we can get that package holiday mix into the 60s, then you get a better level of loyalty and recurring revenue and profitability. So we're more than hopeful that with a full season of selling that certainly Luton and Bournemouth will be closer to the average and the package holiday mix will continue to drift up. I think we were on record of saying that we expected Bournemouth to pretty much break even because it's a relatively small base with just 2 aircraft. We're on track to deliver that performance for the full year. And we expected Luton to be sort of late single-digits loss in its first year of operation, partly because, as I say, it's gone on sale a lot later. And again, we're on track to deliver exactly what we said there. So hopefully, that gives you a bit more transparency there. I'll pass to Steve in terms of the Gatwick slots, the extra slots. Stephen Heapy: Yes, as we said, the Gatwick slots, we got those as a result of extra capacity that was released within the airport, so we didn't pay for those slots. We've got a program on sale from the 26th of March 2026, for Summer '26, when we put in our winter program on and Summer '27 in the coming weeks. And we continue to work with the slot coordinators, and we'll see what additional capacity comes up. We very much hope to grow our operation in Gatwick over the coming years. Operator: And we'll now move on to our next question from Ruairi Cullinane of RBC Capital Markets. Ruairi Cullinane: Firstly, how should we think about the balance between flight-only and package holiday pricing this year? Why has it made sense to discount flight-only prices rather than package holiday prices more? And secondly, on the longer-term capacity growth, which Steve mentioned, should average around 4.4%, I think. Is that purely driven by the fleet plan and upgauging? Or will you aim to utilize A321neos more than older aircraft or operate more daily flights from new bases in the South of England? Gary Brown: Ruairi, just in first -- in terms of the first question, we've consistently stressed that this is a fully integrated operator model, and it's capable of adapting to consumer trends, but also our clear demonstration that we're focusing on optimizing profitability through volume, pricing and product mix. This particular summer, because it has been late in terms of the consumer booking behavior, on average, about 11% of the bookings have been in the month of departure and that's played a little bit more to flight-only. But what's been pleasing from our point of view is that we've always said that both products are extremely important. And it's great to see that customers are recognizing the clear value that our flight offering brings; friendly flight times, industry leader for not canceling flights, the added benefit of our Red Team of customer helpers providing outstanding customer service. So I think people do see that even with a more commoditized product, there's a clear difference in terms of what they expect from Jet2 and why they spend a little bit more money with Jet2. With the late booking curve and the fact that it was more price-sensitive market, yes, we did get more promotional than we have in the past. That said though, I don't see pricing and marketing as 2 separate parts. They are all one and the same, really, in terms of how you invest your money. And we were very strategic and targeted in terms of how we released money from marketing and put that into price to get to the best possible outcome for the business, which, as we said around at the outset, was a record performance again. Stephen Heapy: Thanks, Gary. And on to the second question in relation to capacity, we have given a figure for capacity growth over the coming years. And that's driven by our fleet plan at the moment, and that takes into account the new aircraft that are due to come into the fleet. We've received 23 Airbus A321neo aircraft. I'll just remind you, those are the most fuel-efficient, quietest aircraft in the class. And we've got, over the next 10 years, another 132 to come into the fleet. Those aircraft will fulfill 2 purposes: the first of all, to replace older retiring aircraft, and the second will be to fuel growth within the fleet. We do have flexibility. We've got upwards flexibility. We can retire aircraft perhaps at a slower rate or take ACMI aircraft if there are growth opportunities, and we can retire aircraft at a faster rate if the growth opportunities seem a little bit more limited. So the number we've given you can be flexed up or down in relation to market conditions. So the number we've given is our current view as to the rate of retirement of current aircraft and entry into service of the new aircraft. And there is also, as you said, an element of up-gauging. We will be replacing largely our 189-seat 737-800s with our 232-seat Airbus A321neo. So the growth is driven by, a, more aircraft into the fleet, but we've got flexibility as to what the net impact is. And secondly, upguaging of our aircraft. But I think the big message here is although we've given a number, there is a lot of flexibility about what that number can be over the coming years, both upwards and downwards. Operator: And our next question comes from Gerald Khoo of Panmure Liberum. Gerald Khoo: Two, if I can. Firstly, just thinking, I suppose maybe we do it on FY '27. But what proportion of seat capacity is going to be at relatively new bases, if you just say bases are open less than 3 years and where they're still working the way up the maturity scale? And secondly, also on bases, once you've done Gatwick, is that going to be largely in terms of new bases? Is there enough growth headroom in your existing bases? Are there any other opportunities or any other bases that are still looking interesting beyond Gatwick? Stephen Heapy: In terms of the capacity relating to new bases, well, if we class new bases as Gatwick, Luton, Bournemouth, and let's say, Liverpool, we don't have the exact figure to hand, but it's 11%, 12%% maybe of our total capacity in those bases. I wouldn't really count Liverpool as a new base now, that is maturing very quickly. In terms of, is that it? Well, Gatwick was the last big airport in the U.K. that we had aspirations to grow into. And when we've met many of you that are on the call, I think we've said that we would love to start operations into Gatwick, but the ability to do so was limited through the availability of slots. The airport managed to release some extra capacity through some work that have been done on the airport infrastructure. And we're able to grab that capacity. So I think the aspiration that we set out in our meetings with you has been achieved. Is that it? I don't know. I'd never say never. We're always looking at opportunities within the U.K., but Gatwick was certainly the best that we'd always intended to grow into. But you mustn't forget, Gerald, that there's enormous opportunity still in our 13 existing bases to grow. We've got all the bases that we think there's a very strong business case for increasing capacity. Over the last couple of years, we've prioritized our aircraft into starting a base at Liverpool, at Luton, Bournemouth, and laterly, Gatwick, but putting those aside, there are another 10 bases in the U.K. that we have a fantastic opportunity to grow in. And over the last 2 years, we have launched 4 new bases. That's quite a lot. And we can't take our eye off the ball on our existing bases. There's more work we want to do there. And I think we'll probably be entering a period of stability, where we'll be growing our new bases and maturing the ones that have been launched recently, whilst taking care and strengthening our older bases. Operator: And we'll now take our next question from Ava Costello of Davy. Ava Costello: Just 2 for me, please. And the first one is on the package and flight-only mix. So for Summer '26, where do you expect the mix to go versus Summer '25? Obviously, Luton and Bournemouth bases maturing, and hopefully, moving towards the network average, but what do you expect the impact from Gatwick to have on the mix? And then the second one is a little bit more long-term focus. So how much of the growth deliveries could you potentially go to Gatwick? And is that solely dependent on a new run rate? Or do you see more capacity coming online organically from these tech advancements? Gary Brown: Ruairi, it's Gary. In terms of the package holiday-flight-only mix, as I said before, it's one of the questions, it very much depends on the market you're in at the time. And I'll repeat that, we're constantly solving for the best bottom line outcome whether volume pricing or mix. In terms of how we're looking at it for next financial year, I think if we can be flat in terms of package holiday mix, I think we will be very pleased with that. And early indications, and I will stress, it is very early indications for Summer '26 of playing that sort of theme out at the moment. If -- and again, it remains to be seen what the capacity in the industry looks like for next year. Our initial reads are between 2.5% and 3% at the moment. If there is a rebalancing between supply and demand, which generally happens in this industry, what it means then is consumers don't leave it quite as late to book, which plays more into more of the planned holiday products more than the impulsive holiday products. So if we can achieve flat next year, I think we'll be pretty pleased. And that's still pretty much in line with what we've always said for a full year outcome between 60% and 65% on package holiday mix, and we've been pretty consistent over the years in restating that. Stephen Heapy: Thanks, Gary. And on your second question in relation to Gatwick. We have no intention of standing still with 6 aircraft operating in and out of Gatwick. It's true that we're able to launch the 6 aircraft as a subject of some infrastructure work that was done at the airport. But you must remember, there's movements of fleets in Gatwick all the time, some airlines increase their operations, some airlines decrease their operation, and there are slot opportunities that come up regularly. So I hope we will be able to take advantage of any opportunities that come our way over the next few years. What is likely is the second runway will be approved, and that should come into operation in about 2030. And whilst that sounds a long way away, we've got Summer '27 on sale already, and we started to think about Winter '27-'28. So Summer '30 will be on us before we know what the key is. First of all, to grow and mature our Gatwick operation. And we said in our release that, that will take time to mature that operation. And secondly, we keep up dialogue with the airports and the slot coordinators to see what opportunities come our way. And you've known us for quite a while, you know that we have a track record of grabbing opportunities as they come up, of which the recent announcement into Gatwick is a perfect illustration of, so we'll keep up dialogue and keep watching what's happening and make any announcements in due course if we have something to say. Operator: And we'll now take our next question from Andrew Lobbenberg of Barclays. Andrew Lobbenberg: I can't believe we've got this far in the call and no one has mentioned the B word. So how do you see consumers reacting about the looming budget? And do you see it as being a clearing event and driving more consumer confidence once we're through it? Or what are your thoughts around the budget? And then, staying on Gatwick, and got it, we still are all asking about that, if now, how do you think about the cost of operating at Gatwick? The wonderful Wizz have been saying that it's a really expensive airport and they need to get out of there. I don't know whether you would think about that. But I mean, how does it look to you for airport charges, and indeed, also for the local labor market, which I think is pretty hot? Stephen Heapy: Okay. In terms of the budget, I haven't really got anything to comment on because I don't have any detail. I look at the newspapers on a daily basis. And here, the latest scare story is to what's going to happen. I mean, if you add up all these scare stories, there's going to be an additional GBP 15 trillion raised in the budget. So I don't really take too much notice of the individual policy speculations that I discussed. What I do think, though, is that the government shouldn't be imposing any more tax on air travel and holidays. It already collects an enormous amount of tax from the airline and holiday industry. And I think, it's gone on long enough that this industry is used as a cash cow. So I would urge the government not to increase taxes any further on air travel because that will inevitably put up prices and could price some people out of the ability to take a holiday, and those people will be the lowest paid members of society, which strikes me as being patently unfair. What we do have, however, as a great defense is our customer service. In economic times like this, people tend to gravitate around the brands they know, the brands they trust and the brands they know will deliver great customer service consistently on every holiday. And that is what you tend to see that people gravitate to these brands. You've seen our commentary on our Net Promoter Scores on customer satisfaction, on our rebook rates, and we expect this to be a massive form of defense during any potential reverberations from the budget. So I'm pretty confident -- I'm very confident, in fact, that we should be able to navigate through whatever is thrown at us next year because we'll be shored up by our fantastic customer service. In terms of Gatwick costs, obviously, I can't comment on those, but again, if you offer a great customer service that enables you much more to sell the product, we've got the best reputation for customer service. I'm very encouraged by the sales so far at Gatwick. It's been less than a week, but I'm very encouraged by them. And I think people are recognizing that we are recognized as #1 for customer service and being drawn to our brand. Many companies operate just on the price level and tend to deprioritize customer service. We prioritize customer service. And we think we have an absolute duty to provide people that perhaps have worked for 50, 51 weeks of the year to go on a highly valued holiday, and we feel it's our duty to treat every one of our customers as a VIP, whether they flight-only on a 2-star holiday, a 5-star holiday, self-catering, all inclusive, it doesn't matter. We treat all our customers the same, and that's very much as a VIP. And that's been our philosophy over the last 20-odd years at Jet2, 15 years at Jet2holidays. And that will remain our philosophy and the core of our strategy. Operator: And we will now take our next question from Richard Stuber of Deutsche Bank. Richard Stuber: Two questions for me, please. And apologies, I've got cut off and may be repeating one. The first question is on Gatwick. Could you give us some guidance in terms of what the start-up cost will be for this year and the shape of the cost as you reach profitability to FY '29? And I know you're saying that after that, it will be meaningfully profitable. Is that -- do you assume that there will be more slots and more aircraft in that? Or do you think it will be meaningfully profitable even on the 6 aircraft that you have at the moment? And the second question, just really on the cost outlook for next summer, could you tell us please what you're seeing in terms of cost inflation for accommodation and fuel? And what you would expect then to be sort of the average selling prices of your packages looking forward to next summer? Gary Brown: Thanks, Richard. In terms of Gatwick, we believe that in terms of the booking costs that we'll incur in this financial year to generate the bookings for next summer, plus labor cost, plus promotional content, et cetera, between GBP 10 million and GBP 15 million we reckon in this financial year. And we want to be as resilient as possible going into Summer '26 to make sure that we can provide the best possible product and service to what essentially are all new customers. We need to show them exactly what Jet2 is about. And as Steve has just reinforced, it's all about making customers feel special. And if you want to do that, then you need to spend the right amount of money setting that base up. In terms of FY '27, if you take Luton, I guess, as a guide, we said sort of late single digits losses in its first year. That was with 2 aircraft. We've got 6 at Gatwick. We're also doing it in because it was an opportunity that was slightly ahead of our expectations. And we're also doing that with less efficient aircraft or part less efficient aircraft in the form of ACMIs. So inevitably, there's an incremental cost there. And a bit like Luton, Gatwick is going on sale even later than Luton. And, therefore, there will be some price investment. So I think you can do the math on that and come up with your own answer. But in the FY '28, those ACMI aircraft will fall away. We will be selling across the whole selling cycle, we will be better known, et cetera. And therefore, we expect whatever those losses are in your model to halve is what I would say, and then, move into profitability. In terms of cost inflation, it's still very early, to be honest with you. The accommodation market is moving around depending on what demand looks like, not just from the U.K., but from Europe as well in terms of the Nordics, the German market, et cetera. I would expect accommodation inflation to be in or around 5%, but I may be proven wrong ultimately. We've yet to even decide on what a wage increase looks like for our colleagues. And clearly, we've got one eye on CPI, et cetera. So I'm sorry, I can't help you any more than that. In terms of fuel, you asked about, we're about 70% hedged, I think, for Summer '26. At the moment, the fuel rate is about 10% better. But remember, fuel is only 10% of our overall cost base. But the other side of that equation on FX, a bit of a benefit on the dollar, but we do buy EUR 4 billion worth, and the pound has been weaker against the euro, pretty much through that whole buying cycle. So hopefully, that helps you in terms of some of your modeling. Operator: We'll now take our next question from Axel Stasse of Morgan Stanley. Axel Stasse: I have 2, if I may. And the first one is on the additional capacity for next summer, approximately 4%, excluding Gatwick. And if you include the Gatwick, it's approximately 9%, while I think your competitors are significantly lower than this. So how do you think about fares or even load factors going forward? Do you say your competitive edge is enough or at least sufficient enough to maintain the fares stable? Or -- yes, just to have your view on this. And then the second question is on the cost certainty locked in for fiscal year '27 that you mentioned in the slides. Can you maybe elaborate here where are you most comfortable with? What is already locked in, if I can put it like this? And how should we maybe even look at the airline cost, seat per seat or per capacity growth year-over-year in fiscal year '27? Stephen Heapy: On the first question in terms of the capacity growth, yes, we've said our capacity growth in existing base is 3.9% and including Gatwick about 9%. That's one of the lowest levels of growth we've announced for some years. We don't have an accurate read on what the rest of the market is doing yet, and we won't know that with total accuracy until the end of January when people make the final slot declarations. But you should bear in mind that some of that additional capacity is due to us putting A321neo in some of the bases, which, as we said earlier, is an upgauge and that's 232 seats as opposed to 189. But the cost associated, the seat cost with those 232 seats is much lower. So some of the capacity increase is offset by efficiencies on cost. But we're confident with the capacity we've got. We -- and if we need to make any more adjustments, we will do that as we did with Summer '25, and we have done with Winter '25-'26. We've got a very flexible model and a very flexible approach to capacity management. So that's the number today, 3.9% and 9%. But if we feel we need to make adjustments, we can do that. But at the moment, we're confident with those 2 numbers. Gary Brown: And the second question, I guess it's a similar answer to what I just gave to Richard really. We're about 70% hedged for U.S. dollar on fuel. Fuel, about 10% cheaper in terms of the rate at the moment. U.S. dollar is about 2% better, but 50% hedged for euro, we're probably 2% worse at the moment. So there's a lot of moving parts before we have a very clear view of how that translates into the cost base and cost per seat. Just in terms of cost per seat as well, we don't have sight yet of EUROCONTROL fees, which are obviously very important to us in terms of cost per seat. So normally, we have a better view as we get sort of into January, late January, early February. And we also have a better view of the market at that point in time as well because everyone's put their slots into the system, and we'll be able to give you a better view at that point in time. Obviously, we'll look to price anything in. But as Steve pointed out before, in terms of the budget coming up, we don't know what that looks like either. So there's a lot of moving parts is what I would say, and I'm not being evasive, but there are. Operator: And we will now take our next question from Harry Gowers of JPMorgan. Harry Gowers: First one, maybe you could just talk through the flight-only pricing, how that's behaved or changed over recent months? And do you think the kind of minus 7% level is potentially a trough or a bottom? Or should we be thinking the winter could still come in a little bit worse than that in terms of the outlook? And then, sorry if I missed this earlier, but just on Gatwick, like where could that package mix maybe come in over time? And are you expecting the Gatwick market or catchment area to be any different versus the rest of the network just in terms of attractiveness of the product, demand for package holidays, et cetera, et cetera? Gary Brown: Just in terms of the flight-only pricing, I think we guided to mid-single digits down. It's slightly worse than that. I wouldn't say it's materially worse, but it's slightly worse with the 7%. But at the end of the day, I'll repeat again, I'm sorry, we do constantly look at that volume-pricing mix dynamic to drive the best possible bottom line outcome. And I think we've done that in the first half. In addition, as I say, we look at price part, marketing part as one of the same thing. And what we've been able to do is be very targeted in terms of how we've reduced our marketing spend and where we've put that in terms of pricing across both products actually to drive the best possible outcome for the business. In terms of winter, it's similar at the moment. Holiday pricing is pretty resilient, and flight-only is in negative territory, not quite at the minus 7%. But what I would say is that there's still 50% of winter seat capacity to sell, which tends to be sold from January onwards. And depending on what the market looks like, we may need to invest a little bit more in price or we may not. So only time will tell, but we're balancing the component parts to get the right possible outcome, I think, is what is safe to say. Stephen Heapy: And in relation to the package mix, we did say when we announced the start of our operation that package mix would be lower, and we would build that over subsequent years. Just because people haven't had perhaps a great choice in the package holiday market at Gatwick previously it doesn't mean that they won't do in the future. They will be and are being attracted by, as I said earlier, our customer service ethos by our award-winning product. And they will be attracted to that. Sales have started very encouragingly. It's only a week. I would just caution that we're only a week into it, but I'm very encouraged by overall sales and package holiday sales. And I think we offer what people want, great customer service, but one price. Why would you want to book a flight, a hotel and a transfer separately, and I mean all that hassle of going on 3 websites and messing about waiting 3 lots of transactions? You can secure your holiday for GBP 60 deposit all in one transaction knowing, a, it's with a company that has by far the best customer service in the industry; and b, the company that has by far the lowest cancellation rates of flights. If there's air traffic control issues, we don't cancel flights carte blanche. We fight to get people on their holiday. So I think that's going to be a very attractive proposition. We know that because it's very attractive in all our other bases, but also people from the Gatwick area have been asking us consistently for a long period of time to start operations there. So there's a huge amount of demand pent-up for both package holidays and more specifically package holidays from Jet2holidays. Operator: There are no further questions in queue. I will now hand it back to Steve and Gary for any closing remarks. Stephen Heapy: Okay. First of all, thank you for your time this morning. It's been 1.5 hours and very much appreciated, and thank you for your questions. It's been actually a pleasure to get so many questions from you. I hope we've answered them satisfactorily. And I hope you're pleased with the results, we are. Just to reiterate, it's a record set of results. We're continuing to invest for growth. We've seen that with our aircraft order, our new hangar at Manchester, our base at Gatwick, our retail operations center. Thirdly, we're continuing to create value for shareholders through our increasing dividend and also the announcement of GBP 100 million share buyback starting on the 1st of December. And fourthly, our investment into our product and our brand, which is continuing to retain existing customers, but also attract new customers. And that's not only at Gatwick and Luton and Bournemouth and Liverpool, but we continue to attract new customers at our other 10 bases also. So that's it on the call, I think. Thank you very much. I hope you're as pleased with the results as we are, and I'm sure we'll speak to many of you over the coming days. Thank you.
David de la Roz: Good afternoon, everyone, and thank you all for joining us today for our second quarter fiscal year 2026 results presentation for the 3 months ending 30th of September 2025. I'm David de la Roz, the Director of Investor Relations, at eDreams ODIGEO. As always, you can find the resource materials, including the presentation and our results report on the Investor Relations section of our website. I would like to inform you that today's presentation will be a little longer than usual as we discuss our new 4-year strategic plan and our financial outlook for the 4-years period. I will now pass you over to Dana Dunne, our CEO. Dana Dunne: Thank you, David. Good afternoon, everyone, and thank you for joining us. Today, we're going to discuss 3 things: first, we will do a brief update on our first half year results of FY '26, which are on track; second, we will share our new 4-year strategic plan in which we accelerate significantly Prime member growth and further diversify and strengthen our business; and three, we will discuss the immediate headwind that is hitting us, which is Ryanair that has recently intensified their OTA blocking efforts. On today's call, David will take you through the brief update of the first half of FY '26 results. I will then take you through the key drivers of our new 4-year strategic growth plan. David will follow with the immediate headwind, financial implications and our financial outlook for the new long-term 4-year guidance. I will then share some closing remarks. Now I'll pass it over to David, who will take you through our first half FY '26 results highlights. David Corrales: Thank you, Dana. If you could all please turn to Slide 5 of the presentation, I will take you through the key highlights of our results. In the first half of the fiscal year, eDO continued to show strong performance. Our Prime members grew 18% reaching 7.7 million with 457,000 added in the first half. Cash EBITDA reached EUR 94 million for the semester, growing 16% year-on-year and growing the last 4 months margin by 7 percentage points in one year. And we remain committed to shareholder returns. In the first half, we invested EUR 32.6 million in share repurchases and year-to-date, we have canceled 5.98 million shares, that's 4.7% of shares outstanding. If you could all please turn to Slide 6 of the presentation, I will take you through the key highlights of our Prime P&L. In the first half of fiscal '26, the Prime model continued to show that it is the engine of our growth, and we saw significant improvements in profitability, driven primarily by the increasing maturity of our Prime member base. Looking at Prime's impact on profitability and the drivers behind that growth, our cash marginal profit, a key measure of profitability, grew by 10%, reaching EUR 144.2 million. This shows that our business is not just growing, but each transaction is becoming more profitable. This improvement is due to the maturity of our Prime member base. As members stay with us longer, their profitability grows, which is evident in the 15% increase in cash marginal profit for Prime and its margin increasing by 6 percentage points over the past year. This is having a positive ripple effect on our entire business as our overall cash EBITDA margin improved by 5 percentage points from 22% in the first half of fiscal '25 to 28% in the first half of fiscal '26. Cash EBITDA for the semester reached EUR 94 million, marking a 16% year-on-year increase. Looking at revenue performance. In the first half of the year, we have observed a few key changes in our revenue margin. While our overall revenue margin increased by 5% compared to the same period last year, our cash revenue margin saw a 6% decrease. The shift is primarily due to a 20% growth in Prime revenue margin, driven by an 18% increase in Prime members. However, this growth was largely offset by a 22% planned reduction in non-Prime revenue margin. Cash revenue margin for the Prime segment grew by 2% versus the first half of the last fiscal year. While member growth was a positive factor, it was offset by a test of monthly subscription fees for a subset of our customers. As we said in our results call of the previous quarter, the increase in Prime deferred revenue was again positive for the second quarter as we decrease the sample size of the test of Prime monthly payments. The 6% decrease in overall cash revenue margin was due to the planned decline in the non-Prime segment. Let me pass it over to Dana, who will take you through key drivers of our new 4-year strategic growth plan. Dana Dunne: Thank you, David. Please turn to Slide 8 of the presentation. I will take you through the key drivers of our new 4-year strategic growth plan. As you know, we've been running a number of tests of monthly and quarterly payments and the results are very positive. We have identified a number of use cases in which a monthly or quarterly payment of the subscription results in higher lifetime value and therefore, makes more sense than charging an annual fee upfront. We have also identified that monthly payments are enabler for future growth along 2 additional dimensions as it allows us to pursue growth opportunities via offering new products incompatible with a single annual payment and additional growth opportunities in middle-income countries that are more receptive to monthly payments. In summary, this will lead to more top line growth in the next 3 to 5 years, alongside a short-term investment. I will now take you through the areas of growth, sharing the results and the opportunity to create more shareholder value by investing in accelerated growth. Please turn to Slide 9 of the presentation. The first key strategic driver is evolving our payment model. Customers have clearly told us that they generally prefer monthly payments over annual ones. Our survey data, which is based upon 1,740 customers confirm this, 49% prefer monthly payments, while only 25% annual payments and 25% have no preference. We also have seen other subscription businesses move increasingly to monthly as well. For example, over the past several years, Amazon, Adobe, Microsoft 365 have increasingly moved from annual to monthly payments, to name a few companies. As a result of this customer preference, we have been testing monthly and quarterly payments for several years, across 10 Prime markets and 5 products. That means flight, rail, accommodation, price freeze and Prime stand-alone, in order to see how to make this work given the uniqueness of travel and Prime. Please turn to Slide 10. The results from our tests are compelling, showing customers clearly prefer monthly or quarterly payments over annual ones. NPS, the Net Promoter Score, is over 10% higher with monthly payments and conversion from free trial to a paid member is 8% higher based on data from June 2024 to September 2025. This is a clear message. Consumers prefer monthly. Please turn to Slide 11. With the introduction of Prime of monthly and quarterly payments, we unlock new growth opportunities for Prime across product and geographic expansion. For new products, this model is a better fit for rail customers due to lower average basket values of rail bookings and a higher purchase frequency versus flights. Consumers clearly prefer this for lower ticket items. For new product expansion, eDO offers some products in unique ways such as price freeze. These products have high customer satisfaction levels. Now with a smaller monthly or quarterly payment, the value perception is much higher. For new markets, smaller monthly payments are also better suited for growth in new middle-income economies, increasing Prime penetration in these markets. In sum, monthly and quarterly payments facilitate additional growth opportunities. Please turn to Slide 12. Furthermore, the monthly quarterly payment model demonstrates superior results. In positive scope, the aggregate lifetime value is higher by 13% compared to the annual payment option. In summary, we will roll out monthly and quarterly payment models where LTV is positive versus annual payments, which is true in a majority of scopes for new member acquisition. David will speak with you in the financial section about the implications of the onetime unwinding impact of the cash deferred, which has a onetime negative consequence on our cash EBITDA. Please turn to Slide 13. Geographic expansion is our second key growth driver. We will invest in new Prime markets beyond our initial 10 countries to accelerate subscriber growth. We have tested Prime in 14 new markets in the last year, and the results are positive, showing further growth opportunity. The new international markets show promising metrics compared to our European top 5 markets, including higher Prime household penetration year one, NPS and Prime attachment rate. Please turn to Slide 14. Based on these promising results, we will focus on scaling Prime further geographically. Our strategy involves fueling growth in the most promising markets through further traffic acquisition and improving product, price competitiveness and operations in the most promising new markets. Our first phase will focus on growing a set of markets that showed great potential including Mexico, Argentina, the United Arab Emirates, Poland and South Africa. Please turn to Slide 15. Our third driver of growth is product expansion, starting with rail. We are entering the attractive European rail market, which is largely growing at over EUR 40 billion. This will complement our leading flight proposition to drive subscriber growth and increase member engagement. Europe has one of the most dense, high-speed rail networks in the world and it is opening up. Already, the rail market has taken a huge share from the short distance flight market, which provides good upside for us. For example, the Paris Bordeaux route, the rails market share is now 90%. That's 9-0% and Madrid to Barcelona is now 72% rail. Europe is further liberalizing its rail market with a number of new rail providers entering across countries. All of this provides exciting growth opportunities. Please turn to Slide 16. Prime gives us a unique competitive advantage to succeed in this market over rail-focused transactional competitors. Prime generates 4x more revenue margin compared to other transactional rail OTAs. This, in turn, gives us more revenue to play with to win versus transactional businesses. In over 95% of cases, Prime is cheaper prices than rail operators or rail OTAs. Moreover, we see higher conversion rates compared to flights and higher Prime renewal rates as the number of products increases. To Prime, our leading technological platform, coupled with our advanced AI capabilities, our skills in acquisition and marketing and our leading European OTA brand makes eDO a natural winner in this market. Please turn to Slide 17. I want to dedicate a word to hotels since we have said this is also a priority. Since the Capital Markets Day, we have made significant progress in our hotel business proposition and further invested in hotels for growth. The global online hotel market is at EUR 293 billion and has an OTA penetration of 62%. We're already seeing promising results. Our unique visits to hotels are up 42%. Our LTV of Prime hotel repeat customers has increased by 33% and Prime hotel per flight booking is up 33% year-on-year. In summary, in hotels, Prime is a unique offering with superior price proposition, excellent customer experience, wide inventory selection and growing flexibility. With over 7.7 million Prime members, Prime for hotels gives us increased retention of Prime customers as we move from being a flight-centric proposition and company to an overall travel-centric one and one that is unique in its subscription offering. Please turn to Slide 18. Finally, as most of you know, we are one of the leaders in Europe in AI. With this new plan, we are leveraging our AI leadership to support this accelerated growth. We have already achieved massive scale adoption of Generative AI with a run rate of well over 400 billion tokens per year. Tokens are a number of words or data chunks being processed by all of our Generative AI use cases, and this is a key enabler and a key benchmark for how sophisticated our company is in Generative AI. This level of AI consumption places us clearly amongst the leaders of AI across the global e-commerce industry. If you could please turn to the next slide, I would like to share with you some of the most current use cases across the organization. In customer service, our generative and agentic AI solutions are revolutionizing how we serve customers, enabling end-to-end agentic automation of even complex tasks such as canceling and booking. In IT, we've seen a step change in productivity on the back of our leadership in AI adoption, with more than 30% of our code now being AI generated. And across the business, we are seeing how even complex processes can be automated through AI. For example, AI is now automating the management of our in-house dynamic pricing engine, which previously required scarce data science expertise. Now let me pass it back to David, who will take you through our immediate headwind, the financial implications of the plan and our financial outlook for the next new long-term 4-year guidance. David Corrales: Thank you, Dana. Now let's address the immediate headwind hitting our business. If you could please on to Slide 21. Ryanair has recently identified their OTA blocking efforts, which is increasing instability in Ryanair content coverage. Since mid-September 2025, our average daily bookings for Ryanair have been reduced by over 80%. It is important to stress that this has impacted our new customer acquisition, but not the churn of our existing Prime customers. Customers who booked our Ryanair flight demonstrate a similar renewal rate to the average of the company as they find alternative lines and maintain a similar Net Promoter Score. If you could please turn to Slide 23. Given the investment for accelerated growth and the impact of the headwind, we're issuing a new long-term financial guidance. In Prime members, despite the headwind, we are accelerating growth. We will deliver 40% more Prime subscribers than the market consensus by increase by year 3. In the second half of fiscal '26, we will be affected by the recent stability in Ryanair content, and we will grow our Prime member base in the whole fiscal year by 600,000 members. In fiscal '27 as we anniversarize the impact of the Ryanair instability, we would also grow our Prime member base by another 600,000 members. From fiscal '28 onwards, when our new investments start to pay off, we will grow our Prime member base at 15% to 20% per annum to reach more than 13 million members by fiscal '30, dramatically more than the analyst consensus of only 4% per annum and more importantly, achieving record levels in annual net adds by adding in the range of 1.5 million to 2 million new Prime members per year between fiscal '28 and fiscal '30. Regarding the ARPU of Prime, average revenue per user, due to the introduction of monthly and quarterly payment installments, our ARPU will temporarily reduce in fiscal '26 and fiscal '27 to the low mid- EUR 60s and is projected to recover to approximately EUR 70 by fiscal year '30. In terms of the Prime deferred revenue, it will reduce to an amount of negative EUR 18 million in the aggregate of fiscal '26 and a negative EUR 6 million in the aggregate of fiscal '27 and then contribute over EUR 30 million positive per year from fiscal '28 to fiscal '30. If you could please turn to Slide 24. We will have a period of investment during the second half of fiscal '26 and the first 3 quarters in fiscal '27, and we will start showing growth from the fourth fiscal quarter of fiscal '27 in cash EBITDA. Cash EBITDA will come down to an estimated EUR 155 million in fiscal '26 and EUR 115 million in fiscal '27. We expect the investment period to be 5 quarters, so cash EBITDA will start growing year-on-year by the fourth quarter of fiscal '27. You can see the largest investment is the timing impact of the move to monthly and quarterly payments, with the onetime change in deferred revenues, which happens over the next 12 months and its impact on cash EBITDA. From fiscal '27 to fiscal '30, we expect cash EBITDA to grow by more than 33% per annum, reaching over EUR 270 million by fiscal year '30. Now let me pass it over to Dana, who will do some closing remarks. Dana Dunne: Thank you, David. Let me start by saying that I've been in this business for 13 years, and I've never been more excited about the future of eDO. We're going to grow this business more rapidly and further diversify and strengthen the business and its attractiveness to customers. With the move to monthly, we will go to new product categories, such as rail and other lower value ones as well. We will go to more geographies, some of which are lower income ones than in Western Europe, and we will continue to lead in our investments in skills in AI, which creates lots of value for customers of eDO. Let me be clear, separate from this, we have a headwind, which we have boxed by minimizing its financial impact in our new guidance while we build an even stronger and more diversified business. Now please turn to Slide 26. I'll follow by saying we've done this before. We have transformed the business dramatically in the past and at the same time, delivered on our long-term guidance. For instance, in our last 3.5-year plan, we set very ambitious plans, and we delivered. One, we grew our Prime numbers from less than 2 million in 2021 to 7.25 million in 2025. We improved our cash EBITDA from EUR 3 million to EUR 180 million. We deleveraged the company from 8.6x to 1.7x. We transformed our business from transaction to subscription business with now 74% of revenues and 88% of cash marginal profit from subscribers, whereas it used to be 38% and 50%, respectively, and we created a stronger consumer business. In sum, we have a team that delivers. Please turn to Slide 27. In closing, despite the negative headwind, we are building a much better, much stronger business. We will deliver higher growth. We will deliver 40% more Prime members than market consensus by FY '30. We will deliver a higher customer LTV. The new payment model results in a 13% higher lifetime value for Prime. We will deliver stronger customer loyalty. The new payment model delivers over 10% increase in NPS scores and increased customer stickiness. We will deliver more diversified business. 66% of eDO's volume will be driven by nonflight products and flight outside of the top 5 European markets in FY '30. This transforms us from a fundamentally European flights business to a global travel business. And we will continue with our share buyback. We have committed EUR 100 million for the next 2 years to continue our share buyback program. Over the years, we have demonstrated resilience, transformation and an unwavering commitment to delivering shareholder value. Today, we are strengthening our foundations, not just for the next quarter but the next decade, transforming from a mainly European flights to a global travel business, trust in our track record and our vision, securing a sustainable and highly rewarding future for all of us. Now let me pass it back to David. David Corrales: Thank you, Dana. With that, we would now like to take your questions on the webcast. [Operator Instructions] Now let me go to the first set of questions that comes from Francisco Ruiz, the analyst of BNP Paribas. The first one is, can you put an example on monthly payments similar to what you did with the EUR 55 annual payment? If I book a flight to New York from Madrid, and previously, I get a discount of EUR 30, will I get this discount as well under the monthly one? Dana Dunne: Good question. Absolutely. And the answer is yes. It is exactly the same value proposition to the customer. The only thing that is changing is that in yearly, you collect the subscription fees in one time, that's the past. And at the beginning of the program, while on a monthly model and the same for quarterly, we collect the monthly subscription fees with a lower price than the yearly one, of course, every month during the course of that year. But in terms of the benefits now, not just in a sense, the cost to the customer, the benefits to the customer stay exactly the same. And in fact, if I just highlight, this opens up a lot of new customer segments that we can go into by doing this. And by doing that, we're going to enter into rail. And so all of our existing customers will get rail within their subscription fee as well. So it's a win-win. David Corrales: The second question that comes from Francisco Ruiz as well is, what is your opinion on the Google AI tool Canvas in your business? If this is not a threat, could you help us to understand why? Dana Dunne: Absolutely. So first of all, as all of you know, we're one of the leading AI companies across any industry within Europe. Many of you also know that we have a small business in the U.S., and there are far larger travel companies in the U.S. than us. Google's announced these partnerships with the largest travel companies in the U.S., and we look forward to participating in these opportunities from a European point of view. As you can see in the new plan, we're also investing in AI to keep this leadership, and we view AI search results as a potential new channel or variation of existing channels through which we can acquire customers. In fact, if you look at the new announcement of the new model being out, Google stated explicitly that they're not becoming a transactional company, by passing off the customer to its partners. So we absolutely welcome this and welcome it from a European point of view. David Corrales: Okay. The next set of questions come from Carlos Trevino from Santander. The first question is, could you elaborate on the nature of the investments in the second half of fiscal '26 and fiscal '27? Could you provide the breakdown between fixed costs and variable costs? Well, let me take that one. And let me actually start from the second half of it, which is the one about the fixed cost or variable costs. I can tell you the fixed cost, and you can actually go to the variable by difference, right? The amount of fixed costs that you should expect towards the end of the forecast period. So by fiscal year '30 is about EUR 140 million starting from the level that you have seen today, which we're doing now approximately EUR 25 million, EUR 26 million per quarter in the first 2 quarters of this year. We're going to increase somewhat the number of members. There's a lot of new developments to actually pursue in the business and going into all of those new verticals, going into new countries, going into new products like rail, going into small ticket items. So if we -- like we've said other times, if we enlarge the size of the factory, we believe that, that, coupled with the enhanced productivity that we are seeing from AI, like we have shown you earlier today, more than 30% of our code is right now AI generated already. We feel that we can deliver at speed in the number of new things that need to be produced. Now about the other size of the nature of the investments, that is some of the investment that is also on the variable cost nature. When you go into, again, new verticals, you don't have the advantage of an established customer base that -- which results in higher CAC than otherwise, right? At the end of the day, the cost of acquisition in one of our established countries is the blended mix of how many people come to you direct and those are either former transactional customers of you in the past or friends and family referrals of the existing Prime members. So when you go to a new country in which you don't have a meaningfully established base and you go -- or you go into a new vertical in which you're acquiring customers, the CAC is some higher. And then over time, it will decrease to more normal levels of CAC that you see in our more established business, in the more established verticals. That's the nature of the investments really. But because you asked about those -- and with the labeling that we have done in the slide which we run you through the cash EBITDA, let's just remind everyone that the biggest impact by far is the onetime timing difference of collecting monthly from a large portion of our customers from collecting yearly. The next question from Carlos as well is, will there be any kind of commitment to those subscribers choosing monthly quarterly payments? Yes, let me take that one as well. The monthly subscription program that we have is one-off installments of 12 months. So when the customers join the monthly program, they actually join a yearly program with monthly payments, but they have a commitment to continue to pay for the 12 months. And last question from Carlos Trevino is apart from the Ryanair no impact, have you seen an increase in your churn rate over the last months? Dana Dunne: The simple answer is no. If I compare from the Capital Markets Day to today, churn rates are stable. Moreover, I just want to make the point again because it's a really important one for all investors is that if we look at customers that had a prediction towards Ryanair who have joined our program, we do not see a change in the churn rate of them at all over the past year, over the past 2 years, et cetera. And what in fact happens is many of these customers simply take another airline. David Corrales: The next set of questions comes from Andrew Ross, who is analyst at Barclays. He says, what percentage of Prime subscribers on annual versus monthly subscriptions in fiscal '26 and fiscal year '30 in your assumptions, will you shift everyone to monthly? I want to refer you again to Slide 12 of the presentation, where we have a chart that talks exclusively about that. That is a very important question indeed. We will go with monthly on the new markets, and we will go with monthly on the new products at 100%. So rail will be monthly from the beginning, and we will not have customers that joined via rail being annual payments. And then in the existing market, existing products, it's approximately 50% that will be on monthly versus annual. And that is a very large part of our customer base, of course. The next question says, will it be possible to cancel a subscription midway through the year and pay only, say, a few months? Is that not a risk given relatively low annual frequency on the flight side and amongst Prime subscribers in general? Dana Dunne: So we've tested a number of models over the past number of years. And the model that works really well that you see the results there that you see the MPS increase, that you see the LTV, et cetera, is a monthly program with an annual commitment to it. So therefore, no, there isn't a risk and everything is baked in within our numbers based upon the long duration that we've been running this program and the test. David Corrales: The next question from Andrew is what percentage of gross bookings from nonflights within the top 5 Euro countries by fiscal year '30? Well, that's -- We don't tend to break down the gross bookings even in the actual data. So therefore, there's no point breaking it down for the forecast data, but you can take as a proxy that the majority of the nonflights, i.e. particularly in the part of new products, goes into monthly. So at least the subscription fee -- the subscription fee, again, will be on a monthly basis, but the gross bookings themselves come with every transaction. So they go along the year depending on the transaction. The next question says, what does this mean for shareholder returns in the next couple of years, given leverage will step up? Well, gross leverage is going to stay the same. Net leverage is going to go up from the level of about 1.8 that we have just published today to something in the surrounding of just under 3 or around 3, more or less. I think this -- we start this, let's say, a new cycle of growth from a very solid financial position with the lowest leverage that we have ever had. That's one of the things that help us to maintain a very solid, I would say, path of return of cash to shareholders with a commitment from us that it will be EUR 100 million in the next 2 years. The next question says, will you sign a strategic partnership with Ryanair, given the impact on bookings recently? And why haven't you done this? Dana Dunne: Absolutely. So let me explain how our situation is different. And then also, let me explain to you what our criteria is for deal with any partner. First one is what our situation is. As many of you know, we're absolutely leading in technology. And so therefore, we have had access to Ryanair, albeit limited. And today, we still have access to Ryanair, but it is dramatically less than what we had before. And we've been very open and transparent with you, but it's not 0, whereas most of the other competitors of us have had 0 because they don't have the platform, they don't have the technology that we have. And so if you have 0, then signing a deal gives you more than 0. So that's an upside. For us though, that's one starting point that's slightly different. The second one is also in terms of Prime. We are not a transaction-based business unlike the other players out in the marketplace. We are the only subscription one. And that model drives us to certain different behaviors, different decision-making than others. We are very focused not just on getting the business, but then making sure that the customer has a whole good trip that they do another trip, another trip, another trip, and when day 365 comes up, that they renew with us. And that is fundamental about our model and our business. It's unlike a non-subscription-based business. So therefore, we're very, very focused on the end-to-end customer experience on it. So that is our 2 fundamental things that are different when we evaluate deals versus someone else in it. Now come to our criteria. Our criteria is threefold. The first one is obviously, shareholder value, right? What are our options and which one creates the most amount of shareholder value versus the next option, right? And so we simply dispassionately compare that with. The second criteria is around the customer experience, and I think I explained to you a little bit more about why that is so important to us. And the third one is about compliance in terms of regulation, laws, rules, et cetera, from Europe. And so we make dispassionately that situation. And any deal, not just this one, but with any partner, that is how we'll make them in the best interest of those 3 criteria. David Corrales: The next question from Andrew is, which markets are the focus for rail in particular? Dana Dunne: Absolutely. So look, we're focusing first on Continental Europe. And within Continental Europe, the markets that are really opening up the soonest, which is Spain, Italy and France. And by the way, they're at later stages, and we can go to other ones as well. David Corrales: The next seems to be the last question from Andrew. Says, Expedia and Skyscanner have tried out trains in Europe in the past with limited success, whereas a single product focus from Trainline seems to be working. What are your thoughts on this? Dana Dunne: So let me take it, David. So first of all, the obvious thing is, I can't speak for Expedia and Skyscanner. Really important to point out, Skyscanner is a Meta, which is an absolutely entire different business model, not just from us, but from other OTAs. Now Expedia as an OTA is a different business than ours, and I'm not -- was not privy to their results, so I can't comment on. What I can comment on, we are unique. We have Prime. We have a technology leadership. We have a really strong transport brand, and we have been running this for a while and are basing our plan on our actual results. This is not about ideas, but on actual results that we have been doing well in. David Corrales: The next set of questions come from Bharath Nagaraj, the analyst from Cantor Fitzgerald. The first one says, when you say you're planning to enter the railway market, is that by building partnerships with rail travel supplies directly? Or what is the plan? And similarly, with regards to hotels, remind us again as to how you're growing supply of hotels? Is that via direct relationships? Dana Dunne: Yes, absolutely. So great questions. So the first one, if I take the rail market, absolutely, we are signing partnerships with a number of rail providers on that, and we're going market by market. We also have our platform as well that allows us to get rail content from other parties from third-party providers as well that would have that content. In terms of -- for hotels, we have simply a multi -- with hotels, sorry, you're talking about we have almost 2 million hotels on our platform. The hotels market is fundamentally different in terms of, let's say, content and the amount or the number of, let's say, content sources that you need to in order to have a robust business. Now within that, we've built a platform that is a multi-provider platform. So we get some by going direct to hotels, but then we get a lot from let's say, third parties, and we have relationships with a number of really key third parties that allows us to get it. And then we've built on top of this a layer that allows us to deduplicate because we'll have -- meaning having so many different providers, we're getting duplicity of content. So we need to do duplicate it, and we need to figure out which is the best one in order to offer and close that hotel booking for. David Corrales: The next question is what was the churn when it came to monthly payments? It would have picked up as well, right, versus annual payments? Let me take this one. We are rolling out -- I'm going back again to the Page 12 and the Page 11 before that. We are rolling out the monthly instead of annual in those places where the LTV is positive versus yearly, which means that when we do it, the balance between new members that you get or extra members that you get and the churn evolution is positive overall. The next question says, what's the results of the monthly payment model for just air, not including rail? They're both positive. They are positive for rail and they're positive for flights. In rail, it is a precondition, right, like we have said. Rail is part of those type of, let's say, products in which you have lower average basket value and you have more frequency of consumption. And it ties a lot better with monthly installment cadence. And on the case of air is, of course, the vast majority of the sample because that's the one that we were able to test more extensively over a period 2 years. The next question says, given Ryanair was always against OTAs, what have they done exactly since mid-September? Remind us again how much of your group was still Ryanair driven prior to mid-September? The relationship with Ryanair from a technological point of view has been for a number of years, if you will, kind of like a cat and mouse game. They try for us not to access the content, and we go around the hurdles that they put. What they have taken are increased anti-scraping measures that preclude us from giving a good customer experience to our numbers. And that has increased from September. The possibility that we go around those hurdles is a good possibility like in the past, but we have decided for this forecast to box it in. So that this forecast that we have shared with you today are not dependent on us going over the hurdles like we have done in the past. The next question is from Nizla Naizer, the analyst from Deutsche Bank. Can the economics of Prime still work if the subscription is shorter? Yes, yes, absolutely. And that is demonstrated by the data that we have shown today that the LTV is 30% higher in the use cases in which it is higher, of course. In the ones in which it is lower, is those cases where we're not rolling out monthly, and we're keeping only the annual payment option. And then the -- well, the next one is actually a repeat from the previous. And the following one is -- I think that one is repeated as well. Let me just go up here. We have questions from Chadd Garcia from Schwartz Investment Counsel. He says most of the decline in cash EBITDA estimates in '26 look to be coming from a decrease in deferred revenue, given the new nonannual Prime programs. Just looking at EBITDA, taking the working capital performance of cash EBITDA out of it, what does the change in EBITDA estimate look like, if any? I think the easiest way to do that is to look at the adjusted EBITDA as opposed to the cash EBITDA. Now you can put together 2 data points that we provided today. The first one would be the expectation of cash EBITDA by the end of fiscal '26 of EUR 155 million. And the second one is that in the aggregate of the year, we expect to have negative EUR 18 million in the change in deferred revenue. If you put the 2 together, you get to an adjusted EBITDA of EUR 173 million. EUR 173 million is almost a 30% increase in adjusted EBITDA versus the adjusted EBITDA that we reported of about EUR 134 million in fiscal '25. And that evolution is net of all of these timing effects, onetime of the change to monthly for a good portion of our members. The next question comes from Adam Patinkin from David Capital. What efforts are being made to reconcile with Ryanair? And what will the financial impact be if the issues with Ryanair can be resolved? Let me take the second part, which is more of a financial question, and then Dana can go on the first, although, there's not a lot to say because we've talked enough, I think, about the 3 elements of -- that would potentially underpin a deal with Ryanair. On the financial, it will, of course, be a positive, right? And we just don't want to venture how much positive because there is a range of options, right? You could go back to the levels that we had just before September. You could go to more, and we prefer to talk about our forecast, absolutely boxing in Ryanair so that it's not an impact. If there is an impact, it will be positive versus what we're showing today. The next question comes from Paul Simenauer from BNP Paribas. Are there other players that may seek to do what Ryanair tried to do that create further downside risk to EBITDA guidance? Dana Dunne: Let me take that one. So first of all, Ryanair has been consistent about this, that they have been going after this for minimum of 15, it's actually been over 15, more like probably 20 years consistently. So in that time, you've been able to see everybody, been able to see the market, and that approach to it. In fact, what they're doing is really counter to the basic fundamentals of fixed asset owners. When you look at fixed asset owners and what they do, not just in travel, right, like other airlines or other hoteliers, but look at theme parks, look outside of even the kind of travel, entertainment, leisure industry. There's lots of other fixed asset industries. And what you're fundamentally doing is running an auction. And you want to bring as many people as possible to the auction, particularly when you have a perishable asset like a seat an airplane that's expiring at a certain date. You want to bring as many people as possible. It's not just to sell that seat, it's not just to fill that kind of theme park, it would be actually to be able to yield manage and push it up and up. And the more people you bring to the auction, the more likely you are to be able to close out at a higher and higher price. This is exactly what other fixed asset businesses owners do. This is exactly what you see, for example, Disney, with its theme parks, you see even a semi-fixed asset owner, Apple does this by using so many other types of companies as well on this freight. When you look at also just us we -- not just as a, let's say, a potential point to bring people to an auction. There is uniqueness in us. And there's uniqueness in primarily because we have Prime. And if you look at our customer base, if you look at our disclosure that we've shared before, is that only 5% of our Prime customers actually go to an airline website. That's 5% go to an airline website. So 95% don't. And that is what we bring to the auction. That's where we bring to an airline. That's what we bring to other fixed asset partners. Now if you look at as another fact is that airlines have participated in our Prime Days, have seen 173% growth in their bookings versus airlines that don't participate in our Prime Days. So again, it just shows the amount of kind of value that we can bring and the collaboration that we do bring to other fixed asset providers. David Corrales: The next question that we have comes from Guilherme Sampaio, the analyst at CaixaBank. Could you comment on how do you expect the different parts of the LTV on a single customer basis to change with the movement to monthly payments? In most subscription models, there is a churn spike around the payment date. Do you see that in your numbers? Well, actually, we define churn as when people don't take. So yes, it comes around more precisely on the payment date is when we know if we have a churn number or not because up until that payment date, they can use the service, however many times they want. Now on the parts of the LTV, it's a little bit of what we said earlier to a different question. You have an increase in conversion that we have shown a particular slide in which from visit to number of Prime members that finally joined, there's an 8% increase. On the other hand, there are certainly different behaviors around the churn, but net-net of the 2 things, which are the 2 most important things, you have a 13% increase in LTV for those use cases, again, in which the LTV is positive, and we're only rolling out monthly or quarterly payment installments in those use cases in which the LTV is positive. That is the last question that we have now in the webcast. So with that, I'm going to thank everyone for joining the webcast today. Dana wants to share a closing remarks. Dana Dunne: Yes. Absolutely. So look, I know that some of you are long or short-term oriented shareholders. Investors with a short-term horizon would, I acknowledge, would prefer that we postpone doing these investments. But let me be clear, as a shareholder, I'm telling you that it is not in the best interest of the long-term growth of the company and of overall shareholders. For the analysts that cover us, we look forward to working with you and helping you understand in more detail the implications for your models. Lastly, again, as a significant shareholder, I can say this is absolutely the right thing to do. it makes our company far more diversified. And it turns us into a global travel company as opposed to a European flights business, which, in turn, makes us more valuable and attractive to different types of stakeholders. It gives us stickier customers, which, in turn, makes us more valuable. It gives us much greater growth profile in the coming year for investors, and that's 40% higher than the analyst consensus, which again is very valuable, and we will execute this plan while we buy back EUR 100 million of our stock over the next 2 years. With that, let me pass it back to David. David Corrales: Thank you, Dana. I echo your words. I'm a significant shareholder as well, a significant and proud shareholder. Before we conclude the call, I would like to inform you that on Thursday, the 26th of February, we will be hosting our conference call for the 9 months result presentation. And in the meantime, we will be happy to receive your questions via the Investor Relations team or the investor email address, which is investors@edreamsodigeo.com. Have a nice evening. Thank you very much for joining.
Wendy Huang: Good day and a good evening. Thank you for standing by. Welcome to Tencent Holdings Limited 2025 Third Quarter Results Announcement webinar. I'm Wendy Huang from Tencent IR team. [Operator Instructions]. And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for measures of the group's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our Chairman and CEO, Pony Ma, will kick off with a short overview. President, Martin Lau and Chief Strategy Officer, James Mitchell, will provide business review; and Chief Financial Officer, John Lo will conclude the financial discussion before we open the floor for questions. I will now pass it to Pony. Huateng Ma: Okay. Thank you, Wendy. Good evening. Thank you, everyone, for joining us. During the third quarter of 2025, we achieved solid revenue and earnings growth, reflecting healthy trends across games, marketing services and fintech and business services. Our strategic investment in AI are benefiting us in business areas such as ad targeting and game engagement as well as efficiency enhancement areas such as coding and game and video production. We are upgrading the team and architecture of our Hunyuan foundation model, whose imaging and 3D generation models are now industry-leading. As Hunyuan's capabilities continue to improve, our investment in growing Yuanbao adoption and our efforts in developing agentic AI capabilities within Weixin will gain further traction. Looking at our financial numbers for the third quarter. Total revenue was RMB 193 billion, up 15% year-on-year. Gross profit was RMB 109 billion, up 22% year-on-year. Non-IFRS operating profit was RMB 73 billion, up 18% year-on-year and non-IFRS net profit attributable to equity holders was RMB 71 billion, up 18% year-on-year. Turning to our key services, core communication and social networks. Combined MAU of Weixin and WeChat grew year-on-year and quarter-on-quarter to RMB 1.4 billion. For digital content, TNE grew its paying user base and ARPU, solidifying its leadership position in music streaming. For games, Delta Force is now the top 3 game in China by gross receipts, while VALORANT successfully expanded from PC to mobile. And in AI, we enhanced our Hunyuan large language model's complex reasoning capabilities, especially in coding, mathematics and science. Our Hunyuan image generation model is ranked first globally among text-to-image models by LMArena. And our Hunyuan 3D model is the top ranked 3D generative model of [indiscernible]. I will now hand over to Martin for the business review. Chi Ping Lau: Thank you, Pony, and good evening and good morning to everybody. For the third quarter of 2025, our total revenue was up 15% year-on-year. VAS represented 50% of our total revenue, within which Social Networks subsegment was 17%, Domestic Games subsegment was 22% and International Games was 11%. Marketing Services was 19% of total revenue and FinTech and Business Services was 30% of total revenue. For the quarter, our gross profit was up 22% year-on-year to RMB 109 billion. VAS gross profit increased 23% year-on-year to RMB 59 billion, representing 54% of our total gross profit. Marketing Services gross profit increased 29% year-on-year to RMB 21 billion, contributing 19% of total gross profit and FinTech and Business Services gross profit increased 15% year-on-year to RMB 29 billion, contributing 27% of total gross profit. Turning to business segments. Value-added Services revenue was RMB 96 billion, up 16% year-on-year. Social Networks revenue was up 5% year-on-year to RMB 32 billion, driven by increased revenue from Video Accounts live streaming service, music subscriptions and Mini Games platform service fees. Music subscription revenue increased 17% year-on-year, boosted by growth in ARPU and subscribers. Music subscribers grew 6% year-on-year to RMB 126 million. Long-form video subscription revenue decreased 3% year-on-year. ARPU was stable while video subscribers declined 2% year-on-year to RMB 114 million due to the delay of drama series, Love's Ambition. Following its release at the end of the quarter, finally, Love's Ambition ranked among the most viewed drama series in China year-to-date. Domestic Games revenue grew by 15% year-on-year, primarily driven by Delta Force, Honor of Kings and VALORANT. International Games revenue increased by 43% year-on-year or 42% in constant currency, which is an unusually rapid rate due to recognizing revenue upfront on top of -- on copy sales of Dying Light: The Beast and also due to the consolidation of recently acquired studios. Moving to Communications & Social Networks. For Mini Shops, we're systematically building a more vibrant transaction ecosystem, resulting in continued rapid growth in GMV. We enhanced mini shop merchandise recommendations and thus sales conversions by leveraging our foundation model capabilities to better understand users' interests based on their content consumption within Weixin. We rolled out new features to enhance merchandise discovery in Weixin. For example, we added gifting capabilities in Weixin order and card page, leveraging Weixin's social graph. We also upgraded the image search feature in Weixin, which users can use to scan objects, identify them and then shop for them in Mini Shops. We also enhanced AI features in Weixin to provide new services to users and to promote greater usage of Yuanbao with encouraging results. @Yuanbao feature in video accounts and official accounts comment boxes summarizes content and also encourages users to ask follow-up questions and users like that feature a lot. We also enriched the Tencent news feed in Weixin with Yuanbao-generated content, and facilitated user exploration of news-related topics via the Yuanbao app. Now with that, I'll pass on to James. James Mitchell: Thank you, Martin. For domestic games, Honor of Kings gross receipts grew year-on-year, benefiting from collaborations with the China Literature IPs, Node of the Mysteries and Fox Spirit Matchmaker. The game achieved 139 million daily active users during its tenth anniversary event in October, which featured hero and minion outfits inspired by Bronze Age Shu Kingdom artefacts. Delta Force ranked among the top 3 games industry-wide by gross receipts in the quarter, achieving over 30 million daily active users in September including over 10 million daily active users on PC, driven by new season content, extensive first anniversary events and a global eSports tournament. We released VALORANT mobile on August 19 and it's become China's most successful mobile game launch year-to-date based on its first month DAU and gross receipts. VALORANT PC continued to grow and achieved record high DAU and gross receipts in September, benefiting from eSports-themed weapon items. The mobile launch resulted in VALORANT's combined monthly active users more than doubling from July's level to over 50 million in October. Among our international games for Clash Royale Supercell released new auto-chess mode Merge Tactics and extended its Trophy Road achievement system to 10,000 trophies, driving higher player engagement. Monthly daily active users and gross receipts achieved all-time highs in September. Gross receipts increased more than 400% year-on-year during the third quarter. Gross receipts of PUBG Mobile also grew year-on-year in the third quarter, benefiting from ancient Egyptian-themed outfits, an innovative X-suit with emote sound effects and a 2-player glider, and collaborations with Transformers and Lotus Cars. Our Polish subsidiary Techland released a new game in its Dying Light series called Dying Light: The Beast, which has achieved a very positive average user review score on Steam and which contributed to our international game revenue growing unusually quickly during the quarter due to the upfront revenue recognition of copy sales. The Marketing Services revenue increased 21% year-on-year to RMB 36 billion, underpinned by ad spend growth from all major advertiser categories. Impressions grew year-on-year as we enhanced engagement and increased ad load across video accounts, mini programs and Weixin Search. Average eCPM increased year-on-year as we upgraded our adtech foundation model with more parameters and captured additional closed-loop marketing demand. We introduced our automated ad campaign solution, AI Marketing Plus through which advertisers can automate targeting, bidding and placement as well as optimize ad creation improving their return on marketing investment. By inventory, video accounts and rich content and transaction system and its upgraded recommendation algorithms drove stronger user engagement. Increases in DAU and time spent per user contributed to ad impression growth. Advertisers increasingly adopted our marketing tools to drive traffic to their short videos, live streams in Mini Shops. For mini programs, increases in activations and time spent attracted ad spend for mini drama and Mini Games to promote their content. And for Weixin Search, increases in commercial query volume and click-through rates contributed to notable revenue growth. We improved the relevance of search ads by upgrading our large language model capabilities and optimizing sponsored results to better match user queries. Looking at FinTech and Business Services. Segment revenue was RMB 58 billion, up 10% year-on-year. FinTech services revenue grew by a high single-digit percentage, primarily driven by commercial payment services and consumer loan services. For commercial payment volume, the year-on-year growth rate was faster in the third quarter than the second quarter. Online payment volume continued to grow robustly, while off-line payment volume improved, particularly in the retail and transportation categories. For consumer loan services, our nonperforming loan rates remained among the lowest in the industry and improved year-on-year, reflecting our prudent risk management practices. Turning to Business Services. Despite supply chain constraints on sourcing GPUs, revenue grew at a teens rate year-on-year in the third quarter, benefiting from higher cloud services revenues and increased technology service fees generated from rising mini shop e-commerce transaction volumes. Revenue from our cloud storage and data management products, namely Cloud Object Storage, TCHouse, and VectorDB grew notably year-on-year due to increased demand, including from leading automotive and Internet companies. And for WeCom, we launched an AI summarization feature generate project recaps and provide advice based on users' e-mails and conversations to hand some project collaboration efficiency. And I'll now pass to John for the financial review. Shek Hon Lo: Thank you, James. For the third quarter of 2025, total revenue was RMB 192.9 billion, up 15% year-on-year. Gross profit was RMB 108.8 billion, up 22% year-on-year. Other gains were RMB 0.5 billion compared with other gains of RMB 3 billion in the same period last year, mainly due to lower subsidies and tax rebates as well as provisions paid for some receivables during the quarter. Operating profit was RMB 63.6 billion, up 19% year-on-year. Interest income was RMB 4.3 billion, up 7% year-on-year, driven by growth in cash reserves. Finance costs were RMB 3.8 billion, up 6% year-on-year due to ForEx movements and high interest expenses. Share of profit of associates and JV was RMB 7.8 billion with RMB 6 billion in the same quarter last year. On a non-IFRS basis, share profit was RMB 10.3 billion, up from RMB 8.5 billion in the same quarter last year, driven by associated company, specific factors, including this growth and improved operational efficiency. Interest expense increased by 10% year-on-year to RMB 9.8 billion, mainly driven by operating profit growth. On a non-IFRS basis, diluted EPS was RMB 7.575, up 19% year-on-year, outpacing non-IFRS net profit growth due to reduced share count after our share buybacks. Our weighted average number of shares, which we use for calculating quarterly diluted EPS decreased by 1% year-on-year. On non-IFRS financial figures, operating profit was RMB 72.6 billion, up 18% year-on-year. Net profit attributable to equity holders was RMB 70.6 billion, up 18% year-on-year. Moving on to gross margins. Overall gross margin was 56%, up 3 percentage points year-on-year. By segment VAS gross margin of 61%, up 4 percentage points year-on-year, mainly driven by greater contributions from certain internally developed high-margin games. Marketing Services' gross margin was 57%, up 4 percentage points year-on-year due to higher contributions from high-margin revenue streams, including video accounts and Weixin Search. FinTech and Business Services' gross margin was 50%, up 2 percentage points year-on-year due to improved revenue mix within fintech services. On third quarter operating expenses. Selling and marketing expenses were RMB 11.5 billion, up 22% year-on-year, reflecting increased promotional efforts to support the growth of our AI native applications and games. R&D expenses rose by 28% year-on-year to RMB 22.8 billion, primarily due to higher staff costs and increased infrastructure investment to support our AI initiatives. G&A, excluding R&D expenses increased by 2% year-on-year to RMB 11.4 billion. At quarter end, we had approximately 115,000 employees, up 6% year-on-year or 3% Q-on-Q, primarily reflecting headcount conditions for both games and our technology platform, including AI-related accounts. Our third quarter non-IFRS operating margin was 38%, up 1 percentage point year-on-year. Operating CapEx was RMB 12 billion, down 18% year-on-year, primarily due to supply changes. Non-operating CapEx was RMB 1 billion, down 59% year-on-year, reflecting higher base last year related to construction in progress. Free cash flow was RMB 58.5 billion, largely stable year-on-year as operating cash flow growth was offset by higher CapEx payments. On a quarter-on-quarter basis, free cash flow was up 36% due to higher games gross receipts. Net cash position was RMB 102.4 billion, up 37% Q-on-Q or 27.8% -- RMB 27.8 billion, mainly driven by free cash flow generation, partially offset by share repurchase were RMB 19.2 billion. Wendy Huang: [Operator Instructions]. The first question comes from Liao Yuan from Citic. Thomas Chong: Congrats on the strong results. My first question is about your gaming business. Your international gaming business growth rate has been accelerating for multiple quarters. So I just want to know what have you done right to achieve such good results? And how should we think about the growth trend going forward. Besides, could you share more thoughts on your international gaming strategy? For example, will you continue investing in high-quality overseas game studios or bring more developed games to global markets? And my second quick question is about your CapEx. This quarter, CapEx was around RMB 13 billion, but the cash payment for CapEx was RMB 20 billion. So how should we interpret the difference between these 2 figures? And is there any new update to your full year CapEx guidance? James Mitchell: Great. Why don't I start with the questions around games and the growth rate of the international game business, the strategy for the international game business. So the growth rate that we reported for the quarter for the international game business is substantially faster than the underlying trend line, and that's because during the quarter, we had the benefit of consolidation of newly acquired or recently acquired games studios as well as the benefit of the upfront revenue recognition on copy sales for the game Dying Light: The Beast. So going forward and looking into the fourth quarter, you should expect the growth rate for the International Games subsegment to decelerate closer to the underlying trend line. In terms of the strategy for our International Games business, yes, the drivers that you mentioned, we'll continue seeking to acquire games studios. We'll continue seeking to partner with overseas games studios, and we'll continue seeking to bring more games that are made in China to a global audience as well. Shek Hon Lo: In terms of CapEx, the difference reflects timing gap between the accrual of server-related expenditure and cash payment, which can cause temporary mismatches between the 2. In particular, the credit period for us to pay server suppliers is usually 60 days. In terms of the CapEx for 2025 to share with you, in 2024, our total CapEx grew by 221% year-on-year and was about 12% of the revenue. Previously, for 2025, we guided total CapEx was -- as a percentage of revenue to be at low teens and the 2025 CapEx will be lower to our previous guided range, but the amount will be higher than that of 2024. Wendy Huang: We will take the next question from Alicia Yap from Citigroup. Alicis a Yap: Congrats on the solid results. First question, can management elaborate about your comment on the upgrading Hunyuan team and also the Hunyuan infrastructure? What should we be expecting to see from the upgraded version? And then does management have any updated view on how Yuanbao might complement the AI capabilities that you have embedded into the Weixin ecosystem in the past few months? And then second question is on your advertising marketing service revenue. So does that automated ad campaign solution, the AIM+ better serve the smaller advertiser? Should we expect the solution to drive broader adoption rate for advertisers and drive higher ROI spending that support potentially accelerations of the ad revenue growth in the coming quarters? Chi Ping Lau: Yes. In terms of the Hunyuan team and the Hunyuan architecture, we are actually hiring more top-notch talent, especially in the research area in order to complement our existing strong engineering team and they are complementary to each other. And we have also been improving the Hunyuan overall architecture across different dimensions such as improving the hardware and software infrastructure in order to support better data preparation to support better pretraining of the model as well as to support reinforced learning across different knowledge domains at scale. So these are the improvements that we are making more specifically on the Hunyuan team as well as the Hunyuan architecture. Now in terms of how Yuanbao and Weixin complement each other, I would point to the fact that Weixin has actually introduced a number of AI features based on Yuanbao's capability. For example, in the prepared comments, we actually talked about the @Yuanbao feature in video accounts and official accounts comment box, which allows users to ask Yuanbao to summarize the content so that they can actually have very quick reference. And it actually encourage a lot of interesting additional follow-up questions and follow-up comments based on the summary of what Yuanbao provided. And we also enriched the Tencent News feed in Weixin with Yuanbao-generated content and allowed a lot of users to use that as a way to explore more news content, related news content as well as ask questions on the news content. And we are actually adding more and -- we are planning to add more functionalities of Yuanbao into Weixin so that -- those functionalities actually, one, serve the Weixin users better; and, two, actually help Yuanbao to gain a larger audience. And more and more of these audience find Yuanbao's capability through Weixin and eventually become a Yuanbao app user. So that's sort of complementary to each other. James Mitchell: And Alicia, in terms of the AIM+ automated ad campaign solution, we believe the automated ad campaign solution benefits all advertisers who deploy it by enabling them to automatically reach inventories as well as user profiles that are more performant than the inventories and user profiles they were manually targeting. You're right to say that small and medium-sized businesses are the first or the most eager to adopt this kind of product because they have the least legacy process to replace, and that's what we're experiencing right now. But we're also seeing bigger advertisers adopting AIM+ too that parallels the experience of Meta's Advantage+ automated ad solution overseas. Thank you. Wendy Huang: We will take the next question from Gary Yu from Morgan Stanley. Gary Yu: My first question is a follow-up on Yuanbao and Weixin. It appears that both the Yuanbao adoptions and also agentic AI function of Weixin hinder on foundation model capabilities, but yet CapEx spending remains slow according to your latest comment. So is there a risk that the company is not aggressive enough such that the potential AI application market could be lost to other companies who have either better model capabilities or more aggressive CapEx spending? And my follow-up question is regarding some of the expense items, selling and marketing and R&D. So when should we expect some of the internal AI adoption to benefit on cost efficiency in order to offset some of the investment that we have talked about on Yuanbao and game advertising. Chi Ping Lau: Yes. In terms of adoption and also the CapEx spending at this point in time, we actually believe that there's no insufficiency of GPUs for us at this moment. It's -- all our GPUs are actually sufficient for our internal use, and there is some limiting factor for external cloud revenue. Now in terms of the Yuanbao capability and Hunyuan model capability, as I talked about to Alicia's questions, we are actually making a lot of improvement in terms of our team, in terms of our talent recruitment and in terms of our Hunyuan infrastructure and overall process of the Hunyuan research. And I would say we are actually happy with the progress we have made already. And if you wait a little bit for our next model, you can see meaningful improvement in terms of the Hunyuan capability. And I believe with the new improvements that we have been making, we'll continue to pick up pace on the Hunyuan capability. And at this point in time, we actually do not believe that there is a decisive better model in China as everybody is actually locked in a pretty close race and different models may be different, maybe better in different use cases as well. So we don't believe we are really behind. And as we continue to improve our Hunyuan capability, and we actually have been also seeing quite a good ramp in terms of Yuanbao engagement. So I think you see both the model capability as well as our AI products keep on improving. Now in terms of the expenses, I think at this point of time, the G&A expense, especially the R&D is actually some of that is related to our AI investment. So there's a natural ramp-up because we invest more in AI. And if you look at the benefits of AI, at this stage, a lot of the efficiency gains are more on the revenue side and the gross profit side. So you see pretty good growth in those items. But in terms of the cost item, I would say we have already done pretty big organization optimization a few years back. And the organization that we have is actually lean and efficient and AI adoption actually allows our team to do more as well as instead of -- to reduce cost, which I think some other companies you are probably comparing with. Wendy Huang: We will take the next question from Alex Yao from JPMorgan. Alex Yao: Congrats on a very strong quarter and also thank you for playing a very smooth and relaxing music before the call. I will ensure I watch this TV drama after the earnings season. So 2 questions from my side. First one, you mentioned that Tencent is developing agentic AI capabilities within Weixin in the prepared remarks. Can you share your thoughts about how agentic AI creates value to consumers in Weixin. I'm particularly interested in your thoughts around Agentic commerce. Second one is on CapEx. Did I hear John right that the CapEx for 2025 will be lower than the previous guidance, but higher than the '24 actual CapEx spending. If I get that right, does it reflect a change of AI chip availability or a change of AI investment strategy or a change of your expectation of future token consumption? Chi Ping Lau: Yes. On your second question, the answer is you heard it right. And it's not a reflection of our change in AI strategy. It's not a change in terms of expectation of future token consumption. It is indeed a change in terms of the AI chip availability. Now in terms of the agent AI capabilities, right, I think the blue sky scenario is that eventually, Weixin will come with an AI agent that actually can help the user to essentially do a lot of tasks within AI -- within Weixin leveraging AI, right? Because if you look at the ecosystem of Weixin, it has very strong communications and social ecosystem, and it has a lot of data that allows the agent to understand about the users' needs as well as the intentions and interest. It has a very strong content ecosystem in the form of official accounts and video accounts. It has a mini program ecosystem, which essentially includes most of the use cases on Internet. It has a commerce ecosystem, which allows people to buy stuff and the payment ecosystem, which actually allows people to pay for it almost immediately. So that is almost ideal assistant for users and understands about the users' needs and can actually perform all the tasks within the ecosystem. So that's the blue sky scenario. Now I think how do we get there? At this point in time, it's actually very early stage in terms of development. Weixin is doing a number of things in parallel. For example, it's introducing Yuanbao capabilities into Weixin so that we can test out a lot of the AI features on a stand-alone basis within Weixin. It's also enhancing search with AI so that we can serve the users' search and information collecting as well as analysis needs more efficiently. We are also starting to work on vertical agent capabilities. And that's something that we are working on. We have not launched these yet. But then very likely, we'll be sort of working on functionality one by one. But eventually, we can actually sort of integrate all these agentic capabilities as well as the AI features so that we can actually create this blue sky scenario of Weixin agent. I think in terms of agent commerce, right, I think there's the agent side and there's the commerce side, the commerce, we're actually making very good progress in terms of building up our e-commerce ecosystem and the mini shop is actually growing very nicely in terms of GMV. Over time, as it continued to grow, right and as we work on the vertical agents, right, at some point in time, we will have agent e-commerce as well. But that's a bit later in the process. Wendy Huang: We will take the next question from William Packer from Exane BNP. William Packer: Congrats on the strong quarter. Firstly, Bloomberg have reported today that you've come to terms regarding a 15% commission with Apple within the WeChat ecosystem, below their usual 30%. While you probably prefer not to talk about the specifics in the press article, could you help us think through the implications of your improving relationship with Apple and the impact on your business, particularly in Mini Games and domestic video games? And then secondly, as a follow-up, Q3 was another very good quarter for Marketing Services with revenue growth accelerating. Could you help frame the growth outlook in the shorter term and for 2026 and any new structural or cyclical factors to consider? Chi Ping Lau: Well, in terms of Apple, right, what I could say is that, number one, we have a very good relationship with Apple, and we have sort of collaborated on a lot of different areas. And we have been in discussion with Apple to make the mini game ecosystem more vibrant. And we are constructive with the progress that we've made so far. And I think at some point in time, there may be an official announcement. And I think everybody should wait for that. James Mitchell: And in terms of the advertising growth outlook, we think that it's largely a continuation of current trends. Overall, China consumer spending is subdued, but gently improving, which is a gentle tailwind for advertising spending on the demand side. And then in terms of the supply that we provide, we'll continue deploying more AI capabilities, including the AIM+ program automated ad campaign program that I referred to earlier. Thank you. Wendy Huang: We will take the next question from Charlene Liu from HSBC. Charlene Liu: I think a quick one on R&D spending, especially as a percentage of revenue. How do we expect that to trend in the near and medium term? And then separately, we've seen really good GPM optimization at the segmental level. How should we think about overall impact to OPM taking into consideration potential uptick in AI investments, depreciation costs and whatnot? Yes, so those 2, I wanted to kind of see how that margin net impact will sort of play out in the medium term. James Mitchell: Why don't I take the gross profit margin question. And first of all, to clarify, while the gross margins of our various segments have been trending upward over time, that's not purely or even primarily due to sort of optimization efforts per se. There are some subsegments such as cloud, where we have taken a number of measures to optimize profitability, and that has flowed through into higher gross margins in the last 2 years. But for most of our segments, the improvement in gross margins is more a function of the positive mix shift toward higher-quality revenue streams that we've talked about a number of times in recent quarters. In terms of the dynamic between gross profit margin and operating profit margin, I would not put too much weight on that quarter-to-quarter because there are costs which at an early stage in a product development cycle, we would expense under R&D and therefore, come below the gross profit line. But then as we actually make the product more widely available, commercialize the product, we would move the costs from R&D expense into cost of service and therefore, above the gross profit line. So I would probably focus more on revenue growth, operating profit growth without getting too fixated on gross profit margin versus operating profit margin. Wendy Huang: We will take the next question from Kenneth Fong from UBS. Kenneth Fong: Congrats on a strong result. I have a question about the investment strategy. Given the strong equity market performance year-to-date globally, could management share some thoughts on our investment portfolio and strategy and direction? So basically, how should we deploy or recycle our capital? James Mitchell: So as you point out, markets have been quite buoyant both in terms of price and in terms of liquidity. And so we've been taking advantage of that buoyancy to more actively recycle our portfolio primarily via some on-market sales of our investment holdings. We've also been new investing in some emerging growth opportunities as well as our normal sort of focus areas such as games and digital content. But overall, year-to-date, divestments have exceeded investments by over $1 billion. And we've been actively investing in some interesting AI start-ups, particularly in China, where we can see a sort of new wave of value creation ahead. Wendy Huang: We will take the next question from Ronald Keung from Goldman Sachs. Maybe we go to the next question if Ronald not online. So we will take the next question from Robin Zhu from Bernstein. Robin Zhu: I guess 2 questions on gaming, please. One is if we look at the shooter genre, I think there seems to be a bit of a changing of guard with Battlefield, Delta Force, ARC Raiders is now doing quite well. Would be curious your thoughts on what you think is happening at the genre level. And for Delta Force specifically, what it would take, what's being planned to get the game from #2 -- #3 closer to the top 2 games? Is it realistic to expect that, that happens at some point or not? And I guess a follow-up on an earlier question on the Mini Games developments, I'd be curious if you could try and dimension some of the relative contributions of in-app advertising versus in-app purchases on Android right now and whether we think that this discussion going on with Apple is -- primarily on Mini Games has been reported? Or is there a broader discussion going on about -- or could potentially go on about the broader games business as a whole? James Mitchell: Robin, so in terms of what's happening with first-person action games, then outside China, as you say, there may be a changing of the guard. Within China, I think that Delta Force has obviously been performing gratifyingly well, but VALORANT has had an exceptionally strong year. And then Peacekeeper Elite, Arena Breakout, Crossfire Mobile, pretty much all of our first-person action games have actually been growing DAU or growing monetization or mostly both during 2025 year-to-date. So to me, that's not really a changing of the guard. It's more an expansion of the royal guard, if you will, which I think speaks to the fact that first-person action games are the leading game genre in the rest of the world. They're not yet the leading game genre in China, but with Delta Force and VALORANT and Peacekeeper Elite and the rest, we're seeking to bring them to the position that they should enjoy. In terms of growing Delta Force further, then we're really embracing platformization with our biggest games. And Delta Force unusually is sort of built from day 1 to support platformization in terms of its modularity. With more platformization, we can also support more new modes. And then one of the new modes that has done very well in Peacekeeper Elite, in PUBG Mobile and over time, we'll seek to nurture in Delta Force is user-generated content. And then we'll continue to add player versus environment content. We'll continue to strengthen the stream ecosystem and generally apply the experiences that we've accumulated over 17 years of launching 40 first-person action games in China to Delta Force. And then on your second question, the stories refer to Mini Games, not to app-based games. And at this point, the majority of the Mini Games revenue is in-app purchase rather than in-app advertising. So we'd theoretically benefit. Thank you. Wendy Huang: We will take the next question from Thomas Chong from Jefferies. Thomas Chong: Congratulations on a very strong set of results. My question is on the FBS side. Given that we are emphasizing more on the consumer loan side, I just want to get some color with regard to the macro environment. Is this a factor that we need to take into consideration about our consumer loan revenue growth? And if we look into our cloud revenue, how should we think about the growth rate going forward? Should we take into account the CapEx spending? Or should we expect the growth may decelerate because of less CapEx? Chi Ping Lau: So in terms of the FBS, particularly with respect to fintech, I think if you look at the fintech, there are 3 major businesses within fintech. One is our payment business. The second one is wealth management. The third one is loans, right? And in terms of macro environment, macro environment has the biggest bearing on the payment business because payment business is already very big. It tracks pretty closely with consumption growth in China. And there was a time in which the consumption growth was actually in more challenging state. I think over time, it's gradually improving. And what we see is in China, the consumption growth has been slow, and it's mainly due to the fact that a lot of consumers ramp up their savings during a period in which their balance sheet was actually sort of dragged down by the decline in property prices. So unlike a lot of the other economic downturns around the world, which are driven by excessive credit and a lot of people would go bankrupt, right? In China, it's just sort of people have resources, but then they decide to save more instead of spending more. We actually sort of -- so that's why we think there is actually potential for consumption to grow if people start to feel that they are secure now with the additional savings. And at the same time, if property prices stop declining, I think people will probably begin to spend more. I think this year, we have seen stock prices have been sort of pretty strong and that adds to the household balance sheet, and that is slightly a positive factor. And at the same time, if you look at consumer loans, right, because people are not stretched from a balance sheet perspective, they're just sort of saving more. It's not actually sort of affecting consumer loans delinquency that much. And by the way, we have been sort of very self-constrained in terms of extending loans, in terms of loan amount and also because of the data that we have, right? I think our underwriting is actually very conservative, very data-driven and our delinquency is among the industry leading. So that's essentially on the fintech side. In terms of cloud business, I think we have been increasing our revenue finally sort of this year, right? In the past few years, our revenue has not grown that much, but our gross profit has grown very significantly. And this year, we're growing both the revenue as well as the gross profit and the business is actually sort of profitable. One constraint of cloud business growth is availability of AI chips because when AI chips are actually in short supply, we actually prioritize internal use as opposed to renting it out externally. And the other way to say is if there is not an AI chip supply constraint, then our cloud revenue should be growing more quickly. Wendy Huang: We will take the next question from John Choi from Daiwa. Hyungwook Choi: I just want to quickly follow up on the advertising business. I think another strong quarter, as you said. But I think last quarter, management mentioned that it was more due to AI implementation. But for this quarter, can you kind of elaborate a bit more how impact from AI and how that has reshaped the overall conversion and pricing for our ad business. So if you take that out organically, what kind of growth could it be seen? And also just on the -- quickly -- a quick follow-up on the payment side. I think Martin just mentioned that the overall household spending has a high relation. But you also, I think you mentioned the retail and transportation category has done well on your volume growth. Especially on the grassroots side, have you noticed any trends that we are seeing on industry-specific levels and in terms of the transactions or the transaction size that gives us more confidence that over the past couple of quarters to see the improvement trend? James Mitchell: Why don't I take those? So in terms of the advertising revenue, roughly half of the growth or about 10 points was due to higher eCPM, which we attribute primarily to AI-supported adtech as well as the closed loop benefits. And then the other half was due to increased impression volume, which reflects increased user engagement and increased ad load. In terms of the commercial payment volume trends, then there is a measured improvement. As Martin spoke to, it's positive that China consumers have accumulated substantial savings, above trend savings in recent years. So they may be less worried by property price fluctuations and more receptive to the stock market performing well than would otherwise be the case given the substantial pent-up spending power. And we have seen that the online payment volume has continued to grow quite steadily through the weaker periods and now through this more stable period. But the off-line payment volume, which had been very suppressed and under pressure for a period of time, has also started to recover. So while online payment volume is growing faster than offline payment volume, the gap has been narrowing as off-line payment volume has improved in categories, including transportation and retail, which I suppose reflects people going out and about more often. Chi Ping Lau: But I have to stress such improvement is still pretty nascent. So we actually need to see it for a few more months in order to sort of have more confidence in saying this is a trend. Wendy Huang: We will take the last question from Ronald Keung from Goldman Sachs. Ronald Keung: Sorry for the technical. I have a question on advertising. Just following up on -- I want to hear how the AI Marketing Plus product, any early data points on the performance and ROI for merchants on that? And I also see you mentioned Mini Shops in one of the very early bullets in the results. So could you quantify the potential of that ad potential that I'm particularly looking for the increasingly vibrant Mini Shop transaction ecosystem, the ad potential there? And then my second question, I just want to ask about the analogy from Weixin and QQ because we have seen Facebook and Instagram kind of serving different cohorts within the company, and we have been serving those with Weixin and QQ as well. Any parallels and differences how we see Weixin as a key product, but also potentials for different products serving cohorts within domestic China? Just an open question -- open-ended question. James Mitchell: Why don't I start with the question around AIM+. So when you introduce this automated ad campaign system, the biggest sort of leap for the advertisers is allowing us as the platform operator to actually manage the bidding process on their behalf. And of course, there's degree of internal conservatism within the bigger advertisers as to whether to entrust the platform to manage the price or not. And typically, the larger advertisers will run the automated and the manual processes in parallel for a period of time and compare the ROI to verify whether the automated process is delivering more performance or not. And we've turned on that automated bidding tool relatively recently, but the early results are positive. Those advertisers who are adopting the automated solution are enjoying superior returns. And therefore, the percentage of our advertisers and the percentage of our advertising spending that is going through AIM+ is steadily increasing. And in terms of the Mini Shops, then I think you can benchmark the advertising to GMV ratios of the incumbent e-commerce marketplaces in China across to the GMV for Mini Shops, which is growing very quickly. And that will give you a sense of the advertising revenue potential from the mini shop operators. So that's on the advertising question. Chi Ping Lau: Yes. In terms of Weixin and QQ and then sort of analogy for rest of world, for example, sort of Facebook and Instagram. I think it's a very interesting question. And I think there are some fundamental differences, right, in the sense that, number one, if you look at Instagram and Facebook, they are primarily social networks, right? And if you look at Weixin and QQ, they are both communication network and social network. So if you have social network and it's sort of -- it's content-based, then it's actually easier for you to have different groups of people dialing in and reading different content versus communication, then the network effect of communication platform is actually sort of stronger. And the other thing is that China is much more mobile-oriented versus I think the rest of the world, there are still a lot of people who are using PC and if you have PC, then Facebook seems to be sort of adding more PC users. And I think thirdly is if you compare Facebook and Instagram, right, Facebook tends to sort of keep the more mature users and Instagram sort of more younger people. But in China, it's actually different between Weixin and QQ, right? The QQ users are primarily sort of younger in nature. So I think there is some fundamental differences. But at the same time, Weixin and QQ are serving different user group and different use cases. A lot of the younger people also have Weixin, but then they use QQ so that they would not be seeing their parents and their teachers and some people -- younger people would not be seeing their colleagues. And so I think going forward, when we continue to evolve QQ as a product, right, then we should actually latch on to these features and these user needs and sort of make it more fun, make it very differentiated from Weixin. Weixin probably will serve all purpose, whereas sort of QQ will serve the younger people, more active people, and we should sort of try to provide a lot of functionalities. You can meet new people, you can sort of serve more of your interest-based groups. And I think that's the way we are going to be differentiating QQ and Weixin and make sure that they serve our users in different use cases and scenarios. Wendy Huang: Thank you. We are now ending the webinar. Thank you all for joining our results webinar today. If you wish to check out our press release and other financial information, please visit the IR section of our company website at www.tencent.com. The replay of this webinar will also soon be available. Thank you and see you next quarter.
Operator: Good day, and thank you for standing by. Welcome to Kingsoft Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Yinan Li, IR Director of Kingsoft. Please go ahead. Yinan Li: Thank you, operator. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2025 third quarter earnings call. I'm Li Yinan, IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors, which may affect our business and operations. Additionally, in today's earnings call, the management will deliver prepared remarks in both Chinese and English. A third-party interpreter will provide consecutive interpretation into English. During the Q&A session, we will accept questions in both English and Chinese with alternating interpretation provided by the third-party interpreter. On-site translation is solely to facilitate communication during the conference call. In case of any discrepancy between the original remarks and the translation, the statements made by the management will prevail. Having said that, please allow me to introduce our management team who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO. Now I'm turning the call to Mr. Zou Tao. Tao Zou: [Interpreted] Hello, everyone, and thank you for joining Kingsoft's 2025 Third Quarter Earnings Call. This quarter, we continued to prioritize strengthening our core businesses with AI collaboration and internationalization as its strategical priorities. Kingsoft Office Group continued to deepen AI application scenarios and strengthen its brand and ecosystem development. Our online games business advanced general experience and extended its global reach, notably with the global launch of the sci-fi game, Mecha BREAK. In the third quarter, Kingsoft's total revenue reached RMB 2.419 billion, representing a year-on-year decrease of 17% and a quarter-on-quarter increase of 5%. Specifically, our office software and services business maintained a steady growth momentum. This growth was supported by robust momentum in WPS software business, rapid growth of WPS 365 business and steady growth in the WPS individual business. Revenue from online games and other business decreased primarily due to low revenue contributions from certain existing games and because the new game is still in its early development phase and gradually build its market influence. Now I will walk you through the business highlights of the third quarter 2025. In the third quarter, Kingsoft Office Group demonstrated overall improvement in its financial indicators with continuously optimized profitability and a significant acceleration in revenue compared to the previous 2 quarters. For WPS individual business, the rollout and promotion of new AI-powered products together with refined operations in both domestic and international markets drove a steady increase in WPS AI monthly active users, paying subscribers and user value. Revenue reached RMB 899 million, up 11% year-on-year. As of 13th September 2025, WPS Office global monthly active devices reached 669 million, an increase of 9% year-on-year. Specifically, WPS Office PC version monthly active devices grew by 14% to 316 million, while the mobile version monthly active devices increased by 5% to 353 million. WPS 365 business, we continuously enhanced our collaboration and AI product offerings, achieving significant progress in expanding our customer base among private enterprises and local state-owned enterprises and strengthen our product competitiveness and industry influence. This segment continued its high-growth trend with revenue reached RMB 201 million, a significant increase of 72% year-on-year. WPS software business saw acceleration progress in localization projects. Our AI-enabled products for government scenarios continue to integrate and deploy across government agencies, supporting the digital and intelligent transformation of localization customers. Revenue for this segment reached RMB 391 million, up 51% year-on-year. In the third quarter, for our online games business, our flagship game, JX3 Online celebrated its 16th anniversary in August, followed by the launch of its annual expansion pack in October, which delivered innovative new game player. The anime shooter game, Snowbreak: Containment Zone maintained its core user base through long-term content updates and user operations. Sci-fi mech game Mecha BREAK has been continuously optimizing its gameplay and operations to enhance the player experience. Additionally, to international IP games, Goose Goose Duck and Angry Bird are expected to launch this and next year in China, respectively. Looking ahead, Kingsoft Office Group will stay committed to its core strategy of AI collaboration and internationalization, meeting the scenario needs from individual user to enterprises through its core product portfolio. The online games business will focus on developing high-quality content and expanding global publishing, enhancing the long-term vitality of its classic franchises while driving the growth and the sustainable development of new genres. Yi Li: Thank you, Tao Zou and Yinan. Good evening, and good morning, everyone. I will now discuss the third quarter operational and financial results using RMB as currency. Revenue decreased by 17% year-over-year and increased by 5% quarter-over-quarter to RMB 2,419 million. The revenue split was 33% for office software and services business and 37% for online games and others business. Revenue from the office software and services business increased by 26% year-over-year and 12% quarter-over-quarter to RMB 1,521 million. The increases were mainly attributable to the growth of WPS software, WPS 365 and WPS individual business of Kingsoft Office Group. The remarkable increase of WPS software business was primarily driven by the robust orders of localization projects. The rapid growth of WPS 365 business was mainly due to our continuous improvement in collaboration and AI products as well as expansion of our customer base among private and local state-owned enterprises. The steady growth of WPS individual business was primarily attributable to increased number of paying subscribers, supported by our active promotion of AI features and refined operations. Revenue from the online games and others business decreased by 47% year-over-year and 6% quarter-over-quarter to RMB 898 million. The decreases primarily reflected lower revenue from certain existing games, partially offset by the revenue contribution from newly launched games. Cost of revenue increased by 3% year-over-year and 5% quarter-over-quarter to RMB 475 million. The year-over-year increase was primarily due to higher server and bandwidth costs, greater channel costs as well as increased service costs of institutional clients, along with the business growth of Kingsoft Office Group, partially offset by the lower channel cost of online games business. The quarter-over-quarter increase was primarily due to higher channel costs and increased server and bandwidth costs, both associated with online games business. Gross profit decreased by 21% year-over-year and increased by 5% quarter-over-quarter to RMB 1,944 million. Gross profit margin decreased by 4 percentage points year-over-year and kept flat quarter-over-quarter to 80%. The year-over-year decrease was mainly due to the decline in the revenue contribution from certain self-development high-margin games. Research and development costs increased by 4% year-over-year and 5% quarter-over-quarter to RMB 900 million. The year-over-year increase was mainly attributable to higher investments in AI and collaboration products, partially offset by lower accrued performance-based bonus. The quarter-over-quarter increase was mainly driven by the increased headcount and AI-related expenses of Kingsoft Office Group. Selling and distribution expenses increased by 55% year-over-year and 33% quarter-over-quarter to RMB 564 million. The increases primarily reflected higher promotional and advertising expenditures associated with online games business. Administrative expenses increased by 7% year-over-year and 2% quarter-over-quarter to RMB 178 million. The year-over-year increase was mainly due to higher personnel-related expenses and increased depreciation arising from the completion and operation of our Wuhan campus, which was constructed to support the Group's long-term development. Share-based compensation costs increased by 37% year-over-year and 13% quarter-over-quarter to RMB 80 million. The increases were mainly due to the grant of awarded shares to the selected employees of certain subsidiaries of the company. Operating profit before share-based compensation costs decreased by 70% year-over-year and 21% quarter-over-quarter to RMB 357 million. Net other gains were RMB 13 million for this quarter compared with losses of RMB 63 million and gains of RMB 443 million for the third quarter of 2024 and the second quarter of 2025, respectively. Share of profits of associates of RMB 5 million were recorded for this quarter compared with losses of RMB 428 million and RMB 170 million for the third quarter of 2024 and the second quarter of 2025. Income tax expense was RMB 66 million for this quarter compared with income tax expense of RMB 31 million and RMB 104 million for the third quarter of 2024 and the second quarter of 2025, respectively. As a result of the reasons discussed above, profit attributable to owners of the parent was RMB 213 million for this quarter compared with profit of RMB 413 million and RMB 532 million for the third quarter of 2024 and the second quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs was RMB 277 million for this quarter compared with profit of RMB 453 million and RMB 570 million for the third quarter of 2024 and the second quarter of 2025, respectively. The net profit margin, excluding share-based compensation cost, was 11%, 16% and 25% for this quarter, the third quarter of 2024 and the second quarter of 2025. The Group had a strong cash position towards the end of the reporting period. As at 30th September 2025, the group had cash resources of RMB 26 billion. Net cash generated from operating activities was RMB 494 million, RMB 1,387 million and RMB 767 million for this quarter, the third quarter of 2024 and the second quarter of 2025. Capital expenditure was RMB 72 million, RMB 109 million and RMB 81 million for this quarter, the third quarter of 2024 and the second quarter of 2025. That's all for the introduction of our operational and financial results. Thank you all. Now we are ready for the Q&A section. Thank you. Operator: [Operator Instructions] We will now take our first question from the line of Xiaodan Zhang from CICC. Xiaodan Zhang: [Interpreted] And my first question is regarding the gaming business. Games revenue for the quarter is down both year-on-year and quarter-on-quarter. So could management elaborate on the operational strategies for existing games as well as the new game pipelines? And also, could you share some color on the updated progress of Mecha BREAK? And regarding the office business, what are the main drivers behind the accelerated growth in Q3? And will this momentum be sustainable? Tao Zou: [Interpreted] So firstly is regarding the question for the games. We have discussed previously for the future and future strategy of the different versions. And so we currently have already obtained the version numbers, and we're going to be launching different games, including like Mecha BREAK and Goose Goose Duck and also the other products. But for the old games, we mainly focusing on the like the Fate of Sword and also the Snowbreak: Containment Zone, and we're going to have like the target for the customer, for the operation service. We're going to have the long-term like upgrading the generations, including the new play way, including new content, we're going to continue to upgrade that. This is the regular way. And target for the technology and operation, we're going to have some new improvement, so this is relevant to the strategy of the game. And for the Mecha BREAK, because it just launched for 1 season roughly and the target for this game for the play way, for the operation and also the rich content, we are still doing the operation and improvement. We think that we need longer time to give the answer. So actually, regarding the growth factors, we think that we could take a look from 3 perspectives. What I can say is that basically, they are all good, but I would like to separate into like personnel for the enterprise and also the information innovation, 3 aspects to the introduction. For the personnel, actually, the growth rate of the members is -- we have the basic number and including like the payment for the up value. And for their PC growth rate is actually out of -- exceeded our expectations. So this is going to be the key thing, which is the members. The secondly is the AI. Once we have released the 3.0 version, so through the AI, we have this monthly activity. Members compared with last year is going to increase 20%, especially launch 3.0 version. So compared with the first half year, we have realized doubled. And this is the second point. Another thing is that from the basic for the membership grows, so we can see that the feedback from the users are quite good. So we can see that basically it's exceeded than what we expected. It means that more and more enterprises customers, they started to accept us. And also for our product and service are quite satisfied. That is why we have increased like the industry's competitiveness. And third is about the software and information, the information innovation. So regarding this part is that we can see that since Q3 is quite smooth, and it has increased like 51%, no matter for the personnel or information innovation. So basically, it's going to be a very, very positive situation. So the growth element, whether we could be sustainable development, we would like to talk through 3 perspectives: personnel, enterprise and information innovation. And firstly, for the information innovation, that is kind of policy-oriented. So basically, we can realize more than 90% of the growth rate. This is from the short-term perspective. We can see that like Q4 is quite good, probably because we're going to complete in 2027, but the acceleration is quite good. Unless we have the big policy direction is going to have some adjustment. Otherwise, we have the confidence that we could realize this much growth constantly. For the personal business, regarding the growth rate for these 3 business, we have realized like more than 10% increase. So from the increasement of the membership and secondly is the payment like conversion rate and also the UP value. So up till now, we can see is that the users membership growth is quite good. And especially for the AI members is growth rapidly. So generally speaking, we have confidence. And -- but of course, it's a little bit lower than the expectation and then the enterprise membership growth. So from the enterprise perspective, my personal judgment is that if we could realize the delivery, if the delivery is on time in the future, we have a pretty big space to improve. So in the next 2 years, we're going to have -- we believe that we have more and more enterprise members to use our product. So we can see is that our productivity is quite good and our service is going to have a reputation. For our team, we need to strengthen their internal and external cooperation to strengthen our delivery ability. We believe that this has a certain pressure for us. But generally speaking, so from this report, we can see a lot of data was renewed, including our R&D and our staff percentage and also the investment of the R&D could reach to 35%, 36%. Previously, it was 32% to 33%. So we can see that we continue to do a further bigger investment for the R&D. This is -- we believe that it is going to be the very basic reason we could have such increase, especially like Wuhan Industrial Center and started the construction work in 2018 and up to now it's become the largest industrial base for Kingsoft. And this is going to be a very solid foundation for us. Operator: We will now take our next question from the line of Wenting Yu from CLSA. Wenting Yu: [Interpreted] So my first question is, how does the company view the opportunities for WPS Office and 365 in international markets, and which countries or regions will be the strategic priorities? And how does management assess the competitive dynamics overseas, particularly against the Microsoft Office? And the second question is about the online game. So over the next 2 years on top of the 2 IP titles mentioned in our pipeline, which game genres will be the main focus in the company's pipeline? And how does management view the opportunities for games to expand into the overseas market? Tao Zou: [Interpreted] So regarding the first question, this is actually a very good question from the strategic perspective. Since last year, we have reached the concept that AI collaboration plus overseas. So from the business perspective, the growth rate overseas is quite good from the users, members' perspective and also the other perspectives. So since -- started from this year, we have increased the overseas R&D investment. We actively did a lot of preparations for to go overseas. So from my perspective, especially when we talk about the competition with Microsoft because our main competitors is Microsoft. So our competition strategy overseas is that I think I would need to separate it from 2B and 2C, 2 perspectives. So for WPS in domestic market, we have actually go through with the competition with Microsoft for almost 30 years up to now is a long term. So several key points. The first is that from the edit tool to the content service platform, we have did this transformation because everybody really know that if they're going to use our product, we're going to provide a module. So our members target for the content and to have this PDF content transformation and also to like search the content information, et cetera. So this is actually very early stage, we did this. And except for very early stage, we have the document edit tool. We also have provided the content, the document content service to convert it into a platform. So actually, this is the first point. And secondly, is that since 2013, we started the like mobile end. So this is actually early -- 2 years earlier than Microsoft. So actually, for us, it's just an app would be solve all of the problems. But for Microsoft, it's going to be more complex. And so our -- that our -- like their package, the installation package is smaller for the mobile end. So that is why in overseas, a lot of customers, they actually know about us through the mobile end. Then we have the mobile end, we have these advantages. And in the past 10 years, we have collected a pretty good foundation. And then from the technical perspective, from the mobile end, we have some certain advanced than Microsoft. This is going to be the core things. And this time, we have the AI and especially we have released 3.0 version since 2023. After 2 years optimization, our sales together with our users, they're going to give us the feedback and we constantly do the practice, and we have a very good like both parties both end interaction. So we think that from the AI's perspective, target for the content application, we are stronger than Microsoft. So this is actually from the 2C's perspective. And we are actually a platform to do -- to provide the content and also the service, not just a simple document edit tool. And also from the mobile end, we have advantages together with our technology, we have the correct way. So we have the difference from the technical route. So for the 2B's perspective, I think we have a bigger advantage. And actually, all the domestic members are all clear, especially we have this -- the first package released to the market. Our WPS 365 is not just a content treatment platform. This is actually an office platform, especially we have the AI edit. And so not just -- we are not just like document treatment set compared with Microsoft. We are actually the whole office platform. And this platform in our company internally, we have used for 2 years. And in domestic market, we also have a lot of enterprises. They are seeing they actually could -- this software could have a very perfect integration with the enterprise OA system. This actually are significant advantages. So we can see that at least for our Office platform and to compete with Microsoft, this is actually very early stage. We have this module. We're going to have different components. So we have different module. It's very flexible and also the layout are also quite flexible. This is from the 2B's perspective. So this is actually -- we make a conclusion is that we have 2 perspective from 2C and 2B. And in the past few years, especially for the mobile end has been released. In the past 10 years, we have a very good like public members foundation through the mobile end. So on the other hand, they would like to actively download the PC end to remake the promotion and layout. So -- and secondly is from the national perspective, and we have a lot of Chinese friends, they would like to do the promotion and development. So I think that this is the core thing. So the second is regarding the games. Actually, we have a pretty good like foundation. Currently, we have some of the games already obtained their version numbers and including the JX4 and Angry Birds and Goose Goose Duck, and also the Snowbreak: Containment Zone. And we also have some games, which didn't get their certification yet, but probably we're going to launch it next year. So we think that from the overseas, the overseas opportunity is quite good. So including when we did start the -- launched the game in the -- for the Snowbreak: Containment zone and also the Mecha BREAK, we tried several times, especially for the mobile end. So we realized that in domestic market, some of the companies, they did a pretty good performances overseas. So we believe that this direction is correct. So we're going to continue to optimize our product, our technical ability, operation ability. Operator: We will now take our next question from the line of Linlin Yang from Guangfa Securities. Linlin Yang: I have 2 questions. The first question is could you share us the progress of our AI business? How do you think about its commercialization pace and market potential? My second question is the expenses. We see sales and marketing expenses was relatively high in the short term. As the business stabilized, will it return to normal by next quarter or Q1 in 2026? Tao Zou: [Interpreted] So I would like to answer the first question, and Li Yi is going to answer the second question. So regarding the AI business improvement progress, actually, since April this year, when we found the [indiscernible] to collaborate with Kingsoft Cloud target for the enterprises and different application services from the strategic way we're going to do the support and actually, including Zhuhai, we have local big model, and we have the feasibility report regarding the transportation, we have different projects delivery and also in different industries like the low industries, et cetera, with different regions, we all started all of the development. And so for the more details, it's not convenient for us to disclose at this moment. But why we would like to set up an AI product center because we strongly believe that the whole industry, when we do this practice for the big module, it's going to get into the specific application for different industries. So simplified -- make it simplified is that we think that in the future, different industries is going to have like restructured system for the big module, including the internally of the enterprises, for the organizations way is going to have some change. So the main job of this year is to this part. And we -- for Kingsoft Cloud, we have some progress. So at this moment, at this stage, the business is still in a very early stage. So because of a comprehensive reason, it is not convenient to disclose too much details at this moment. Yi Li: [Interpreted] So regarding the second question for the expenses for the marketing actually when we promoted into -- launched it into market, and we believe that for the long-term perspective, it's going to get back to a normal situation. When we have promoted the launch of different products, and we think that the cost is going to -- different season is going to have slightly changed. And the previous season, it was 15% to 16% and also this season is going to reach to 20% and more than 20%. So from the whole year's perspective, this is going to get -- we think that's going to be a reasonable level because we need to have all of the cost for the R&D, especially for the AI in the -- specifically in the early stage, we need to have more investments, but that is for the long-term sustainable development. So we believe that in the long term, we're going to control the rate, the investment rate and finally get a reasonable profit level. Operator: I am showing no further questions. Thank you all very much for your questions. And with that, we conclude our conference call for today. Thank you for participating. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Lawrence Hutchings: Good morning, and welcome. It's great to see so many familiar faces here in our events center in Salisbury House and a big welcome to those on our webcast this morning. I'm Lawrence Hutchings, Chief Executive, and I'm joined today by Dave Benson, our CFO. This week in -- Monday to be exact, marks my first anniversary at Workspace. Our agenda for this morning, we have a high-level overview of performance in the first half. I'll hand over to Dave to take us through the financials in detail. Then I'll take us through our first update on strategy since we launched back in June, which was 5 short months ago, and we'll then move to Q&A. It's been a very busy time for Workspace. The economic backdrop continues to be challenging, not least because of the uncertainty around the upcoming budget. So we are controlling the controllables and taking a series of actions to deliver the fix, accelerate and scale strategy that we laid out in June. We're starting with our focus on stabilizing then rebuilding occupancy. But before I go into that, I'll summarize the first half performance, including some early and encouraging success indicators. There should be no surprises on this slide. We are clear on our expectations. The performance in the first half has played out broadly as we expected. Back in June, I said things were going to get tougher before they got better. Let's start with the performance metrics. I'll highlight a few on the light blue line, like-for-like occupancy is down, as we said. And that's driven a fall in rental income and also in valuations. Importantly, we've taken cost out of the business. So our admin expenses are down 5.6%, roughly GBP 2 million annualized. We've held our dividend flat and it's well underpinned by our cash flow because we understand how hugely important dividend is to our shareholders. On the dark blue line, Dave will talk through this in detail. but our valuation movement has been driven by lower occupancy and contracted rent along with a fall in ARVs, and this reflects our pragmatic approach to pricing. Although importantly, yields have held broadly flat. I'd like to provide more detail on what's driving the operational business. These are the interesting lead indicators that I referred to, and they demonstrate our strategic actions are gaining traction. Conversion and retention are key and together, they drive occupancy. Inquiries are down in a softer market but our conversion is up 1% year-on-year to 16%. And importantly, in October alone, up another percent to 17%. Retention has also increased, and this is a key focus for us, and I'll go into some detail on that later. A new metric that we're showing this time is our NPS, Net Promoter Score. It's up 14 points to plus 47, which is a great achievement. Our rent per square foot is marginally up. However, that is mostly driven by these fixed 5% annual increases or first year increases that we have in our lease -- standard lease model. This is the strength of our business. And it means that we are never far away from some form of reversion opportunity. I'll hand over to Dave to take us through the financials. Thanks, Dave. David Benson: Thanks, Lawrence, and good morning, everyone. As Lawrence says, we are operating in a softer economy, and we are seeing some customers deferring decisions in the run-up to -- in the uncertainty area in the run up to the autumn budget. But against this backdrop, as the top left-hand chart on this slide shows, we had slightly fewer inquiries in the first half of the year compared to the same period last year. However, as Lawrence will cover later, we have been working hard and the inquiry to deal conversion ratio has continued to improve. It's well above historic averages with a significant pickup in quarter 2. As expected and highlighted in our quarterly trading updates, we have, however, seen a fall in like-for-like occupancy, down 2.5%, largely driven by large customers leaving the Centro Center in Camden. Excluding those vacations, like-for-like occupancy would have been down to 81.7%. Like-for-like average rent per square foot was broadly flat, reflecting our selected price reductions and promotions, which have helped to drive new deal conversion and customer retention. Turning to the income statement. Underlying rental income increased slightly, GBP 0.5 million to GBP 67.3 million. The total rental income was down 2.9% to GBP 58.7 million, following the disposals made over the last 12 months. This was partly offset by lower administrative expenses, where we streamlined our support functions to deliver annualized savings of GBP 2 million. Net finance costs increased by GBP 1 million, reflecting -- sorry, a decrease in capitalized interest following the completion of Leroy House in October 2024 and also an increase in the average interest rate following repayment of GBP 80 million or 3.3% private placement notes in August 2025. Overall, trading profit after interest was therefore down 6.4% to GBP 30.6 million, with adjusted underlying earnings per share down to 15.8p. There were one-off costs of GBP 4.5 million in the period, largely in respect of the restructuring of the support functions and the implementation of our new CRM system. And these, together with the decrease in the property valuation, resulted in a loss before tax of GBP 71.1 million. Taking into account the trading profit performance and confidence in the longer-term prospects for the company, we will be paying an interim dividend of 9.4p per share, in line with prior year. On the balance sheet, and notwithstanding the decrease in the property valuation, which I'll come back to in a moment, we've maintained our capital discipline with trading profit funding last year's final dividend, and the proceeds from property disposals largely funding capital expenditure, resulting in net debt slightly increasing to GBP 833 million with NTA per share of GBP 7.21. So coming on to the valuation. Overall, we saw an underlying decrease of 4%, reflecting largely lower occupancy. On this slide, we set out the valuation movements by property category. On the left-hand side, you can see the valuation at the 30th of September and on the right-hand side, you can see the movements in the period. In the first row is the like-for-like portfolio, which accounts for around 3/4 of the overall value. And as you can see, the like-for-like valuation was down 3%, driven by lower occupancy, with the yield improvements largely offsetting a 2.3% decrease in ERV per square foot. We did continue to see smaller spaces performing relatively more strongly with units less than 1,000 square feet seeing a decrease of 0.7% in ERV compared to an average decrease of 3.6% for larger units. We also saw a significantly better-than-average performance in our high conviction and pilot sites with the valuation of pilot sites down by just 0.4%, and our high conviction down by 1.6% on average. Valuation movements in the non-like-for-like categories were also impacted by decreases in ERV which, in some cases, were compounded by yield expansion, particularly in the Southeast offices. Turning to debt. We continue to maintain a wide range of facilities with a spread of maturities, largely fixed interest rates and significant headroom. Over the past 6 months, we have successfully refinanced GBP 200 million of bank facilities, extending the maturity until 2029 as well as extending the maturity of a further GBP 215 million of facilities by one year. The facilities have the option to extend the maturities by a further year as well as increasing facility amounts subject to lender consent. Overall, this gives us significant flexibility with no additional refinancing required until 2027. As I mentioned before, though, we have seen a small increase in our average cost of debt following the repayment of the GBP 80 million of private placement notes. Looking forward, the softer economy and ongoing macroeconomic uncertainty continues to create a tough operating environment. As previously announced, H2 earnings will be impacted by a number of factors, including the lower opening rent roll, although we do expect less pressure on occupancy from large customer vacations in the second half. We will see the increase in the average cost of debt, as mentioned already, but we will also see the full 6-month benefit of the cost efficiencies that we implemented in the first half of the year. We expect full year capital expenditure of around GBP 60 million as we complete our refurbishments at Atelier House and The Biscuit Factory, alongside tactical capital-light refurbishments to enhance our offering in our conviction and high conviction buildings. This capital expenditure will be offset by proceeds from property disposals. And I'll now hand back to Lawrence to talk through our strategic progress. Lawrence Hutchings: Thanks, Dave. There are 3 elements to our strategy: Fix, Accelerate and Scale. And they are all underpinned by our objective to achieve operational excellence in our platform. That is the point where we're able to deliver highly efficient, sustainable growth in underlying recurring income. I call this the new Workspace where Workspace is once again a clear market leader. We've been working hard to execute over the last 5 months. I will go into more detail on each element over the next few slides. As we execute, we're starting to see traction, and it gives me confidence that we have the right strategy to deliver recovery in income-led shareholder returns. I'll update you first on Fix. This is the most critical area of our strategy, and it speaks directly to occupancy, which then flows through to income, valuations and shareholder value. We are laser-focused on stabilizing and then rebuilding occupancy. There are two drivers to our occupancy, new customers and retaining our existing customers. Many people don't realize that in any given year, typically 90% of our revenue comes from our existing customers. So the more we can retain, the better position we will be in, particularly in a market where the cost of acquiring new customers has grown. Within the retention area is our expansion and contraction of existing customers. We have almost 4,000 customers on our platform, and they have a diverse set of needs and requirements. They're dynamic, and we support them in a variety of ways. Often, this is in the shape of supporting their upsizing when they win a new piece of business or at times when they need to contract before then expanding again. This is part of the appeal of being at Workspace. Interestingly, our customers stay on average 5.5 years on an initial 2-year lease. Our platform and nearly 40 years of experience supporting London's creative SMEs, places us in a very strong position. However, experience, legacy and platform in themselves are not enough. So how are we driving these improvements in retention? Our customers are the owners and the CEOs of these businesses. They are in our centers daily. Therefore, the function and presentation of our buildings is absolutely critical, as is the service they receive from our center teams and especially the people that are on site every day because they interface with them all the time. We've put in place a huge amount of initiatives to support our retention. Our customer teams are taking more responsibility and leveraging their contacts and relationships to deliver expansions, contractions and lease renewals, which were previously run by our head office teams. We've further empowered our center teams to resolve the issues that come up on the ground. Nothing frustrates our customers more than 40 facilities. So we have to be right on top of it. Our new CRM platform now makes it easier for customers to raise issues and access a range of services and support. We're also delivering more events and value-added services. All of this action is delivering tangible results. Firstly, as I mentioned, like-for-like retention is already up -- is already up 2% to 85%. In October, when our center teams took over responsibility for expansions, we saw a 12% increase versus the Q2 monthly average. Our customer satisfaction score is up 1.5% to 91.2% since March. Our cleaning and maintenance score is up 3.9% since March. And finally, our value-add offers and Skills Academy, has received a 9.8 out of 10 review from our customers. We're tactically investing in our buildings to create better environments, and our pilot projects are the test centers for these improvements and innovations in both our product and experience. We're investing modest sums in the areas that our research and feedback tell us matters most to our SME customers. At Vox, we've seen the most significant changes. This high conviction building has seen occupancy improve 400 basis points to 79% since we launched the project back in June. We spent GBP 700,000 on high-impact areas, including breakout areas, receptions, meeting rooms and formal seating areas, corridors and putting new phone booths in. Over the leather market, sorry, pleasingly, our NPS at Vox has improved to plus 78 from plus 41 just a year ago. And over The Leather Market, our NPS has increased to plus 37 from plus 16, a year ago. Occupancy at other market is 82% and being transparent marginally down. However, that is mostly driven by the impact of a fail customers business. Importantly, at Leather Market, we have 5,600 square feet of space over offer that translates -- under offer, that translates to about 4% in occupancy. However, let's not just listen to my views on the impact and changes that we're making to resourcing in our centers and presentation. Francesca, who is our General Manager at Vox Studio, has some fascinating insights of our own on the impacts. [Presentation] Lawrence Hutchings: Fantastic. Turning to new customers. In a competitive market, how do we improve our performance in attracting new customers to our platform. It's not simply about the number of inquiries rather the quality and relevance of those inquiries. I'm pleased to say, Will and the team are rising to the challenge. We are leveraging a huge amount of third-party data and market research more than at any time in our history to increase our market share of London's creators, makers, disruptors and innovators. This has led to a 20% increase in First Choice consideration in our brand tracking over the course of the last financial year-to-date. This remains significantly ahead of our largest flex peers. The broadcast video, on demand ad campaign that I know many of you have seen, has resulted -- has resulted in a 22% increase in booked viewings during the campaign period. Our new drive on targeted social and digital ads has delivered a 40% increase in click-through rate to our website from LinkedIn. Whilst our website accounts for circa 60% of all our leasing deals, brokers remain important, especially in our larger spaces. Our increased focus on engagement with these firms has seen viewings from brokers up 12% over the period. And our focus on local marketing has driven an increase in walk-in viewings, especially at our lower occupancy sites, including the Chocolate Factory, Westbourne Studios and Screenworks. Better leads are translating to better conversion. We're working across the board. We're training and coaching our sales team and building a more commercial mindset. We've reviewed their incentivization and we're taking a more pragmatic approach to commercial terms. We've freed the leasing team up from expansions, contractions and renewals to focus on new business solely. We're trialing new initiatives like furnishing units, inclusive deals and more flexible terms. And as you heard from Francesca, the center teams also have an important role to play. They're busy taking viewings, proactively improving units based on feedback from customers, viewings and from our sales and leasing teams, and they're undertaking common area upgrades and maintenance on a more regular basis. We're doubling down on technology, and I'm really excited about how we're using AI. Elodie, our sales agent is accelerating conversion, working 24 hours a day when our SME customers are online. Viewings on a Monday are up 25%, and there is more to come from Elodie. We're also using AI to generate floor plans and unit layouts along with this cool tool that enables our sales team to present the unit in several different design and layout options for our customers that struggle with spatial reasoning. You'll see the majority of our units on the website now have CGIs to help with space planning. We have more improvements coming with our customer site, including a new landing page, and improved navigation, and I'm pleased to say we've launched the new landing page today. So what are the next steps on Fix? As I've said, empowering our center teams, shifting accountability to the call face and incentivizing them to provide better customer experiences whilst driving revenue, and it's working. We're going to roll out this evolution of the structure across our portfolio. This creates a need for better data and revenue management tools, which we are continuing to enhance and roll out. And finally, this focus on driving revenue is being supported by our first Head of Revenue, James Graham, who joins us from IWG in early January. James will oversee the sales and retention initiatives across the platform. As you can see, we are 120% focused and moving at pace to address the occupancy challenge. Importantly, we're making progress, but we appreciate we have a lot of work to do. Turning now to Accelerate. This is about optimizing our GBP 2.3 billion of real estate portfolio and our platform. We're fond of saying we have two verticals in our business, a super fast-moving dynamic operating business, which delivers circa GBP 140 million of revenue a year. Sitting next to that, a real estate investment business that optimizes our real estate portfolio. And these two verticals are supported by a series of corporate functions. I just want to take a moment to remind everyone of our conviction-led approach following the extensive portfolio review we did earlier this year. We're on track to meet our 2-year target of GBP 200 million, which equates to circa 30 -- sorry, 20 assets. We sold GBP 52 million so far this year, which is broadly in line with book value. That's on top of the GBP 100 million of disposals we made last year. Most of these assets are outside London. They're smaller. They're not in our SME business format and they don't speak to our target customers. We have a further pipeline of disposals, and we're constantly reviewing our portfolio with a very critical eye. We will not shy away from recycling more, including the change of use opportunities where we believe the SME market has shifted in that location. Capital discipline is always important, especially given where we are in our recovery. As we stand here today, one of the best uses of our capital is rebuilding occupancy and letting up the space we already own. The swing from vacant to occupied is circa 130% of the rent when we include the empty business rates and service charge liabilities. Whether this is investing in pilot type projects that you've just seen or the subdivision of larger spaces into our smaller studio formats, the impacts on occupancy, income, income growth, adjusted profit and valuations is meaningful. This includes investing modest amounts on new sources of demand to accelerate our rebuilding of occupancy. Importantly, we don't have any further large projects, as Dave mentioned, beyond the completion in the coming months of the Biscuit Factory and Atelier House in Camden. Instead, we are focused 100% on leasing the floor space we already own, which means we have structurally lower CapEx commitments for the next phase of our recovery. We have guided to lower leverage, reducing our interest drag and improving our balance sheet metrics. And we have a proud history of dividends and dividend growth, which are fully covered by our trading profit. Our guiding focus is on ensuring we always have the most appropriate capital structure and on delivering shareholder returns. Accelerate also incorporates the next phase of our pilot project, which is now moving into business as usual following their success. We've selected China Works and Cargo Works in Southwark. These are beautiful characterful workspace buildings in amazing locations in what I call London's creative hinderlands out of Zone 1 through to Zone 3 and 4. These are locations where our extensive research tells us there is a high proportion of our target SME customers and their staff living, working and socializing. Growing occupancy through targeted investment in high-impact areas enables us to drive income growth. These projects are high impact. They're efficient use of capital with modest investment, delivering tangible near-term results on both conversion and retention. We said when we launched our strategy, all 3 elements started together immediately. We're confident in our ability to fix occupancy and deliver capital recycling to optimize our portfolio and our platform. We're going to be creative and entrepreneurial where we see growth opportunities within our capital constraints that deliver immediate impact on our occupancy. There are ways that we can capitalize on our unique real estate customer base, adding other complementary formats to our larger campuses that create new sources of demand and provide services to both existing and potential customers. Qube is an example. More on that in a moment. Micro storage is another example. There are others we are monitoring, targeting different high-growth sectors within London's dynamic and growing SME space. We believe we are uniquely positioned to access these opportunities as both owner and operator of our buildings. Turning now to Qube. This is a great example of our strategy at work. We're unlocking an exciting new source of demand for London's growing content creators. Many don't know, London is one of the world's leading locations for content. And there are well-established Flex platforms, including the Ministry and Elephant & Castle. Our deal with Qube at the Old Dairy is one of a pipeline of sites we've identified in London as we support Qube's growth with our real estate and modest amounts of capital. The combined investment is less than it would cost us to fit out the space, and we're excited by the halo opportunities we can create for like-minded businesses to locate near the Qube facility. We're also exploring ways of working together, including creating podcast studios in our assets that are operated or powered by Qube. And we're looking forward to learning from each other, operationally over the coming months, and we welcome Amin and Nick to the Workspace platform. Turning now to next steps. One of the most insightful things for me over the last 12 months and the most eye-opening things has been to get out into our buildings and visit our customers and just see how truly diverse and successful some of them are. We've started a podcast series. And I think some of you have seen the wild podcast I've done with Charlie, who was the founder there, which is a phenomenal success story within 5 short years. He's just sold that business for GBP 230 million to Unilever. And there are many others within our business. And one of our challenges is how do we get the workspace story and how diverse our customer base is and how our studio spaces are used by such a variety of different people in such a variety of different ways. And we kicked off a video at our strategy session, which we got really good feedback from. And every time we take sell-side or investors off to our buildings, they always come back surprised, pleasantly surprised about what they've seen. In fact, we had an investor tour a few weeks ago, one of our largest shareholders. And he said to me after walking around The Leather Market. He said, "This restores my faith in London". So we've got a video for you just to provide more insight into the types of customers we host on our platform and what they're doing with their businesses. [Presentation] Lawrence Hutchings: We remain laser-focused on our Fix, Accelerate and Scale strategy, starting with rebuilding occupancy, which will drive a recovery in earnings and deliver shareholder value. To put the occupancy challenge in perspective, if we converted every single inquiry we had in a single month, we wouldn't have an occupancy challenge. And I appreciate we're not going to do that, but it gives you some indication of the volume that we're dealing with in terms of inquiries and the deliverability of what we need to do. We're closer to our customers than we've ever been, and we're far more responsive. This is giving me confidence that we're seeing the early signs of progress as we presented today. However, I am aware it's early days, and we have a lot to do. We're clear what it is that we need to do and how we are going to execute and we are executing at pace. I'd like to move now to Q&A, and we'll start with questions on the floor, and then we'll move across to the webcast. Thank you. Lawrence Hutchings: Can I just ask that we introduce ourselves for those on the webcast, everyone knows who's asking the question. Thank you. Neil Green: Neil Green from JPMorgan. Two, please. First, on the occupancy side, given your lease break profile, you're able to flag the large unit vacations well ahead of time. So we saw that coming. Have you seen or are you watching any further potential large unit lease breaks, potentially back in the second half or first half of next year? And generally, any comments you may have around when and what level occupancy might trough at, please? And secondly, encouragingly leasing activity has continued post period end, and you've got some space under offer. But interesting to see if you can tell us any more around how those leases compare to ERV, given the ERV impact on the values in the first half, please? Lawrence Hutchings: So there's probably 3 questions there. Maybe I'll have a shot at the first one, Dave. The second one, Neil, just remind me again. Second question. Neil Green: Occupancy... Lawrence Hutchings: And trough. Neil Green: Yes. Lawrence Hutchings: Yes. And the third one is how the deals post the period close effectively, how they look against ERV. I think Dave is probably reasonably well positioned to answer that as well. But picking up the first one, we've been very transparent about one of the key drivers of occupancy during this last period, has been the vacation of a large occupier in Camden, which is where, obviously, our new offices, and there's a reason for that. There aren't too many 45,000 square foot occupiers within our portfolio. There's one other large occupier in West London that we're monitoring very, very closely. So I think after those 2 large occupiers, we stepped down a long way into the sort of 10,000 to 15,000, if that makes sense. There aren't many of those in our portfolio either. And then we stepped down again into the sort of 5,000 to 8,000 square foot mark. The sweet spot of our business remains 300 to 1,200 square foot units. But as you would appreciate, businesses come in and scale with us effectively. And there's many great examples. Some of them stay with us. [indiscernible] has elected to stay, we've moved out of our corporate space in Kennington to facilitate their expansion. But there are other cases where business is sold effectively. And that's what success looks like for our SME customers is some form of exit. And as you appreciate, there are times where part of that exit is that, that business gets taken up into the mothership as we call it effectively. And we get that space back and the process starts again with dividing the space back up into small units. We are being far more pragmatic. We've seen some improvement in large unit demand and where that's taking place, we've been comparing that to the alternative of subdividing units. Hopefully, that answers that question. Dave, I might hand over to you. We're being very careful about guiding to a trough in occupancy as you would appreciate. David Benson: Yes. I mean, I think it would be rash to guide to a trough against the macro that we've seen, particularly a week before budget. Having said that, we are very focused, as we've talked about on what we can control and the drivers and the early indications and they are early indications, are positive. The visibility, as Lawrence talked about, in terms of the large units, which have been a big driver of the movement in the first half are much less in the second half, which is positive. So I think we're controlling the things we can control and leaving those in the right direction, absolutely. I think the other thing I would say is that there is uncertainty, as I said, I think it has resulted in some customers and potential customers deferring decisions until after the budget, but when we speak to the customers, they are positive about the -- overwhelmingly, they are positive about their prospects for growth next year. So I think that augurs well for next year. In terms of ERVs and pricing where we're seeing, as we saw ERV's down in the first half, and that's really been driven by the deals we're doing. We are still doing deals at the -- I mean for us, as Lawrence says, the key focus at the moment is on driving occupancy. You have 130% return on driving it. And that is wholly our focus. So we are being creative about how we deliver that occupancy. Pricing is one of those factors. So we will continue to be pragmatic on pricing. Lawrence Hutchings: Just to add to that, we have fun to stay in the business, there's 2 levers effectively; occupancy and rate. And if occupancy comes up a little bit, we let rate off, rebuild occupancy, pull rate on effectively. So as you preset, supply/demand economics fundamentally within the building. So where we have tension we can drive better rental outcomes. There's no question. What we've also realized with the pilot projects is that where we're investing and improving the environment, those rent increases at the end of that 2-year lease are much easier for us to achieve. And we're getting feedback from our customers saying, I'm okay with paying a 5% or 6% increase because I've seen you're investing in the building. Denese down the front here, I think. Denese Newton: Denese Newton from Stifel. I had a question, obviously, you started to disclose retention rates, which is a new metric and will be a good guide for trends in occupancy. I just wondered with the current rate at sort of 85%, where should we benchmark that against sort of historic retention rates? And what do you think would be a realistic target for improvement in that? And how would that then impact occupancy? Lawrence Hutchings: Yes. I think if you -- in recent times, the last few years -- sorry, retention has slipped. There's no question. And I think going back just before I joined, we had several months where retention numbers were meaningfully lower than that 82%. And as I mentioned earlier, there are really 2 key drivers to occupancy. What we're putting in from the top new business and what we're losing effectively and as you'd appreciate in a competitive/uncertain market, the cost of customer acquisition goes up, as you would appreciate, retaining more existing customers is fundamental to us. We have seen periods where -- and obviously, we're providing averages over the reporting period, we have seen months where we're getting closer towards 90% but we're not guiding to a target at this juncture. We have gone through forensically and Will is here in the audience today is overseeing the sales function until James Graham arrives and doing a great job. We've been forensic in going through line by line, those customers. And as Francesca mentioned, we've moved from being reactive to a proactive. We're positively engaging with our customers to establish what their intentions are in advance of these lease events and seeing how we can go in and help. And sometimes help looks like contraction, sometimes help looks like expansion. Just to expand on that for a moment, the balance over the period of expansions versus contractions has been positive to expansions, about 60-40 effectively is the ratio we're running at the moment. So it's another metric which we think is important. So we'll continue to update and report against these retention numbers. I think it's early for us to be providing a guide. We're doing better than we have done in recent history effectively, but we think there's a lot more that we can be doing. And as I say, the pilot projects, retention has improved effectively. It's running above the averages. So that's what's giving us confidence, not just the physical changes, but the resource changes, taking the responsibility from the leasing team effectively across into that team. And if you think about it, Francesca knows these people personally. The CEOs are in our business, in our centers every day. She sees them, she knows them. So now she's empowered to have those discussions as well as part of the wider discussions, and we're seeing the same in Leather Market, and we've now handed that -- we've already handed that across to the other center managers, and we're seeing benefits. So it is a key area of focus for us. Adam Shapton: Adam Shapton at Green Street. Two questions. One -- the first one is technical one on valuation. And I might make a fool of myself with this question. But am I right in thinking that there's a structural occupancy assumption in the valuation that the valuers take and presumably you agree with them? David Benson: I mean they obviously form an independent view. I mean, in our view as directors is obviously, it has to be materially and we have to be comfortable with it. But different valuers take different approaches. We have -- this year, we have 2 valuers. So we have Knight Frank as well as CBRE valuing different parts of the portfolio. They both do Red Book, very similar approach, but slightly different assumptions. So there is -- within there, an assumption around void, yes, for different properties, units, et cetera. The key driver, though, really is the occupancy as we say, contracted rent at the moment. That's really what's driving the -- it's less about the endpoint. It's much more about the fact that the occupancy at the moment is lower. Adam Shapton: Yes. Okay. So my question was, has that assumption changed in the last 2 years? David Benson: No. Adam Shapton: In your statements, you very consistently pointed to where income would be at 90% occupancy, which you might say is leading people to think about that as a structural occupancy number. Is that still right? Is that what your value is assuming? Lawrence Hutchings: So long-term average is that, Dave, is 90%. David Benson: Yes. I don't think there's been a fundamental shift. It's more the fact that we have a new valuer who has a slightly different approach, that's all. Adam Shapton: Okay. That's clear. And then on retentions and renewals, it's great to see the number increasing. If you split out those renewals from your like-for-like numbers, is it -- are you able to say what your renewal rates would be versus previous passing? So I know within your like-for-likes, you've got step-ups, right, and fixed increases within terms. So -- and I know you mentioned there's people increasing and decreasing in GLA, but what's the renewal spread [indiscernible]? Lawrence Hutchings: Typically, we're better to be dealing with the existing customer from a commercial terms outcome than a new customer, typically. Adam Shapton: Sorry, let's say, I'm paying 50 square foot and I renewed, what's the renewal spread, is it -- versus previous passing? Lawrence Hutchings: So it's -- the renewal spread is different. I don't have the numbers at my fingertips. The renewal spreads look different with the smaller units compared to the large units. We're being a lot more pragmatic on large units at the moment, and there's more competition in that large unit space, if that makes sense. So we're being a lot more pragmatic there. I don't have the average with me. But what we know is that small sweet spot of our business, we've got more leverage there, if you appreciate. And we -- the renewal spreads will get the 5% kickers in the -- on the first anniversary, as you appreciate, standard lease model 2 years ,5% uplift year 1. And then effectively, we go to market at -- when I say market, it's not a true market review, but we're able to set a rent at the end of that period. So we -- as I say, we're typically renewing at passing or marginally above is my understanding on the small units, the large units is where we still have some pressure. David Benson: Yes, there's definitely a difference between small and large, absolutely. I mean you can see that in the ERV spreads that I talked about for the smaller units, it's a much smaller decrease. And in terms of -- I think your question around existing versus new deals, we are and always have been very transparent on pricing. Our pricing, you can see it on the website, our customers talk to each other fundamentally. So yes, we're doing some promotions and deals and so new customers may benefit from some of those, but there isn't as big a difference as you might perhaps imagine. James Carswell: It's James Carswell from Peel Hunt. Just on the occupancy, can we just make sure I'm thinking about this correctly. The expansion of Wild Cosmetics and then your own move to Canada, that's presumably in the 80% like-for-like number you bought today and likewise Qube, which I think was post period end. The benefit of that is still to come in the occupancy number. Is that correct? Lawrence Hutchings: Yes. David Benson: Yes. So actually, while the expansion actually is post the end of September, so that's not in the September occupancy number. And you're right, Qube, no, that is not in there either. But neither is -- so they will be taking space in the Old Dairy, but that space is currently occupied. So effectively, we'll be replacing occupied space. James Carswell: Okay. Perfect. And then I mean similar question to Denese, maybe on the conversion rates, I mean, it's obviously great to see it improving. How -- what's the kind of holy grail in terms of the conversion rate, do you think you can... Lawrence Hutchings: Converting 18% roughly, [indiscernible], we have deals that come into the system. We think there's capacity to improve that, get to 20%, get to 22% as I think it's in that sort of league, if that makes sense. The flex industry use a whole variety of different measures. Some are looking at conversion from viewing, some are looking at conversion from inquiry as you would appreciate. So us getting accurate benchmarks is a little challenging. But we think there is definitely further improvement to come from conversion. Well, I think that's fair. Yes. Will Abbott: And I think back to the point of our potential pricing as we start to see occupancy increasing, there will be more aggressive on pricing, which you expect to see coming down. Our priority at the moment is to bring in customers, build occupancy and the point's made already once we've got that customer in place, then we can start to work with that customer, expand that customer. James Carswell: Perfect. And then just final question on business rates. I think I'm around thinking there's some changes to operators and landlords that issue licenses rather than leases. I think you typically issue leases, so it doesn't impact yourselves. But I mean, does that give you a bit of a competitive advantage where some of your peers are going to have to potentially pass it on to customers? Or is that a very different space and not really a market? Lawrence Hutchings: The leases give us an advantage in terms of mitigation, but the -- I think all the pressure that you're seeing at the moment, and I suspect what you're referring to, James, the flexible space organization, effectively owners organization called [ Flexor. ] And in fact, one of our team members is Chair of [ Flexor ] this year. They are lobbying government very, very actively. There's councils approach these things differently as you'd appreciate. There's enough ambiguity in the business rating system to allow for that to happen. But it really has a big impact on those operators that run hot desks. And my understanding of it is that previously, the hot desk flex operators, of which we're not one, as you'd appreciate, have been run an argument successfully with councils that the business rate should only apply to the desks. So -- because that's the least area. So if you go to one of those operators' websites, they're leasing space by the desk perfectly. The fact that it sits in a wider environment with a whole lot of amenity, they've argued that it's really just the desk that should be rated. My understanding is it's either City of London or Camden has effectively argued with one of the other flex operators and imposed a rating charge on them that ignores that and says, no, no, we're charging on the entire floor plate effectively rates. So it's a significant impact, as you'd appreciate. Fortunately, we are not -- that's not how our business operates. We don't run a hot desk model effectively. So it doesn't have a direct bearing on us. As you would appreciate, we do a lot of work around business rates. We have a business rate team. We have people that help us with that. So yes, we're -- this current issue that's getting all the press, it does not have an impact on us. Thomas Musson: It's Tom Musson at Berenberg. Curious, I suppose, just on your sales agent, Elodie. How much does that cost to run? What's the sort of equivalent number of people you might think be required to drive your inquiry levels to the levels that they are? I wanted to just get a sense of the efficiency gain there. And is there a lot more that can be done here going forward with AI and other areas, not just generating inquiries, but in supporting retention as well? Lawrence Hutchings: So I'll get Will to answer some of the specifics around that. I'll give him a moment. But just to pick up the use of -- firstly, the use of AI in the business, which was the last point that I think you made. We are trialing other what we call AI verticals. So we showed you today that we can do in a unit overlay now effectively that helps our customers because you appreciate some of our creatives will look at a blank space and see that is hugely excited, as you appreciate, because they're running a sound studio or they've got a podcaster or whatever it is or they are an influencer and they're creating an infinity wall so that they can promote their product in there. There's so many different uses. So being able to provide a blank space option is, we believe, is important effectively. However, there is also a percentage of the market that doesn't have that special reasoning. They've got a more regular type layer. They want some desks in there effectively. So how do we help them envisage? They look at a blank space. I don't know how many guests I can fit in, I don't know how many people I can get in there, how can we help them at that point on the website, that is absolutely critical. And that's where that AI is helping us. We've also been using AI and space planning, which has been phenomenal. So we take a blank floor, and we say, right, we need to subdivide this into our standard small unit format. That used to take 3 weeks. We didn't exercise a few months ago. It was done in hours. And about 98% accuracy once we gave it the parameters. So that is another area. We think our business should lend itself very, very well to AI applications. We have a very high volume of small transactions that are very similar, as you would appreciate. We're pushing to 120, 130 leasing deals a month, as you would appreciate. I was looking at some numbers from one of our peers the other day, one of our listed peers. We do as many deals in a month as they did in the year. So it's not the same value of deals as you would appreciate, but the deal volume is enormous. So that also would suggest that AI applications will have the ability to make a very positive impact on our efficiency and speed effectively. Just before I hand over to Will on this specific question about the costs of Elodie and what the next evolution of that is, I just wanted to remind you and this is where our customer is so different. I mentioned earlier, we deal with the CEOs and owners of these businesses. They're in and out of our businesses constantly. Typically, they start as small businesses. So we're part of what they call business administration. It's not their core business effectively. They're trying to make money, promote their product, grow sales, deliver the next phase of innovation and what they're doing. So where the bit that gets in the way, effectively, that makes sense there's a bit of administration that we need like VAT returns that they need to deal with. So often we find that they're coming online to us at 9:00 at night or 10:00 at night. They've their dinner sitting at home, I need to deal with my space requirements. So of course, the difference between, we'll get back to you tomorrow and we can deal with it immediately or Elodie can deal with a lot of it immediately and there's further evolutions in Elodie, will make an enormous difference because getting someone booked in, in a competitive environment versus I'll call you back tomorrow, there's a huge -- that could be the difference between winning that piece of business and not winning that piece of business. But I'll hand over to Will. He's the expert in this area. Will? Will Abbott: So the -- on your question about cost, roughly the equivalent cost of one sort of inquiries agent or in fact, less annualized. But importantly, it's not about replacing people. It's about freeing up that team to do higher value work. So first implementation of Elodie was really over the weekend, which is why we saw the big impact on Monday mornings for viewings booked in. So triaging inquiries -- initial inquiries going back quickly, capturing them in that window of opportunity to then pass them on to the team to complete the conversion into the sales team. We have a version as well for meeting rooms. We also have a version for broker interactions, each one trained specifically against the requirements for those incoming inbound queries. We're also training on outbound, which will be something we'll be rolling out in time. And we are just in the final stages of testing our agent, Elodie agent to sit on the home page, to capture that first contact and help people through that initial sort of top of funnel, if you like, conversion. Beyond that, as Lawrence touched on, we are trialing AI in a range of different places, automating campaign creation. We talked about the image creation. So it's something that's absolutely integral to our plans going forward. Lawrence Hutchings: Any other questions from the floor? I'm not sure if we have any questions from the webcast? Clare is going to translate it.. Clare Marland: Just one question. Have -- from Richard Williams of QuotedData. Have we had any dialogue with Saba Capital, new shareholder? Lawrence Hutchings: We haven't, at this stage, met with Saba. We've had some e-mail communication with Saba. We anticipate meeting them at some stage during the road show. But at this point, we haven't any detailed conversations or dialogue with Saba. Clare Marland: That's it. Lawrence Hutchings: Any other questions? There's no other questions for the floor. I'd like to close today's presentation. I'd firstly like to acknowledge the enormous amount of work that's gone into delivering this first 5 months of strategy implementation by our team across the business. And we acknowledge change is a difficult thing. It takes a lot of energy. I think as human beings, we're wired to resist it. So we fully appreciate the enormous amount of change that we're making in the business and the response to the team has been phenomenal. And as you can see from these results, we're very pleased. We know there's a lot to do. We know there's a long way to go, but I think we've made a really strong start. So I just want to acknowledge the team firstly. Secondly, to acknowledge the team that's got us here today, there's been lots of late nights. We fully appreciate. And thirdly, to thank all of our shareholders and the stakeholders, the people in this room for your time today and your continued support. We greatly appreciate it. Thank you. We look forward to seeing you at the next update. Thank you very much. Operator: This presentation has now ended.
Operator: Good day, and welcome to BingEx' 2025 Third Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Helen Wu from Piacente Financial Communications. Please go ahead. Helen Wu: Thank you, operator. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. The non-GAAP financial measures we provide are for comparison purpose only. The definition of these measures and our consolidation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the BingEx company's IR website at ir.ishansong.com. Furthermore, throughout the call, we will consistently use the company's brand name FlashEx to refer to its publicly listed entity, BingEx Limited. Joining us today from FlashEx senior management are Mr. Adam Xue, Founder, Chairman of the Board and Chief Executive Officer; Mr. Hongjian Yu, Co-Founder, Director and Executive President and Mr. Luke Tang, Chief Financial Officer. I will now turn the call over to Mr. Adam Xue. Peng Xue: Thank you, Helen. Hello, everyone, and welcome to FlashEx Third Quarter 2025 Earnings Call. Amid ongoing external challenges in the third quarter, FlashEx continued to enhance our unique on-demand dedicated career model, further strengthening our core competitiveness to elevate service quality and user experience. We expanded service categories and scenarios, deepened user insights, broadened service touch points, tested new technologies and improved our dispatch algorithms. Meanwhile, we have steadily improved user engagement by focusing on high-value, time-sensitive sectors and leveraging refined operations to reinforce our brand reputation and boost user recognition. We also broadened our reach among both merchant and individual customers, building a strong foundation for long-term sustainable growth. For the first quarter of 2025, FlashEx recorded total revenue of RMB 1 billion with a gross margin of 11%. Adjusted net profit reached RMB 62.6 million, representing a 9% increase year-over-year. As of the end of the quarter, cash position stood at RMB 877.9 million, reflecting a healthy financial position. Let's move on to our operational initiatives for merchants and individual users. In the third quarter, we adopted a more refined tiered management approach for our merchant customers, optimizing response mechanisms and benefits within our existing service framework. For high-frequency merchant customers, we introduced a dedicated VIP support team offering direct one-on-one assistance to improve feedback efficiency and order fulfillment. We also launched a membership program that grants qualified merchants key benefits such as priority dispatching and peak hour surcharge favors, ensuring stable fulfillment rates and service quality even during holidays or peak demand periods. These core merchant customers generally have more mature operations, high-order frequency and steady demand with longer customer life cycles and stronger brand synergies that provide FlashEx with stable, predictable revenue, building a resilient income mode through long-term collaboration. In addition, we continue to focus on highly time and experience sensitive categories such as fresh flowers and cakes, expanding our merchant partnerships from simple delivery to collaborative operations. Building on previous initiatives like packaging design upgrades and delivery route optimization, we established specialized team to conduct customized fulfillment training each month, covering holidays, trends, consumer preference and more. These programs ensure that our riders are well trained in precession handling procedures for dedicated -- for delicate flowers and cakes, turning last-mile delivery into a seamless extension of our merchants brand experience. At the same time, we expanded our in-store service pilot program in key cities. Under this program, dedicated on-site representatives work directly with merchant customers to allocate delivery resources in real time based on peak hours and special events, improving delivery efficiency and fulfillment rates. For example, at a cake shop in Chongqing, FlashEx order volume grew fourfold from the previous quarter after in-store model was introduced in July. This success also encouraged nearby merchants to join the platform, unlocking additional order potential. By combining category expertise with in-store support, we help merchants enhance customer satisfaction, while reinforce FlashEx' unique advantages in premium delivery categories. This approach continue to strengthen recognition of our brand differentiated model and boost user loyalty. While deepening collaboration with high-frequency merchant customers, we also continue to expand our channels for acquiring new merchant leads. First, our business development team actively engaged with commercial districts and local communities to reach potential new customers. Meanwhile, we encourage and incentive our Flash riders to identify new stores during their daily deliveries. Compared with traditional shop-by-shop prospecting, rider-generated leads are less costly and better aligned with real business scenarios. This approach not only improved the efficiency of new merchant acquisition, but also creates a virtuous cycle that originally enhances our reach among small- and medium-sized business. For individual users, we remain focused on instant life cycle system positioning in the third quarter, actively expanded service scenarios to grow our user base. Since the second quarter, we have steadily introduced a range of new services for individual users in the FlashEx APP, including shopping assistance, parcel pickup, meal pickup, gift delivery and luggage delivery. Daily delivery volume across these 5 life cycle scenarios continue to grow in the third quarter, up by 15% from the previous quarter. We also explored new and emerging needs. For example, with rising demand in the electronic vehicle sector, we piloted an on-site battery charging support service that allows Flash riders to handle the manual process for car owners, saving them valuable time. Our offerings are designed to meet users' everyday needs, transforming FlashEx from a delivery brand into an essential part of their daily life. To further enhance the individual user engagement and experience, we added a new community section to the FlashEx APP, encouraging users to share their experiences, usage scenarios and personal needs. This interaction helps us gain deeper user insights and continuously improve our services. Meanwhile, they also naturally boost brand awareness, allowing us to more effectively promote new service features. As we continue to deepen our engagement with merchant customers and individual users during the quarter, we also focused our business development efforts on enterprise clients, a high-value user group and actively pursued outreach and partnership opportunities. Enterprise clients offer important benefits. They typically have long life cycles and high retention rates and require ongoing steady services. Their long-term value helps drive our steady and stable business growth. Based on these trends, we have created focused strategies for enterprise clients, targeting mutual growth through deepen collaboration. By tapping into enterprise clients' private traffic potential and having them improve service quality, we expand FlashEx user base, reach more industries and penetrate new service scenarios. This approach not only drives the business volume growth but also increases brand awareness, strengthening FlashEx' market recognition and reputation. As we grow our business base -- our user base, we prioritize improving technology and operational efficiency. In the third quarter, we teamed up with the Yuhang District government in Hangzhou and other partners to implement a citywide low-altitude logistics delivery solution, which has now reached the commercial testing stage. With more than 11 years of experience on nationwide network across 298 cities and over 100 million users, FlashEx provides precise order forecasting, set recommendation for drone takeoff and landing, route planning and smart dispatch support, positioning us as an early leader in urban drone delivery systems. As a key element of new productive forces, low altitude logistics not only fits well with FlashEx on-demand dedicated courier model, but also offers better solutions for long distance, time-critical and personalized orders. By combining drones with riders, we can better support deliveries in specific scenarios like heavy traffic, helping to fill service gaps and to improve delivery quality and user experience. FlashEx has always viewed our riders as our key strength. In the third quarter, we continued to enhance our incentive programs and create development opportunities for riders and offered educational support to families of eligible riders. These initiatives boost the rider sense of belonging as well as their career motivation, highlighting FlashEx' strong commitment to social responsibility. As we enter the fourth quarter of 2025, FlashEx will remain focused on steady growth in our core business, refining operations business-wide to drive comprehensive platform growth. We will deepen our efforts across key service areas, boosting our service capabilities and targeting the right user segments to grow our user base. We will also explore new service opportunities, strengthen partnerships and enhance the user experience, reinforce FlashEx unique position as a leading on-demand dedicated courier service provider and building a strong comprehensive edge -- competitive edge. Meanwhile, we will actively align with national policies and current trends, offering users a more diverse range of services to boost satisfaction. Through these efforts, we aim to achieve both commercial success and social impact, making positive contribution to society as a whole. This concludes my remarks. Now I will turn the call over to our CFO, Luke Tang. Thank you. Le Tang: Thank you, Adam. Hello, everyone. This is Luke. Let me walk you through our third quarter financial results. Before I begin, please note that all numbers are in renminbi and all percentage changes are on a year-over-year basis, unless otherwise noted. In the third quarter of 2025, we delivered a solid financial performance driven by disciplined, refined operations and the strengthening of our differentiated business positioning. Our on-demand dedicated courier model continued to demonstrate strong resilience. In the third quarter, gross margin held steady at 11%, while non-GAAP net margin expanded to 6.2% from 5% in the same period of last year. Our shareholders' equity grew to RMB 839.3 million as of third quarter end 2025, up from RMB 747.1 million at the end of 2024. Additionally, we have demonstrated our commitment to enhancing shareholder value by repurchasing approximately 1.6 million ADS in aggregate as of November 18, 2025. Our revenues for the third quarter reached RMB 1,005.4 million compared to RMB 1,154.8 million in the same period of 2024. The year-over-year decline primarily reflects lower order volumes, amid ongoing competitive pressures in the market throughout the quarter. Our cost of revenues for the quarter was RMB 893.6 million, representing a decrease of 12.8% for the same period of 2024. This was primarily in line with the decline in revenues and also reflects our continued efforts to enhance operational efficiency. Our gross profit was RMB 111.8 million for the third quarter compared with RMB 130.3 million in the same period of 2024. Gross profit margin for the third quarter was 11.1%. Turning to operating expenses. Our total operating expenses for the third quarter were RMB 97.7 million comprised of RMB 42.9 million in selling and marketing expenses, RMB 37 million in general and administrative expenses and RMB 17.7 million in research and development expenses. Excluding share-based compensation expenses, our non-GAAP income from operations was RMB 23.7 million for the third quarter compared with RMB 46.2 million in the same period of 2024. Other income was RMB 2.5 million for the third quarter compared with RMB 5.8 million in the same period of 2024. The year-over-year decrease was primarily due to a lower amount of government grants. Our non-GAAP net income for the third quarter reached RMB 62.6 million, representing an 8.6% increase compared with RMB 57.6 million in the same period of 2024. Our cash position remained healthy with cash and cash equivalents, restricted cash and short-term investments totaling RMB 877.9 million as of the third quarter's end. In summary, our third quarter results highlight the resilience of our business in a dynamic and competitive market. By leveraging our refined and differentiated operational strategy, loyal core merchant base and the continued expansion of our user scenarios, we are strategically positioned to capture emerging opportunities and drive sustainable long-term growth. That concludes our prepared remarks. We would now like to open the floor to your questions. Operator, please go ahead. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Stephen Zhang from CICC. Yu Zhang: I'm Stephen from CICC. I've got 2 questions here today. My first question is, could you please share our third quarter order volume and ASP trends broken down by 2B and 2C segments? Given the subsidy rollbacks of food delivery and colder weather in the fourth quarter, have these factors had a measurable impact on order growth? Finally, what is our outlook for order volume trends next year? And what are the key drivers? And my second question is, what is the management's outlook on the trend and potential for future reduction in the company's expense ratio? Peng Xue: Okay. Thank you for your question. I will answer your first question, and then my CFO, Luke, will answer the second question. Well, for the first question, we believe that the scaling back of subsidies and the regulatory standardization in the food delivery industry are shifting the competitive focus from lower price to better service, fostering a more stable market environment. This regional environment allows FlashEx to fully leverage its differentiated value proposition of on-demand dedicated courier. Users are increasingly willing to pay for reliable timeliness, a sense of trust and security and perceivable quality of service. Accordingly, we remain committed to investing resources in expanding service scenarios and refining the user experience. On one hand, we continue to strengthen our positioning as an instant life cycle assistant, intensifying the penetration of the key everyday scenarios and uncovering users' latest needs. On the other hand, we are enhancing collaboration with our merchant clients, adopting a collaborative management approach to elevate their service quality and customer experience, thereby increasing order frequency. On the operational and delivery side, we continuously optimize operating efficiency, while strengthening the training and support team system for our Flash riders. In the third quarter, the average delivery time was 26 minutes. Improved user experience drives repeat orders, ensure stable rider income and attracts high-quality delivery resources, creating a positive cycle where better service experiences lead to more franking orders, which in turn drives higher income for riders. In the third quarter, the company's overall order volume demonstrated strong resilience despite external market fluctuation and ASP achieved a year-over-year increase. Looking ahead to the fourth quarter and 2026, we will continue to amplify our time efficiency advantage, deepen scenario penetration, expand the overall user base and increase order frequency from merchants through the collaborative management model, driving FlashEx long-term and sustainable growth. Le Tang: Thank you, Stephen and Adam. This is Luke. I will take your second question. In recent years, the company's overall expense ratio has remained on a stable and gradually declining trajectory, primarily driven by our sustained investment in refined operations and efficiency enhancements. At the same time, we have been expanding the channels of new user acquisition, effectively lowering client acquisition costs. On the merchant side, we further diversified our new merchant discovery approach. We encourage riders to identify new stores during their deliveries. Additionally, through deep collaboration with the core merchants, including on-site support and coordination, we have achieved nearby merchants to join the platform, achieving effective synergies in merchant acquisition. Furthermore, in this quarter, we focused on unlocking potential among enterprise clients by leveraging their private domain traffic, effectively increasing our brand reach to border end users. From a medium- to long-term perspective, we believe there remains room for further optimizing of our expense ratio with continued revenue growth and improved client structure and ongoing upgrades to operational strategies, we expect the expense ratio to trend downward in a healthy and controlled manner. While maintaining strategic investments, we will continue to optimize our cost structure, ensuring that the company can realize stronger operating leverage as market competition stabilized. Overall, with the continuous improvement in operational efficiency and solid foundation for the scale, the company's expense ratio retains potential for further reduction in the future. Thank you. Operator: And that concludes the question-and-answer session. I will now hand the call -- turn the call over to Helen Wu for closing remarks. Helen Wu: Thank you once again for joining BingEx 2025 Third Quarter Financial Results and Business Update Conference Call today. If you have any further questions, please contact the IR team at BingEx or Piacente Financial Communications. Thank you, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.