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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.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided with for management's prepared remarks. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Huaxia Zhao: Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, our CFO. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For important information about this call, including forward-looking statements, please refer to the company's public information or third quarter 2025 results announcement ended at September 30, 2025, issued earlier today. During today's call, management will also discuss certain non-IFRS measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to the third quarter 2025 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session, and a consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management's original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now I'll turn the call over to Yixiao. Yixiao Cheng: Hello, everyone. Welcome to Kuaishou's Third Quarter 2025 Earnings Conference Call. In Q3, we continued to advance our AI strategy, expanding scenario-based AI applications and innovative use cases across our business. These efforts created a tangible business value across all business scenarios, strengthened the quality and efficiency for our organizational infrastructure and fueled strong operational financial results. Average DAUs on the Kuaishou App surpassed 416 million in Q3, marking the third consecutive quarter of record highs. Total revenue for Q3 rose by 14.2% year-over-year to RMB 35.6 billion. Revenue from our core commercial business, online marketing services and other services, primarily e-commerce, increased by 19.2% year-over-year. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. We achieved a year-over-year growth in the group's overall profitability while continuing to invest strategically in AI, a catalyst for unlocking deeper value across our content and business ecosystems. First, our AI strategy and the progress of our large video generation model, Kling AI. We continue to refine the foundation models behind Kling AI, developing new features to meet creators' diverse needs and build a one-stop creative productivity platform that empowers everyone to tell captivating stories with AI. In Q3, we launched Kling Lab and upgraded the start-and-end-frames function and introduced digital human solution. Notably, at the end of September, we released the Kling AI 2.5 model, achieving substantial advances in prompt adherence, dynamic effects, style consistency and visual aesthetics. Just 10 days after launch, the model was simultaneously ranked as the world's #1 text-to-video and image-to-video model by Artificial Analysis.ai independent AI benchmarking platform. While maintaining its leading content generation performance, the new model also integrates continuous engineering innovations that lower video inference costs, reducing creators' per video-generation expense by almost 30% and further strengthening Kling Al's cost-efficiency advantages. Kling AI's innovations in foundational models and product features have provided creators with higher-quality video generation solutions, establishing a foundation for broader adoption across professional creative fields such as marketing, e-commerce, film and television, short plays, animation and gaming. As Kling AI continues to expand its use cases, it has made breakthroughs in monetization and revenue growth. In Q3, revenue from Kling AI exceeded RMB 300 million. Kling AI is committed to empowering global creators and building a premium ecosystem. In September, we launched the Kling AI NextGen Creative Contest, which received over 4,600 entries from 122 countries and regions worldwide, covering diverse fields such as history, science fiction and animation. Outstanding works were screened at international film festivals, including Cannes, Tokyo and Busan for the integrating AI-powered film and TV works with traditional film and TV industries. In Q3, we achieved strong results from integrating AI into diverse internal and external use cases. On business empowerment, large AI models have now been integrated across all of Kuaishou's major business scenarios, driving incremental value across our ecosystem. We iterated our end-to-end generative recommendation large model, OneRec and extended beyond short video recommendations to additional recommendation scenarios such as online marketing services and e-commerce shopping mall. This expansion has generated meaningful incremental benefits. In Q3, large AI models demonstrated notable effects, especially in online marketing services. We pioneered a generative reinforcement learning-based bidding model that integrates sequence modeling with goal optimization. This innovation transformed advertising bidding from a single-step decision-making to long-term strategic planning, significantly enhancing bidding capabilities and ROI for clients, especially for small and medium-sized, one. Meanwhile, we explored using end-to-end generative recommendation in online marketing service scenarios through OneRec. Tailored to the characteristics of online marketing services, we introduced the client marketing expression and marketing commercial value perception mechanism to achieve bidirectional matching between users' interest and clients' demands, enhancing personalization and matching efficiency. Large AI model technologies, especially OneRec drove roughly 4% to 5% growth in domestic online marketing services revenue in Q3. In terms of online marketing material generation, Kling AI's large model has significantly reduced video production costs for clients. Meanwhile, advanced digital human technology has also opened up new operational scenarios in live streaming for both online marketing clients and e-commerce merchants. Consequently, the total spending from online marketing services driven by AIGC marketing materials exceeded RMB 3 billion in Q3. For e-commerce, we launched OneSearch, an end-to-end generative retrieval architecture. It enables more precise product matching and optimizes the user experience, driving nearly 5% growth in shopping mall search order volume. The adoption of OneRec in e-commerce also contributed to high single-digit GMV growth in the shopping mall feed in Q3. For entertainment live streaming, we leveraged Kling AI to introduce the AI Universe gift customization feature, which generates highly personalized avatar-based personal gifts, increasing both user engagement and willingness to pay. Second, user growth and content ecosystem. In Q3, average DAUs on the Kuaishou App reached 416 million and MAUs reached 731 million. This is the third consecutive quarter that average DAUs reached a record high. The sustained and steady traffic growth reflects Kuaishou's community's unique appeal to users. By refining our user growth strategies, offering distinctive and diverse content, optimizing our traffic allocation mechanism and enhancing community engagement, we continued to reinforce Kuaishou's identity as a heartwarming, diversified, informative and engaging online community. In Q3, average daily time spent per DAU on the Kuaishou App was 134.1 minutes, while total user time spent rose by 3.6% year-over-year. Our refined user growth strategies leveraged smart marketing material placement to enhance acquisition efficiency, lowering the acquisition cost per new user year-over-year. In traffic allocation, by modeling users' long-term user interaction patterns, we improved both user satisfaction and retention. We also continue to upgrade users sharing experience within private messaging and iterated on social interaction features. As a result, the daily average penetration rate of private messages among users with mutual followers increased by more than 3 percentage points year-over-year. We also elevated the user product experience through a series of device-level intelligent optimizations. In content operations, we partnered with the Beijing Radio and Television Station to launch the 2025 Kuaishou Super Summer Gala, where celebrities and everyday users come together and celebrate. The live stream session attracted a peak over 5.4 million concurrent users. To cater to young audiences, we hosted an online concert hosting -- featuring TNT, which drew 980 million live streaming views. In the pan-knowledge category, we curated the Liyuan Music Festival Summer Tour series, showcasing offline tours across diverse traditional art forms such as Qinqiang and also Shanbei Storytelling. By bringing these live performances to audiences, we helped benchmark creators like An Wan achieve cumulative accretive breakthroughs and gain recognition. Third, online marketing services. In Q3, revenue from our online marketing services reached RMB 20.1 billion, up 14% year-over-year. With the growth rate accelerating quarter-over-quarter, we continuously iterated and upgraded our online marketing placement products with AI models. Drawing our unique traffic dynamics, we cater to the needs of more marketing customers through our smart placement capabilities, achieving more precise targeting and higher conversion rates. This drove strong year-over-year growth in both external and closed-loop marketing services revenue. In Q3, our UAX solutions accounted for over 70% of external marketing spending. Ongoing innovations, iterations, particularly with our generative and reinforcement learning-based bidding model and generative recommendation large model further improved marketing recommendation efficiency and enhanced management of marketing variety and value. The combination of our 3 key AIGC commercialization tools, AIGC short video, digital human and digital employee has empowered our customers with an end-to-end AI solution covering marketing material creation, live streaming operations and user engagement. In Q3, for closed-loop e-commerce marketing services, we upgraded the product and content optimization capabilities of our omni domain platform marketing solution to maintain a steady supply of premium marketing materials. By integrating multi-content reinvestment and ROI bidding recommendation tools, we helped e-commerce merchants improve traffic and at sales conversions, thereby enhancing their willingness to invest in marketing placement. In Q3, total marketing spending from omni-platform marketing solution accounted for over 65% of our closed-loop marketing spending. Additionally, we established a bidding agent based on AI capability to replace mutual -- manual adjustment decisions, enabling more consistent conversions and unlocking greater economies of scale. On the traffic side, by enhancing the synergies between e-commerce and commercial value, we released more traffic capacity to merchants with long-term operations, helping more brand e-commerce merchants achieve a scaled expansion and stable conversion improvements. From a scenario perspective, in Q3, closed-loop e-commerce marketing services in pan-shelf-based scenarios also realized a solid growth. We optimized people to goods matching in pan-shelf search, and we used large models to better meet the users' needs and improve efficiency. These efforts increased marketing placement and penetration and drove stronger merchant participation. In Q3, for the lifestyle service sector, where clients mainly operate on a lead-based model, we upgraded our private messaging products and optimized vertical-oriented products. These improvements helped clients reach users more efficiently and achieve higher user conversion rates across various conversion goals. In lifestyle services, particularly among our small and medium-sized customers, we improved private messenger response rates with AI-powered customer service. In Q3, we combined our local services with a lead-based marketing business to form our lifestyle service segment, integrating teams, product lines and traffic distribution. This unification strengthens our ability to support merchants pursuing sustainable operations and help build a more diversified collaborative ecosystem with local customers -- merchants. These 3 -- the content consumption sector led by short plays was another key revenue driver for our external marketing services in Q3. We continued to enhance content supply and product innovation across short plays, mini-games and novels, while capturing incremental growth opportunities from the rapid rise of comic-style short plays, further expanding external marketing services revenue. Comic-style short plays combine features of comics, short plays and audio dramas, typically featuring vertical-screen episodes to 1 to 3 minutes long. This new genre has recently gained widespread traction among the broader market. Kling AI has significantly lowered the barrier to creating comic-style short plays while elevating overall content quality. In addition, through a mix of marketing placement, revenue sharing, IAA and IAP models, we created multiple monetization pathways for high-quality short-play content, expanding reach on both the supply and demand side. Fourth, our e-commerce business, in Q3, our e-commerce GMV grew 15.2% year-over-year to RMB 385 billion. Through a mix of merchant incentive programs, omni-domains traffic support and intelligent tool empowerment, we helped merchants build omni-domain operations ecosystems, continuously elevating user experience and driving high-quality supply and demand growth. To support the merchants sustainable growth, we encourage them to adopt an efficient conversion path that integrates public and private domains using public domains to acquire customers and private domains to strengthen retention. In Q3, the mix of our e-commerce monthly average paying users showed healthy trends. Active e-commerce users repeat purchase frequency increased year-over-year and user stickiness continued to improve. In Q3, in e-commerce supply, building on our platform's traffic and content-based e-commerce advantages, we continued to attract new merchants organically and onboarded merchants through a diverse channels. We introduced a range of incentives to lower onboarding costs and entry barriers for new merchants. In addition, we continue to launch initiatives to empower new merchants to navigate early growth stages and ramp up operations more efficiently, driven by a growing number of small and medium-sized merchants together with our targeted support for high-quality existing merchants, our average monthly active merchant base continued to grow. We also broadened the range of products, number of Level 3 product categories per store among our average monthly active merchants increasing by nearly 30% year-over-year. To empower merchants and KOLs in Q3, we launched a series of initiatives to unlock greater value creation within their private domains supporting their ability to build a dual growth engine of exceptional content and superior products. We launched the Pop-Up Follower rewards product to accelerate follower growth and empower merchants and KOLs from traffic generation to follow conversion ultimately to sales. With a stronger control over merchandise selection and supply, we expanded our product portfolio of high-quality platform native offerings. We focused on the premium brands through our KOL blockbuster initiative, leveraging the traffic pool of gift products to spotlight, dedicated live streaming sessions for [ treasury ]brands, supported by improved KOL product matching, KOL targeted vertical outreach and platform incentives. We expanded the KOL engagement, enhanced brand performance and empowered KOLs to address product selection and assortment expansion challenges. In Q3, the average daily number of active merchandise items increased by over 30% year-over-year. We provided guaranteed resources such as traffic support and product supply to onboard small and medium-sized KOLs and established long-term growth mechanisms. These efforts strengthened the KOL content ecosystem in Q3, driving a 14.8% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers. In Q3, in terms of operating across diverse scenarios, pan-shelfed e-commerce GMV continued to outpace overall GMV growth, contributing over 32% of total e-commerce GMV. We continued to enhance our infrastructure and supply ecosystem, driving a 13% year-over-year increase in average daily active merchants for pan-shelf-based e-commerce. We built on the diverse engagement features, strategy tools from Q2, including Super Links, the official channel of platform recommended product. These tools helped merchants quickly boost product exposure and sales conversion, cultivating user mind share for our shopping mall. The marketing host tool we introduced for merchants and content-based scenarios effectively lowered their operational barriers and drove steady quarter-over-quarter growth in merchant adoption. In Q3, we maximized the synergies between short videos and live streaming. We helped merchants integrate traffic from content-based scenarios through a seamless loop from product recommendations via short videos to rapid conversion in live streaming rooms and back to user engagement via short videos. This strategy steadily expanded the merchants customer base, supported by more short videos with embedded shopping links and our customized funnels, short video e-commerce GMV maintained a healthy growth. In Q3, in terms of integrating AI into our e-commerce business, we focus on empowering merchants across our e-commerce business chain with 3 core areas: AIGC content production, merchant efficiency improvement and product matching efficiency optimization. Our AIGC capabilities for generating and optimizing materials continue to deliver strong results, helping merchants improved conversion efficiency across both image and video formats in diverse scenarios. Penetration of the smart live streaming highlights and AI live streaming scenarios also steadily increased. Concurrently, our AI product management assistant is providing comprehensive omni-scenario support, it helps merchants reduce costs, increase efficiency and strengthen their operational capabilities while also operating high -- generating high-quality data. On the matching front, our explainable recommendations powered by our e-commerce knowledge graph, predict users' potential and long-term interest. This boosts conversion rates and also strengthen the user trust and stickiness with our recommendations. We believe these AI capabilities will ultimately power growth flywheel of data infrastructure, precise matching and merchant efficiency empowerment driving the healthy and sustainable development of our e-commerce ecosystem. Next, regarding our live-streaming business. Q3 live-streaming revenue grew by 2.5% year-over-year to RMB 9.6 billion. Growth was driven by high-quality content, expanding live-streaming scenarios and AI-powered product innovations. For live-streaming supply, the healthy development of our talent agency ecosystem provided robust support pillar. By end of Q3, our partner talent agencies had increased by more than 17% and talent agency managed streamers grew by over 20% both year-over-year. We focus on categories such as group live-streaming by supporting premium benchmark groups guiding content optimizations, we achieved high-quality development and steady revenue growth. Innovative AIGC applications also injected momentum into our business growth, leveraging AI, Kling AI capabilities, in late September, we rolled out the AI Universe gift series with a customizable special effect platform-wide, effectively diversifying options for personalized interactions in live streaming rooms. On launch day alone, users paid to create and send over 100,000 personalized virtual gifts. In Q3, for entertainment live-streaming operations, we launched a Super Grand Stage 2.0 organized as 5 regional contests nationwide to further integrate online live-streaming and offline scenarios. Targeting the summer season and demand from young users, we hosted the Summer Gaming Music Festival in Chengdu, an offline event blended gaming, music and interactive experiences deepening our partnerships with game developers. The event attracted 672 million live stream views and over 50,000 participants. Moreover, our live streaming+ strategy continued to empower traditional industries, further validating its commercial value. In Q3, average daily number of users submitting resumes on Kwai Hire increased by over 20% year-over-year. In Ideal Housing, average monthly number of paying clients increased by over 90% year-over-year. Finally, our overseas business. In Q3, we continued to strengthen our foothold in overseas markets, focusing on high-quality growth. On the traffic front, we optimized customer acquisition efficiency to precisely reach high-value demographics. By prioritizing operations for core category creators, we fostered stronger connections between our high-quality characteristic content and our core user base. Brazil, our core international market maintained stable DAUs while reducing user acquisition cost year-over-year delivering consistent year-over-year growth in average daily time spent per DAU. For online marketing services, we bolstered business resilience, diversified our marketing client base across industries. Through an updated product capabilities and placement strategies, we improved overall conversion efficiency across our marketing funnel, unlocking more on monetization potential for diverse user groups and earning sustained client recommendation. Concurrently, our e-commerce business in Brazil improved both in subsidy and operating efficiency. While maintaining disciplined ROI management, we achieved a healthy year-over-year growth in GMV transaction scale and order volume in Q3. Looking ahead to Q4 and into 2026, we will continue investing in our AI strategy, exploring efficient gates that empower users, video creators, marketing clients and e-commerce merchants through Kling AI and other large AI model technology. At the same time, guided by our development philosophy and AI strategy, we will comprehensively transform and upgrade our organization structure, talent deployment, product design and features. We will persistently uphold and concentrate Kuaishou's technology innovation ethos, maintaining and deepening our long-term competitive advantages in the era of AI. That concludes my prepared remarks. Next, our CFO, Bing, will review the company's financial update for Q3 2025. Bing Jin: Thank you, Yixiao, and hello, everyone. In Q3, we continue to strengthen our core advantages, leveraging our large AI model capabilities, we further empowered our content and business ecosystems. With our rich content supply and optimized omni-domain operations ecosystem, we continuously enhanced the experience for users and creators while helping merchants and KOLs improve their operational capabilities and support sustainable growth. During the quarter, we achieved solid operational and financial results, with the total revenue increasing 14.2% year-over-year to RMB 35.6 billion. This included a 19.2% year-over-year increase in revenue from our core commercial business, which includes our online marketing services and other services, primarily e-commerce. With our steady revenue growth and improved operating efficiency, we improved our overall profitability. Operating profit increased 69.9% year-over-year to RMB 5.3 billion. Adjusted net profit grew 26.3% year-over-year to RMB 5 billion with a healthy adjusted net margin of 14%. Now let's take a closer look. Our total revenue grew 14.2% year-over-year to RMB 35.6 billion in Q3. The increase was mainly driven by growth across each of our business, including online marketing services, live streaming, e-commerce and Kling AI. In Q3, online marketing services revenue increased 14% to RMB 20.1 billion from RMB 17.6 billion in the same period last year. The growth was primarily attributable to the use of AI technology to continuously upgrade our online marketing product solutions that improved the conversion efficiency, which drove higher client spending from our marketing clients. Revenue from other services, including e-commerce and Kling AI businesses reached RMB 5.9 billion in Q3, up 41.3% from RMB 4.2 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income as well as the expansion of our Kling AI business. We have continuously refined Kling AI's foundation models and developed more innovative features. Its application coverage has expanded, driving further breakthroughs in commercialization. In Q3, our live-streaming revenue was RMB 9.6 billion, up 2.5% from RMB 9.3 billion in the same period last year. We consistently cultivating high-quality content, expanded live streaming scenarios and leveraged AI-empowered product innovations to build a diverse and healthy live-streaming ecosystem. These steps drove greater user engagement with high-quality live-streaming content. Cost of revenues increased 13.4% year-over-year in Q3 to RMB 16.1 billion, accounting for 45.3% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and right-of-use of assets and amortization of intangible assets. In Q3, our gross profit grew 14.9% year-over-year to RMB 19.4 billion. Gross profit margin was 54.7%, up 0.4 percentage points year-over-year. Moving to expenses. Selling and marketing expenses were RMB 10.4 billion, roughly flat year-over-year and accounted for 29.3% of total revenue, down from 33.3% in Q3 last year, reflecting our refined efforts and improved operating efficiency. R&D expenses were RMB 3.7 billion, up 17.7% year-over-year, accounting for 10.3% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses decreased 13.6% year-over-year to RMB 688 million or 1.9% of total revenue, mainly due to lower employee benefit expenses, including share-based compensation expenses. Group level operating profit for Q3 increased 69.9% year-over-year to RMB 5.3 billion. Net profit for Q3 was RMB 4.5 billion. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. Our balance sheet is quite robust with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB 106.6 billion as of September 30, 2025. We generated a positive operating net cash flow of RMB 7.7 billion in Q3. Additionally, we actively delivered on our commitment to shareholder returns based on marketing conditions. As of September 30, we had repurchased an aggregate of approximately HKD 2.17 billion (sic) [ HKD 2.07 billion ] or around 42.25 million shares, which accounted for about 0.98% of our total shares outstanding for 2025. In addition, we declared a special dividend of HKD 2 billion in Q3, reflecting our confidence in Kuaishou's long-term growth prospects and a solid financial position. Looking ahead, we'll continue to prioritize user needs and execute our AI strategy to empower all of our business stars while exploring more diversified growth avenues. These initiatives will reinforce our competitive edge in ever-changing market and enable us to create long-term value for our users, partners and shareholders. That concludes our prepared remarks. Now let's move into the Q&A session. Operator: [Interpreted] [Operator Instructions] The first question comes from Felix Liu of UBS. Felix Liu: [Interpreted] Congratulations on the very strong third quarter results. My question is on Kling AI. How does -- the market is very focused on the competitive landscape of video GenAI. Could management share more color on Kling's competition strategy from here? And where do you plan to develop and drive evolution in Kling from here? After the launch of Sora 2, how do we see the development of the overall video GenAI industry? And do you anticipate more opportunities on the 2C side of video GenAI. Unknown Executive: [Interpreted] Thank you for your question. The surge of entrants from tech giants to start-ups reflects just how attractive and promising the video generation market is. That said, we believe video generation is still far from maturity in both product and technology. With a growing number of market participants, we expect accelerated innovation across the industry, meeting more user needs, penetrating a wider range of use cases and pushing the market to expand even more. As for Kling AI's positioning and competitive strategy, we have zeroed in on key goal to empower everyone to craft captivating stories with AI. Our first industry focus is film and television, where we are dedicating our resources to deepening our tech and product capabilities. Video models like large language models are essentially evolving toward world models. We see video models as the key technology for world models. Applications can extend far beyond film and TV production. They can reach interactive experiences and data generation for embedded intelligence. While we will continue sharpening our model and product capabilities across diverse application scenarios, our strategic focus right now is squarely set on AI-powered film and TV production. With this goal in mind, we have been advancing our technology leadership and product creativity, and we'll continue on this path. Video models differ from language models in 2 ways. First, they are highly complex. While language models are relatively simple at the macro level, video models consist of a wide range of different modules. This complexity also gives us significant room for technological breakthroughs and innovation. Second, video generation is an open-ended domain, inputs can be text, pictures or motion trajectories and outputs can be diverse content including images, video and sound. These 2 characteristics [indiscernible] allow greater flexibility in technology and product choices, which in turn provide significant room for technology and products innovation. Kling AI aims to bring together product creativity, inside users capability to push technological boundaries. For example, in April, we [ revealed ] our concept of interaction called MVL. Building on this, we are continuously upgrading our foundation model and product capabilities, exploring more ML model products. Alongside the [Technical Difficulty] breakthrough in our product capabilities, we have also wide range of operational initiatives to foster -- creative mechanism and a thriving content creation ecosystem. For example, our Kling AI Future Partner program integrates key resources from both Kuaishou and Kling AI to precisely match creators with high-value commercialization opportunities across diverse scenarios. The program has supported well-known brands such as the NBA and [ Mochi Ice Cream and Tea ]. We also recently leveraged the Kling AI NextGen Creative Contest, helping Kling AI creators gain exposure at international film festivals in Busan, Cannes and Tokyo, further expanding Kling AI's global brand visibility and influence. As for the latest buzz around Sora 2, it has made technology breakthroughs on multiple fronts and integrated closely with social interaction features. This has really accelerated the rollout of consumer-level AI applications and strengthen our confidence in the future commercial scalability of video generation. For us, our main focus is still on professional creators, improving their experience and willingness to pay. At the same time, we are actively exploring consumer-facing use cases. When the time is right, we will advance the productization of Kling AI's technology, embedding social features to speed up consumer level applications and commercialization. Operator: [Interpreted] The next question comes from Lincoln Kong from Goldman Sachs. Lincoln Kong: [Interpreted] Congrats on a very solid result. So my question is about the AI-powered business. So on top of Kling AI and the OneRec just we've been talking about for online marketing services, could management elaborate more on AI large language model to empower our Kuaishou content ecosystem and how to improve our operational efficiency front? Unknown Executive: [Interpreted] Thank you for your question. 2025 is widely regarded as AI's first year advancing into deep applications. Throughout the year, AI technologies represented by a multi-model generation and AI agents have consistently moved toward richer and more efficient applications that are more aligned with user needs. This marks a systematic step toward unlocking AI's industrial scale value. Against this backdrop, we have progressively developed a comprehensive AI technology and application system centered on user needs and rooted in our existing business scenarios. It is designed to accelerate AI adoption to empower our content and business ecosystems as well as our organizational infrastructure. In terms of empowering our content ecosystem, AI has now been fully integrated across Kuaishou's business operations from content and user understanding to content generation and recommendations. First, in understanding content and users, our proprietary multi-model large language model, KwaiYii has demonstrated strong video comprehension capabilities. Based on this model, we upgraded our short video and live streaming content understanding system and launched [ Tag Next ], our next-generation tagging system, which enables more accurate and comprehensive content understanding. [ Tag Next ] is now being applied across key scenarios, including early-stage content management, content diversity expansion and the new interest discovery, driving higher average app usage time per user. Second, in content generation, Kling AI continues to empower mass creators. We have witnessed a significant increase in the video views volume of AIGC short video content on the platform. Third, in content recommendation, the important -- the most important area, we further expanded the boundaries of generative recommendation systems by upgrading our end-to-end generative recommendation large model, OneRec. We launched the next-generation OneRec-Think large model, integrating LLM inference capabilities and combining conversational inference, personalized recommendations and real-time feedback mechanisms into one single model system. This further enhances recommendation accuracy and strengthens user trust. Beyond business empowerment, AI technology has played a major role in improving the efficiency of our organizational infrastructure. Our proprietary AI coding tool, CodeFlicker has become a core intelligent development tool used daily by our engineers at a high frequency. It supports scenarios such as automated unit testing generation, intelligent code review and smart testing cases generation. Currently, nearly 30% of the new code at Kuaishou is generated using CodeFlicker. In terms of content review, we have applied large AI models across diverse scenarios, including user profiling, content identification and comment analysis. By leveraging COT reasoning and reinforcement learning technologies, we have enhanced our review models capabilities. Currently, over 99% of the content on our platform is reviewed by AI, greatly reducing related costs while improving the efficiency and quality of content review. In addition, our customer service team is leveraging AI technology to prescreen and route user inquiries, provide intelligent assistance and accumulate knowledge. As a result, over 70% of user inquiries are now directly handled and resolved by our AI-powered customer service system, significantly improving efficiency. Overall, a resilient self-reinforcing cycle of AI innovation, AI application monetization and revenue growth is taking shape at Kuaishou. In the long run, we believe this full spectrum AI application ecosystem will further strengthen Kuaishou's market resilience and unlock new growth momentum. Operator: [Interpreted] The next question comes from Thomas Chong of Jefferies. Thomas Chong: My question is about online marketing services. We have seen our online marketing revenue accelerating this quarter. Can management provide more details on what we have done from the perspective of traffic, industry sectors as well as product offering? Unknown Executive: [Interpreted] Thank you for your question. In Q3, online marketing services revenue grew by 14% year-over-year, accelerating from the previous quarter with domestic online marketing services revenue increasing by over 16%. From the traffic perspective, advertising revenue was driven by both increased marketing material impressions and higher CPM. The growth in impressions was supported by overall traffic growth and by more high-quality native marketing content, which helped increase ad load. The rise in CPM was driven by our use of AI technology such as generative reinforcement learning bidding and end-to-end generative recommendation models, which improved the matching between user interest and advertiser needs, enhancing the personalization and matching efficiency of online marketing material recommendations. Looking ahead at external marketing services industry-wise, lifestyle services, where clients mainly rely on lead-based operations and content consumption represented by short plays and mini games were the standout sectors this quarter. In lifestyle services, we upgraded our private messaging product and optimized the subsequent conversion passes across industry verticals, helping clients to reach users more efficiently and improve sales conversions. Since most of our lifestyle services clients are small and medium-sized businesses, they benefit more from products like our AI customer service, UAX placement solutions and AIGC marketing material generation tools. In content consumption industries, deep AI empowerment drove rapid growth in comic style short plays. We captured this opportunity and used Kling AI to play an active role in upstream content creation. In terms of our closed-loop marketing services, we continue to iterate our omni-platform marketing solution, helping e-commerce merchants achieve more incremental exposure and conversion. By leveraging intelligent bidding agents and generative large models, we enabled 24/7 stable bidding and more fully uncovered user interest, which helped expand merchants placement budgets. We also strengthened our ability to capture and interpret users' full range interest across both content-based and shelf-based scenarios, effectively increasing the number of converted users and their purchase frequency while better meeting users' e-commerce consumption needs on Kuaishou. From a product perspective, we upgraded multiple products, including our UAX placement solutions, AIGC marketing material generation tools, live streaming digital human solutions and our virtual employee. These enhancements lowered the marketing threshold and improved conversion rates, driving more online marketing services spending. Specifically in Q3, our UAX placement solutions added fixed period steady placement feature. The new feature allows clients to set their requirements for marketing materials and pricing for a specific ad placement period, while the system automatically handles intelligent infrastructure, smart dynamic fine-tuning and smart creative content production. This enhanced the stability of the ad placement period had helped our online marketing clients achieve more consistent placement performances at a more predictable cost. In Q3, our UAX placement solutions accounted for over 70% of the external marketing spending. Our AIGC marketing material generation tool enabled the clients to generate short video materials rapidly at a low cost and in batches with a 10% to 20% higher material conversion efficiency than the industry average. Live-streaming digital human solutions allowed our clients to run 24/7 live streams even without streamers or venues. Our virtual employee reached a human level customer service performance in conversational accuracy, efficiency and safety, engaging naturally across scenarios like private messaging and common, improving conversion efficiency for our clients. Looking ahead, we'll continue to expand our industry client base and further deepen AI applications, empowering clients to achieve more efficient, high-quality marketing performances and better ad placements. Operator: [Interpreted] The next question comes from Daniel Chen from JPMorgan. Qi Chen: [Interpreted] So my question is related to e-commerce. So what's the latest progress and the performance of our Double 11 promotion in December quarter? And if we look at next 1 to 2 years, what's the incremental -- what's the key growth driver for our e-commerce business, especially the live streaming e-commerce? How should we look at the future growth potential? Unknown Executive: [Interpreted] Thanks for the question. Regarding e-commerce, while consumption has shown some resilient recovery this year, overall user spending has remained cautious and rational. During the Double 11 Sales Promotion, we delivered results in line with our expectations with standout performances in categories such as jewelry and gemstones, tea, wine and wellness, apparel, including men's and women's apparel, sportswear and family matching outfits and fresh food. For this year's Double 11 Sales Promotion, we invested over RMB 18 billion in platform traffic incentives, combined with RMB 2 billion in user subsidies and RMB 1 billion in merchandise subsidies. Together, these effectively enhanced the merchant sales conversions and buyer engagement, increasing the number of merchants achieving GMV of over RMB 10 million by double digits year-over-year. We implemented a tiered support programs tailored to business type and merchant and KOL size, fostering a thriving e-commerce ecosystem and motivating them to achieve better growth across omni-domain scenarios. For shelf-based e-commerce scenarios, we focus on supporting core products where we launched a range of initiatives, including the Big Brand, Big Subsidy and Super Links. During this year's Double 11 Sales Promotion, the number of single products achieving over RMB 1 million GMV via the Big Brand, Big Subsidy initiative surged by over 77% year-over-year. Our users' mind share for shopping on Kuaishou improved during the sales promotion with search-generated e-commerce GMV growing by over 33% year-over-year. For our future e-commerce growth drivers, in the short to medium term, we will prioritize boosting user purchase frequency followed by increasing ARPPU. Our key initiatives to raise purchase frequency are: first, we will continue to empower streamers to strengthen their private domains and operational efficiency, broadening the variety of streamers and product categories that users pay for. Second, we will maximize cross-scenario synergy. Lower purchase barriers in short video scenarios will allow us to expand our [Technical Difficulty]. More as we progressively reinforce users' shopping mindset on Kuaishou, our pan-shelf-based e-commerce will better capture users' repeat purchases needs with greater certainty. We will further enhance the operations of our key product categories and more precisely identify our core user AI [Technical Difficulty] users' trust in the platform having steady ARPPU growth. There is still significant room to grow our e-commerce monthly average paying users, but we view this as a long-term outcome metric rather than a short-term performance metric. In the near to medium term, we will mainly focus on the healthy structure of our e-commerce monthly average paying users. Regarding the growth potential of live streaming e-commerce, as a common platform, live streaming e-commerce and trust-based e-commerce have always been the backbone of our e-commerce business and most critical operational scenarios. We believe that live streaming e-commerce with its built-in conversion advantages will continue to gain ground in the online retail market and it stills hold substantial room for structural growth in the future. The long-term growth potential lies in creating a healthy ecosystem where merchants can operate sustainably with private domain follower retention, acting as a key moat given their high user stickiness and repeat purchase behavior. Accordingly, we helped merchants better integrate their public and private domain strategies through a range of initiatives acquiring traffic in the public domain while retaining followers and converting them into customers and driving repeat purchases in private domains. That said, exceptional content and superior products remain the essential foundation of our ecosystem. Therefore, we'll continue to onboard merchants and creators, expanding the pipeline for high-quality supply while continuously broadening the range of merchandise. In parallel, we will strengthen long-term collaboration with both merchants and KOLs by offering them extensive products through our distribution pool and providing traffic support for standout content. We will also equip the merchant and KOLs with our intelligent operational tools, empowering them with AI to improve efficiency and performance. A robust business ecosystem in turn, will incentivize the continuous creation of exceptional content. Finally, while live streaming e-commerce is the backbone of Kuaishou's e-commerce, we will also encourage merchants to operate across diverse scenarios and strengthen the efficiency of omni-domain synergies. This will facilitate a closer alignment with the user needs and enhance the resilience and stability of Kuaishou's e-commerce ecosystem. Thank you. Operator: [Interpreted] The next question comes from Xueqing Zhang of CICC. Xueqing Zhang: [Interpreted] My question is regarding CapEx and profit margins. With the progress of Kling and other AI drive initiatives, does the company have any updated guidance on the CapEx and AI-related spending plans? Has the full year 2025 profit margin target being adjusted? And given that the industry is significantly increasing CapEx, how is Kuaishou planning the CapEx over the next 1 to 2 years? And what impact will AI investments have on profit margins? Bing Jin: [Interpreted] Thanks for your question. As Yixiao said, this quarter, we achieved strong results by integrating AI technology across a wide range of internal and external application scenarios. AI empowered our business operations and improved the quality and efficiency of our organizational infrastructure. AI technology continues to unlock increasing value across our content and business ecosystems. At the same time, Kling AI made more solid breakthroughs in commercialization. We now expect Kling AI's full year 2025 revenue to reach USD 140 million, more than double the target we set at the beginning of the year of USD 60 million. Given Kling AI's users' growing demand for video generation models, we have continued to ramp up our investment in computing power for Kling AI. Beyond the incremental investment in inference capacity alongside continuous model iterations, we have recently started to scaling up Kling AI's training computer power to keep Kling AI at the forefront of technology advancement. Including this and CapEx from other AI initiatives, we expect the group's total 2025 CapEx to increase in the mid- to high double digits year-over-year. Regarding expenses, we have recently stepped up our investments in hiring and retaining AI talent. This portion of expenses remains relatively manageable. And despite the higher AI-related investments, we're confident that our full year adjusted operating margin will continue to improve year-over-year. Our overall improvement in profitability further underscores that AI continues to unlock increasing value across Kuaishou's content and business ecosystems. Thanks to the better-than-expected progress of Kling and integration AI technology in our businesses, so we [Technical Difficulty] growth plan with a focus on upgrading computing power and technology. This goes beyond supervising costs and expenses builded in our strategy of leveraging leaps in AI to drive greater value. As AI applications continue to expand across scenarios, their potential value will be unlocked. We are confident that we can continue to steadily grow our profits, improving profitability over the next 2 years, and we look forward to sharing our progress along the way. Thank you. Huaxia Zhao: Thank you, operator. That's the end of the Q&A session. Operator: [Foreign Language] Huaxia Zhao: [Interpreted] Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Stephen Hare: Good morning, and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO. I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY '25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit margin and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment and enabling strong shareholder returns. Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intacct Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes. And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, we have around GBP 1 billion of cloud-native ARR growing over 20%. We've enhanced go-to-market with new systems and processes to drive efficient growth, and we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term. I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review. Jonathan A. Howell: Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we delivered strong financial results, and we enter FY '26 well positioned for further success. Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY '22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%. Moving on to the highlights for FY '25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good levels of growth from new customer acquisition. As a result, ARR increased by GBP 245 million to GBP 2.6 billion. That's up 11% compared to last year. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P&L. Total revenue growth of 10% was underpinned by recurring revenue, which also grew by 10%. Sage has a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to GBP 600 million, reflecting continued top line growth and strong margin expansion. Profit after tax increased by 14% to GBP 423 million, leading to strong growth in underlying EPS of 18% to 43.2p. And we've increased the final dividend to 14.4p, taking the full year dividend to 21.85p which is up 7%. Cloud products continue to be a significant driver of growth with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 23% driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance. Starting with North America, which represents just under half of group revenue. Here, we delivered revenue growth of 12%, driven mainly by the medium segment. Sage Intacct continued to perform well with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region. The UKIA region represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 10% as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50 and this was supported by a good performance in SAGE 200. In Africa and APAC, growth of 7% was driven by strength in Sage Accounting and Payroll together with Sage Intacct. And finally, in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of ForceManager in October last year. And in Central Europe, growth of 6% was driven mainly by Cloud HR and Payroll. As we've said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage together with disciplined cost control means we can invest more and expand the margin. This, in turn, leads to sustainable growth. In FY '25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. An investment in R&D at 15% remains a key priority for the group. Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance, while the effective tax rate remain constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2p. Moving on to cash generation, which remains a core strength of Sage. During the year, the group generated GBP 660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%. And free cash flow was GBP 517 million net of interest and tax. The group has a strong balance sheet with GBP 1 billion of cash and available liquidity. Our leverage ratio of 1.7 remains within our midterm target range of 1 to 2x. In line with our disciplined approach to capital, this morning, we announced a share buyback program of up to GBP 300 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth. So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY '26 to be 9% or above, and we expect operating margins to continue trending upwards in FY '26 and beyond as we focus on efficiently scaling the group. Thank you, and now back over to Steve. Stephen Hare: Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose, to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas: Connect, Grow and Deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and midsized businesses. SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Our small business tracker analyzes data from 140,000 SMBs. And it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments with the challenge of remaining competitive and compliant. They want effective integrated solutions from a trusted vendor and Sage provides these solutions helping SMBs to knock down barriers, automating processes, speeding up cash flows and delivering business insights. LA Opera, shown here on the slide, told us that Sage Intacct has completely transformed their finance function with its AI capabilities, helping to save 10 to 15 hours a week. And as we roll out Sage CoPilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits. The way we're doing this is through the Sage Platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI factory, the infrastructure that drives Sage CoPilot powered by our LLM backed proprietary intelligence engine, and it's supported by our data hub and core experience and network services that enhance security and automate workflows. The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage CoPilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in Agentic AI, both by launching our own agents, and by integrated trusted third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust. We've been building AI into our products for years through successive technologies, first predictive then generative and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition, combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage CoPilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich, proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses. This specialism makes them more accurate and efficient than off-the-shelf models while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage Platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs. So let's now turn to a look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect, where every connection and every transaction that flows across the platform makes the system smarter for everyone. During the year, we scaled services, such as accounts payable automation with monthly transaction value tripling over the past 12 months to GBP 2.3 billion, thanks to continued adoption by customers such as Greenidge in the U.S. shown here on the slide. They told us that Sage AP automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service, and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of Fyle and Criterion, we expanded in expense management and HCM, enabling us to streamline and automate these critical processes for SMBs. We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms, such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for Carbon Accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate. Looking ahead, our aim in this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting our existing ones. And the biggest contributor to growth is Sage Intacct, our flagship mid-market solution. In the U.S., Sage Intacct grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the U.S., ARR increased by around 50%, with standout momentum in the U.K. where Sage Intacct now serves over 1,600 customers. During the year, we replatformed Sage X3 to deliver a full cloud native experience where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business. Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services. Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage CoPilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers including Adam Williams of Tyne Chease shown here on the slide. I met with Adam earlier this year, and he told me that Sage CoPilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier. Other customers have told us it's doubled productivity in accounts payable, while reducing manual data entry by up to 90%. We've also expanded Sage CoPilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far access features such as search help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant. These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now we expect that this, over time, will create monetizable opportunities for Sage through features, pricing and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating cogeneration saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify and convert sales leads. We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. And with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage CoPilot, embedding it into the core user experience across our portfolio while further developing our agentic capabilities, accelerating benefits and unlocking ROI for customers and for Sage. Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence with Sage ranked by G2 as the #1 software company in the U.K. for 2025 and in the Top 25 globally based on user reviews. And we continue to champion policies that our customers care about from partnering with the U.K. government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage. For colleagues, we foster a high-performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers. Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY '25, we launched our entrepreneurship program to support purpose-driven start-ups around the world. And Sage Foundation celebrated a decade of impact during which time we've raised over $5 million and enabled 1.4 million volunteering hours. And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus, which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders. We're differentiated from competitors by our AI-powered platform, global products and geographic reach with deep domain expertise across financials, payroll and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin. So in conclusion, Sage delivered a strong performance in FY '25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY '26 with confidence and momentum. Now before we move to Q&A, I'd like to say a big thank you to Jonathan, who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jacqui Cartin in great shape and I'm looking forward to welcoming Jacqui to the CFO role from the first of January. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be very happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Adam Wood from Morgan Stanley. Adam Wood: First of all, congratulations on the results and also best wishes from me, Jonathan. I know you've got a few weeks left, but best wishes from my side when that time comes up. I've got two questions, please. Just first of all, we saw a nice tick up in the ARR growth in the fourth quarter. Could you just talk a little bit about what the drivers of that improvement in ARR were at the end of the year, please? And maybe just secondly, when in the commentary around North America, you talked about the introduction of multiyear customer contracts as a driver of growth. I guess from Intacct side, that's a pure SaaS business, so multiyear contracts wouldn't bring any revenue forward, but I'm just curious if you could maybe expand a bit on how that was a driver for North American revenue, please. Jonathan A. Howell: Adam, yes, thank you. Thank you for your questions, and thank you for your comments. First of all, if we just stand back and look at ARR for the full year, we exited with growth of around 11%, and that was in line with the first half ARR exit rate. Looking at sequential growth, Q1, Q2, Q3, we saw between 2% and 2.5%. And then to your question, in Q4, that picked up to around 4%. And that was a very strong result and particularly [Technical Difficulty]. Operator: One moment please, your conference will resume shortly. Jonathan A. Howell: Hello, sorry, we lost the line for a moment then. Just to recap to make sure everybody gets it. Q4, we saw a sequential growth of 4%. And that was a strong result and significantly above the 3.5% that we saw in Q4 of the prior year and that's been driven by North America and UKIA, particularly across the medium segment and primarily Intacct, where we saw a very strong performance in Q4 in both new customer acquisition and upsell and cross-sell. I think it's probably just worth noting that we are now beginning to see the benefit from the ongoing investment that we've made in products, people and go-to-market in those regions in the medium segment. And that underpins our guidance for FY '26 as we exit with -- this year with good momentum. Suites multiyear contracts, Adam, you mentioned that. They simplify our proposition for customers and improve the sales motion. We expect over those multiyear contracts to be able to increase customer lifetime value over that extended period. And that provided a bit of an impact in Q4, but really, the whole performance was underpinned by strong execution in new customer acquisition. Operator: We will now take the next question from the line of Frederic Boulan from Bank of America. Frederic Boulan: Two, if I may. Firstly, around AI. I mean you kind of discussed your pipeline and the kind of innovation you've been pushing. Can you spend a minute around the impact on the business from a revenue standpoint? What you've been doing from a pricing standpoint and any early insights on what you've seen in your U.K. portfolio in particular? And then secondly, it would be good to have an update on the competitive dynamics, especially versus Intuit in the U.S.? Are you seeing any of the QuickBooks graduate funnel starting to dry out? On the contrary, I mean, U.S. performance seems to remain very, very healthy. So any comment there would be great. Stephen Hare: Yes. Thanks, Frederic. And so to start with the AI. And we have, as we've said before, been deploying AI for many years. What we're doing now is, both with Sage CoPilot and now increasingly with AI agents, starting to create more stand-alone capability that takes advantage of generative AI. So with Sage CoPilot, we've now deployed that to around 150,000 customers. And in terms of how we're monetizing, we're doing it in a number of different ways. With CoPilot, we're tending to bundle it into the existing plans and then use that to increase the price. So in the U.K., for example, with Sage Accounting, we put Sage CoPilot into the plus tier, and then we increased the price of that tier by around 25%, 30% and made it available to all those customers. With some of the agents, so for example, with accountants, we've launched a VAT agent, which does what it kind of says on the tin, which is it helps to prepare VAT returns. For those sorts of agents, we may well charge for those because they are -- separately because they're doing a particular task but I think my kind of overriding message here would be that the commercial models have not really been completely written. So I think if you ask us or you ask anyone else, we're all looking for different ways to monetize what is considerable value for our customers. We are saving our customers a tremendous amount of time. We've had feedback from small customers that Sage CoPilot is saving them 10, 12 hours a week. So I think it's kind of it will build over time, and we will -- these sorts of calls will give you transparency in terms of how it's being monetized. But it may not be an entirely kind of linear journey. It will -- there'll be different ways that we do things for different parts. As far as the competitive situation is concerned, look, I mean, I think it's very similar to how it's been in the past. I think our differentiation is that whether it be in the U.S. or elsewhere, we're being very clear that what we're doing with AI is we are driving a platform strategy where we're using our proprietary data sets to train our models to ensure that we get the accuracy that's required in a finance payroll environment. So if we're automating workflows in the case of midsize businesses with Intacct, we're seeking to automate the close, save time by deploying AI in the close process. All of these things have to be accurate. And the way we make them accurate is because we have domains or developing domain-specific LLMs. We've said in the press release, we have over 40,000 training models currently learning from our 40-plus years of experience in our proprietary data. And we think that is the way forward. Jonathan? Jonathan A. Howell: Yes, just to add a little bit more color on the pricing impact. As Steve said, we've seen price increases put through for Sage Accounting and Sage 50 in the U.K. only in relation to the introduction of CoPilot. And if you look back over the last 4 years, across our portfolio on a weighted average, our price increases have been between 4% and 5%. For this year in FY '25, that ticked up to 5.5%. And a significant component of that does come from this impact from pricing in response to the introduction of CoPilot. That's just the start. As Steve said, it's not going to be linear necessarily, but we are optimistic given that Sage CoPilot and other AI enablement will begin to be rolled out across other products and other territories outside of the U.K. Operator: We will now take the next question from the line of Toby Ogg from JPMorgan. Toby Ogg: Jonathan, best wishes from me as well. Just on the 9% or above growth guidance for '26, could you just help us with the framing around the sort of recurring revenue growth versus the other revenue? I think for 2025, you saw about a 30 basis point or so headwind between that organic recurring revenue growth and the total organic revenue growth. How should we think about that dynamic for 2026? And then also, you obviously mentioned 5.5% contribution from pricing in '25. How are you thinking about the pricing contribution embedded in the 2026 guide? Jonathan A. Howell: Yes. So in terms of the guidance for the year, if we just step back, for FY '26, we are using the same form of guidance that we've used for the last year, which is 9%, organic total revenue growth of 9% or above. We are confident in that guidance given the momentum that we take with us as we exit the year. We've invested in key products, particularly Sage Intacct and CoPilot. And we've also seen really in Q4 and continuing this year, good sales execution. We've got a solid sales pipeline and robust closure rates. So we see overall the guidance is realistic, but cautious. And needless to say, we will continue to update you as we move through FY '26. In terms of the various components of revenue, I think the most important thing to note is that other revenue, which we have seen as part of our strategy, a significant runoff over the last 5 years, as we exit the license business, that part is done. But we still have an element of maintenance and support and an element of professional services, which has now stabilized. And the professional services, in particular, is an important contributor because that provides us with flexibility for implementation and new customer acquisition in the direct channel. So in those two lines, that quite strong strategic runoff that we've seen in recent years has stabilized, and there will be some variability there going forward. Now it's important to note that the other revenue line is very small, that's only 3%, but it does have an impact. And the maintenance support is a larger line and has a little bit more of an impact in supporting those numbers. I think that's answered your question. Toby Ogg: Yes. Just on the pricing contribution for '26, anything you could say on that? Jonathan A. Howell: Sorry, Toby, yes. At this stage, no. We are always testing and seeking to optimize the fair value exchange that we have with our customers with existing products and new products. And therefore, we're constantly assessing the take up and adoption of these new products versus the additional pricing that we're asking for it. So at this stage, we have it baked into our plans, but we're not sort of giving forward guidance on what to expect. But clearly, you'll see the impact of any additional pricing as we get through Q1 and H1. Operator: We will now take the next question from the line of Charles Brennan from Jefferies. Charles Brennan: Just a couple from my side. Firstly, on Intacct, it sounds like that was the biggest driver of momentum at the end of the year. I'm under the understanding that where you provide some customer incentives to onboard new customers, that's typically in Intacct. And those discounts don't necessarily get reflected in ARR. Can you just talk about the volume of discounting at the end of the year relative to the previous year? And then when we think about the gap between ARR growth and recurring revenue growth, last year, I think, you exited ARR of 10.5%, and we saw just over a percentage point of dilution to get to recurring revenue growth. What do you think that delta looks like this year? And then just as a small follow-up. I didn't quite catch the point on the multiyear contracts. I know you said it was immaterial, but is there any pull forward of revenue recognition under a multiyear contract? Jonathan A. Howell: Yes. So first of all, in terms of your opening remark around Intacct, yes, that is the very significant driver that we've seen, obviously, over the last 2 to 3 years, but particularly in Q4. And just to deconstruct that a bit, we have seen total revenue growth for Intacct in the U.S., which is about a $650 million base now, of 23%. And in H2, that was 25%. And so that underpins the overall performance that we've seen. And ex-U.S., that total revenue base is about GBP 50 million, and that's growing up between 50% and 60%. Your reference on discounting, the level of discounting provided on a customer basis in Q4 of this year was not too dissimilar to what we were providing towards the back end of FY '24 and is part of the normal sort of sales cycle of both direct and partner channels, particularly in North America. Multiyear contracts, you sort of referenced that. What -- first of all, multiyear contracts are important because that enables us to acquire a new customer, onboard that customer with a good assessment of the capability and functionality that they need but then gives us a 3-year period in which to assess and upsell and cross-sell into their needs rather than necessarily the other way around, where there's a big sale upfront and then an assessment in subsequent years of whether all of that capability is needed. So that is the important thing about multiyear contract. It makes it both easier for the buyer of our products and for us for a provider of capabilities to our customers. In terms of revenue recognition, the impact is that any upfront discount is, therefore, spread over a 3-year period as opposed to a 1-year period. So there is an element of revenue improvement as a result of that. But I do stress, it's the performance of the underlying sales motion and our customer approval of our products, which is driving what we're seeing at the moment. And to give you an example, in North America, I think we have just had our highest volume month ever for Sage Intacct. So this is underpinned by real volume coming through. And then in terms of ARR to that sort of difference, we always expect them to be close, as you referenced in your question, but not necessarily the same. And this is consistent with other corporates and companies that use this measure. The reason is, as you know, an ARR is a point-in-time metric, while revenue is booked over an extended period. And any divergence that we see is mainly caused by the timing of revenue growth. That sort of compressed slightly in recent quarters. It will vary and fluctuate. We're not giving -- we're not giving forward-looking guidance on that gap because it depends upon the cadence of growth rate and when acceleration occurs. Stephen Hare: And Charlie, just to add, just to be helpful, I think with the dynamics around Sage Intacct, just to emphasize what Jonathan said, in Q4 and in September particularly, we did see very, very strong volume growth in U.S. with Intacct. And we saw that consistently both in the -- both direct and also through the channel. So it was a kind of -- it was a pretty consistent theme in terms of that volume growth. Operator: We have time for one final question from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations on your results and Jonathan, best wishes, and thank you from my side as well. Two questions from my side, if I may. Firstly, on the topic of AI, one of your key peers announced a deal with OpenAI yesterday. Do you see merit for Sage to also target similar integration of its portfolio with Frontier models to allow customers access to more customized services? And second question on margins, with puts and takes around AI, in particular, productivity gains internally and need for investment as well, do you see the view of 50 to 100 basis points per year margin expansion staying intact in 2026 and beyond? Stephen Hare: Thanks. So yes, on AI, I mean, I'll start with how do people access the capability. So I think people will increasingly want to access capability, do their kind of daily tasks, approving invoices, doing all the workflow type stuff in a number of different environments, right? So today, if you want to approve an invoice, for example, typically, you have to go into the application, log on to the application, do it in the application. And in the future, you might do that in Teams. You might do that in Outlook, you'll do that on an app on your phone, whatever it might be. And therefore, to sign up or to partner with some of the larger players like a ChatGPT, if the intention is to create that flexibility to access makes a lot of sense. The one warning I would give is we're very clear that the way that we produce accuracy is we have data on our platform, proprietary data on our platform which our learning models are using to create accurate automated workflows. We're also very protective of that data because that's customer data. So we would not, for example, want to share that data with others. Now I don't -- I can't comment on the detail of what other competitors are doing because there isn't enough information in the public domain to make an assessment. But what I can say is we're very clear that our AI is learning in a secure environment where we are -- it's effectively a private network with a gateway so that developers can come in and develop their own agents on our platform, but it has to be curated and controlled by Sage because that ensures the integrity of the data and the integrity of the outcome. I'll let Jonathan talk a little bit about margin, but let me just start by saying that I think in the same way that we're selling AI and productivity to our customers, we're obviously seeking to get productivity internally. And we've seen a number of areas which have already contributed to the expansion in margin this year, for example. So for example, in the area of -- areas like customer services, we are already deploying significant AI to get higher first-time resolution through AI rather than human-to-human conversations. And if you look at it at a very high level, we've grown Sage this year revenue 10% and our headcount is broadly the same as it was 12 months ago. So we're starting to see the benefits, the early benefits of some of that investment, but Jonathan, do you want to... Jonathan A. Howell: Yes. And I think the important point is that Steve just raised is that with the internal adoption of AI, there are significant savings that can be achieved. And we've seen those in customer support and also in R&D and engineering. So just to stand back to your question, this is now the third consecutive year of margin expansion. We've guided for FY '26 for margin to continue to be trending upward. So that will be the fourth consecutive year and this is driven by growth and established patterns of achieving operating efficiencies. So at this stage, we expect to be at the lower end of the usual 50 to 100 basis points range as we continue to invest in growth. And so as I always say on these earnings calls, we will, though, as we move through the year, continue to dynamically reallocate spend during the course of the year to maximize that trade-off between top line growth and margin expansion, depending upon the circumstances and the opportunities that present themselves to us as we move through the year. Thank you very much. And also thank you for your kind comments. Operator: I would now like to turn the conference back to Steve Hare for closing remarks. Stephen Hare: Thank you very much, and thank you, as always, everyone, for listening. And as I said in the presentation, but again, just to add my thanks to Jonathan for the huge contribution that he's made to Sage, and we look forward to welcoming Jacqui to the next call in January. But thank you very much, and have a good day, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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.
Operator: Good morning, ladies and gentlemen, and welcome to the Dialight plc Interim Results Investor Presentation. [Operator Instructions]. Before we begin, we would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Dialight plc, Steve, Mark, good morning. Stephen Blair: Good morning, and thank you, everybody, for joining. We're going to go through this fairly rapidly, but I thought I'd start by giving you a little bit of history of Dialight on the basis that you may not all be aware of where Dialight has come from. So Dialight has been supplying LED products at the individual product level for about 50 years. And we continue to supply those products today. And in fact, it was the fastest-growing part of our business year-on-year in the first half. But in the early 2000s, Dialight saw a first-mover opportunity to move into industrial LED lighting. And this was particularly in hazardous locations where protection of plants and people by having adequate lighting for safety purposes was really important. And so we had the first-mover advantage. And over the period sort of mid-2000s up until 2014, the business grew very rapidly, reaching a positive cash position, inventory around the $35 million mark and profitability around about the 17% return on sales. So everything was going very well for Dialight at that point. On this slide, you can see a couple of examples. Bottom right is a mine and top left is a wastewater treatment facility. But you can see the quality of the lighting is really important to make sure that people and personnel are safe on those sites. So we had a very good market position, very good brand recognition. And then the business lost its way a little bit between 2014 and 2024. So I stepped into the CEO role in February '24, at which point we had a net debt of $24 million. We had a legal case with the Sanmina Corporation hanging over our heads. We weren't growing and we weren't making any profit. Now there were many reasons for that. Largely, a lot of complexity had come into the business, really created by the rapid growth in the early days when the proliferation of SKUs, both at the finished goods level and at the subassembly level meant that we were a very high mix but very low volume manufacturer. And that is always a very, very difficult place to be. It makes demand planning very difficult. It makes understanding what the market requires very difficult. And in terms of manufacturing, it means you have very, very low efficiency in manufacturing because you're continually changing the different types of product that you're manufacturing. So when I stepped in, we set off on a program really of simplification and complexity reduction. In any business, complexity equals cost. And our first quarter call, which really galvanized all of the other changes in the business was reducing the SKU count so that we could focus on profitability and selling products that we could make money on and stop selling those products that really made no money. And just to give you an example of the progress we've made over the last 18 months, we manufacture power supplies. We manufacture light engines that drive the LEDs. We manufacture the LED circuit boards and optics, and we design and manufacture the houses. Over the last 18 months, we've reduced all of those components by 83%. So an example is the power supply. We were manufacturing 126 different power supplies 18 months ago. We're now manufacturing 12. That sort of reduction really improves our efficiency in the factory. It means we're changing lines less often. It means that we have much greater buying power. It also means that our demand planning is easier. And all of these changes have really brought benefit to the business. And I'm going to move to the next slide and just show you some of the progress we've made. So we've started delivering profit. We've started generating cash. And there's a long way to go with the annualization of the savings and the improvements that we've made as well as what we'd be doing in the future to further improve the business. So the transformation plan, which is what we put together when I first joined is all about improving the basic fundamentals of the business to deliver profit and cash to pay down debt and allow us to invest in growth in the future. Now what you'll see from the financial performance is that year-on-year, our revenue has declined. Partly that is due to the tariff impact and the global economic climate, not that we can't manage it, but because it brings uncertainty with some of our bigger clients who are contemplating large capital projects, because of the tariffs on steel, aluminum, copper and the like, their investment decisions can swing wildly depending on the tariff situation. So what we've seen on these larger projects is a bit of a slowdown, which has impacted our revenue. But that said, our approach has been to bring quality of earnings to the business in anticipation of preparing for growth when the market allows. So I think you'll see from the financial performance that we've gone from a very difficult place to a far, far better position in terms of our net debt, in terms of our profitability, in terms of our return on sales and in our ability to generate cash. We have a number of key strengths as a business. I mentioned about a fantastic customer base who recognize our brand and understand that we were the market leader, and in the hazardous space continue to be the market leader. We offer a 10-year warranty. So essentially for any customer, it's fit our product and literally forget about it. We control our own designs, particularly around the power supplies, which give us the confidence to then offer that 10-year warranty. And certainly, all of the testing we've done and all of the in-service -- the in-service application of the products have shown that our warranty claims are very low. And therefore, the quality of the products that we're supplying can actually meet and exceed that 10-year warranty. We've got good access to the customer base and a tremendous set of people. And that's really -- it's the quality of the people and their knowledge of the industry and our business that has really helped us quickly turn around the performance of the business. I talked about the transformation plan. And fundamentally, it's built around 5 key pillars. The first is all about winning hearts and minds. If you can't convince people in your organization that your strategy is the right strategy and you're moving in the right direction, it's going to be very difficult to bring around -- to bring a turnaround. And as I said, we've got tremendous people, and they have really bought into the idea that generating margin, generating cash, thus allowing us to reinvest in the business is the way forward. Historically, the emphasis has been on top line growth, and that really didn't help the business over that 10-year period. So now we're really focusing on quality of the underlying business. And as I said, when growth or when the market is more amenable to growth, we expect to be able to grow with high leverage on that additional revenue. We then turn to sales transformation. As I said, historically, we've been selling on the basis of volume and not really very much emphasis on margin. We have now changed the emphasis. Margin is as important as volume, and we're rewarding our salespeople based on a combination of both revenue and margin. And we'll be rolling that out fully at the start of the new financial year. But already, we're seeing the way that the salespeople are thinking is moving towards that balance between decent revenue, but good margin because that is what is allowing us to improve the quality in the business. The third element is the operations transformation. So how do we make the engine of the business as efficient as possible? And certainly, reducing the SKUs has really helped us with that efficiency and reducing inventory has had a dramatic effect on our cash generation and also actually the space that we have available for growth within our factories. The fourth piece is the margin improvement and cash generation. So we've improved a lot of our processes. We brought a lot of efficiency into the overhead part of our business, and that's allowed us to reduce our cost quite considerably. Those 4 pillars of the transformation were the things we set off to do to really get the business quality back, and then within the last sort of 6 or 8 months, we turned our attention to creating a platform for future growth. And here, we're looking at short, medium and long-term opportunities for growth. We have a Board-directed committee called the Strategy and Innovation Committee, where we're looking strategically at what we do in the short term. So where are some quick wins that will allow us to get new product or new services into the market quickly. Medium term, what do we need to develop for the medium-term future in terms of product? And then longer term, just as we were a first mover with silicon-based LED technology, what might be coming next that could allow us to be a future first mover with a change in technology as technology continues to advance. So in summary, we've had a good last 18 months. We've turned from loss to profit. And as we look forward into the second half, we continue to expect to deliver strong and tangible progress on the transformation plan. We want to accelerate the transformation of our sales team and put in place support and remuneration structures that incentivize them to be more successful. We do intend to improve our working capital position, although right now, we are back to where we were in the heyday of our business. We are in December, going to settle the outstanding liability on the Sanmina contract, which will be a big step forward for us. And as a Board and as a business, we remain confident that the recently upgraded expectations we put into the market, we will fulfill and deliver for the remainder of this financial year. So hopefully, that was a useful summary and a useful introduction. And I'll hand over to Mark now to take you through some of the more financially appropriate elements of our business. Mark Rupert Fryer: Thanks, Steve. So for those of you that didn't know, I was CFO at Dialight from 2010 to 2014, and I rejoined in January this year. So looking at the overall financial summary for the half. The group made $5.5 million of operating profit for the half, that's both up on the full year last year when we made $4.2 million of profit and the second half in which we made $3.3 million. What I think is slightly disappointing is the revenue performance in those very difficult markets, as Steve has said, the tariff impact on major CapEx projects with high tariffs on steel and copper, which make up a large part of the installation costs for a new facility, our lights are typically 1% to 2%. So it's not the cost of the lights, it's the cost of the other commodities. They have up to 50% tariffs on them currently. So that's delaying CapEx. That said, whilst overall volumes were down 4%, Signals and Components was actually up 10% and the components element, which has a very strong correlation with data centers and AI was actually up 20% in the half. As Steve said, we're focusing on the higher-margin products. The top 300 SKUs that we manufacture have about a 15% higher margin than the average across all our SKUs. So we're concentrating on those top 300. That has seen us add 230 basis points to the gross margin. In the half we generated 35.3% gross margin, and we see that increasing further going forward. We've reduced almost all lines of cost half-on-half. The overall level of labor has reduced significantly in our main facilities in both Ensenada and in Penang in Malaysia. Ensenada, particularly, we've reduced from about 560 heads, and we'll exit the year with near 400 heads. Overall, labor costs reduced from $7 million in the prior half to $6 million this half. The production overhead reduced from $14 million to $13 million, and the overhead reduced from $29 million to $25 million. So the combination of the increased gross margin and the reduced cost is what's seen a sixfold increase in the operating profit for the half. On top of that operating profit, we had a small $0.4 million profit on non-underlying items, but a very significant part of that was the receipt of $2.9 million from the U.S. IRS and this related to employee retention credits because we continued to work our engineering function through COVID, and we applied for credits for that, and we received those in the first half of the year. We've used those to afford the costs of the transformation plan and also costs of buying in our 2 main pension schemes, which were defined benefit pension schemes. A real financial highlight is the group in the last 10 years has significantly built up its level of working capital. It needed to do that particularly through COVID, but now we need to get back to the historic levels that we had in 2012, '13. So in this time, 6 months ago, we were talking to our shareholders about targeting a reduction of at least $5 million for the year, but we did say that we thought we could reduce inventory by up to $10 million. And actually, we've run ahead of that. We've saved $10.8 million in the first half alone. So just moving then to the income statement. You can see that small 4% reduction in sales. But despite that, an overall improvement in the working capital, the reduction in the overheads and the profit on the non-underlying items and closing for the half with an underlying EBITDA of just under $10 million. I hope you can all see this slide. It seems quite small to me. But over the last 2 years and closing off with the second half of last year, the gross margin for the group has improved by 10 percentage points from 28% to 38%. And you can see the group has gone from being loss-making to now generating a nice profit on an upwards increasing curve. The first half margin at 35% looks disappointing compared to the second half of last year. The reason for that is we have felt that the group has been capitalizing too much overhead into inventory. And so in the last 18 months, we've reduced the overall capitalization from about $11 million down to $6 million, and that had an impact of about $3 million in the first half of the year. If we hadn't taken that reduction, the operating profit would have been $8.5 million. And you'll see that later on a slide, but that was just, I think, to demonstrate we are making good progress. If we hadn't have had that inventory reduction in the capitalization, the margin would have been 39.1%. So the same as last year. But I should also add, this is the last half in which the group has been manufacturing traffic lights. We sold that business 12 months ago to LEOTEK, and we had to run off a manufacturing agreement, we only make a 7% margin on traffic lights. As I say, that activity is now finished. If you took out the impact of the stock valuation and the traffic light, we actually generated a gross margin in the first half of 42%, which is getting near to the target, which I'll share with you for what we want to be generating going forward. I've included this income statement just to show the last 12 months, which I guess has been really the first 12 months of the significant impact of the transformation hitting the group and the benefits of that. And you can see there that the underlying EBITDA at $17.3 million and an operating profit of $13.6 million. The current share price, we're valued at about 6x EBITDA. This is just a summary of the non-underlying costs. So these are very clear to everyone. I think the most important aspect of those is overall, we made a small profit, but more importantly, the ongoing benefit of the 2 major activities, the transformation plan costs, $1.3 million of costs. These have got a payback of about threefold. So we should see a reduction in operating costs going forward of $4 million on an annualized basis and only about $1.5 million will hit this year, an incremental $2.5 million will be next year. Then secondly, the defined benefit schemes, they have now both been brought in, and they will both be bought out in about May, June next year. In terms of the balance sheet, you can see there the inventory reduction from $40 million at year-end down to $30 million is the most -- the biggest generator to the debt reduction in the half. The net debt improved to $10.5 million at the end of the half. We've continued to generate cash. The net debt now is around $8.5 million. And it's that really which has enabled us to agree with Sanmina to pay them early. They've been good enough to give us a reduction in the amount. We should have paid them $6 million, and they've agreed to accept $5.65 million, and we'll make that payment in the second week of December. That removes the contingent liability and that draws a conclusion to that whole outsourcing and litigation. So that removes that uncertainty on the group. Overall, then with about $50 million of net assets, the group is generating a run rate of about 17% return on capital. I'll share with you later the targets for the group. We're looking to target 25% plus. And just to put that into context, back in 2012, the group was generating 50% return on capital. So we don't see any reason why we shouldn't get back to that level. In terms of the cash flow, the operating cash flow in the half was $13.9 million. Steve referred earlier on to the start of the year when I joined, we had $24 million of debt then. We've generated $14 million of cash. And as I've said, we've moved further on. We're now down to about $8.5 million. That isn't just about reducing inventories, it's reducing trade receivables as well. One aspect, though, we were squeezing our suppliers too much. And you'll see that we have caught up now on those payments and the overall level of creditors has reduced by almost $10 million as well, whilst the level of debt is obviously also reduced. Finally, I think the group has been running with capital expenditure at about $10 million a year, which was about $6 million of CapEx and $4 million of capitalized R&D. Going forward, I think we'll look to be reducing the level of actual CapEx by about half to about $3 million a year, but we will still continue to invest in R&D to have the best products in the sector because that's one of the differentiators that we have over our competitors. So this is my final slide. So the -- on the left-hand area here, this shows you the margins that the group was making in 2012. And on the right-hand side, we set these ambitions, I think, in about March. And frankly, it probably seemed slightly unbelievable to many people. But basically, what certainly I found was a business here, I sort of very much brought into Steve and Neil, the Chairman's ambition for where they wanted to take the group, the delivery of the transformation plan, and we really need to just get back to where we were. And back then, the group was generating an underlying gross margin of about 40% generating an EBITDA margin of 20%, a return on sales of 17%. The EBITDA was virtually 100% conversion to cash. Therefore, the group didn't have any debt. It paid high dividends and it generated in excess of 50% return on assets, and it was relatively working capital light. In terms of our ambition, we'd like to get to 3% to 5% growth. We are targeting to get to 45% gross margin. That actually is the same as -- it's hard to get your head around. It's the same as the gross margin of 39% in 2012, and that's because in 2012, sales commission was expensed in the gross margin, and now it's included in overheads and the sales commission is 6%. But 45% gross margin, 15% plus EBITDA margin and a return on sales of 11% to 13% plus. We expect to eliminate bank debt next year. We're going to target 25% plus return on assets. And we set out a target to achieve $35 million of inventory over 3 years. And actually, we've hit that now. So I think we probably need to revisit that. I think we will probably reduce inventory a little bit further. And in broad terms, whilst the delivery of the transformation plan is ahead of where we would expect to be at this point, we're still only about halfway toward achieving each and every one of these 3-year ambition. The transformation plan annualization, you won't see the full benefits probably until the 2027 financial year is when the full benefits will be felt. And we think we can do that very largely through self-help and the annualization of those benefits. The revenue growth of 3% to 5% would make the task of getting there easier and would enable it to be quicker. So I think that hopefully specs out where we expect the group to get to. And with that, I'll hand back to Steve. Stephen Blair: Thank you, Mark. I think I'll summarize very quickly by saying that Dialight has always been a quality business, and it struggled a bit in that 2014 to 2024 time period, but the quality was always there. And we are now starting to bring that quality of business back. As Mark said, we're probably halfway through to where we want to be. And we have really clear plans of how we deliver progress. And if the markets allow then we'll certainly be seeing growth. That's what we're targeting. And when you have a quality business generating growth, you deliver exceptional returns. And certainly, that is where we are trying to get to. So with that, I'll hand back to Jake, and we will take any questions that you may. Operator: Perfect. Steve, Mark, if I may just jump back in there. Thank you very much indeed for your presentations this morning. [Operator Instructions]. As we have received a number of questions, so perhaps if we dive straight into it. The first question that we have here reads as follows. What is the elasticity of customer demand with respect to pricing in your main segments? Stephen Blair: Mark, would you like to take that? Mark Rupert Fryer: Yes. So I think the answer to that is -- well, let's do this by segment. I think the OE segment, this is the segment we've been in for 50 years. The average sales price of an individual light is very low. However, we are the brand leader. We've been doing this for 50 years. We supply just in time to the contract equipment manufacturers. So I would say in that segment, the price is relatively elastic. We are always competing with others. But once we are in with that customer, we tend to stick. Lighting, on the other hand, and I think this comes to another question, I think we have market-leading products. The value of safety of not having to change out the lights and the energy saving that our products generate and the overall ESG impact of our lights means that the pricing isn't as elastic. And in fact, we've put the pricing up twice in the last 12 months, and we haven't seen a notable falloff. And indeed, when the whole discussion about tariffs, we received praise from our customers that we didn't immediately put our pricing up as some of our competitors did as a surcharge. And we don't believe that they have seen a major impact either. So hopefully, that answers your question. I think it probably comes to another question, which is Dialight has an outstanding reputation for the quality of the product and being pioneering. All our lights have been designed to be LED lights. That isn't always the same for all our competitors, that may well use an old technology, housing and power supply with the LED. But that said, and I think the question is, who do you compete with? Are they the same as 10 years ago? And the answer to that is yes. We have some very large, well-capitalized, very serious competitors, and we tend to come up against the same competitors. So whilst the products have been improved, prior management have continued to invest in the product development. We remain one of the top 4, 5 competitors in the space. And our market share, we think, is around the 15% to 20% mark. And the more hazardous the segment is like oil and gas and mining, the slightly higher our market share is. Operator: Perfect. Thanks, Mark. Just turning to the next question. What would the FY '25 gross margin have been without the adverse impact of the runoff of the traffic business, i.e., what's normalized? Mark Rupert Fryer: Yes, sure. That's a very good question. So last year, the actual traffic segment was loss-making at the gross margin level. And it was for that reason that we booked an onerous contract provision at year-end of $0.8 million. And that has been released, and that was the primary reason why it made a very small 7% gross margin this year. If traffic had not been included in the full year '25 numbers, the gross margin would have been about 39%. So quite an uplift. And I have to say we'll both be very happy to look forward to H2 without traffic in it. Operator: Perfect. The next question asks, are you continuing to invest in the Components segment? Or are you in harvest mode? Stephen Blair: So when I joined 2 years ago, we weren't investing in the Components segment. I was told that it would only ever grow up and down or grow and decline with the market and that there was no opportunity for growth. And so to be honest, a lot of our emphasis was on the solid-state lighting because it's the major part of the business. But just in August, I visited a customer in Asia who said, basically, look, we love what you do for us, and we do 2 million or 3 million with this customer a year, but I've got $25 million worth of other stuff that I'd be happy for you to provide as opposed to competitors. And so suddenly, overnight, having gone and actually spoken to the customer and listened, we saw that there is an opportunity in the Components segment. And we are now looking to invest. And so we've gone from a business we were running mainly for cash to actually, there may be some opportunity here. And as Mark said earlier, we saw a 10% year-on-year improvement in that business. So AI and data centers are a big element of that. That seems set to continue. But this is more about broadening our market share. And so if you'd ask me that question 6 months ago, I would say, no, we are not investing. It's a cash cow. But now we see real potential, and we will be turning our attention to selective investment to provide the best return we can. Mark Rupert Fryer: And I should also just add on that, that the indicator business makes the highest gross margin and the highest return on sales. So the greater the mix that, that can be will overall drive up the group's return on sales. Operator: Perfect. The next question asks, many congrats on the progress so far. Two questions, please. Has it been difficult to win staff hearts and minds whilst cutting headcount? And the second part of the question is, how has the identity of your competitors changed since 2012? Stephen Blair: So if I take the first one, it's not been that difficult, to be honest. We have -- I think you find this in any business. You have very intelligent people who are keen to be engaged in the strategy of the business and to understand what is needed from them. And we started off very, very transparently as soon as I joined, we talked about the problems in the business. We talked about the opportunities. We talked about the strategy that would get us back to where Dialight had previously been. And we said quite clearly, there are people who will be part of that journey, and there will be people who won't be part of that journey, either because they don't want to be part of that journey or because the business can't support those functions or resources. And so people have responded extremely well to that. And even people who have left the business have left feeling they made a contribution to it. And they feel proud of that. So as I said right at the beginning, that first pillar was the key to any success. And I think looking at the results, it sort of shows that everybody stepped up. Those people who remain, I would say, are even more dedicated to Dialight. And that for any leadership team is a godsend. And I think it's gone as well as I could have expected. Mark Rupert Fryer: And in terms of the competitors and whether they've changed since 2012, the simple answer is no, they haven't changed. So the 4 competitors are Appleton, which is a subsidiary of Emerson; Cooper Crouse, which is a subsidiary of Eaton; Holophane, which is a subsidiary of Acuity Lighting; and Killark, which is a subsidiary of Hubbell. I think what has changed is, in 2012, Dialight was 100% LED. And those 4 competitors were not as highly focused on LED. They are now a lot more focused than they were then. They had legacy traditional technology businesses. They will still sell those lights to you as well, but they'll be a much smaller part of the mix than they would have been back in 2012. We tend to come up against them on most major bids. I think one of the areas in which we have slightly underinvested more recently has been in selling to the engineering, procuring businesses, the EPCs. That is a long-term sell and the goal in that is getting specified, your products specified on new build and retrofit of facilities. So that is something that we are investing in now more heavily. That's an investment that hits the P&L initially, but then typically higher margins can be generated when those bigger projects go live. Our competitors have continued throughout the last decade to invest in that area. So there are areas in which we are not specified and our competitors are. We need to do better at that. But today, our business is between 60% and 70% MRO maintenance and repair work. That's higher than it used to be. It used to be more CapEx new project orientated. And a combination of, hopefully, tariff uncertainty removing and our investment in the EPC team, we'll see that level of activity build up again and the overall percentage of MRO to marginally reduce. Operator: Perfect. Is wind a significant part of the U.S. obstruction business? And if so, are there revenue risks from the likely decline in new turbine orders/builds? Or is cellular/broadcast the driver? Stephen Blair: Yes. So wind is not a driver for us at all. All of our obstruction business is tower-based, are the communication towers and the like. And so really, that is the driver for our business. I mean with 5G towers, they're not as tall. And therefore, we don't see demand for our products increasing. But as Mark said earlier, the obstruction business is a very solid, reliable business with good returns. And so we'll continue to go after that obstruction business. But no, we're absolutely not impacted by how the wind market is growing or declining. Mark Rupert Fryer: I can see where the question comes from because in 2012 Dialight was in the wind market and had a Danish lighting business, BTI, but that has been exited in the last 5, 10 years. So no [indiscernible]. Operator: Perfect. Thanks, guys. And that actually concludes all the questions that have come in this morning. So thank you very much indeed for being so generous of your time and addressing all of those questions. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation just for you to review and to then add any additional responses, of course, where it's appropriate to do so, and we'll publish those responses out on the platform. But Steve, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Stephen Blair: Thanks, Jake. I'll sort of repeat what I said at my earlier wrap-up, and that is, this is a really good quality business. We think it has much, much further to go. And we are looking for growth on top of that high-quality business, which means we expect to generate profit, cash and growth. And certainly, that is what we're targeting. And I really appreciate your time today. We're very happy to talk to as many people as possible. We think we have a really good story, and this is a really great business. So thank you for your time and attention today. Operator: That's great. Steve, Mark, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Dialight plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.
Noella Alexander-Young: Hello, and good afternoon, everyone. Welcome to today's presentation. My name is Noella Alexander-Young, virtual event moderator here at Renmark Financial Communications. On behalf of our team, we want to thank everyone for joining us today for ProPhase Labs, Inc.'s third quarter 2025 results. ProPhase Labs, Inc. is trading on the Nasdaq under the ticker symbol PRPH. Presenting today is Ted Karkus, Chairman and CEO. Following the presentation is a Q&A session for which you can participate using the chat box in the top right-hand corner of your screen. That being said, I will now hand the floor over to Ted. Ted William Karkus: Okay. Greetings all. Thank you, Noella, as always. Thank you, shareholders and others, for joining the call. This is our Q3 ProPhase Labs, Inc. presentation to review results and what we are going to be doing going forward. First of all, I have to thank Renmark, who does a phenomenal job of hosting these calls. We do a call like this about once a month so that I can keep investors up to date. I also want to acknowledge Red Chip, who we also hired for investor relations. They work in a collaborative effort with Renmark, and I am really pleased to have Red Chip onboard as well now. Let's just hop to the forward-looking statement very quickly. I am going to assume that you have all read this. Bottom line, everything I am going to say today is accurate as of today. It does not mean that things cannot change in the future. And if they do, there is no guarantee that you will be updated in the future. Alright? But I will assume that everybody's read the forward-looking statement. And with that, and by the way, this entire presentation is available on our corporate website, so you can review it at any time. As most of you know, these are the verticals of ProPhase Labs, Inc. I am going to go into each one of them. Before I do that, and I will probably remind everybody at the end, it is critical and important we have a proxy out there. It is critically important that you vote. If you do not vote for our proxy, you are putting our company in harm's way. It makes no sense if you are an investor and you do not vote your proxy. It is really that simple. So I can understand why shorts do not want you to vote the proxy, there are a number of reasons for this that I am going to go into. I am going to go into the various subsidiaries of the company. Why do not I just tell you at the outset, we are working on some strategic initiatives. The strategic initiatives may be impacted if you do not vote the proxy. The strategic initiatives could recognize significant underlying value in our company. This would be good for all of us as investors. So please vote your proxy. We do have a lot of positive voting going on. But we do need a quorum, and we need everybody to vote. Alright? I will remind everybody at the end of this call too just because it is so important. Talk about it a little bit about the reverse stock split and all that other stuff. Or the potential reverse stocks. But why do not I just clarify a couple of things upfront? We talked about a crypto treasury strategy previously. That is not off the table. But to be clear, I will not do anything that does not significantly recognize the underlying value and assets get the votes. It could impact a very bullish strategy. I hope to update you very soon. On the strategy. And let's just leave it at that. I do not want to talk out of line. I do not want to get too far ahead of myself. I want to go through the various subsidiaries of the company and where we are at right now. The end of this call, I think that you will all realize that there is a disconnect between the market cap and the underlying assets in the company. My job is to recognize some of that underlying value and for the long run so that the stock price goes up in the long run. And so we all make money in the long run. That is what I did before. I turned around the company once before when I first took over. Had a 65¢ stock. Company potentially going bankrupt. I paid out $2.40 in cash, special dividends to the shareholders. And our start flew, and we went into all these great businesses. It is like a deja vu because right now, I am working at exactly the same thing. The only difference is back then, all I had was a brand with declining sales. It looked like I was going out of business. Now we have several assets. Each one of which by itself individually has significantly more upside potential than what called these had at the time. So with that, let's get into the various businesses. So the very first asset I want to talk about is our Crown Medical Collections. Now everybody knows I was talking about that earlier in the year. And everyone's like, okay, Ted. Are you getting tired of talking about it? We are beginning not to believe. But we went through a critically important process that took longer than anyone would have liked, and it was bankrupting COVID lab subs that are not really doing anything now anyway. So it made sense to bankrupt them. It turned out to be a significantly more complicated and cumbersome procedure than I certainly expected. Critical component of that was hiring the right bankruptcy attorney who was independent of Crown Medical to actually be the bankruptcy attorney of record. We found the perfect person to do that. He has done a phenomenal job. I cannot believe the amount of work he did. And finally, just unlike the last week, the judge gave the green light. We bankrupted the lab subs. I reported that. And then critically important, Crown Medical has now been appointed special counsel. The reason that is so important Crown Medical was already reaching out to the roughly thousand insurance companies that owe us money. We are talking about, like, a $150 million of uncollected COVID testing that at one point in time the prior government guaranteed we would get reimbursed for. So part of what got us in this mess in the first place, we built out businesses. Thinking that money was going to continue to flow and all of a sudden it just stopped. All of sudden, we had overhead. Seemed like a rounding error at the time that that became significant. When we got cut off from this funding. So in any event, Crown is now going after that. To be clear, a big part of what we are going after are underpaid claims. These are COVID tests where we submitted to the insurance companies. They paid us, but they underpaid us. Let's suppose legally there was pay us a $125 companies with the balance. We are talking to many tens of millions of dollars. A significant portion of this $150 million. And for not paying what they were supposed to pay. They already reimbursed the claim. They already acknowledged that the patient was a real patient of theirs. They acknowledged that the doctor's requisition order. Was proper, that we turned around the COVID test properly, etcetera, etcetera. So now if they have no defense, and in some cases, Crown Medical may be representing four or five laboratories, in four or five states going after the same insurance company. And if this insurance company happened to underpay, well, five of these labs in five different states, states. It shows a pattern of fraudulent behavior. No insurance company wants to defend a lawsuit that they are not dollars or more, even a million dollars just defending. A lawsuit they are going to lose. So now Crown comes to them and says, hey. Give you and I do not know what the exact percentage discount is. We will give you a 25% discount to settle right now. So they have a choice of taking a 25% discount of paying now or they could spend money on lawsuits that they are going to lose, spend an enormous amount of money in litigation, and then lose the full amount. And potentially trouble damages we can prove fraudulent behavior. So we are in a situation where certainly out of the thousand labs thousand insurance companies, half of them, let's call them the low hanging fruit, we think that they are going to settle quickly. So the key point of all this was appointing Crown Medical as special counsel. That just happened. So while Crown has been preparing to go after these thousand insurance companies, and in fact, scrubbed our data clean. They said we had one of the best, if not the best dataset of any lab. That they are representing. And he said that we we had world class IT. That, collected our data the right way, So we are pristine, and, Crown Medical means business. So the bottom line is Crown was approaching the insurance companies before, but their attitude is when you actually get court approval and you are ready to serve litigation, that is when we will talk. So now the last part of this, in bankruptcy court, what is interesting because in theory, the idea is to get the bankrupt company out of bankruptcy and operating again, They have what is called expedited litigation. You skip over months of pleadings. You go right to meet and confirm meetings, And if they are not successful, you go right to delivery and discovery. So Crown Medical has I do not know, a stack this thick. Of discovery items to serve the insurance companies. And we believe the insurance companies are going to start settling right away now the Crown has been appointed special counsel. So that is where we are at today. Yes. Has it been frustrating? Did I think it could have happened months ago? Absolutely. This was the hurdle we had to get out over, and now things should move quickly. And in fact, we have one small settlement. Not going to go into details. Does not matter. It is a small amount of money. But the point is, now that crown has been appointed special counsel, believe settlements are going to start happening. It is going to change our financial structure pretty quickly. Now I am talking about it a few months. I am going to talk about it in a few days. So we are still going to have to get through the next few months. But after that, once that money starts coming in, if our market cap is anywhere near where it is right now, you can do not know if I am allowed to say this or not. So I will just say I have a history when we have significant casts in undervalued stock. Of buying back stock. That is what I did the last time around, the last cycle around. I bought back a ton of stock. I did two Dutch auctions. We took out everybody that wanted to sell, and we paid dividends. We could be in a very similar deja vu type situation. Again, once the Crown Medical cash flow starts to flow in. We will pay off debt first, then maybe we will buy back stock, hypothetically. And then we will be in a very sweet position. So now we have to put that all into perspective of the fact that I do not know what we have. A $12 million mark cap? We are estimating Crown is estimating and they they are actually telling me they are somewhat conservative. They absolutely believe going to collect at least $50 million net. That is net. Of the $150 million we are going after, giving discounts. They are not going to go after all the claims. Some of them probably are not clean or whatever. They are going to give big discounts to the insurance companies. Taking their contingency fees. The last piece of this Crown not getting paid a penny. They have dozens of attorneys dozens of attorneys working on this. None of them get paid a penny. Except out of the collections. They have been working on this all year for free for us. They would not be doing it if we were not going to collect a lot of money. So that is crowd. So when you look at it from the perspective of I am trying to figure out some team what to do with our company, I see all this cash coming in. So I am funding the company. Principally with debt right now. Does not mean, you know, we will not issue some shares. But the the goal right now we have an ATM. I have never used I have not used the ATM. We we, have a new ATM. You know, I cannot we canceled the ELOC months ago, which we announced. Then we signed up for an ATM. We have not used the ATM yet. I cannot guarantee I am not going to, but, you know, it is based on price, based on our cash needs, it is based on debt availability, etcetera. But we have several companies willing to fund us as needed. Especially because ones that do their due diligence in Crown, are very confident that that cash will be flowing into the company. The other aspect of this is we have or three other subsidiaries that are very valuable. Let let's get out into that a little bit. Think we are going to jump to where our b smart esophageal cancer test. That is in a ProPhase Biopharma subsidiary. I am going to go just straight to this page. I am not going to do a a long detailed presentation of this. I am sure most of you have heard this before. The bottom line is esophageal cancer is one of the deadliest cancers. We have what we believe is the best diagnostic test in the world for one of the deadliest cancers. It is that simple. The reason it is one of the deadliest cancers is because it is not diagnosed accurately. We take an inaccurate diagnosis and make it accurate. It is that simple. That is the beauty of it. We are basically enhancing the endoscopy. The standard of care you are at risk of cancer of of esophageal cancer is an endoscopy. An endoscopy an endoscopy is where they stick a tube down your throat and remove. Tissue specimens and study them under a microscope. Two pathologists study the same specimen under the same microscope. One will tell you you have esophageal cancer. One will tell you you do not. All we are doing is we are taking that specimen. Running through our mass spec machine with the a a you know, associated AI, etcetera. We have patented the key eight proteins that are virtually always when you are developing esophageal cancer. So it is a no brainer. Take one of those specimens. So the interesting this is such a convenient test in critically important to physicians And broad scale commercialization is the convenience of There is nothing more convenient than our test because this is for patients already getting the endoscopy. So the roughly 67 and 67 million endoscopies in The United States alone, and this is a global problem. This is a growing problem around world. And so there is 7 million of those industries. They are just for people at high risk of esophageal cancer. We believe every one of those 7 million endoscopies should add our test onto it. If they did, they will get a significantly more accurate diagnosis. It would make no sense not to. If we get reimbursed hypothetically, a thousand to $2,000, that would make our test a 7 to $14 billion target market test. It is that simple. And the last piece of this is we are partnered, ventured with Mayo Clinic. We own the test. We have, doctor Chris Hartley, and, he indicated he wants to get more involved. He is at Mayo Clinic. Have doctor Joe Abdul, one of the scientists who invented the test. We have James McCulley. He is the CEO of another biotech company with significant experience with commercialization. Are all people working with us now. Others. And as the cash flow comes in, from our Crown Medical initiative, be able to fund this. No problem. And we are not talking about a big budget. I am looking at a small budget. Just to develop the test for the next year, get it to a point where a multibillion dollar cancer testing company wants to take us over or joint venture partner with us. You know, why build out a huge Salesforce if someone else already has one and just sort of a plug and play plugs in our test? And all of a sudden, you know, it is doing hundreds of millions of dollars a year. And we got a 7% royalty. We get, I know, We got a block of money upfront. We we could get a block of money upfront twelve months from now that is five times the current market cap of our company. So that that gives you a little bit about our be smart esophageal cancer test. The key point is we just highlighted a press release in the in the last week or so. Got into a major journal. The reason the major journal was important is that is where the key opinion leaders in the industry study our clinical study and gave it a thumbs up. And said, hey. We are all in. This is a great test. It should be commercialized. Now that we got their good seal of approval, so to speak, can now work on commercialization as what is called the laboratory developed test or LDT. FDA decided that they were not going to oversee laboratory developed tests. We have cleared the FDA hurdle. Good to go. So I am really excited about this test. And let's let's move on. Our next opportunity would be our Nebula Genomics DNA complete. We completely turned the business around. George Church founded it. I am not going to do a lot on this. Except to say, that we completely cleaned up the business led led by Jason Karkus, He we shut down the laboratory. We cut out such a large percentage of our expenses and overhead. As I said, we shut down the lab. We have a highly Jason, had a highly efficient lab to do our testing now. Which makes our business a pre you know, it is primarily a direct to consumer business now. We went from a lifetime subscription to you buy a one year then you renew it the next year. We found that the conversion rates were virtually identical to the lifetime. And so by selling it one year, it means next year, most people renew. That is a that is a subscription. That is a revenue for us. That we do not have to pay anything for. We already have the data. We are already doing the reporting. We already have the IT. So the profit margin on the subscriptions that come in in year two, the subscription renewals, is probably, like, 95%. So we are roughly a breakeven business now, that on a pro form a basis, will be profitable. And now as we clean up our finances, we will be able to grow this business dramatically. Because we have one of the best reporting systems in the world. We have one of the biggest database in the world to leverage. You know, we tested in over a 130 countries. Over 60 over 60 or 70,000 whole genome sequencing. It is the equivalent of 150 million ancestry tests. Our database alone is is worth more than the mark market cap of our company, although we could not sell it by itself. For political reasons. Because you cannot sell somebody's data. But, of course, somebody could buy the company, what I want to do right now is build this business. So it gives you a little bit about our businesses, We have a dietary supplement business that we could potentially develop. We will we will see. I am trying to keep the business the our company as clean and mean as possible, as lean as possible. Not going too many different directions. I am not looking to go in more directions. Crown Medical collect a lot of money. Pay off our debt. Develop our esophageal cancer test, grow our nebula business, Our company could be worth 10 or 20 times worth trading right now. That is the opportunity. So that said, I will go to, you know, the investment highlights. Again, earlier this year, we completely restructured the company. Sold our a formalized manufacturing facility. Down our Nebula Genomics laboratory, We dramatically reduced headcount. We significantly reduced IT and related overhead. And we are now working on not just the reverse crypto treasury strategy, but we have another initiative that could be very exciting that recognizes the underlying value of our I promise you, if I do a deal like this, I am going to do this, because it is going to make all of us as shareholders a lot of money. Otherwise, there would be no reason to do it. So that is where we are at. Reviewed the Crown Medical Collections initiative. I am looking forward to when that cash flow starts. Once that cash flow starts, we are a different company. So if you are worried about the stock price now, we have shorts in there. You know, I I think we have a lot of shorts in our stock right now. Really sort of silly. And will that change as soon as the Crown Medical starts to flow? As I mentioned, we we did already get one small check. You know, it is not worth talking about. The point, is we have turned the corner. We have gotten over the last hurdle. With the bankruptcy courts. We went through BSmart. DNA complete, Nebula Genomics is well positioned. We do have potential our dietary supplements. But I want the cash flow if we are going to develop that business. And so now let's go to I have some other things that I want to mention. In fact, we will we will get to the questions. But before we get to the questions, I wanted to mention somebody talked about our working capital deficit. To be clear, that is an accounting item. When we bankrupted the lab subs, the accounting for those lab subs change. The assets and liabilities, the timing, change between what is current and what is noncurrent. It created this ridiculous amount of negative working capital. Obviously, it is ridiculous. We are losing tens of millions of dollars. So, obviously, that was an accounting. It is a balance sheet item. It is it is not affecting us in real terms. It just it is just accounting terms for bankrupting some. The other thing I will mention to you is that the a lot of the negatives in the quarter that is related to amortization and depreciation. Stock based compensation, You know? And for those of you you question whether I get stock options and that kind of thing, to be clear, for most of the year, I voluntarily and Jason did too. Deferred most of our salary. Just to help the company. I did not collect an interest rate on it. Alright? I did make one loan to the company earlier in the year that somebody questioned me about. To be clear, had I borrowed that money to make the loan to the company, just so I could get others to invest in the company and make them senior secured to my loan so that they would feel good. I did that to help the company. So, you know, people question, oh, you got a high interest rate on the loan. I number one, I borrowed the money. Number two, I put myself at risk. Number two, three, did that for the company. And number four, I I deferred a significant amount of my salary this year. Nobody is paying me to do that. Okay? So I am doing this all for the company. I am all in. I hope those that are listening are all in too. So hope that addresses that. I do want to get back one more time about the voting. We may do a reverse stock split. We may have to. But understand our stock price just went from trading $50.60 cents to 25¢. We have a market cap. I do not even know what the market cap is. It is around it is just over, like, $12 million or something like that. Let's see. Yes. It is, you know, some kind of number around $12 million. Where is the stock going if we do a reverse stock split? Well, you have to understand that sometimes with reverse stock splits, the stock price actually go up afterwards. Because the only reason when it is fully discounted before you do the reverse stock split and then all the shorts have to start to cover. Because there is no reason to be short anymore because reverse stock split happened. Also, you have to put it into context of the value of the company. With companies most companies, the reason why the stock prices may go down after the reverse stock split is because they were going down anyway. If a company is going bankrupt and they are going out of business, then sure, their stock price is going to go down. They are going to do reverse. The stock is going to continue down. See, it will happen all the time. But real companies like ours that have enormous underlying asset value they do not have to go down after the reverse stock split. In fact, if we do a and there is not a guarantee. If we do a reverse stock split, it is quite possible our stock goes up. I was talking to one large shareholder. Involved in a company. The stock symbol is o e s x. They did a reverse stocks when the stocks done nothing but go up afterwards. Even in during this this correction in the bull market over the last couple of months, stocks been doing nothing but going up. After the reverse stock split. So in our case, you know, we have a mark cap of $12 million. Our stock's just been cut in half. After filing the proxy. And we now have crossed the hurdle with Crown Medical With the collections, it is now visible. We can now see that the collections are actually going to start to happen. And so after the reverse, understand whatever the number of the reverse is, we are going to have the same market value. Your shares are still going to own the same percentage of the company. And if the Crown Medical starts to kick in, if the stock's anywhere near these prices, I will buy back stock and take it up dramatically higher than where it is now. So after the reverse stock split, whatever the equivalent is, I will take the stock up from there with buybacks. As enough you know, once enough cash comes in and we are paying off our debt. We have excess cash. And I should not say definitively I will do that, it would be a no brainer to do that if the stock's not undervalued. As I said, have a history last time around. When I did this. I sold the Goldie's brand. I did exactly the same thing. Your stock was 65¢. We sold the Caldi's brand, and I did two Dutch auctions. Exact same thing. So I do not I this is Deja, but I do not mind doing that again. Do not be so scared of a reverse. Now if you want to be scared of a reverse stock split when or stocks that 75¢ maybe, or 80¢ or a dollar. Oh, is he going to do a reverse or not? Or stocks? Trading under 30¢ a share. It has got a $12 million market cap. It is silly. So I just want to put it in that perspective. The other thing critically important, I am working on strategic deals besides the crypto treasury strategy. I am working on another deal. We have to maintain Nasdaq compliance the likelihood of doing a deal that is going to attract and increase the value of our company and make our shareholders money, going to be difficult to get a deal done if we are not Nasdaq compliant. So it would be silly not to be Nasdaq compliant. I need every person listening to this call please vote for the proxy. Otherwise, own the stock. What is the point of owning the stock? And then not voting to help the company do well? That is the point of voting. So please, please, please vote. Okay? And I am sorry I have to do this, but, you know, the voting ends at the end of the week. We are close, but we are not there yet. So every last year, it makes a difference. I feel like I am a politician now. That is it on the voting. That is it on talking about the reverse stock split. Let me just see Why do not I, turn it over to to questions? Actually, it is exactly 02:30, so that is when I normally turn it over to questions anyway. Noel, please, I will hand it off to you. Thank you all for your time. Noella Alexander-Young: Thank you very much, Ted, for the presentation. We will now begin the Q&A. Your first question is, based on your press release, it sounds like you are potentially working on two or more different major that could increase shareholder value. Can you clarify this? Ted William Karkus: Yeah. So and by the way, it is potentially more than two. We have the reverse crypto strategy. Understand crypt crypto so volatile right now and crypto treasury stocks that did reverse mergers are somewhat out of favor. There is no hurry to do something like that. But as I mentioned, though, if significant cash comes in when significant cash comes in from the Crown Medical Initiative, we could use that cash. That would be nondilutive. If we develop the crypto treasury strategy around that. Where we generate income, off of the crypto And I am telling you, there is no question. Is going up in the long run. It is not even question. But I am not I do not need to be a gambler with the company either, and I do not need to do a reverse crypto strategy right now. So we will we will see. That was on the table. But with crypto market where where it is right now, we will see. There is potentially a very attractive deal that we could do when crypto was higher. So but we will see. In the meantime, another and this is relatively recent has developed just do not want to talk more about it today, but I will be updating shareholders. If I do that deal, it will be very positive for the shareholders. Alright? And so we will see where it goes. I do not want to get out of line and say too much too soon. There is no guarantee. I am going to do the deal. But it is certainly interesting. It is something we are pursuing. Number three, now that we were published in the journal for our b smart esophageal cancer test, our scientists are being approached by a variety of companies, cancer testing companies, and others that want to either get involved, joint venture, acquire, whatever. Alright? So we have that going on. So we have that going on with the subsidiary, then I have the deals I just described going on with the whole company. So there is a lot of potential there. I am going to do what is best for the shareholders. Even though I got diluted with everybody else, I am still a large shareholder. I care about the value of our shares ultimately. For the question. What is the next one? Noella Alexander-Young: Thank you, Ted. Next, if you were asked, it looks like you made you a reverse stock split. If you do it, is it possible that the stock price will go up or down? Ted William Karkus: Exactly. So if, you know, if the stock price was a lot higher right now, could it have a little risk? I guess it would still be undervalued even if was double. Right? But with where the stock price is, what is the downside? Is it going to do? It is going to go from a $12 million cap to $11 million market cap? Then the Crown Medical, $20 million is going to come in, and I am going to buy back half the shares outstanding in the company. And my stock will be twice or three times worth trading on a on a split adjusted basis. This is all silly. A reverse stock split in and of itself is not something to be scared of. What is more to be scared of is if we were not Nasdaq compliant. We have a lot of value in the fact that we are a Nasdaq company I want to stay a Nasdaq company, and we will see what happens. Earlier in the year, if Crown Medical had kicked in earlier in the year, my guess is we might not have to do the reverse. We, you know, we might be trading around a dollar an hour more. It is quite possible or probable. That did not play out that way. But having said that, even in a dollar, we might have done a reverse. When we are talking about the reverse I am sorry. Crypto treasury strategy, they were thinking that they wanted a higher stock price, and they might want us to do a reverse anyway even if we did not need to. So I do not want to go more into it than that. But stock prices sometimes go up after the reverses. I gave you one example of that. I like to think ours would be one of them. If nothing else, all the shorts out there, you know, they would probably be running for the hills afterwards when they see there is you know, nobody left the seller, the market cap is so low. That is not a guarantee. I do not know what is going to happen. I can just tell you the reverse stock split in and of itself. Your percentage of share ownership does not change. The market value of the company at that moment does not change. And the upside from here for our market value is incredible. Thank you. Noella Alexander-Young: Thank you for the clarity, Ted. The next question is, from the recently released financial earnings reports and statements I see that M and A discussions unrelated to the crypto treasury strategy are being explored. Does this mean the crypto treasury strategy remains part of the company's strategic vision going forward? Ted William Karkus: Sure. So I think I just answered all of those questions. I do not think we need to spend too much time on that. Again, everything is possible. I only want to do something accretive for the shareholders. That is the goal. And I happen to have another deal that could be very accretive for the current shareholders, I think everybody would very I just do not like talking too much about it because it is premature. So but I just want you to know, though, we have to be Nasdaq compliant. That is the that is why everybody has to vote. Alright. Thank you. Noella Alexander-Young: Thank you, Ted. Your next question is, $100,000 in the till unable to use shares for cash how do you plan to pay employees and board going forward? Ted William Karkus: Sure. So amount of cash we have on hand right now is about the same amount of cash we have had on hand every month and every quarter all year long. Have multiple investors, large investors, that want to support us. With various types of funding up options. You know, we did a a $3.8 million debt deal once before. We we can always take out more debt. You know, there are we definitely have a number of options out there. People that want there are definitely large investors out there that see the underlying value. And I will use all potential financing strategies to support our company. Whether whether it is you know, debt or equity or combination or what have you, we are in really good shape from the point of view that we have such a strong underlying asset value. So financing until the Crown Medical comes in, that is not the issue. The issue is is is what form we take. Debt or equity. What the terms are, etcetera, etcetera, etcetera. Noella Alexander-Young: Thank you, Ted, for that response. Next, we And let me just add to that. Ted William Karkus: Whatever we do right now, once the Crown Medical comes in, even if we hypothetically issued shares, my goal would be to buy back all the shares. The stock price anywhere near stock price, I will buy back. I would not be afraid to buy back 10 or 20 or 30 or 50% of the shares outstanding in the entire company. And I I really do think that way. If we are a stock undervalued and the cash is coming in, so that all gets fixed as the cash comes in. And that is separate from the fact that, as I said, you know, our beeswort esophageal cancer test could be worth 10 times our market cap 12, you know, twelve months from now. Literally, or less nine month nine, twelve months from now. Just our esophageal cancer test alone could be worth 10 times the current market cap of our company. Think of that as a concept. You got Lucid as a $105,150,000,000. Market cap. Their test if you test positive on their test, you then have to the next step is to go get an endoscopy. They are not even competition. It is kinda like I I compare it to testing where you get the rapid antigen test, test positive on the rapid antigen test, the next step is to go get the higher, more accurate, you know, reading from the PCR test. Well, this is the same kind of thing. On their test, the next step is get an endoscopy, We make the endoscopy die diagnosis significantly more accurate. So and and they have a market cap, you know, We should be once we commercialize, we should have a significantly greater market cap than they do. And, again, just if we achieve their market cap, it would be more than 10 times the current value of our company. Thank you. Noella Alexander-Young: Thank you, Ted. Next, Vi was asking, how are you going to prevent delisting from stock exchange without a reverse stock split? What needs to happen to get the price above $1 for a month? Ted William Karkus: Sure. So first of all, it does not have to be above a month. It is for ten trading days. Number two, this deal I am working on, quite frankly, I could take the stock over a dollar very, very quickly. And number three, but I would like to have in my back pocket if we needed doing the reverse stock split. Which is why you have to vote. And number four, we need the vote because I need to give the other companies and bankers that I am working with confidence that we will remain on Nasdaq and be Nasdaq compliant. So we need to vote for that even if we do not do a reverse stocks. What we need to show we have the votes to do a reverse stock split if necessary. Otherwise, that could derail some of these potential deals. It could be great. So again, I do not I do not know how to emphasize this, strongly enough. Because I do not know the random people out there that own stock. But because if it is in a brokerage name, we do not get those lists or if we get the list, we do not get the contact information or you know, we you know, you have to book your shares. And so please do it through the brokerage firms. They typically will send you an email or you just go online. And you can vote very easily. Alright. Thank you. Noella Alexander-Young: Thank you, Ted. Your next question is, when will prophase go up stay up, and what might be the ceiling? Ted William Karkus: Think I have answered that question so many times. People are going to be upset with me if I answer it again. Noella Alexander-Young: Nope. I will move on to the next one. The stealing is the company could be worth 10 times where it is trading today. Eighteen months. Okay? And that is not the ceiling. Just you know, I was thinking about this because I was thinking about it for myself with all the shares that were issued in the last year and how I got diluted. And I was just thinking, you know, our esophageal cancer test in in three or four years would be you should be worth a billion dollars. So you know, easily, that that means that this like, a $20 even with a little more dilution, even if we have 50 million shares outstanding. A billion dollars means we would have a $20 stock price. We currently have a 26 at stock price, 27. I do not know what stock's trading today. Alright. Could you imagine that? We are trading under 30¢, so we could be at $20. And understand if if we do a reverse stock split, the ratio of where we are, you know, that potential percentage, it would still be the same. We do a reverse stock split. It does not change. The market cap the value of it will still go up by multiple of of 20 if we go to a billion dollar markup one day. Now that may sound like a pipe dream today, but by the same token, once before, I took over, I turned around a company that was 65¢ and went over $10 a year. Actually, it went over $13 a So, actually, that went up 20 times. So do not think that I cannot do the same thing with the company that we have now. Since the underlying assets of our company are much more valuable now. They were before. Noella Alexander-Young: Thank you for the clarity on that, Ted. The next question is, what is the accurate share count slash market cap of the company presently? Ted William Karkus: Sure. So, you have to go by the reported numbers. It is I believe there are $4,046,100,000.0 shares outstanding that is reported do not know what the stock price is today. So at 25 to 30¢, know, we are we are talking about around a $12 million market cap. Noella Alexander-Young: Thank you, Ted. Next, a viewer is asking, the share price keeps slipping despite shareholders' patience. When will management take decisive action to protect and grow shareholder value? And how do you plan to address the ongoing decline? Ted William Karkus: So I think I have already answered that question ad nauseam. At look. At the end the day, do not control the stock price. You know, it I I think shorts are having fun with it right now. I think it is silly. Any any portfolio manager out there, likes to invest in penny stocks, I do not see how they do not buy the stock right now. And having said that, the bottom line is you just have to be patient until cash flow starts coming in from Crown, Medical Initiative, or partner on our b smart esophageal cancer test, or we do a strategic initiative an m and a type transaction, whether that is a reverse merger or similar. That brings out the value in our company. Any of those things would drive our stock price significantly higher, in my opinion. Noella Alexander-Young: Thank you for that response. Next question. When will the company stop mentioning the possibility of collecting $25 million in accounts receivables? Ted William Karkus: I think that is a question out of frustration We did not anticipate it would take that long to bankrupt the lab sub and get going. But now we have done it. We crossed that hurdle. So however long it took it took But now we are in expedited litigation going forward. Crown is skipping pleadings. They are going right to meet and confer. They already have hundreds of insurance companies lined up. They are going right into meet and confers right now. And now all of a sudden, it is like a hockey stick. Going to start seeing some settlements. In a couple of months. Do not know the exact time frame, and then it is going to go like a hockey stick, I believe. It is just going to ramp up. We are going to have significant cash flow. We are going to be a different company once that happens. You want to wait for that to happen? You can wait for that to happen. Maybe the stock is you know, double or triple where it is now. You know, once you see the visibility of that happening. I mean, what where are we going on downside here? You know? It is kinda silly. Hope that answered your question. Thank you for that response, Ted. Noella Alexander-Young: Next question. Given the need for capital to fund BSmart, is it realistic to use a go it alone strategy with regards to BSmart? Does it make sense to consider partnering the asset? Ted William Karkus: That is a good question. So my thought is as some cash flow comes in from Crown, I do not ever want to be in this financial position again. It is not fun. Honestly, it has been the worst year of my life. In terms of managing a company. With the financial pressure I have been under. With the pressure the stock price has been under, So I have no intention of ever being in that type of situation again. I am not going to spend a lot of money developing our esophageal cancer test. The idea is to kick it off the ground, do sort of a grassroots told you we have we have some world class scientists and commercialization experts that we are working with. We are going to get more key opinion leaders involved. We are going to get networks to sign up. Like, if we find one decent sized physician network, we will get them taking you know, using our test. With the great results they are going to get. It then will spread like a hockey stick. As it spreads like a hockey stick, then the goal would be the joint venture. I look. I might be able to joint venture now. I do not know what they pay us. They might give us 25 or 50 million of cash. Plus a royalty. Would not be so bad. By the same token, they might give us a couple $100 million and a bigger royalty if I wait twelve months. So, you know, we will we will see. But there is interest now. Think that the interest is going to as we start penetrating the market even a little bit, all these other cancer testing companies that that have an esophageal cancer test, or a developing one are going to be very nervous. In fact, to be honest with you, I already know they are getting nervous because the day we published in the journal, that very day, one of them contacted us and said, hey. Let's talk. So we will we will see we will we will see where it all goes. No guarantees that I am going to do anything short term. I do not think it is necessary. But by the same token, I am not going to break the bank and spend a lot of money to develop this right now. It is just not necessary. Noella Alexander-Young: Thank you for that response, Ted. Next question. Do you anticipate that the recent weakness in virtual currencies provides an opportunity to the company's strategic initiatives given you have not yet purchased a significant amount of virtual currencies? Ted William Karkus: Yeah. So, obviously, you are talking about, the cryptocurrencies. But if we are not going to do a deal see, we were talking we have been talking to crypto asset managers where we would do sort of well, I do not want to go into details on it. If we do not do a deal like that, but instead we were just going to invest long term a crypto treasury strategy we have to wait until the Crown Medical collections come in, and I would want to pay off debt first. Get the company financially sound. And then if with excess capital, maybe put together a a long term strategy. But there is a lot to go before we would there is a lot to be done before we would go it alone. With that type of strategy. But for now, is it possible? Yes. It is always possible. Right now, also, the markets are not excited. If you are not the number one leader in a particular crypto, then struggling. So for instance you know? And even the ones that are the leaders are struggling from the point of view, you know, that when the crypto goes down in price, you know, the stock price is going down. In terms of a multiple to net asset value, if you go back at the beginning of the year, you know, they were trading at two or three times net asset value. Now they are trading at net net asset value. And if you are not one of the leaders who are often trading at a discount to net asset value. So, again, I pay attention to that. I am I am not going to do a deal for the sake of doing a deal. There is no reason. Have so much underlying value in our company. We have so much potential. That we can also go it alone. So or we can do a different type of deal that is not a crypto related deal. What I was trying to explain in my press release. It is not that we might not do a crypto related deal. That is not that is not our number one focus right now. We have better opportunities out there, we believe. Does not mean that that cannot change in the future. We believe we have better opportunities right now. Noella Alexander-Young: Thank you for clarifying that, Ted. Your next question is, any update with respect to linebacker there any potential value or future updates with regards to the line to linebacker expected? Ted William Karkus: Wow. That is an interesting question. That we have not been doing much with linebacker. I am not looking to break the bank on something that is so early stage. That in very early studies, has potential that was exciting to me. But that is very different from something that is a late stage ready to be commercialized. It is it is so want to say more about that. I am surprised somebody even asked that question. Let let's just leave it at that on on that topic for now. Noella Alexander-Young: Thank you for the response on the last head. Your next question is, has there been any insider stock purchases this year? Ted William Karkus: Have there been insider I do not know. That that would probably have to be you know, filed obviously and by insiders The one person that is really an insider is me. And, you know, the directors and quite frankly, I deferred a lot of my compensation It it did not put me in a great financial position to also be buying stock. And in fact, I loaned the money loan money to the company. So I I that was my way of supporting the company. And as far as the directors are concerned, we are the same thing. They are actually rather than taking cash compensation, they primarily and I do not want to speak out of turn around and know the exact number. They they took a lot of stock compensation or stock option compensation in lieu of some of their cash compensation. I I think that is putting their best foot forward and also showing support for the company and belief in the company. Noella Alexander-Young: Thank you, Ted, for that response. Your next question is, how many DNA test kits have been have you processed so far in 2025? Ted William Karkus: Oh, I do not know the number off the top of my head. I am not going to look that up now. But what I will tell you is since we have been on a tight budget, without us virtually doing any advertising at all, we have such a strong SEO presence that is called search engine optimization. It is you know, we have been in the business eight years. We did this the right way. We did a lot of great marketing. But we are frankly, right now, we are at a very tight budget, and I do not want to dilute shareholders unnecessarily to grow a business. So I am sort of laying low, until we get more capital in, but with virtually no advertising. We are still selling the product. We are selling the product in the beauty is it is, at a pro form a base, it is actually profitable now. We have restructured it that much, and we made it that clean. It is great business. For us to grow as soon as we get a little excess cap. I want excess capital to really grow that business. So, like, in a few months, I think we are really going to start growing the business in a nice way. Way. Noella Alexander-Young: You, Ted, for shedding some light on that. And I think we have time for one more question here. So the question is, do you think is the disconnect between the market's valuation of the company and the underlying assets? You have referenced the value of the underlying assets and the disconnect What do you think specifically is the main cause of this disconnect? Ted William Karkus: That is an excellent I was going to say I hope it is a good question. That is an excellent question. That is not in a snowball question either, but it is a really good one. I believe the disconnect is because we are tight on cash. And so every time I go, to potential investors, quite frankly, there are a lot of sleazy people in the investment world, and it is really disappointing. If I talk to three and potential investors, one of them is going to short the stock and then make me an offer a week later. You know, everybody knows that we are tight on cash. We have been tight on cash all year. That all changes and we are frankly we are a develop so we are development stage company tight on cash. It makes us an easy short target, especially if we go to investors and some of them want to fool around with the stock price. That will change as soon as the crowd medical starts flowing. That plus our stock price has been under a dollar. So so the stock's just been under pressure. But you got to understand, are you a trader? Or are you investor? If you are an investor, look at the underlying value. Even if there was a little more dilution, so what? Our market cap is so low. That once the Crown Medical starts to flow in, or even without the Crown Medical, If I do a deal for our b smart esophageal cancer dose, we will a block of cash up front. I will I will probably start buying back stock immediately. Our stock would explode on that if I do a deal like that. And separately, I am working on a potential deal right now. Again, it is it is preliminary. Do not want to talk about it more. But I the that disconnect will start to go away. Fact that there is a disconnect creates an opportunity for potential m and a strategist and bankers recognize that underlying value in that disconnect. So it actually creates an opportunity. And because it creates an opportunity, that is why we are getting inquiries. Both not only to me, but the scientists at be smart and esophageal cancer test, etcetera. Noella Alexander-Young: Excellent. Thank you very much, Ted, for all of your responses today. That concludes the Q&A session. Before we go, I will turn back the floor to Ted for final remarks. Ted William Karkus: Noel, thanks so much. Again, thank you, Renoir, hosting. Thank you to the shareholders. I know he said it six times today. I feel like a politician today. If you are a shareholder in the company, if you are an investor in the company and you do not quote the shares, then do not complain to me. If we have an issue because you did not vote your shares. So vote vote your shares. Alright? So that we have the flexibility to do what we need to do if we need to do it. It is not just the flexibility. For a reverse stock split. It is also based on potential deals we are working on The bankers are going to want to see that there is not a risk that we are always going to be Nasdaq compliant. It is possible we do a big deal. And the stock price will go over a dollar anyway. But whatever I am working on, we need you to vote the proxy in order to pass. We would not have put the proxy out there if we did not need to. There is no guarantee we are going to. We are not going to do a reverse stock split. But even if we do, they are quite frankly I think there is a good probability that our stock price goes up. After we do the reverse. Does not necessarily have to go down. And it is not a bad thing. Guarantees knock on wood, they remain Nasdaq compliant. Being Nasdaq compliant is is a value to the company. Look. If we got delisted, it is not going to change the value of the company. It is not going to change the value of what we are doing. And then when we go back above a buck, we do a deal. We will go back on Nasdaq again. But why go through all that? And at the same time, I am I am working on some deals that you know, some things that could be very, very exciting for the company. Where all the shareholders make a lot of money. So it is silly not to vote. I cannot stress that strongly enough. That, I appreciate everybody joining the call and listening to me today. Everything I say is from the heart. It is from living and breathing our company twenty four seven. I am a fighter I did this once before. You know, a dozen years ago. With the very same company when I inherited it. I say inherited, I did this I won a proxy contest, two years of litigation. So it was, you know, a serious fight. To win control of the company and find out I was in control of the company that was virtually going bankrupt, turned it around, You know, it took a number of years. So I have done it before. I can do it again. I am going to do it again. And we are in a similar position, but, again, the assets in the company are multiples of what they were the last time I did it. So I am going to do this. And if you guys are patient with me, I think that I can I and our company and not just me, it is Jason, He built the COVID testing business into a multi $100 million business? He is now cleaned up the Nebula Genomics business. And you know, we have these great businesses. And so I am just looking forward to the future. Do not have more to say than that. Everybody have a great day. Thanks for all your questions. Thanks for listening to the hour. Noel Noella Alexander-Young: Sorry. I cut you off there, Ted. Alrighty. Well, thank you everyone for joining us today for the ProPhase Labs, Inc. third quarter 2025 results. ProPhase Labs, Inc. is trading on the Nasdaq under the ticker symbol PRPH. The playback wave will be available on our website twenty four to forty eight hours after this presentation under the VNDR Loughby tab. Tuned for the next quarterly call, and see you next time.
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 Erich 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.
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 [indiscernible] 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 finance 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.
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.
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 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.]
Hamza Fodderwala: We are the Chargept of Enterprise. If you are using AI for generating code, you have to make sure you are free of any malicious code, any malware. At the same time, you have to make sure you are not leaking sensitive data to third parties. Prisma AI runtime functionality is not just protecting us against the prompt injection, data poisoning, jailbreaking attempts, but at the same time, all the older issues, the data leak prevention, the DLP, the malware detection and prevention, all those are still relevant. Palo Alto Networks, Inc. is providing the visibility to the customer about all usages of JN AI within their environment. Protecting what kind of data can lead to the LLM. Kind of data is coming back from the LLM, is it potentially bringing in malware? You need to work with a security vendor who can keep pace with the attackers. That's where you want to partner with a completely focused company like Palo Alto Networks, Inc. Palo Alto Networks, Inc. has the strongest solution in the market. Good day, everyone. Hamza Fodderwala: And welcome to Palo Alto Networks, Inc.'s first fiscal quarter 2026 earnings conference call. I am Hamza Fodderwala, senior vice president of investor relations and strategic finance. Please note that this call is being recorded today, Wednesday, November 19, 2025, at 01:30 PM Pacific time. With me on today's call to discuss our fiscal first quarter results are Nikesh Arora, our chairman and chief executive officer, and Dipak Golechha, our chief financial officer. Following our prepared remarks, Lee Klarich, our Chief Product and Technology Officer and Board member, will join us for the question and answer portion. You can find the press release and other key information to supplement today's discussion on our website at investors.paloaltonetworks.com. While there, click on the link for quarterly results to find the Q1 2026 supplemental information Q1 2026 earnings presentation. During the course of today's call, we will be making forward-looking statements and projections regarding the company's business operations and financial performance, as well as the company's pending acquisitions. These statements made today are subject to a number of risks and uncertainties that could cause our actual results to differ from these forward-looking statements. Please review our press release and recent SEC filings for a description of these risks and uncertainties. Assume no obligation to update any forward-looking statements made in the presentation today. The presentation contains non-GAAP financial measures key metrics relating to the company's past and future expected performance. Non-GAAP financial measures should not be considered a substitute for financial measures prepared in accordance with GAAP. The most directly comparable GAAP financial metrics and reconciliations are in the press release and the appendix of the investor presentation. Unless specifically otherwise noted, all results and comparisons are on a fiscal year-over-year basis. We also note that management is scheduled to participate in the UBS conference this quarter. I will now turn the call over to Nikesh. Nikesh Arora: Thank you, Hamza. Good afternoon, and thank you, everyone, for joining us for our earnings call today. As you can see, we had a strong start to the year in Q1. We exceeded expectations across every guided metric, demand across our core business remains robust, and customers continue to platformize with us. Year over year, RPO grew 24% and GSAR was up 29%, and total revenue was up 16%. We saw strength across our portfolio in SASE, XIM, software firewalls, and even some early traction in our AI security platform, Prisma Airs. Our top-line growth was complemented by continued improvement in profitability, achieving our second straight quarter of 30 plus percent operating margin. These results are a direct outcome of our strategy to delivering better security outcomes our platform is earning more and more the trust that used to be fragmented across dozens of point products. At the same time, the threat landscape continues to evolve faster than we expected because of AI. As many of you saw last week, with one of the major AI platforms, AI hackers, aren't a future threat They're here. Now. This is the first reported case of an AI agent autonomously conducting a large-scale nation-state cyber attack. The attacker was able to manipulate an agent to take steps on its own, with minimal human intervention. This is a turning point. Proof that attackers are already weaponizing AI agents at scale even more importantly, they're able to attack fast, and will be able to exfiltrate faster. AI is exposing the cracks in our enterprise architectures which do not have robust security. Patches are incomplete, platforms are missing, there is a plethora of point products across the enterprise. This gap is exactly where attackers thrive. They're testing how far they can exploit a model. They're running prompt injections, jailbreaks, model manipulation. And now we're seeing the next phase. Autonomous AI agents being leveraged into the attack chain. AI is here, and with it, AI attackers are here too. Our message to customers is clear. Real-time visibility and security are essential for infrastructure. This reality necessitates a paradigm shift in the industry, We must move away from today's fragmented security landscape and towards platformization. AI requires a seamless cyber data strategy. This platform approach allows security agents to be utilized effectively by the good guys to detect attacks, protect customers, and immediate security concerns. Fragmentation creates friction, which in turn causes latency, Latency is a critical enemy of real-time cybersecurity. This is the backdrop that informs our strategy as we go forward. Now let's get into the quarter. In Q1, platformization once again drove large deals across multiple industry verticals. This included US Federal, where we had a strong quarter and notable competitive wins. One example was a $33 million SASE deal with a US cabinet agency securing 60,000 seats. This agency displaced a major SASE incumbent as they needed a platform to provide unified visibility across both their firewall estate and remote endpoints. Another example was a $100 million deal with a large US telecom provider, This included an $85 million commitment to XIM which is our largest Ex I'm deal ever. This customer chose us to consolidate their disparate point products based on the ability of our platform to deliver materially faster mean time to respond. The common theme across these large transactions is clear. Customers are moving from managing vendor sprawl to demanding superior, demonstrable security outcomes through platformization. The natural place for customers to start their journey is network security, which remains our largest business. In Q1, we continue to see strength in our next-generation software form factors. SASE, had a phenomenal quarter. ARR grew 34% year over year, and surpassed $1.3 billion in Q1. Because the fastest growing SaaS provider at scale. We now have approximately 6,800 SASE customers including one-third of the Fortune 500, including leading technology companies like IBM and Oracle. Even though it's early days, we continue to see strong momentum with secure browsers. The arrival of AI and agentic browsers will expose security cracks on them focus the enterprise in ensuring widespread adoption of secure browsers. In Q1, we crossed seven and a half million browsers sold while our bookings nearly quadruple year over year. One more product which I'm getting more and more excited about recently is a shift I'm observing in our customers deploying more and more software firewalls. And it's beginning to show in our results. Product revenues grew 23% year over year, Today, nearly half of our product revenues are driven by the software form factor. We now have over 12,500 customers and maintained our leading market position in software firewalls. As AI transformation accelerates, growth in cloud workloads to software firewall provides essential runtime protection with new AI data center with its recent ability to step up and predict AI, expect continued momentum. Talking about predicting AI, let's talk for a bit about Prisma Airs. As I mentioned earlier, AI is moving faster than expected. This creates a critical moment for enterprise innovation. The reality is that while 78% of organizations are embracing AI, transformation, a staggering 94% still lack the necessary security guardrails presenting a massive risk. With our acquisition of ProtectAI now fully integrated, we introduced Prisma AIS 2.0 in Q1. The industry's most comprehensive end-to-end platform to secure AI protecting everything from autonomous agents to models that power And I'll predict here that AI agents will become a problematic insider threat not secured. Prisma AIRS is the essential circuit breaker layer to stop them. It denies deep model inspection, real-time agent defense against threats like prompt injection, and continuous autonomous AI red teaming in one platform. And once our acquisition of CyberArk closes, the addition of identity security will be critical to this mission. Providing the essential privileged controls to govern these new autonomous insider threats and prevent agent identity impersonation. Our commitment to AI security is driving new high-value partnerships. Including a collaboration with NVIDIA, to secure the AI factory with Prisma Airs on Bluefield, and tight integrations with platforms like Glean IBM, Factory, and ServiceNow and securing the exploding number of agentic AI workflows. Early customer traction is strong, reflecting the general market need. The number of AIS deals in Q1 more than doubled versus last quarter. We believe we are the furthest ahead in AI security with marquee customers signing up with Palo Alto Networks, Inc. As they move from traditional to AI workloads, we believe we are going to continue to be in the pole position. And the same way I surprised the world with this pace, I wanna talk about something else. That is going to become relevant from a technology shift and security perspective. Quantum. Quantum computing has seen significant innovations over last year. We're getting more and more optimistic on the arrival of quantum and expect it to be commercialized by 2029. As is widely known, quantum computing has the ability to break current encryption across technology stacks. Enterprises have less than five years to get their estates to quantum readiness. There is a fear some nation states will have quantum compute capability sooner than 2029. Since last month, our partner IBM announced they were able to run a key quantum error correction algorithm on commonly available chips. The US government and many other nations are emphasizing PQC or post-quantum cryptography to drive new cryptographic standards that are resistant to attacks from future large-scale quantum computers. To address this, we have launched and are going to be delivering a complete quantum-safe strategy. First, we help you discover. In August, we launched our new version of PanOS, 12.1 Orion, which provides a quantum readiness solution to give customers an automated inventory of their cryptographic risk. Second, we help you protect We launched our new fifth-generation firewalls which are optimized for quantum security. Third, we help you accelerate our platform The unique Cypher translation capability can make legacy systems quantum safe immediately even if the application itself cannot be upgraded. Beyond this, we have just announced that we're deepening our partnership with IBM to deliver the QuantumSave Readiness and Remediation service, a complete end-to-end solution for PQC migration. Now moving to Cortex with the is a pillar of our security operations center strategy. ExIME continued its incredible trajectory in Q1. We now have approximately 470 customers with the average customer paying over $1 million in ARR. This includes large referenceable customers in every major industry. The success is no coincidence. Xi'M was built for large-scale data processing. Organizing it normalizing it, making sense of it in real-time. Today, we're processing 15 petabytes of telemetry on a daily basis. The result is demonstrable security outcomes, Over 60% of our deployed ex Sion customers have reduced their MTTR or median time to respond from days or weeks down to minutes. I am also thrilled to announce the launch of Agentyx, this quarter. Agentyx brings powerful AI agents directly to the core of enterprise security challenge. In the future, the only effective countermeasure against Hacker AI will be our own AI agents. Purpose-built for advanced security detection and remediation. For years, the industry has struggled with two defining issues. Overwhelming alert fatigue and a massive global talent shortage. AgenTeq is our definitive answer. This is a leap beyond mere automation, this is true autonomy. The ability to use predefined agents or build custom agents to secure enterprise is a step change in how security will work in the future. We are fundamentally transforming security operations and optimization by deploying autonomous AI agents that deliver enhanced speed, superior efficiency, and greater control for security practitioners. Right out of the box, EgenTech leverages a broad integration ecosystem connecting with thousands of existing security and IT tools and third-party environments. It provides customers with an intelligent fully governed, and completely transparent teammate across the enterprise. Ready to operate on day one, AgenTex accelerates response, elevates quality, and frees up scarce human talent to focus on higher-order strategic work. Now shifting gears, I am pleased to announce our CyberArk integration plans remain fully on track and we're proud to have received overwhelming shareholder support for the acquisition which is now expected to close in fiscal Q3. Since our announcements in July, we've spent more time with the CyberArk team, we are even more excited about the growth opportunity and future product roadmap. This includes our vision of democratizing identity security across the enterprise and making identity the next platform for Palo Alto Networks, Inc. Anecdotally, our customers share in our enthusiasm, and the early feedback has been encouraging. As many of you saw, CyberArk's business continues to execute, achieving record net new ARR in their most recent quarter. You know, and even as we invest ahead of the curve, our long-term financial model remains intact. The scale of our platforms, and operating leverage in our business reinforces our confidence in achieving 40 plus percent free cash flow margins by FY '28, inclusive of both the pending and Chronosphere acquisitions. We are executing from a position of strength and we see a clear path to drive both innovation and financial discipline. Now let's talk about our new announcement. I'm sure all of you are wondering why Palo Alto Networks, Inc., who is in the midst of a large acquisition of CyberArk, would engage in an acquisition at the same time of Cronos Sphere. I think it's important to understand where we are in the AI cycle. The AI cycle is moving fast, There's never a day that goes by without significant announcements on investments in AI, data centers, AI infrastructure. This large surge towards building AI compute is causing a lot of the AI players to think about newer models for software stacks and infrastructure stacks in the future. The seventeen-year-old observability industry was not designed for the AI era. AI requires always-on comprehensive observability at gigawatt scale. The challenge so far has been that full observability is cost-prohibitive for the customer. Chronosphere is one of the fastest-growing software companies in history. The observability solution from CronosFair has already been deployed and has demonstrated scale at a large frontier model where they continue to move workloads across. Leading board on the cloud consumer platforms are applying full comprehensive observability, offering 99.9 plus percent availability to their customers. Chronosphere is able to deliver this capability at a third of the cost of other industry-leading solutions. Yes. A third. With $1.5 trillion of compute coming online over the next few years, there will be continued demand for next-generation observability led by Cronosphere. Really excited about the possibility of delivering remediation to the observability category by bringing together capabilities of CronosFair and our newly announced AgenTex platform. Chronosphere also recently had acquired a company called Calypta, a data pipeline provider. That was complementing their focus on observability and ensuring the right data got onto their observability platform. Calypta integrated with XIM will enable us to offer our Xi'M customers comprehensive security data pipelining capabilities in line with current industry trends. This acquisition perfectly aligns with our strategic playbook. We acquired the best technology, at an inflection point in the industry we invest in its development, utilize our go-to-market scale. To quickly deliver this game-changing innovation to our customers. Remember, this is barely 2.5% of our market cap. Which is consistent with our tuck-in strategy over the last seven years of acquiring companies. To summarize, we had a strong start there Our core business is firing on all cylinders, Platformization continues to take hold and overall demand is strong. Over the last years, we have shown our ability to scale billion-dollar plus ARR business in SASE and Cortex, Looking ahead, we think software firewalls is our hidden gem. And possibly the next billion-dollar opportunity. We maintain a relentless focus on innovation by tackling new challenges, in AI security and quantum, Finally, our ambitions continue to grow. This year, we'll be significantly expanding our opportunity in new markets, as we close the acquisition of CyberArk and Chronosphere, in both categories of identity and observability. Which we believe are in the midst of an inflection due to AI. We are less than 5% penetrated into a TAM, reaching nearly $300 billion in the next three years. As such, we are raising our expectations from $15 billion to $20 billion in ARR for FY '30. With that, I'll hand over the call to Deepak to review the quarterly results in detail. Dipak Golechha: Thank you, Nikesh, and good afternoon, everybody. We have an exciting opportunity ahead of us. We continue to execute with excellence and our TAM is expanding through the pending acquisitions of two category leaders in CyberArk and Cronosphere. Given that, I would like to provide some additional color around our acquisition of Cronosphere as well as an update on the CyberArk integration planning. Before moving into detail on our Q1 financial results and guidance. As Nikesh mentioned, we announced our intent to acquire Cronosphere for a total consideration of $3.35 billion in cash and replacement equity awards. Cronosphere's co-founders, Martin Mao and Rob Skillington, and their employees will join Palo Alto Networks, Inc. post-close. While Cronosphere does have significant ARR, relative to most of our other acquisitions, we view this transaction to be more in line with the tuck-in acquisitions that we have done over the past eight years. The business has just over 250 employees with a customer base focused on large AI and born-in-the-cloud enterprises. The momentum Cronosphere has achieved to reach over $160 million in ARR with triple-digit growth has been impressive. For that reason, we expect Cronosphere to remain largely standalone post-close and in the near term, enabling us to balance integration timelines for the pending CyberArk. Acquisition. We expect this transaction to close in the second half of our fiscal year 2026. On CyberArk, our integration planning is proceeding exceptionally well. Reflecting the strong collaborative spirit between our teams. We've had excellent cross-functional collaboration, at multiple levels, including dozens of integration planning workshops across various functions. We are firmly on track to hit the ground running post-deal close which we expect in fiscal Q3 subject to customary closing conditions. As you can tell from our Q1 results, we're pursuing these acquisitions from a position of strength. With that, let's dive deeper into the quarter. Remaining Performance Obligation, or RPO, grew 24% to $15.5 billion This metric is a key indicator of long-term revenue predictability and the scale of our committed business. Note that our RPO from Q1 last year included $68 million acquired from our QRadar acquisition which took place in that period. Our current RPO, which reflects near-term revenue realization stood at $6.9 billion representing 16% growth. Reflecting stability in both the quality of our RPO and customer commitments, the average new contract duration, remain consistent at approximately three years. NGS ARR ended the quarter at $5.85 billion achieving 29% growth and exceeding the high end of our guidance. Adjusting for the $74 million contribution from the QRadar acquisition, in the comparable prior period, our net new ARR in Q1 grew over 20% The momentum was broad-based with strength from software firewalls SASE, and XIAM. It is important to note that our NGS offerings drive all of our revenue line items, including product revenue, nearly half of which is from software over the last year, subscription revenue and a growing portion of our support revenue. Total revenue reached $2.47 billion representing 16% growth which exceeded the high end of our guided range. Product revenue grew 23% year over year, 44% of our trailing twelve-month product revenue came from software form factors an increase from 38% in the trailing twelve months ending Q1 2025. This acceleration is fueled by growth in our software firewalls and PanOS SD WAN, within product revenue. We continue to see stability in hardware appliances and early interest in our newly launched Gen five firewalls. Total services revenue grew 14% Within this, both subscription and support revenues grew 14%. Geographically, we saw broad-based strength across all major theaters, with Americas growing 14%, EMEA up 18%, and JPEG growing 22%. Having discussed our top-line strength, I'd like to take a moment to give an update on our platformizations in Q1. As Nikesh highlighted, platformization continues to take hold as customers look for a strategic security partner that can continually adapt and innovate with shifts in the cybersecurity threat landscape. Our ability to deliver best-in-class products through our unified platforms Prisma Rares and Quantum Security in Q1, for example, is a critical motivation for customers to platformize with us. We completed approximately 16 net new platformizations this quarter. This momentum was driven by strength in XIAM, where platformizations more than doubled year over year affirming that customers are actively moving towards simplicity, and integration to have real-time outcomes. We now have nearly 170 customers with NGS ARR over $5 million and 50 customers with NGS ARR over $10 million both growing about 50% year over year. These results reinforce our target of $20 billion in NGS ARR by fiscal year thirty inclusive of the pending CyberArk and CronSphere. Acquisitions. Moving down the income statement, our disciplined focus on profitability and operational leverage is clearly visible in the performance. Metrics we delivered. Total gross margin for the quarter was 76.9%, We delivered product gross margins of 80.2% an increase of 50 basis points year over year, and reflected a significant sequential improvement of 340 basis points compared to Q4 '25. The Services segment also demonstrated positive margin trajectory reaching 76.2%, which constitutes a sequential increase of 70 basis points. We continue to be pleased by the continued growth of our SaaS offerings and remain actively engaged in executing cloud cost efficiencies. We delivered an operating margin of 30.2%, achieving expansion of 140 basis points year over year and our second consecutive quarter above 30%. This strong expansion reflects not only improvements in gross margin, but critically our ability to drive sustained scale and efficiency across all of the OpEx line items. We continue to apply an AI-first lens to all of our processes and functions. Notably, we have been able to deploy AI in our global customer support organization to drive three consecutive quarters of case volume reduction. And reduce time to resolve for 11 consecutive quarters. As a direct outcome of this disciplined leverage, our diluted non-GAAP EPS reached $0.93 which exceeded the high end of our guidance. This execution provides the basis for strong adjusted free cash flow which came in at $1.7 billion up 17%. Our cash and cash equivalents at the end of the first quarter is now over $10 billion Finally, regarding capital allocation, our approach remains prudent. We did not repurchase any shares in Q1 Our buyback strategy remains opportunistic. We have $1 billion in share repurchase authorization remaining through December 2026. Ultimately, we remain focused on leveraging this efficiency to maximize long-term shareholder value. With that, I will move on to Q2 and fiscal 'twenty-six guidance. For the second fiscal quarter 2026, we expect NGS ARR to be in the range of $6.11 billion to $6.14 billion an increase of 28%. Remaining performance obligation of $15.75 to $15.85 billion an increase of 21% to 22%, revenue to be in the range of $2.57 to $2.59 billion an increase of 14% to 15%. And diluted non-GAAP EPS to be in the range of $0.93 or 0.95¢, an increase of 15 to 17%. For the fiscal year 2026, we expect NGS ARR in the range of $7 billion to $7.1 billion increase of 26% to 27% remaining performance obligation of $18.6 to $18.7 billion an increase of 17% to 18%, revenue to be in the range of $10.5 to $10.54 billion an increase of 14%, operating margins to be in the range of 29.5% to 30% diluted non-GAAP EPS to be in the range of $3.8 to 3.90. An increase of 14 to 17% and adjusted free cash flow margin in the range of 38% to 39%. As Nikesh mentioned earlier, we are also reiterating our 40% cost adjusted free cash flow margin target for fiscal year twenty twenty-eight inclusive of both CyberArk and Cronosphere. Furthermore, whilst we will provide more detailed guidance after closing the transaction, we expect to maintain an adjusted free cash flow margin of at least 37% for fiscal year twenty twenty-six inclusive of both CyberArk and Cronosphere depending upon timing of close. We've included our typical modeling points in the presentation for your review, but I would like to highlight a few now One, as we noted last quarter, we expect to we continue to expect our net new NGS ARR and revenue to be second half in Q4 weighted as we continue to platformize with our customers Two, we expect product revenue growth for Q2 to be approximately 17% to 18% and finally, we expect $130 million to $140 million in CapEx in Q2 twenty twenty-six, which is inclusive of a $90 million non-recurring real estate CapEx This $90 million will be removed from adjusted free cash flow in accordance with our typical treatment for these non-recurring items. With that, I will turn it over to Hamza for Q and A. Hamza Fodderwala: Okay, great. To allow for broad participation, I would ask that each analyst ask one question. With that, we'll start with Brad Zelnick from Deutsche Bank followed by Rob Owens from Piper Sandler. Brad Zelnick: Great. Thanks, Hamza. And You know, it's great to see Vintage Nikesh coming out strong in Q1 even after a blowout Q4. So congrats to you and the team. Nikesh Arora: Bolt position, Brad. First question. Brad Zelnick: I love it. I love it. Nikesh, 2026 is setting up as a perfect AI storm. Where every vendor has a story to tell, and it seems all roads lead back to identity. Where you clearly are in process of acquiring the best asset out there. But stepping back it's rare that the winner in one technology generation remains the winner in the next. So what is it that you're doing outside of smart M&A to disrupt yesterday's Palo Alto Networks, Inc. to ensure success into an AI and quantum future. Thank you. Nikesh Arora: Thank you, Brad. Well, I think there are enough examples in history of technology companies which have sustained multiple technology waves and continue to win. And I think you're seeing some of the multi-trillion dollar companies out there have been around for four, five, six, seven decades. So we hope we're one of those evergreen companies that persist and is able to execute on a similar trajectory. We are as you can see, we are very, very aware of the two biggest technology trends ahead of us, both AI and quantum. What's fascinating is the need for network inspection does not go away. From our perspective, AI and quantum are gonna drive a, loss loss more volume, So more as the more bits that fly around, the more they need to be inspected, which means need for bit inspection technologies is not gonna go away. Just the way the need for server hasn't gone away since the time servers were created. So I think we don't have a threat to our core business of bit inspection, which is how I broadly describe our network security business. And AI is driving more volumes. I was just just talking to the CEO of a large cloud service provider earlier today, and the conversation was about how they go deploy gigawatts of capacity in short order given that large sort of thrust towards building AI compute, and how do we make sure those bits are secured? So I guess we are going to see sustained demand over time from a network security perspective. If you couple that with the trend that AI is driving, is the idea that now data can be sensed real-time and actions can be taken quickly as we discussed the recent cyber attack. That was an attack based purely on online availability of data. And the ability of persistent access. From that perspective, we think the solution on the other side has to be a data-driven problem. Solution. And if you look at what we've been doing from an ex I'm perspective, we had four seventy customers three years ago, I remember you and I talking about Ex I'm as new product categories in the sock space, and your question to me was, makes you think you will succeed in a space you've never played in before? Well, Brad, we proved that we can get to close to 500 customers in a million ARR. I don't I don't think I know any company in recent history in cybersecurity which has an average ARR per customer of a million dollars. On a product category. So I think we've proven that we are able to execute the backups. And last but not the least, you know, give rate. Was like, don't underestimate quantum. Quantum is gonna break every key. Which means every piece of infrastructure that hasn't been upgraded has to be upgraded. And I just learned something the other day, which Lee taught me, is you know, you don't even have to have a quantum computer to start breaking keys. You can actually start storing data today and break it later. So you can imagine nation states getting forward and saying, let's just ingest the data, hold on to it, Nobody's paying attention. I've got the data. We'll crack it later. So I just think all these technology trends are in the right direction. We have products positioned in this category. And I'll tell you what, in three years from now, we'll look back and say, damn, that ConosWare acquisition was a very smart move. Because you need observability. If you want your stuff to work 99.9% the time, you need to know if something goes down ASAP. You can't know that if you don't have the data. And if you go back historically, the question's been the two largest category of data are security and observability. And that's where Splunk started, by the way. All we've done is we are now the new platform for security and observability once we close Chronosphere. Thanks, Brad, for the question. Brad Zelnick: Thank you. Hamza Fodderwala: Alright. Next, we have Rob Owens from Piper Sandler. Followed by Saket Kalia from Barclays. Rob Owens: Great. Thanks, Hamza. Good afternoon, everybody. Nikesh, just building on those comments, I wanted to touch on Chronosphere. And, you know, it has been challenging. I for a lot of vendors in security to get into observability. So we'd love to see or hear from you your perspective on number one, that convergence happening right now. And number two, I think Crotosphere has shown success with some of the largest AI native companies out there. Having two of the top five frontier models. Are there elements behind their product sets that are applicable to some of these other large AI natives that are that are growing rapidly that you think you can have success with. Thanks. Nikesh Arora: So, Rob, you know, I've me and the team, actually, it's a funny story. We actually found Chronosphere because we were looking around to see, oh my god, everybody's going in abstracting data pipelining and everybody's gonna have have a data pipelining capability in the future in the SIEM. And honestly, as a category, we think data pipelining is sort of an interim category, which is there because of you know, data inefficiency, but we don't think it has a sustainable future. So we kinda, like, walked away from data pipelining vendors, which I know that some of the industry has tried to ingest as part of their SIEM solutions. But when we looked harder, and we ran the Chronosphere, we discovered you know and it's very rarely when your engineering team comes back and says, these guys are good. Generally, engineers have too much pride to tell you somebody else is good. But our team came back and said, these guys are the best engineers we run into. Now to be able to scale observability when you're ingesting you know, petabytes of data at LM model scale and be able to not create latency, provide observability in that kind of environment at a cost which is a third. Look, by the right now, if you go talk to every customer, even we turn down our observability vendor because it's too expensive. At Palo Alto Networks, Inc. Like, can't afford to have real-time observability on this product platform because it's too expensive. The problem is you can't run financial services apps, you can't run large e-commerce businesses, you can't run large, you know, food delivery businesses without persistent observability. So what Colosfare has done has changed the observability model by a combination of open source and techniques where they can do scale sort of data observability at the right price. So we think every born-in-the-cloud company, every company that has a platform that requires customers to really access it seven by twenty-four, is a potential customer. And I think, again, it's gonna be another business like Xi, which we have an average year out of a million dollars at some point in time. Alright. Thank you. Hamza Fodderwala: Great. Next, we have Saket Kalia from Barclays followed by Matt Hedberg from RBC. Saket Kalia: Okay. Great. Guys. Thanks for taking my question here. Nikesh, it's interesting to see you sign larger and larger XIM deals. I think you called out an $85 million deal in the quarter. While at the same time, incumbents in this space are really struggling to grow. And in the past, you've talked about how ex I am It's like it. It makes sense. Nikesh Arora: Incumbents don't grow, we take market share, which means we grow, and they decline. That's how it works. Saket Kalia: Totally understood. But maybe from a spending perspective, maybe the question is, do you find that x is able to capture at least what those customers were spending on incumbents? Is there an opportunity to capture more because of that faster mean time to respond? Does that does that make sense? It makes sense, Saket. I think the way to think about it differently is we do capture at least what the incumbent is the customer is spending on the incumbent, But in the process of delivering next time, we're able to consolidate multiple products. So not only do we get the incumbent spend of the SIM provider, but you have, you know, UEBA, you have other carriers, maybe Lee. It's a good time for you to say something. Nikesh Arora: So ITDR, recent launches around email security, exposure management. So we're able to consolidate these sort of surrounding product categories back onto a single platform. So customer saves money, but we expand the overall footprint that we can deliver. Very helpful, thanks. Hamza Fodderwala: K. Next, we have Matt Hebert from RNC followed, followed by Tal Liani from Bank of America. Matt Hedberg: Thanks, Hamza. Congrats from me as well on the results. Obviously, a lot of really positive developments here. The $30 billion the $20 billion fiscal '30 NGS ARR target is obviously super impressive relative to the prior target that you'd outlined. Obviously, there's some talking sort of M&A assumptions in there. But I guess I'm curious, like, from a high level, Nikesh, what what are some of the biggest moving pieces that give you the confidence since you you talked about the prior target just last quarter to to raise it to such a significant margin. Nikesh Arora: Well, that's a great question, Matt. So first of all, as I said, our core business continues to show strength. And, you know, as every time you're doing forecasting, somebody says, oh, the law, large numbers are gonna start making these growth rates go down. But you know, as I mentioned, SASE continues to be strong at $1.3 billion in ARR. We're going faster than know, independent public companies which run SASE. So we feel that's a strong part of our business. Software firewalls, I think, is our hidden gem. You know, 50% of our product 44 plus percent of our product revenue is coming from software. I don't think software firewalls are gonna stop. As you put more and more cloud workloads out there, people are discovering they need a software firewall. We've been waiting for that trend. It's arrived. We are probably outside of the CSPs, the only large vendor in the software firewall. Space. So we feel strong that our core business will keep performing, which allows us to sustain our $7 billion target in FY twenty-six forward. If you take CyberArk, what we intend to do with it, we hope that business continues to transform from where they are to absorb more and more identity categories that we intend to do with them, I think Chronosphere, if you add all three of them up, that gets us very close. Will there be tuck-in between now and FY thirty? Sure. We will have tuck-ins. But as you've seen in the past, tuck-ins don't move the needles by billions of dollars. Tuck-ins move the needle by sustaining growth rates and giving you a few $100 million. But I think the the lion's share is gonna come from the three categories you've just outlined in our core business, identity, and in observability. Hamza Fodderwala: Right. Next, we have Tal Liani from Bank of America. Followed by Meta Marshall from Morgan Stanley. Tal Liani: Guys, two great acquisitions. Long term, very promising. The question is the transitory period What's the impact on dilution on margins or free cash flow margins? And then how long does it take to see the synergies the sum of parts is greater than two. Nikesh Arora: Yeah. I'm gonna let Deepak answer the precise questions, the numbers. As I said, cyber you know, Chronosphere, we will run independently. Martin and team's done a great job. We will provide, obviously, the services from the HR finance marketing people, which is great because they don't have a large team in doing that. Basically a bunch of really smart engineers and forward-deployed engineers as well as a few salespeople. So we're gonna give them some support by introducing the right in the right targeted fashion. But Martin is very capable. He will run the business with his team. We trust him to do that. We're just gonna provide the sort of the rocket fuel and him to go out and meet customers and execute on his plan. So kind of, it's a low because for us it's very important because all of our focus on integration perspective is on cyber. From a CyberArk perspective, you know, we, as I said, we've had some great meetings. We understand where it is. There'll be some you know, rational synergies on day one because we don't need certain things in duplicate. We think by the time we get to the end of this fiscal year, our fiscal year of FY '26, have a much better handle. We'll be able to align their sales quotas and their teams and territories around our plans. So that's where I think a little bit of reshaping will happen. But I'm let Deepak talk about specific w and and free cash flow mark. Yeah. So so I think, Tal, like, the the key part, just what what I said in my prepared remarks is, like, with both acquisitions, we believe that we'll be able to get back to the 40% free cash flow by '28. Your question is really about what in the in the interim And I specifically mentioned that we should be able to maintain at least 37% plus free cash flow margin even in the interim, like, you know, barring the the one-time costs I think just highlights the the the bottom of the floor. So we're we're pretty deep into at our scale, pretty deep into understanding how much we can do how fast, and it doesn't really move the needle as much as you think it might. Nikesh Arora: Between 37 to 40% over the next two years, and you know, 40 plus percent by 2028. Tal Liani: Okay. Thank you. Hamza Fodderwala: Thank you, Tal. Bye. Next, we have Meta Marshall from Morgan Stanley followed by Brian Essex from JPMorgan. Meta Marshall: Great. Thanks, and apologize for the voice. Great traction with XIM and Prisma this quarter. Just what inning are you seeing customers in in terms of AI adoption and is it different on AI for security versus kind of security for AI. Thanks. The look. It's still early innings on AI adoption. I mean, there's on one hand, what you see is this massive build-out of AI data centers and models and everything else. That's the leading indicator. But then when you start to look at enterprise adoption, there's you know, huge scale of production pilots and early deployments and things like that, and that's really just the tip of the spear of of what we think is coming. Having said that though, the security of that tends to be trailing that and and so the the recent attacks that we're seeing both of AI as well as AI launching attacks is obviously going to start driving more and more awareness of the importance really of trying to do both those things at the same time. It's what I see when I talk to to to customers is a growing desire for the production pilots of AI to be run-in in parallel to the production pilots of AI security so that they're moving in lockstep. And so that that's gonna require a bit more urgency, I think, on the security side to to be up up in lockstep with the IT deployment side. And that's that's starting to happen, but it's but it's still early. Nikesh Arora: Thanks. Alright. Hamza Fodderwala: Thank you, and, feel better, Meta. Next, we have, Brian Essex from JPMorgan followed by Joseph Gallo from Jefferies. Brian Essex: Thanks, Hamza, and, congrats on the results team. Yeah. I I wanted to circle back on Quantum. Saw the partnership with IBM on Quantum Safe Readiness. I guess question for Nikesh, are are customers focused on this yet? Is is this gonna require know, some evangelism on your part? Or will this be kind of like a y two k event where they wait till the end, you know, till the last minute to address their exposure? And then maybe for Lee, how do we think about the technology advantage that you have that gives you maybe a superior white right to win for you know, post-quantum readiness? Is it the depth of visibility that you have and into networks? Is it data protection, all the above? You know, how do how do you frame that out? Nikesh Arora: Hey, Stratham. Let's let's start with the the your your question on timing. So the there's a couple of things that are driving a level of urgency. One is as Nikesh was mentioning, this notion of harvest now, decrypt later is one of the concerns. So probably more nation-state level type attack, but collecting encrypted data and then waiting for quantum to be unreal in order to decrypt it later. And so there are certain types of data that will still be valuable you know, years into the future, and so that's that's one reason for urgency now. Second is it's it's not clear yet when quantum computers will be viable. And it's possible that they'll be you know, viable before people are currently expecting, and so there's a certain that that variability is is also factored in, and I'd say third is this is likely for a lot of organizations a multiyear effort. And so if they don't start now, they won't be ready two, three, four years from now. And so all of that is adding up to what I've noticed over the last let's say, six, nine months is a pretty significant inflection in the number of customers who are starting to talk about this and plan for this. From an urgency perspective. On the technical side, the look. Part of this is really just related to we started working on post-quantum several years ago. So we we did not wait to start working on this. We've had capabilities rolling out at the last few years with the biggest launch being a a few months ago with with Orion And that has put us in a very good position simply in terms of being ahead of many of the people out there to the our ability to to sort of see across hardware stack, software stack, SASE stacks, browser stacks now, gives us I think, probably the the the one of the largest footprints where we can leverage existing deployments to get that visibility. And to provide remediation versus having it all be net new. And, you know, the partnerships we announced are is is really pretty powerful because it allows us to work with others that can complement the the pieces that we already have. Brian Essex: And the only thing I will say to that, Brian, is, like, I understand you're you know, I used to be I used to be on side of the world when I was y two k. We're all trying to figure out which stocks to buy, which ones not to buy. But the good news is you know, in the Vitocator, like, you had to go and reset everything. There was no quick fix across the the enterprise. And in this case, yes, the long-term solution is to strengthen everything and make it more robust. In the short term, we actually have a solution where using techniques we can actually take existing legacy enterprise infrastructure and secure for Quantum. So as a customer's CIO, rather take the risk or would you just rather spend a few million dollars and say, I am quantum secure? Until I can upgrade my infrastructure? The answer is yeah. Cybersecurity is insurance anyway. So buy a little more insurance. Brian Essex: Are you seeing a compliance push yet, or or is that still on the horizon? Nikesh Arora: Early early stage of that, Brian. Early stages. It's it's coming. Yeah. Very helpful. Thank you. I appreciate it. Hamza Fodderwala: Thank you, Brian. Next, we have, Joe Gallo from Jefferies followed by Patrick Colo from Scotiabank. Joseph Gallo: Hey, guys. Thanks for the question. He made some architectural changes to the cloud security products earlier this year. Can you just update us on that? How's that received by customers? And any sense of how cloud security grew in 1Q versus 4Q? Nikesh Arora: Yeah. The so we made some some changes, Joe, as you noted, with the launch of Cortex Cloud early in the year. This this was made for a number of reasons. It In large part, we were seeing an increased need from customers to be able to secure the full life cycle of their cloud deployments. From from code to cloud deployments to runtime, even connected all the way all the way into the SOC. And so the that was that was the impetus behind this, and seen a lot of very positive feedback from customers in terms of aligning to their strategies as well. And then since then, we've been able to continue to drive further capabilities on that. Earlier this year, we announced ASPM. So this is basically allowing us to prevent application security issues from working away into production. And then most recently, we announced the new cloud security agents or CDR agent we're able to be 50% more efficient in protecting cloud workloads with that. And so we we continue to drive more and more innovation. Actually, the last one was with the launch of Agentyx. That is now natively available as part of Cortex Cloud as well. So we're we're even bringing agents to the cloud security mix to to help automate customer workflows in the cloud. Thank you, Joe. Yeah. Next, we have Josh Hilton from Wolfe Research followed by Patrick Cole from Scotiabank. Josh Hilton: Hey, guys. Can you hear me? Not sure if it's supposed to be me or Patrick. Nikesh Arora: Hey, Josh. Hamza Fodderwala: Go ahead, Josh. Josh Hilton: Hey, guys. I I just wanna follow-up on the first first question, from Brad. I do think that today, the current investor view is that identity security is the market that is best positioned to benefit in an agentic future. But, Nikesh, I think in response to his question, you did mention that AI is increasing volume. And inspection. So what I'm trying to understand is how should investors expect the volume of network traffic to change in an agentic future And what does that mean for the traditional firewall business and the SASE business? Nikesh Arora: The look. I think the the way to maybe think about it Josh, is the advent of AI is is just create an extraordinary increase in the amount of data both data concentration, but also movement of data. Right? So we're we're seeing environments now that are beyond any scale that we've ever seen before just in terms of the amount of data that's moving around For example, you think about how much training data has to be brought to bear to entrain one of these models, let alone all different models are being built and different versions of models. And so that that by itself is is creating a noticeable influx in in the amount of network traffic. But somewhat concentrated concentrated toward the the AI platforms themselves. The second part that comes with that, though, is as AI becomes more and more deployed across the enterprises, that will also drive a similar pattern, albeit maybe at a slightly smaller scale. And that's the part of what Nikesh was talking about both in terms of amount of data, but then that translates then to the reserve observability days, the visit the application criticality needs, and, of course, security on top of all of that. Yeah. I think just I think you probably are alluding the fact that we didn't we didn't expect explain the identity thing well enough. Look. Identity is a market The products were designed fifteen, twenty years ago. And with all respect, in our view, IAM is not identity security. It's hygiene and IT it's IT capabilities. Like, the fact that you have a badge doesn't make me secure. I have I have a badge to enter Palo Alto Networks, Inc. not security. That keeps track of the fact that I'm in the building. It doesn't stop me from doing anything bad that I wanted. So we believe true security in the world of identity happens when you start enacting privileged access type controls across identities. And our view with CyberArk is that the fact that why are only 500,000 people in the enterprise privileged when pretty much the remaining 15,000 people per auto could cause equal amount of damage to other ways using systems. So our view is in the future, almost every identity will get some version of privileged access management and CyberArk is the best platform from our perspective and asset in the industry to be able to leverage those capabilities. Now we have to do some joint product work which is not unlike the fact that Mike came to Palo Alto Networks, Inc., we had another security company with four subscriptions. Today, we have 10. And possibly, we'll have 15 by the time, you know, Underpinnings of what is the size and opportunity. But, yes, there's bunch of work that needs to be As Lee and I were joking, yes, we call it back to the future. Very helpful, I think. Hamza Fodderwala: Thank you, Josh. Next, we have Patrick Colwell from Scotiabank followed by Fatima Boolani from Citi. Patrick Colwell: Alright. Cheers, Hamza. My question is for Nikesh on Chronosphere. I mean, we know many of the VC backers, and I totally agree with your comments earlier that you know, you're acquiring a top-quality asset with a top know, with a toehold in a in a in a tier-one foundation model vendor. Okay. Nice. There's more than a tool already, but we're we're working on getting the whole But my question is The dark foot's about to get to get there, Patrick. foot in there. Well, we're looking forward to seeing that. Okay. So, I mean, maybe that I I guess, why has the advent of AI driven you to pull the trigger right now on the Conosphere deal? And then then and then I also, if I think about Chronosphere, the buyer is typically a dev. Or maybe a CIO. Which is quite different to your current buyer profile. So just talk me through your thinking of how you're gonna penetrate those new buyers. Nikesh Arora: So, Patrick, what's interesting is that let me ask you that in three different ways. One, the actual buyer for Cronosphere is very often the CIO or even the CEO. You know, I had a conversation as part of our diligence with the CEO of a financial fintech company, I said, hey. Have you heard of Chronosphere? He's like, yes. I said, are they good? He's like, yes. I said, how do you know them? He looked at me, stared at me now and said, you think I don't know my tech stack? So I mean, these guys understand. Remember, if you're you know, you're restaurant app goes down, your ride-hailing app goes down, every second is lost revenue. What observability does is make sure it keeps track of whether any element of that stack is decaying. Is any element showing latency? Is there any performance issues across that stack? So you need constant persistent observability. The problem is it's expensive. The current vendors charge a lot of money. For it. Now Tronosphere is able to figure out is how to do the same thing at a third of the cost. So it's a combination of open source stack. It's a combination of enterprise-grade features. But they're pumping large amounts of data. So the two biggest problems are scalability, and cost. They solve both problems. Now the the the cherry on the the cake or the icing on the cake is we plan to take what you find in observability marry that with the Gentex, and provide remediation agents, which haven't been done before. So if you can take that entire life cycle say, found a problem, saw the problem, built an agent, fixed the problem. Right? Now these agents will be built and partnership with customers because no customer shall allow us to independently reset their infrastructure, but they can now write capability on top of the platform. Saying, I found a problem. I'm automate it. I'm gonna build an 75% of my customer conversations are CIOs. And 10% are CEOs. So I know the buyer. And that's why Martin's gonna run the company. Listen, There are a 173 companies in the world which all need persistent observability. We know all of the names. We know exactly who's deployed. This is what Martin does for a living. We'll go one at a time and convince us as a platform to have. Each of those guys spends 5 or $10 million a year with us. We're home. Hamza Fodderwala: Thank you, Patrick. Next, we have Fatima Boolani from Citi. Followed by Gregg Moskowitz from Mizuho. Fatima Boolani: Thank you. Excuse me. Thank you for taking my questions. Nikesh, I was gonna ask you an out-of-the-box question in accordance with how out-of-the-box your thoughts around I would never expect anything else It's my brand now. So what I wanted to ask you, you really have kept hitting home the point around TCO scalability, cost efficiency as a conduit for this convergence of security and observability. Right? So in terms of the Cronosphere rationale, I wanted to ask you how much of the rationale there was for you to effectively modernize, insource, whatever terminology you wanna use to modernize or insource the underlying fabric of your cortex and ex cyan technology. Right? So you know, in in in the context of everything you and Lee have talked about in absolute explosion of data, an explosion of telemetry that's that's gonna be hitting your iron, basically, for for all your appliances. How much of the rationale for Conosphere was that, versus, you know, wanting to enter out right into a brand new market where you're gonna try to win budgets. Nikesh Arora: I think that the latter, not the former. And if you go back, and I'm sure you've asked the question, and many many of you guys have asked me the question. There's always been this sort of fantasy that observability and security will come together at some level. And I think this is what started when Splunk, half the data is used for observability, half the data is used for security. So it started there. But it never progressed past that. Most of the observability vendors were so caught up in trying to solve the observability problem that they dip their toes in security. And I always say, you know, if it was so easy to build security with 20 more engineers, then God bless you, why do we exist? The same thing applies to observability. Like, if you don't these guys are spent They're, like, 200 plus engineers. They've spent the last three years doing this and have proven scale in the market. So yes, it's a phenomenal adjacent TAM which gonna grow in double digits for the next five to ten years. And, yes, we want a part of that. And if you look at it from our ambition to get a $20 billion ARR, we're not to get there if customers are not spending a lot of their IT and cybersecurity spend with us. Now there is a connective tissue between data across enterprises, right? Over time, the best enterprises will have seamless data access across many of their data lakes whether it's the observable data lake, it's their security data lake, their IT data lake, because eventually you want agents to go and go figure out what's going on across multiple data lakes to solve their problem. And sometimes problems cross across multiple data lakes, right? You know, if something's down, application, maybe the firewall shut it down so firewall's in the security lake. So if you want this agentic capability across data lakes, all we're trying to do is we're trying to build the enterprise fabric with our customers so over time we can provide more and more capability. Mean think of what lease at an XIM. We're building more and more modules on top because we can write more software on top of the existing data. Why does my firewall have 15 subscriptions in 2030? Why does it have 10 today? Same data. Same data. How do I get quantum cryptography visibility? I watch network data. I watch network data from malware. I watch for URLs. I watch it for quantum. Jeez. So once you get the data right, you can build tremendous amount of software capability and one at time take out slivers of the industry. This is the third data platform in the enterprise. Which is observability. Once we get that data, imagine the amount of SRE activities and agents we can build over time. So I just think this is foundational to our ambition to be a very large tech company. And three to five years from now, we'll be sitting back and saying, oh my god, we get it. Now you put a foray into the observability space, you got access to production data from enterprises that allows you to keep them running at 99.9% of the You can see I'm excited about this. Hamza Fodderwala: Thank you, Fatima. And as promised, our last question will be Gregg Moskowitz from Mizuho. Alright. Thanks, Hamza. Nikesh, we continue to hear more and more adoption for your secure browser, certainly the data points you provided today back that up. But how pervasive can this become amongst your NetSec installed base? And how strong is the monetization opportunity associated with that? Nikesh Arora: So I think, Greg, just, you know, connecting it back to what I was talking to Fatima about I think browsers are gonna get more and more prevalent in the enterprise. And if you look historically, browsers have been a threat vector and they're not secure. Right? Pretty much companies use browser that come out of the box with the OSs. And there's a bunch of things like, you know, we did a test POC with a customer, 5,000 of their browsers were tested. We found 167 were compromised. Right? So there's a wild, wild west of browsers out there, I think it's gonna get worse. When AI browsers come out of the JENTI capability. So you have much more of a flood of all kinds of browsers in enterprise. But browser has become I'd say, 80 to 90% of the workspace for most white-collar workers. Even developers, you know, exclude the legacy guys, but percent, 90% of the work is being done in the browser. So Drowser does become a very strong entry point from a security tech perspective. It has both opportunities and challenges. The opportunities are far higher from a security perspective of the browser. So we just think the browser becomes an important part of the foundational fabric for us to deliver services in the future. Right? But we need to wait for its pervasiveness or its ubiquitousness in time And that's why, again, it's one of those foundational things. If I can get a 100 million browsers out there, which are secure, I can deliver all kinds of security capabilities with way higher than that. To that extent, I think the monetization opportunities sort of in the future at scale course, there is monetization today. We don't get the browser away for free. And effectively as fungible as an endpoint agent from a SASE perspective. So right now, we're very keen on deployment and adoption and ubiquity of the browser. It has obviously financial impact on our SASE numbers, so you'll see $1.2 billion. I think from a strategic perspective, the more we can get out there, the better security outcomes we can give them in the future. Gregg Moskowitz: Great. Thank you. Hamza Fodderwala: With that, we will conclude the Q&A portion of our call. I will now turn it back to Nikesh for his closing remarks. Nikesh Arora: Thank you again, everyone, for joining us today to discuss our results. And the opportunities ahead. I also wanna thank our partners, our employees, and everybody who contributed to these great outcomes for us in Q1. We continue to plot along for Q2 and beyond. And I just wanna reiterate, really excited that we are now able to establish a toehold or perhaps a footprint in the spaces of identity and observability in the future.
Operator: Good afternoon, and welcome to the Universal Technical Institute Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Matt Kempton, Vice President, Corporate Finance and Investor Relations. Please go ahead. Hello, and welcome to Universal Technical Institute's fiscal fourth Quarter and Full Year 2025 Earnings Call. Matt Kempton: Joining me today are our CEO, Jerome Grant, and CFO, Bruce Schuman. Following our prepared remarks, we will open the call for your questions. A replay of this call, its transcript, and our investor presentation will be archived on the Investor Relations section of our website at investor.uti.edu, along with our earnings release, issued earlier today and furnished to the SEC. During this call, we may make comments that contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which by their nature, address matters that are in the future and are uncertain. These statements reflect management's current beliefs and are subject to a number of factors that may cause actual results to differ materially from those statements. These factors include, but are not limited to, those discussed in our earnings release and SEC filings. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. We do not intend to update these forward-looking statements as a result of new information or future developments except as required by law. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of fiscal 2024. The information presented today also includes non-GAAP financial measures. These should be viewed in addition to and not as a substitute for the company's reported results prepared in accordance with US GAAP. All non-GAAP financial measures referenced in today's call are reconciled in our earnings press release to the most directly comparable GAAP measure. For more information regarding definitions of our non-GAAP measures, please see our earnings release, financial supplement, and investor presentation. With that, I will turn the call over to Jerome Grant, CEO of Universal Technical Institute, for his prepared remarks. Jerome? Jerome Grant: Thank you, Matt. Good afternoon, everyone, and thank you for joining us. We launched our North Star strategy in 2020 with a focus on growth, diversification, and optimization. The first phase of the strategy successfully concluded with the close of fiscal year 2024. In that first phase, we saw our student population more than double, from 10,000 to over 22,000. Revenue grew from just over $300 million to $733 million, and adjusted EBITDA increased from $14 million to $103 million. All of this was accomplished while improving student outcomes and employer satisfaction. Fiscal 2025 marked the first year of the next phase of our North Star strategy, a year that demonstrated the strength of our strategy, the depth of our execution, and capitalized on the momentum we built as a diversified, growth-oriented education company. We entered the first year of our North Star Strategy phase two with high expectations, and we delivered results that exceeded such expectations. Revenue surpassed our twice-raised guidance range, reaching $836 million or 14% year-over-year growth. To reiterate, we raised our top-line guidance twice throughout the first half of the year, and raised the lower end of our range in the last quarter. So the beat today isn't just against our original forecast. It's against numbers we already raised intra-year. Our baseline adjusted EBITDA for the year was $133 million before incurring strategic growth investments of $6.5 million, netting us a reported adjusted EBITDA number of $126.5 million. As important, average full-time active students rose more than 10%, with new student starts increasing nearly 11% year-over-year. These results underscore both the resiliency of demand for skilled trades healthcare careers, and the effectiveness of our multidivisional model. In just a few minutes, Bruce will delve further into the details of our Q4 and full fiscal year 2025 performance. Operationally, fiscal 2025 was equally strong. Once again, we executed at a high level on all three pillars of our growth diversification, and optimization strategy. As committed, we successfully launched 19 new programs across our two divisions, extending our reach into fast-growing sectors and expanding access for students nationwide. These included nine full-length programs, eight within UTI and one within Concord, along with 10 shorter cash pay courses designed to serve working adults and regional employers seeking rapid training options. We also further enhanced our operational foundation, aligning brands, streamlining marketing admissions, and optimizing our campuses, such as the UTI Dallas campus and Concord, Denver location. Together, these initiatives have delivered meaningful efficiency gains while enabling us to scale faster and smarter in the future. This first year of the second phase of our North Star strategy proved that our platform works, our transformation is durable, and that we are ready for the next chapter of UTI's evolution. Exactly as we drew it up years ago. With an outstanding year of execution laying the foundation, we are set up to deliver strong growth over the next four years. Frankly, we couldn't be in a better position to kick off fiscal 2026, which will be the true inflection point for our continued growth as accelerated by our North Star strategy. Jerome Grant: As we transition our focus to 2026, I'd like to take a moment to express my gratitude to our team, our students, and our partners around the country. Without all of you, none of these successes would be possible. As we now enter fiscal 2026, our operational priorities are clear. Expand our campus footprint, launch new programs at scale, and continue to grow our student base while maintaining quality performance discipline. We are on track to open three new campuses during fiscal 2026. First, the Heartland Dental co-branded campus in Fort Myers, Florida, which expands Concord's healthcare reach and will serve as a model for future co-branded opportunities, is set to open next week. The UTI Atlantic campus is a comprehensive greenfield site that will serve one of the nation's fastest-growing metropolitan areas and support programs in automotive, diesel, skilled trades, and aviation technologies. The UTI San Antonio campus, which is our first skilled trades and aviation-focused location, adds capacity in a state where demand for technical education continues to significantly outpace supply. Alongside those openings, now that the path is clear to execute Concord's growth strategy, we expect to launch approximately 20 new programs across our two divisions in fiscal 2026, which is significantly more than previously planned. These additions are tightly aligned with employer demand and will build on the success of our fiscal 2025 North Star phase two rollout. Financially, we expect revenue for fiscal year 2026 to be between $905 million and $915 million, representing approximately a 9% year-over-year growth at the midpoint. I want to be deliberate here. Without our planned growth investments this year, our baseline adjusted EBITDA guidance is expected to be north of $150 million, yet as we will be including approximately $40 million in planned growth as part of our now accelerated growth timeline, we project that we will be printing adjusted EBITDA between $100 million and $119 million. To you, our investors, the scale of these growth investments should not come as a surprise, as we've been signaling our advantageous position to accelerate our growth throughout the past year. These investments represent the front-loaded expenses of launching campuses, hiring faculty, and building capacity for long-term scale. To move on, new student starts are expected to range between 31,500 and 33,000. This near double-digit growth is driven by healthy demand trends, expanding program capacity, and an improved marketing and admissions ecosystem that's producing higher quality leads and better conversion rates. In short, fiscal 2026 will be a year of investment, expansion, and activation. We're taking the platform we've built over the last three years and moving it fully into growth mode. While these investments, as we've outlined in the past, will temporarily moderate our reported margins, they're essential to establishing the next level of scale. We've often said that UTI's growth story is not linear, and that remains true. Fiscal 2026 and 2027 are our build years. The returns begin ramping quite rapidly in fiscal 2028 and beyond. Years two through five of our North Star phase two represent the next chapter of UTI's transformation, focused on accelerating growth, expanding access, and scaling impact. And to remind everyone here, thanks to our diligent execution and new level of collaboration, we're actually one year ahead of schedule. This gives us an additional year to build momentum and execute. As a result, this means that operationally over the next several years, we now plan to open a minimum of two new campuses and up to five new campuses annually, as well as launching approximately 20 new programs annually across both UTI and Concord divisions, depending on regulatory approvals. With respect to campus locations, I'm sure you all read our recent announcement outlining the first three campuses we plan to launch in 2027. As our 2027 plans continue to evolve, you'll hear more from us. The programs we launch will continue to target areas of national workforce shortage from nursing and dental hygiene to diesel, renewable energy, and advanced manufacturing, reinforcing UTI's position as a leader in closing America's skill gap. We expect the financial impact of these initiatives to compound steadily and show strong momentum by the end of fiscal 2029. As previously noted, revenue growth should continue to average about 10% over this time period. Strategic operating and capital investment should be relatively consistent between 2026 and 2029, enabling margin expansion to begin slowly in 2027 before ramping more rapidly in 2028, and especially 2029. As a result of this acceleration, we now anticipate generating more than $1.2 billion in annual revenue and approaching $220 million adjusted EBITDA in fiscal 2029. This rapid expansion in the last two years of the phase is driven by both maturity of our campuses and program replications launched in 2026 and 2027. Please refer to our investor deck for more details. To put that scale into perspective, by the end of fiscal year 2029, we now expect our revenue to nearly double and our adjusted EBITDA to be more than double what they were in 2024. Phase two is not just an extension of our growth story, but a transformation of our scale, reach, and impact. And it sets the stage for what comes next. Even by 2029, we won't have made more than a dent in America's skilled workforce gap, which means there's still an enormous runway in front of us. As Ford CEO just last weekend noted, the industry is struggling to fill thousands of high-paying technician roles, underscoring how substantial the demand remains. So as I look ahead, I couldn't be more confident in where we're headed. We're executing from the strongest operational and financial position in our company's history, and we're building something that's designed to endure, thrive, and grow well past 2029. In fact, we're already starting to think about 2030 and beyond. Building on that durable, repeatable growth engine that we've created. That could mean continuing our organic expansion, accelerating structured B2B partnerships with employers, the military, and state workforce initiatives, including opportunities around AI-enabled training and automation, or even pursuing strategic acquisitions that broaden our reach into new geographies and product sets. We have the platform, the balance sheet, and the team to do all of it. With that, I'll turn the call over to Bruce, our CFO, to review our fiscal 2025 financials and provide you with further details on our guidance. Bruce Schuman: Thank you, Jerome. Fiscal 2025 was another year of exceptional growth. We met or surpassed all of our raised top-line guidance metrics for the year, demonstrating the scalability of our model and giving us a solid foundation to accelerate the next phase of our North Star strategy. In the fourth quarter, total average full-time active students grew 8.1% year-over-year to 25,049, while total new student starts increased 5.4% to 12,109. For the full year, average full-time active students increased 10.5% to 24,618, and new student starts increased 10.8% to 29,793, coming in on the upper end of our raised guidance range. The Concord division drove a 14.5% increase in both average full-time active students and new student starts for fiscal 2025. These increases are a result of continued marketing and admissions investments and robust demand for Concord's programs. The UTI division generated an 8% increase year-over-year in average full-time active students for the full year, and new student starts grew 7.9%. The growth in average full-time active students reflects the sustained demand for the skilled trades and the eight new programs launched throughout the year. Turning to our financial performance, fourth-quarter revenue on a consolidated basis increased 13.3% to $222.4 million. Concord contributed $77.8 million, an increase of 18.2% over the prior year quarter, while the UTI division contributed $144.6 million, an increase of 10.8% over the prior year quarter. For the full year, consolidated revenue grew 14% to $835.6 million, exceeding the upper end of our guidance range, which as Jerome mentioned, we raised multiple times throughout the year. Concord contributed $293.8 million, an increase of 19.3% over the prior year, while the UTI division contributed $541.8 million, representing an 11.4% increase over the prior year. Bruce Schuman: Shifting to profitability, consolidated net income for the fourth quarter was $18.8 million or $0.34 per diluted share, and $63 million or $1.15 per diluted share for the full year. Adjusted EBITDA for the fourth quarter was $36.8 million and $126.5 million for the full year. Full-year net income and earnings per share exceeded the upper end of our guidance range, and adjusted EBITDA was in the middle of our projected range. These results included over $6 million in growth related to new program launches and new campus build-outs. At the end of the year, we had 54.4 million shares outstanding. Total available liquidity at the end of the quarter was $254.5 million, including $41.8 million of short-term investments, and $85.4 million of remaining capacity on our revolving credit facility. Bruce Schuman: Fiscal 2025 cash flow from operating activities was $97.3 million, and capital expenditures were $42 million. Regarding free cash flow, due to the Department of Education strategy to intensify the verification process for students, cash disbursements were temporarily delayed. The result of these timing impacts was that our fiscal 2025 adjusted free cash flow was $56 million, slightly below our expectations. We expect the remainder of these impacts and delayed accounts receivable to be worked through within the next few months. Looking forward, our results in fiscal 2025 give us real confidence in the road ahead. We finished the year with strong momentum across both divisions due to the ongoing demand for education in the skilled trades. Fiscal 2026 is about turning the momentum we've driven by our first year of North Star Phase two into measurable expansion through disciplined execution. Bruce Schuman: Starting with revenue, we expect to generate between $905 million and $915 million for fiscal 2026, or approximately 9% year-over-year growth at the midpoint. For the first three quarters, we expect mid to high single-digit revenue growth with Q2 being the lowest. Q4 is anticipated to be the highest growth quarter in the low double-digit range. Total new student starts are expected to range between 31,500 and 33,000. For the first quarter, we expect low single-digit growth, then low to mid double-digit growth in Q2, and mid to high single-digit growth in the remaining quarters. For fiscal 2026 net income, we expect a range of $40 million to $45 million and diluted earnings per share ranging between $0.71 and $0.80. While revenue will be up every quarter as noted, as we begin to make our significant growth investments this year, net income growth will be strongly negative for the first two quarters, improving slightly though still negative in Q3, turning positive to low double-digit growth in Q4. As a point of clarity, we've seen no impact in our first quarter due to the recently resolved government shutdown. We expect our full-year baseline adjusted EBITDA to exceed $150 million, and our SEC reported adjusted EBITDA to range from $114 million to $119 million. Embedded in this guidance and bridging from that baseline to our reported adjusted EBITDA is approximately $40 million in growth investments, primarily related to the following two items. Bruce Schuman: The first is campus expansions, which includes the preopening and launch costs for the three new campuses opening in fiscal 2026, and preparatory work for even more campuses opening in fiscal 2027. The second item is program development, which includes faculty recruitment and educational tools needed for 20 plus new programs opening in fiscal year 2026, with more coming the year after. In terms of the quarterly profile for the year for adjusted EBITDA, similar to net income, as we begin to make our significant growth investments this year, growth will be strongly negative for the first two quarters with high single-digit growth expected in Q3 and significantly stronger growth in Q4. As a reminder, growth investments are not added back when calculating our adjusted EBITDA. Bruce Schuman: These are investments we've been building a plan for and signaling throughout the year and are not previously unaccounted for impacts. We will be deliberately and strategically reinvesting more heavily beginning in fiscal 2026, to position the company for accelerated returns in the coming years. As a result, we expect to see marginal growth in adjusted EBITDA beginning in fiscal 2027, which will begin to accelerate more significantly in 2028 and even further into 2029 as our array of new campuses and programs ramp and yield higher returns. We anticipate 2026 full-year adjusted free cash flow to range between $20 million and $25 million, which assumes approximately $100 million in CapEx spend, consistent with our multiyear plan to support campus growth and modernization. We expect the bulk of our cash generation and year-over-year growth to materialize in the fourth quarter, consistent with our historical cadence. I want to reiterate what we expect to deliver at the conclusion of this next phase. As a result of North Star phase two, we expect to achieve more than $1.2 billion in revenue, equating to roughly a 10% compound annual revenue growth rate, and to approach $220 million in adjusted EBITDA by fiscal 2029. Driving these results will be approximately $100 million total CapEx invested in new campuses and program expansions each year. These investments will fuel our next wave of growth and position us to deliver stronger returns, higher margins, and a diversified, durable, and repeatable growth engine over time. We remain confident in our ability to fund this growth strategy from cash on hand and cash generated from operations in the coming years. Again, we're thrilled with what the team has delivered in 2025 and are excited for 2026 and how this inflection point for the company will drive even stronger growth in the years to come. In addition to this earnings call transcript, we encourage everyone to review our press release, financial supplement, investor presentation, and upcoming 10-K filing. These materials include the latest updates on our consolidated and segment results, strategic initiatives, and guidance. Thank you to our students, team, partners, and investors for their ongoing support. I'd now like to turn the call over to the operator for Q&A. Operator? Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jasper Bibb with Truist. Please go ahead. Jasper Bibb: Yes, thanks. It's Jasper Bibb with Truist. Just hoping you could give a little bit more detail on what you're expecting for start growth in 2026 between the UTI and Concord segments. Should we expect the start growth to be relatively even between the two segments or maybe is there a differential there? Bruce Schuman: Yeah. Hey, Jasper. We're like we said on the call, we're expecting roughly about an 8%, eight to 9% start growth for '26. It's gonna be very similar in kind of profile to this year, and, you know, we're investing to make sure we can make that happen and feel good about the growth for starts in '26. And is that gonna be a very similar segment profile to on your question too as we saw in '25. It's going to be a very similar profile per segment. Jasper Bibb: Okay. No. That makes sense. I just wanna clarify something from the press release. Was this comment about as much as five campus openings annually, but between the two divisions or on a combined basis? I guess my question is I don't think there'd be a scenario where you do, like, 10 campus openings in a year, but just wanna make sure I understood the point. Jerome Grant: Yeah. No. Just to clarify, it means between the two divisions. You know, we had previously said that we would likely open two to three, and now it'll be somewhere between two and five per year. Jasper Bibb: Okay. Understood. Last one for me. You mentioned the cash impact of the Department of Ed's ID verification measures, which makes sense. Just hoping you could comment on if you've seen any productivity impact on the front end. Bringing on new students. Is that taking longer? Is there additional processes they're making you go through as part of that program? Bruce Schuman: Yeah. Thanks, Jasper. No. We've seen no impact at all on the front end. This was simply a temporary, you know, as the department kind of increased their focus on verifications, you know, legal status, that type of thing. Just basically getting through that backlog caused a little bit of a slowdown in cash collection, but it was temporary. Frankly, we're already seeing it kind of come back to normal here as we start the quarter. So we don't think it's gonna be a long-term drag or anything like that on free cash flow. Jasper Bibb: Okay. Great. Thank you, guys. Operator: The next question is from Mike Grondahl with Northland Securities. Please go ahead. Mike Grondahl: Congrats on a nice quarter. Could you talk a little bit about how your high school recruiting efforts went? Kinda compared to your expectations? Jerome Grant: Sure. You know, Mike, you know, I've talked a lot. I always want them to go better. I think they went about where we expected them to. We didn't add high school resources this last year. We will for 2026. We chose to put sort of the additional strategic investment in Concord. We saw an opportunity to significantly ramp the Concord enrollment, specifically around the higher value clinical courses this year. And so as we were balancing, you know, additional strategic investment rather than adding resources in the high school for UTI, we put more money into Concord. Also, with the program launches that we've got at UTI, which, you know, are highly concentrated in the skilled trades, we're seeing that the skilled trades tend to appeal more to the adult population. And so tilt a little more investments in marketing to the adult population this year as well. Now as we're opening new campuses, Atlanta, San Antonio, and move forward, there'll be more of a balance between high school and adult, and so that's why we're adding more resources into the high school channel for 2026. Mike Grondahl: Got it. Got it. And then can you talk a little bit about tuition increases kind of embedded in your 2026? And how are you thinking about pricing power? You know, with demand as strong as it is? What's kinda your current thinking there? Jerome Grant: Well, number one, we assume somewhere between a two and a 3% price increase. It varies by program and by market in some instances. But, you know, our numbers assume somewhere between a 2-3%. And, you know, when you think about pricing, you know, when inflation spiked in 2022 and 2023, people were saying, well, why don't you take a 10% price increase? And the way you have to look at it is really around student funding. You know? There wasn't a significant increase in Pell Grants and student loan qualifications at that time frame, which means, you know, every dollar above that 2 or 3% that we have, it really adds to the gap that the student has to pay out of their own pocket. Right? So there isn't unlimited upside pricing power to be able to do that. Should there be a significant increase in student funding, we might be able to see a little bit more in pricing. And, you know, in some areas where the demand is high and we may be, you know, seeing really stiff demand, we may see a little more. But on average, it's gonna average between 2-3%. Mike Grondahl: Got it. And then maybe lastly, how will you choose between at least two and up to five? Are you help us think through the low end and the high end of that range? Jerome Grant: Yeah. I mean, the low end's conservative. You know, one of the things we already said was you could pretty much count on us for launching two UTI campuses a year. And that was prior to Concord's growth restrictions falling by the wayside and us getting into the game with them as well. So, you know, we hold open the opportunity in the years to come that we could slow it down a little bit. But right now, the opportunity is so great. I mean, the demand is so high for what we're doing in many geographies around the country that, you know, we've announced our first three campuses for 2027. Yep. You know, we had hoped to be able to get a Concord campus or two open in '26, but due to, you know, accreditor approval, real estate and building and things like that, it likely won't be until '27. We announced two of those. We've announced the first campus for 2027 for UTI in Salt Lake City, and, frankly, we're working on more. So, you know, we wanna make sure that we're moving both prudently but aggressively to solve this problem out there. Mike Grondahl: Perfect. Thank you. Hey. Take care, guys. Operator: Again, if you have a question, please press 1. The next question is from Griffin Boss with B. Riley. Please go ahead. Griffin Boss: Hi, good afternoon, everyone. Thanks for taking my questions. So I'll just start off for Bruce. Near the end of your prepared remarks, you talked about expectations for marginal growth in adjusted EBITDA starting in 2027. Can you just clarify here for me, is that implying marginal growth over 2026 numbers? Or marginal growth over what you did in '25? Bruce Schuman: Yeah. Thanks, Griffin. Yes. To be clear, that's marginal growth over '26 numbers. We've always said '26, '27, are really our investment years. You're gonna kinda see this dip, which you're seeing here in our '26 guide. We're not giving a specific '27 guide, obviously, but you'll start to see some marginal EBITDA growth in '27, and then it will really take off in '28, '29. That's when you'll start to see the return from these new campuses and investments really pay off and add to the bottom line. Griffin Boss: Understood. Yeah. That's what I thought. Just wanted to make sure I had it correct. And then just shifting to the CapEx cadence going forward, Bruce, you also talked about that. I missed specifically what you said, but I did wanna just discuss what happened in '25. Obviously, that came talked about free cash flow and, you know, CapEx came in below what you had expected as well. Is that is the gap there, the delta, that also just because of the Department of Ed and the cash collections coming in, you kind of tempered your CapEx spend this year? And then along those same lines, should we expect 2026 CapEx to be that much greater? The you know, it was it was about what, 13? Bruce Schuman: On an accrued basis, it was actually closer to 54, almost right on our guide. Cash, we didn't quite, you know, hit it. It was about $42 million on a cash basis. So really, it was a it's a timing issue. It's accruals, and we're seeing that, you know, it just it really happened toward the end of the year as we really pushed our teams to get that CapEx spent and stay on schedule. Griffin Boss: Okay. Okay. Got it. Understood. And then last one for me, just on the three new campuses that you guys announced yesterday, that's you know, the growth is great to be. Is there anything you can you just remind us maybe or tell us kinda what how you look at, you know, revenue potential would be different? Can campuses once they've scaled. You talked in the past about, you know, UTI's Atlanta maybe, I think, if I remember correctly, $45 million revenue contribution when it's scaled, and then San Antonio for UTI is $23 million. So is there anything you can just talk about with across these Concord campuses and UTI Salt Lake, expectations when you reach these scaled student numbers you talked about? Jerome Grant: So first of all, from Salt Lake, it's Jerome here, Griffin. Thanks for the question. Salt Lake City is gonna we think it's gonna behave a lot like Atlanta. It's a full comprehensive campus, transportation skilled trades, and energy. Aviation on that campus. So we think, you know, you're talking about 12, 1,300 students in the $40 to $45 million range at peak. That's our current version of the optimized campus. And, again, we're never satisfied with this notion of optimization. We'll keep looking for more, whether it's new programs or new ways to teach. So Salt Lake City is gonna behave a lot like Atlanta. Now these, you know, these are the first Concord campuses that are coming to market. And, generally speaking, what we're looking at at Concord is a full line of the Concord offerings on each of the campuses, which tends to come somewhere in the neighborhood of 600 students, slightly less revenue per student, and so you're looking at about $20 to $25 million in revenue. And, you know, again, we'll continue to look at our program offerings there and see what we can fit in beyond that. But, you know, we don't have a variable model in terms of Concord that we're putting out because the demand in the healthcare space and in the dental space is just so high. Everywhere. That, you know, it's hard to find a market where you would look at it and say, you know, I'm not gonna put dental in there, or I'm not gonna put radiology tech in, or some of the clinical courses is that, you know, we're going to market with full, comprehensive healthcare programs in all of ours. And like I said, we wanted to get the news out that we've signed our leases in Salt Lake City and Houston and Atlanta for Concord, and we're continuing to work on more locations, whether at the end of '27 or '28, we're working on those right now. And then, Griffin, just to add one thing to underscore what Jerome said, you are exactly right that full campus in Salt Lake City, those are typically $40 to $45 million revenue campuses, you know, IRR is north of 30%, return on capital north of 30%. So just wanted to answer that question. You are correct in the revenue expectations. Griffin Boss: Awesome. Great. Thanks, Jerome. Thanks, Bruce. Appreciate all the color. Thank you. Operator: The next question is from Raj Sharma with Texas Capital. Please go ahead. Raj Sharma: Hi. Good afternoon. So thank you for taking my questions again. Congratulations on a solid beat again. I wanted to ask you about the start that you starts projected for '26. I think that you've already prob you've already addressed a part of it. You said the start split would be equivalent in UTI and Concord. Any sort of breakdown amongst young adults, high schoolers, military veteran that you see that you're contemplating for fiscal 2026 and then how much of your starts is going to be new campuses and programs? I'm trying to get a sense of what your same store starts throughout this for 2026. Jerome Grant: Yeah. Well, there's a couple dynamics at play as we continue to diversify the UTI campuses, to be, you know, a full line of transportation, skilled trades, and energy, the student population tends to be getting a little older. Right? And that doesn't mean that we're not gonna add resources in the high schools. We absolutely are because we're opening new campuses. We need people in new locations. We need to intensify our efforts in places like, you know, as we open in Atlanta and San Antonio and as we get ready for Salt Lake City. So we will be adding resources in the high school. But the skilled trades tend to appeal to an older audience. You know, kids in high school tend to know about fixing cars. They don't know about wind energy. They don't tend to know about HVAC and welding and the like. And so they tend to really gravitate towards the areas, whereas people who've been out in the world for a couple of years, 19, 20, 21, 22-year-olds, often gravitate towards the skilled trades, which is balancing out the population now on the UTI campus. The other factor that's at play or the other aspects that are at play is that the skilled trades also tend to attract people who are more local. And give us more opportunity to dig deeper into the local market. And as we've said over the past, you know, the local student tends to start faster, tends to make a decision faster, tends to get going. Whereas someone who has to relocate has to find somewhere to live, and there's a longer timeline. And so what we're seeing is shorter timelines from contract start, and we're seeing higher show rates out of the local population. So, you know, these are all things that are helping both our revenue and our margin improve. Raj Sharma: Got it. Thank you. Also, I wanted to get a sense of what the employment trends across programs. Have you seen any sort of a slowdown or, you know, and even geographically speaking, you seeing a consistent employment at graduation mark that you have seen in the past? Like, has that changed? Jerome Grant: Yep. If anything, it's intensifying. I mean, we're continuing to get more B2B inquiries around government contracts that have been signed around airplane building, shipbuilding, data centers. Our industrial maintenance technology courses are doing quite well because of the number of areas that are being built in there. So if anything, we're seeing the demand intensify. On the transportation side, I mean, you heard the CEO of Ford just last week. He's got 5,000 openings he can't fill. Right? He's offering upwards of $120,000 to try to get these folks. And so, you know, there's no slowing down in the transportation business at all. Raj Sharma: Fantastic. And then just on, you know, just a hypothetical question. You know, there's been a talk in the Department of Education totally getting disbanded. Dismantled, any sort of impacts on you on the approvals, on FAFSA, that you foresee, or do you think that it would just be given out, you know, to the different divisions, different departments of the government? Jerome Grant: Yeah. I think with great question. Thanks for asking. I know that news came out yesterday, obviously, and this is something that, frankly, this administration, who's been, you know, dramatically more collaborative with us over the tenure in office, has been foreshadowing since they took over. And to put a point on your question, there really are two essential pieces of the Department of Education that are most relevant to us. One being the entity or, frankly, the bank that administers Title IV funding. That's something that's perpetually funded. It's self-contained. It wasn't part of the announcement yesterday. What we've seen is fast flows are now moving, you know, quite well. There isn't, you know, all the glitches they had with the new electronic FAFSA, etcetera, seem to be behind them, and we're seeing that progress quite well. If that were to be picked up as a chunk and moved over to another department within the government, you know, we don't anticipate that we would see any real disruption along those lines. And then the other entity is really what you started with, was the entity of approvals. And that was announced that the intention was to move pick that up and move it over under the Department of Labor. Same group of people, same leadership, etcetera, but under the auspices of the Department of Labor. What I can tell you now is that our approval process is far more streamlined, much less friction, and much more collaborative than it has ever been since I've been with this company for the last eight years. You know, the agreements are moving quite rapidly. I'm signing new PPA agreements, you know, five in the last week as we think about renewals and new campuses and new programs, etcetera. And so, you know, we're quite pleased with the collaboration we're seeing from Washington and the lines of communications we've even started to open with the Department of Labor around how we might be able to solve these huge labor problems in the US. So, so far, the two entities we see are working out quite well. Raj Sharma: Great. Fantastic. Thank you for taking the questions. Again, congratulations and good luck. Talk to you soon. Jerome Grant: Thank you. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Jerome Grant for any closing remarks. Jerome Grant: Thank you, operator. Really appreciate it. I'd like to thank everyone who attended today. Big day in the market for people reporting, so we like that you prioritized us. As always, Bruce, Matt, and I are available to follow up with any questions. We encourage once again, as we always have, people to visit our campuses. You really gotta see what we're doing, especially the new ones that we'll be opening in Atlanta, San Antonio, and the Concord Heartland campus down in Florida. If you're interested, please give us a call. So we look forward to speaking with you again when we report our first fiscal quarter 26, which will be sometime in February. Until then, I'd like to wish you all a very happy holiday season. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Elior Group Full Year 2024-'25 Financial Results Presentation. Please note, this call is being recorded. The management discussion and slide presentation plus the analyst question-and-answer session is broadcasted live over the Internet. Today's call will start with an introduction of Daniel Derichebourg, Chairman and Group CEO. Mr. Derichebourg will speak in French with an English translation right afterwards. After this introduction, Didier Grandpre, Group CFO, will carry on with the usual presentation before opening the Q&A session. Mr. Derichebourg, please go ahead. Daniel Derichebourg: [Interpreted] So hello, everybody. Firstly, I'm sorry for not speaking English, but you know what, at my age, I'm not going to start learning now. We had told you in May that everything was going a lot better. And if everything went according to plan, we would be able to pay out a dividend. And as you've seen in the press release, that has now been confirmed. Okay. So I'd like to thank you all for being here. It really is an honor to have you all here. And I'd now like to hand over to our Financial Director, Didier Grandpre, who's going to take us through the results. Didier Grandpre: Thank you, Daniel. Good afternoon, ladies and gentlemen, and welcome to Elior Group's full year results presentation. We have provided detailed financial information in our press release issued earlier this afternoon, which is available on Elior's website. I invite you to read the disclaimer on Slide 2, which is an integral part of the presentation. I will make a short introduction before covering our full year results in detail. Then I will share the progress made in the implementation of our CSR strategy, and I will continue with the business review section. And finally, I will conclude with our outlook for the next fiscal year before we answer Daniel and I, your questions. 2 years ago, the 2022-2023 fiscal year marked a turnaround in our operational profitability with a positive adjusted EBITDA of EUR 59 million compared to a loss of EUR 48 million in 2021-2022. The following year saw a remarkable improvement in performance with adjusted EBITDA increasing by EUR 108 million in 1 year. Now the 2024-2025 fiscal year is a new major milestone. We've not only strengthened operating profitability with adjusted EBITDA exceeding EUR 200 million, but also achieved a turnaround in profit before tax, reaching EUR 65 million compared to a loss of EUR 5 million last year. Elior has once again improved its performance in 2024-2025, although this was limited by a particularly challenging year for our temporary staffing business, which recorded an exceptional sharp revenue decline and an unusual negative EBITDA. After the takeover by a new management team in the second half of the year, our objective is clear: achieve a rapid return to profitability in this segment. In this context, it was important for us to present the 2024-2025 results, of course, as reported, but also excluding the underperformance of the temporary staffing business. Globally, our results for 2024-2025 are in line with the revised objectives set last May. First, in line with the first semester and our revised ambition, the organic growth was modest in the second semester, reaching plus 1.3% for the year. Growth stands at 1.7% when excluding temporary staffing activities. Adjusted EBITDA continued to grow, both in absolute value and in margin rate, up 50 basis points to 3.3% Notably, the margin rate for 2024-2025 reached 3.5% when excluding the underperformance of temporary staffing activities, corresponding to a 70 basis point increase. We achieved a positive profit before tax of EUR 65 million, an improvement of EUR 70 million, including lower non-recurring charges following the successful implementation of optimized organization across our geographies within 2 years. The payment of a dividend of EUR 0.04 per share has been approved by the Board of Directors today and will be proposed to the AGM approval on February 4, 2026. We remain focused on delivering value to our shareholders while continuing to pursue our deleveraging objectives. On this front, our leverage ratio was reduced by 0.5 points during the year, reaching 3.3x at the end of September 2025, thanks to a sustained free cash flow exceeding EUR 200 million for the second year in a row. Moving to our financial results in more detail, starting with the revenue on Slide 7. Group revenue reached EUR 6.15 billion, corresponding to an overall revenue growth of 1.6%, made of group organic growth at 1.3% within the expected range. Tactical acquisitions contributing for 0.8%, including notably the regional expansion of facility services in Spain to complement our leadership position in contract catering in that country. The negative currency impact of minus 0.3% came mainly from the softening of the U.S. dollar. Organic growth was driven by contract catering at 2% itself supported by strong commercial development in Spain, rigorous pricing discipline in the U.K. and successful commercial activity in the U.S., especially in the education market. In 2024-2025, activity in Italy declined due to non-renewal of some public contracts at a level of margin below our expectations. In Multiservices, the organic revenue decline is mainly due to temporary staff solutions. Excluding this activity, the segment grew by 1.1%, thanks to a strong recovery in Aeronautics and energy activities in the second semester. Contract retention slightly decreased in H2, including the full year impact of voluntary exits and non-renewals of some public contracts in Italy at the beginning of the fiscal year to reach 90.6% at the end of September 2025 versus 91% at the end of March and 91.2% 1 year ago. Following the rationalization of our portfolio, we expect contract retention to start improving from next year. Operational profitability increased again this year, thanks to maintained discipline on price increases, especially in the U.S., U.K., and France, continued productivity improvement in purchasing and labor. It is worth noting, despite a negative commercial balance in revenue, this still contributed positively to adjusted EBITDA, especially in France, underscoring our strategy of profitable growth. The Slide 9 illustrates the robustness of the foundation consolidated during the fiscal year '25 with a strong improvement in the profitability of contract catering activities, up 100 basis points driven by price increases in the U.S., U.K., and France, and accretive commercial development in Spain, the rationalization of our contract portfolio, and the streamlining of the operational organization in France and Italy. Excluding temporary staffing, there was a slight improvement in the profitability of Multiservices activities, up 10 basis points to 3% in fiscal year '25. This improvement came notably from the increase in the level of activity in the industrial sector in the second semester. The Slide 10 presents a major achievement for the past year with a positive pretax profit of EUR 65 million compared to a loss of EUR 5 million last year, an improvement of EUR 70 million and a positive net profit of EUR 87 million this year compared to a loss of EUR 41 million last year, an improvement of EUR 128 million. This turnaround is due to the continued improvement in operating profitability as just described, a decrease in amortization of intangible assets, down EUR 13 million due to a one-off charge last year in the U.S. for EUR 11 million related to short-term contracts. A sharp reduction in non-recurring charges down to EUR 9 million in fiscal year 2025, following the implementation of reorganization plans over the past 2 years, especially in France for both support and operational functions and in Italy to adjust the organization to the level of activity and regain commercial agility. Based on this year's strong performance and outlook, we activate net operating losses in the U.S. and France for a total of EUR 39 million, resulting in a tax benefit of EUR 22 million compared to a EUR 36 million tax charge last year. The adjusted net group profit stood at EUR 112 million, corresponding to an adjusted EPS of EUR 0.44. Moving to Slide 12. Free cash flow for the 2024-2025 fiscal year amounted to EUR 228 million, which represented 2/3 of the EBITDA that reached EUR 342 million or 5.6% of revenue. Free cash flow improved by EUR 13 million compared to last year, mostly from operations. CapEx amounted to EUR 144 million or 2.3% of revenue, up EUR 46 million or 70 basis points of revenue year-on-year. This increase included investment in Central Kitchen to ensure sufficient production capacity for new contracts, real estate investments to replace more expensive rentals in the long run and offer greater flexibility and the first phase of our transformation and innovation program to harmonize operational and financial processes within a common ERP platform on top of business as usual investments related to new commercial contracts or renewals. In addition to adjusted EBITDA, up by EUR 10 million, other components of free cash flow also improved compared to last year, notably the change in operating working capital, which contributed EUR 56 million, an improvement of EUR 32 million, thanks to better performance in the timely collection of receivables. The ramp-up of our new securitization program, which began in September 2024 and contributed EUR 89 million for the year, an improvement of EUR 6 million compared to last year. Non-recurring expenses amounted to EUR 15 million for the year, down EUR 11 million from last year following the completion of reorganization programs. IFRS 16 rents were EUR 81 million for the year, down EUR 4 million due to either termination of leases or renewal of leases under better economic conditions. Tax paid remained stable at EUR 17 million. The free cash flow contributed to reducing net debt from EUR 1.269 billion to EUR 1.125 billion at the end of September 2025. Financial interest amounted to EUR 97 million, plus EUR 13 million in refinancing costs for the revolving credit facility and the high-yield bond. IFRS 16 debt continued to decline, as previously mentioned, and tactical disposals and acquisitions resulted in a net increase of EUR 9 million for the year. The reduction of the net debt by EUR 144 million, combined with an improved adjusted EBITDA allowed us to stabilize our leverage ratio at 3.3x below the covenant of 4.5x and in line with our goal to fall below 3.5x by year-end towards a target of 3x in the short term. Moving to the next session on corporate social responsibility. This year, the group continued to implement its CSR strategy presented last year, Aimer sa Terre or Love your Earth, Horizon 2030. With the new CSRD requirements, we refined the double materiality assessment and identified 37 material items consistent with our strategy. The table shows significant progress this year in the four pillars of our strategy towards the 2030 targets. This is especially true for the first pillar, preserve resources with a significant step in reducing greenhouse, gas emissions, and contract catering activities, achieving a 7% reduction in fiscal year '25, supported by a doubling year-on-year of low-carbon recipes. 2/3 of single-use containers are sustainable packaging and a 42% reduction in food waste, getting closer to the 50% target in 5 years. Similarly, for the second pillar, sustainable food and services, recipes with the highest nutrition score rating increased by 12 points to reach 61% in fiscal year 2025, getting closer to the 70% target. Third, significant social progress was achieved this year, including a 10% decrease year-on-year in the frequency rate of workplace accidents. The promotion of internal resources to management position whenever relevant. This was actually the case for nearly half of vacancies this year. The group also strengthened its commitment to gender equality with 38% of women on leadership committees. Finally, the group expanded its local anchoring with 2/3 of national sourcing and maintain responsible sourcing with more than 15% purchased food products that are certified. In addition, the group has defined a decarbonization plan built around 9 levers of action and carried out a vulnerability assessment of its assets to physical risk, paving the way for adaptation plans. Moving to the business review section, starting on Slide 18 that shows the evolution of the securitization program in the second semester according to the seasonality of our sales. It is worth noting the weight of off-balance sheet compartment, reaching 82% at the end of March and 77% at the end of September 2025, up compared to previous years. It illustrates the quality of our receivables and the rigor applied in managing this new program. The right-hand side of the slide is a reminder of the maturity profile of our debt with extended visibility up to 2029 and 2030 following its refinancing at the beginning of the year. Liquidity remains solid in fiscal year 2025, globally stable around EUR 400 million since our refinancing at the start of the calendar year, supported by several factors: the securitization program providing an additional cash inflow of EUR 18 million at the end of September 2025. As a reminder, the ramp-up of this program in the first quarter of the fiscal year was accompanied by the repayment of the entire term loan at the end of December 2024 for EUR 100 million and a reduction of our bank overdraft credit line by EUR 14 million. The refinancing of the RCF and bond provided a positive net available liquidity of EUR 30 million. The success of our refinancing at the beginning of the year and improved performance already in H1 allowed us to revitalize our new commercial paper program, which reached EUR 81 million at the end of September and has since surpassed EUR 100 million, providing further visibility to this program. Finally, we executed the second annual repayment of the PGE, the state granted loan for EUR 56 million. Then we pursued the deployment of synergies from the combination of Elior and Derichebourg Multiservices with a further increase of EUR 4 million in recorded synergies and EUR 3 million in annualized synergies that reached EUR 43 million at the end of September. We have almost completed the implementation of cost synergies, while commercial synergies are gaining momentum and are expected to further ramp up next year. Following the rationalization of our contract portfolio, the commercial activity developed during the year demonstrated the relevance of our commercial and management organization closer to customers and greater empowerment of regional teams. New contract signings totaled nearly EUR 540 million on an annualized basis, resulting in net positive commercial balance of EUR 112 million, representing between 1.5% and 2% organic growth. In France, several notable signings occurred in both Contract Catering and Multiservices segments. for contract catering, the signing of next-generation campus in the utility sector in the Paris area, thanks to an offer meeting the needs of fluidity, diversity, and innovation catering. The signing of the Ministry of Ecology responding to a need to an offer integrating CSR innovation and inclusion. For Multiservices, contracts reinforcing our position as a leading player in retail and commercial spaces, the rehabilitation contract in the insurance sector demonstrating our capacity to manage multiple technical lots, including structural works. In temporary staffing solutions, the national expansion of a contract with a major logistics provider, strengthening our position in these sectors. Other examples of notable signings came as well from outside France, in the U.S. with the entry into the public university market with the signing of a large university, demonstrating our ability to win and deploy complex multisite programs and campuses. In the U.K., with the expansion in the business and industry sector following the recent rebranding to Elior at Work and the introduction of new culinary innovations with a particular focus on health, well-being and digital. In Spain, we contracted with a leading Spanish student residence operator, a fast-growing market for which Elior has developed a specific catering project, consolidating its market leadership. In Italy, commercial development was refocused on the private sector, especially in B&I, including a new site with a major player in defense and another contract in the health hygiene sector, strengthening our position in the high-end market segment. Moving to Slide 22. I mentioned previously the drivers of the CapEx increase in fiscal year 2025, reaching 2.3% in percentage of revenue. CapEx are expected to increase up to around 3% in fiscal year 2026, driven by two main factors. First, it is essential for our group to continue investing in its capacity to develop commercial activity in the education and early childhood markets, further strengthening our leadership position in this area. Investment to fulfill additional capacity requirements in our central kitchens were decided soon after Daniel Derichebourg took over as Group CEO. These requirements have been confirmed by a growing commercial momentum in this area. These are medium-term investments with the first deployment realized in fiscal year 2025 and a strong ramp-up expected this year in fiscal year 2026 to expand our regional footprint with around 10 central kitchens. Second, last semester, we announced the launch of a major transformation and innovation program to complete the integration of DMS and Elior activities on harmonized processes and common platform. Fiscal year '25 and '26 will be mainly focused on the design and building of the core model, while investment afterwards will support deployment in all our geographies. So while overall CapEx should actually increase up to around 3% in fiscal year 2026, the ratio should trend towards circa 2% in the midterm. It is also worth keeping in mind the time lag between the investment in new production tools and the subsequent generation of revenue, shorter for early childhood and aligned with school years for education. In other words, revenue growth objective for fiscal year 2026 include only partially the contribution expected from this CapEx made in fiscal year '26. So this leads us to the last section of this presentation, starting with the outlook for fiscal year 2025-2026. So after the efforts focused on optimizing the organization, pragmatically streamlining the contract portfolio and then developing commercial activity close to our customers, the 2025-2026 fiscal year should be marked by a return to growth, driven by price increases for which strict application is now established and a return to positive business development while preserving margin. Organic growth is thus expected to be between 3% and 4% in fiscal year 2026. The same 2 factors, price increases and business development should continue to contribute to the ongoing improvement of operational profitability with an adjusted EBITDA margin expected to increase by 20 to 40 basis points in the 3.5% to 3.7% range, framing a margin level equivalent to the last pre-COVID results. Finally, pursuing the net debt deleveraging remains a key priority with a leverage ratio to further decrease down to around 3x by the end of September 2026, consistent with our goal to further upgrade our credit rating. Conclusion on the -- to conclude on Page 25, with a further improvement in the profitability despite moderate revenue growth, this fiscal year 2025 demonstrated the robustness of the model that has been put in place under the leadership of Daniel Derichebourg. The commercial approach with greater proximity to customers and empowered regional teams started bearing fruit with a positive net development balance on an annualized basis, thanks to the new wins consolidating our leadership in historical and new market segments. Combined with price discipline that will continue with the same rigor, the operating margin is expected to improve to reach next year similar level to pre-COVID. Free cash flow generation and a prudent financial approach remain our priority while securing investments to support revenue growth and continuous productivity improvement. All these actions contribute to creating value for our shareholders with the payment of dividends that resumed this year and is expected to continue in the coming years. For the future, we expect the payment of dividends to trend towards around 30% of net result group share. So this concludes our presentation. We are now ready to answer your questions. Operator, could you please take the first question? Operator: [Operator Instructions] The next question comes from Jaafar Mestari from BNP Paribas. Didier Grandpre: Jaafar, we don't hear you. Jaafar Mestari: Us with some direction on what you expect in terms of net new business pricing and volumes, please, for '26. And secondly, on synergies, you said you almost completed the delivery. I just wanted to check if the total target is still EUR 56 million. So that would mean another EUR 10 million to EUR 15 million in the next year. The run rate seems to be lower than that. You're close to adding EUR 4 million synergies, I think, in the second half. So is there a jump in '26? Is the last batch a bit bigger? And lastly, in terms of your leverage targets, net debt to EBITDA at 3x at the end of '26. This is despite CapEx, which is going to be at least EUR 40 million higher, if I'm correct. Is that reduction in leverage mostly from a growing EBITDA? Or can we expect absolute debt to come down meaningfully in '26, please? Didier Grandpre: Sorry, I'm not sure we understood in full your first question, but my understanding is that you wanted to get more details about the driver of EBITDA improvement, of volume improvement, revenue growth for next year. So actually, the two main drivers that we see for next year are still the price increases that I would say we would expect between 1.5% and 2%. And then the volume and net development in the same range, meaning in total, this range of between 3% and 4%. So regarding the synergies, actually, most of the annualized synergies are made of the cost synergies to reach EUR 43 million. So we have I would say, still around EUR 5 million of cost synergies to be generated in fiscal year 2026. And we are expecting the ramp-up of commercial synergies that should increase, especially on an annualized basis in fiscal year 2026 to come around, I would say, the initial target. Then considering the leverage ratio of 3x at the end of September 2026, this is actually mainly driven by the EBITDA that is expected to increase next year in the same range as EBITDA, while, as you said, CapEx will further increase next year. At the same time, we need to keep in mind that we will have as well a further -- we're expecting as well a further ramp-up in the cash flow generated by the reduction of our operating working capital. We made really a very significant progress in fiscal year 2025, especially through the improvement of our collection of receivables. We still see some opportunities in some business lines. So they are part of the range we provided as well in our modeling details contributing to a further contribution of the operating working capital next year, that will be as well complemented by a further ramp-up of our securitization program. Operator: [Operator Instructions] The next question comes from Pravin Gondhale from Barclays. Pravin Gondhale: Firstly, on the next year EBITDA margin guidance of 3.5% to 3.7%. It appears a bit conservative given the ramp-up in organic growth as well as you are expecting net retention to go trend upwards next year, which should be margin accretive. Could you please help us provide some steer on what are the drivers of margin growth assumptions in your guidance there? And then secondly, the working capital securitization and factoring benefit of around $90 million this year, you explained that it was due to ramp-up of new securitization program. How should we be thinking about evolution of this in FY '26 and thereafter? Didier Grandpre: So on your first question regarding the EBITDA drivers, what we have seen in H2 and which was according to as per our expectation is that we will have in 2026, let's say, convergence of price increases towards close to a breakeven balance, while it was contributing this year to EUR 13 million on a full year basis, which is the first element. Second, we are actually expecting a further contribution of net commercial balance that should take also into account the slight impact of higher CapEx that will impact slightly the EBITDA moving forward. And then we are still expecting our operational efficiency plans to deliver further benefits. So I would say it will be mainly a split between the net development and efficiencies and synergies contributing to this increase between 20 basis points and 40 basis points next year. Then the expected contribution of the operating working capital is in the range that we have provided in the modeling details between EUR 40 million and EUR 60 million I would say, roughly speaking, you should expect 1/3 coming from the operational improvement, especially driven by a continuous improvement in the collection of receivables, as previously mentioned. The remaining part coming from the further ramp-up of the securitization program during the year, but still keeping in mind the seasonality, so meaning that we are still expecting a peak in mid-year around March as it was the case in fiscal year 2025 and then a decline in the second semester, which is offset in parallel by the free cash flow generation from operational activities. And after next year, we expect this to be fairly stable or slightly improving, but to a lesser extent. Operator: [Operator Instructions] The next question comes from Sabrina Blanc from Bernstein. Sabrina Blanc: I have two questions from my part. The first one is regarding the Multiservice performance. You have provided organic growth, excluding temporary staffing solutions. So I would like to understand, firstly, could you remind us the size of the temporary staffing solutions? And do you anticipate any, I don't know, selling or something like that regarding this activity or just to highlight the fact that this year, the activity was not very good. And my second question is regarding the taxes. I understood for 2025, you have benefited from positive element, but could we have a guidance for 2026, please? Didier Grandpre: So on your first question, the temporary staffing services are representing around 10% of Multiservices activity. We do expect this activity to come back to a positive territory quickly. That's why it was important for us to highlight that this year was an exceptional one. We have now a new management team fully in place with a new general manager, a new financial officer. They have worked on the reorganization of the activity. They have redirected the organization towards the commercial development. We have seen the first positive signs in terms of commercial momentum at the end of the fiscal year, and we are expecting the recovery to start already next year. So no other plans than recovering the level of performance that we used to get in the past. Regarding tax, we are not providing any guidance for next year. I mean, we are -- we still have some room to activate net operating losses as we did this year. Maybe it will be to a lesser extent, but it is today a little bit premature to assess what it could bring. Operator: The next question comes from Christian Devismes from CIC Market Solutions. Christian Devismes: I have one question about the growth guidance in 2026 in terms of EBITDA margin and EBITA margin because in 2025, we have an increase by 50 basis points in the EBITA margin, but only 10 basis points in the EBITDA margin due to the move in provision and so on. What should we expect in 2026? You guide on a growth of -- between 20 and 30 basis points on the EBITA margin. What should we expect on the EBITDA margin? Didier Grandpre: Yes. So you're right. So there were different movements in EBITDA and EBITA in the last 2 years. For 2026, we expect a kind of normalization, if you want, from that perspective. So our expectation is the same level of contribution at the level of EBITDA than at the level of EBITA. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Didier Grandpre: So this concludes our call today. Our next financial release will be on May 20, post market with our half year results for fiscal year 2025-2026. Until then, please do not hesitate to get in touch. Thank you, and good evening, everyone. Goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Simon Carter: [Audio Gap] results. You will have noticed quite a few changes on the Campus over the last year since we were last here. And if you do get a little bit of time after the presentation, do check out the Retail underneath for 1 Broadgate. It launched last week, and it's already 90% let and under offer, which is a pretty good place to be. So, in terms of today's agenda, I'll start with an overview. David will take you through the first half performance and also our earnings levers. And then Kelly will look at our strong leasing and accretive asset management over the period. But before I hand over to David, I'd like to take a step back and look at what's driving the future performance of the business. At the heart of this is the decision we took nearly 5 years ago to build a market-leading position in Campuses and Retail Parks. Together, these now represent 90% of our business. These are sectors with strong occupational fundamentals. Demand is healthy, supply is constrained, and rents are very affordable. The investment market is waking up to this. Investors are increasing their allocations to both Retail and Offices. And we are very well placed to capitalize on this. That's down to the quality of the assets, the experience of our team and our value-add mindset. The result, a very attractive total return profile, underpinned by sustainable earnings growth. So, let's unpack this. Starting with prime London offices, where a classic supply crunch is driving strong rental growth. The return to the office has exceeded expectations. Mid-week utilization across our Campuses is now above pre-pandemic levels. Businesses are short on space. Last year, they expanded by 3.3 million square feet, the highest since 2019. And active demand is now 50% above the long-term average. But supply remains tight. Initial concerns about working from home have been compounded by rising construction costs and higher interest rates. You can see on this slide, vacancy for new and refurbished space in the city is predicted to fall below 2% and stay there for the next 4 years. Historically, when this has happened, it has driven double-digit rental growth. We've positioned our portfolio to benefit from this supply squeeze. Office occupiers are focused on four key areas: quality, location, amenity and flexibility. Our Campuses tick all the boxes. We currently account for 7 out of the top 20 leasing deals that are under offer in London. So, we're capturing a disproportionate share of a very strong market. That's down to high-quality sustainable buildings, prime locations near transport hubs, excellent amenities and public realm and flexible offerings, ranging from story to fully fitted work-ready space to headquarter space. This flexibility is key for customers in the innovation sectors. This is a fast-growing market, especially in the Knowledge Quarter. The number of innovation customers in our portfolio has more than doubled since 2022. There's been strong growth from a new generation of AI and tech businesses with high levels of venture capital investment. This is a key source of new demand. We're tracking 1.5 million square feet of new requirements. Kelly will explain in a moment how we're benefiting from this at Regent's Place. Our on-site developments are achieving record rents, which is driving development yields above 7% and mid-teens IRRs. These record rents also provide valuable evidence for upcoming reviews across our Campuses. We're derisking our schemes with pre-lets and fixed price contracts and increasingly bringing in partners such as Modon to reduce capital outlay, accelerate delivery and earn valuable fees. Let's move on now to Retail Parks. These continue to be the preferred format for retailers. They're efficient and adaptable, offer easy access, free parking, and they're ideal for a range of retailers, including value, grocery and multichannel. Retailers like M&S, Lidl, Aldi and Home Bargains are expanding into this format. Yet there's been virtually no new supply in the past decade, and we don't see this situation changing. Development economics are unattractive and planning is restrictive. As you know, we're the largest owner and operator of multi-let Retail Parks in the U.K. We have a portfolio stretching from the Isle of Wight to Inverness. Half the U.K. population lives within a 30-minute drive of one of our assets. And we have deep reach with the retailers, given our scale, the experience of our team and our in-house property management. Of course, we use demographic and competition data, but nothing beats picking up the phone to a retailer to understand trading. Our focus on strong trading locations is reflected in our footfall. This has grown 13.5% above the U.K. Retail benchmark over the last 5 years. Despite a more competitive investment market, we're still acquiring assets that yields above 7%. And we're comfortable taking occupational risk, due to the market strength, our asset management expertise and those retailer relationships. In real estate, affordability is just as important as supply and demand. For Prime Offices and Retail Parks, the picture is very positive. London office rents relative to wages are lower than at the turn of the century and Retail occupancy cost ratios are very healthy. This leaves plenty of room for rental growth. That's why we're guiding to 3% to 5% growth in both sectors. Investors are taking note of the occupational strength I've just described, and they're increasing their allocation to both Offices and Retail. This, together with strong credit markets means we expect investment volumes to grow. London office transactions have been subdued in recent years, as we know, but they've really picked up this year with over GBP 6 billion year-to-date and GBP 3 billion under offer. So far, the number of deals over GBP 100 million this year is already double the whole of last year. Strong occupational fundamentals, improving investment markets and our high-quality platform provide for an attractive total return profile. The essential building blocks are set out here. Their earnings yield, valuation uplift and development upside. Earnings yield is currently 5% and growing. Assuming stable property yields, valuations will primarily be driven by ERV growth, where we're guiding to 3% to 5%. You need to adjust for a bit of depreciation, the impact of leverage and the fact that ERV growth doesn't feed through 1:1. But you can see how these first two building blocks get you to around 8% to 9%. Developments add further upside with mid-teens returns forecast on the committed schemes and the pipeline. So, we're confident in delivering total accounting returns of 8% to 10% through the cycle. The total return outlook is underpinned by attractive earnings growth. We're expecting at least 6% next year, and we have the levers to deliver 3% to 6% over the medium term. This is an ideal point to hand over to David, who will take you through these levers as well as our numbers. David, over to you. David Walker: Thanks, Simon. Good morning, everybody. Three things from me today. First, I'll cover our financial performance for the half year. Second, the balance sheet and our approach to capital allocation. And finally, I'll provide an update, as Simon said, on the five levers of earnings growth I outlined in May and then how we see them translating into medium-term growth of 3% to 6%, including our guidance for FY '26 and then into FY '27. As you know, we released many of the key metrics in October. That's something you should expect from us going forward. One benefit we see is that it allows us to spend more time today on strategy and outlook, but starting with the numbers. Underlying profit was up 8% to GBP 155 million, and underlying EPS was 15.4p, 1% ahead of last year. meaning the dividend is also up 1%, in line with our policy of paying out 80% of underlying EPS. Looking at the EPS bridge, you can clearly see the benefit of our progress against the earnings levers, in particular, driving like-for-like, which was 4% and contributed GBP 6 million or 0.6p with a positive performance across both Offices and Retail, higher rents from developments from completed schemes like 1 Broadgate and The Optic, partially offset by void costs and lowering admin costs. This has been a key focus for me since I became CFO this time last year. I spoke in May about the savings we had already identified, and I'm pleased to see the benefit come through in H1 with admin costs down GBP 5 million or 12% versus last year, adding 0.5p to EPS. One-off items had only a limited impact on earnings year-on-year as the positive effect of surrender premia offset bad debt provision releases last year. Taken together then, these positives more than offset the GBP 13 million increase in finance costs, which reduced EPS by 1.3p. This is in line with expectations, mainly reflecting the fact that we're no longer capitalizing interest on completed developments and a 10 basis point increase in our weighted average interest rate to 3.7%. Here's the summary P&L account. I've covered most things here already, but just to touch on two further metrics. First, our NRI margin. This was lower due to the increase in PropEx, mainly because of the movement in provisions I just touched on, which slightly flattered the margin last year and void costs as we lease up developments. Once this is done, I expect our margin to stabilize at around 90%. The other thing to draw out here is the EPRA cost ratio, which was 17.4% at September as this higher PropEx more than offset the reduction in admin costs. Though I do expect the ratio to come down to the mid-teens in future years as we lease up developments and further leverage the operating platform we have in place, adding income while controlling costs. Now turning to the balance sheet. NTA has again increased since March, reflecting a 1.2% rise in property values, which added 10p and underlying profit, which added a further 15p, although this was partially offset by the dividend paid in July and other movements, resulting in NTA per share of 579p, up 2%. This, combined with the dividend paid, equated to a total accounting return of 4% for the half, meaning we're on track to deliver our full year target of 8% to 10%. Credit markets remain very strong, and we've capitalized through a broad range of activity focused on maintaining our overall maturity and enhancing diversity in our sources of finance. We raised a GBP 450 million green loan secured against 1 Broadgate, extended GBP 930 million of RCFs and renewed GBP 500 million of term loans at improved pricing. Looking ahead, we have just over GBP 300 million of debt maturities at British Land over the next 12 months. So, we remain well financed with flexibility on when and how we raise new debt. And with good access to the bank debt and capital markets, we expect to remain active in a strong market. I was pleased to have our Fitch rating reaffirmed in July at A with a stable outlook, reflecting the fact that our balance sheet remains strong. We ended September with GBP 1.7 billion of undrawn facilities in cash. Net debt was GBP 3.8 billion. Our LTV was 39.1% with net debt-to-EBITDA on a group basis at 7.2x. This balance sheet stability underpins all of our capital allocation decisions. We focus on recycling capital from mature, lower-returning assets into higher returning opportunities. Currently, that means investing further into Retail Parks, where, as Simon has described, the investment case remains compelling, and we continue to see opportunities to buy at attractive pricing. Alongside that, we progress best-in-class office developments at our Campuses on a derisked capital-light basis, securing pre-lets, certainty over build costs and bringing in partners to accelerate returns and reduce risk, just as we did over at 2 Finsbury Avenue. Our London urban logistics portfolio has embedded development optionality, and we remain positive about the long-term supply-demand dynamics here. So, we can progress those schemes when the time is right, but the sector is weaker today. So, we prioritize better uses of capital in Retail Parks and Campus development. It's important to note that we always make capital allocation decisions in the context of shareholder distributions, including the relative returns and EPS accretion available from share buybacks, for example, when we have the proceeds to invest following significant disposals. And as ever, all of our capital allocation decisions are based on our assessment of relative returns at any point in time. In May, I set out the five levers we focus on to drive consistent cash-generative earnings growth. So 6 months on, let's update against each. First, like-for-like rental growth. We've made a strong start to the year. Portfolio like-for-like growth was 4%, bang in the middle of our guidance of 3% to 5%. Campuses were up 7% as we drove occupancy and secured rental uplifts on space which have been surrendered. Our Retail business also continued to grow, albeit at a lower rate, reflecting the fact that we're at near full occupancy. Going forward, though, ERV growth should more directly translate into like-for-like growth as we're largely rack rented now on our parks. And overall, for the full year, I expect 5% like-for-like growth across the portfolio. Kelly will give you more detail on our portfolio performance in a minute. Fee income is our second earnings growth lever. We continue to work with a broad range of JV partners, generating fee income for both asset and development management. Although fee income was flat in the first half at GBP 13 million, we do expect to achieve 10% growth for the full year as we continue to earn fees on development mandates, and we're actively pursuing opportunities to leverage our platform in order to drive incremental fees from new and existing partners. Third, cost control. I'm pleased with the progress we've made over the last 12 months, but this remains a focus. And so for the full year, I expect admin costs to be GBP 75 million to GBP 76 million, ahead of the guidance I gave in May and versus GBP 82 million for last year. Development leasing is our fourth earnings lever. As I mentioned earlier, we're now benefiting from schemes such as 1 Broadgate and The Optic, while leasing on previously delivered schemes, Norton Folgate and Aldgate Place is well on track. 1 Triton Square launched in October, and we're delighted to have our first deals under offer there. Finally, capital recycling. The fuel in this machine is our ability to dispose of lower returning assets, freeing up capital to rapidly redeploy into higher-returning opportunities. As Simon laid out, the office investment market has been quieter than in previous years, but we are seeing signs of improvement. And against that backdrop, we've remained active, executing deals where it makes sense, disposing of Retail Parks where pricing has moved in or development sites in London, which were not income-producing, then rapidly redeploying the proceeds. Given the improving investment market, we do, however, expect activity to increase over the next 12 to 18 months. Bringing this together, we expect to deliver sustainable EPS growth of between 3% and 6% over the medium term. This slide shows how each of these earnings levers contribute to that. Now this is purposefully illustrative. And of course, it will not be linear in any particular year. But to me, this is the best way to think about the earnings growth potential of our business. So, let's go through each of them. In terms of like-for-like, we're confident we can consistently deliver 3% to 5% on our standing portfolio given the strong occupational fundamentals of our core sectors. At the midpoint, this top line of 4% growth drops 3% to 5% annual EPS growth. 10% fee income growth adds another 1% per year. And on costs, I do expect further reductions over the next 12 to 18 months, which will, of course, continue to benefit earnings. Although over the medium term, there is likely to be continued inflationary pressures. So, modeling broadly flat costs is not unreasonable over, say, 5 years. Likewise, our weighted average interest rate will gradually increase over time, reflecting prevailing market rates. Based on today's rates, we anticipate a 10 to 20 basis point increase per year, which would reduce EPS by around 2% per annum. So overall, we see a clear route to core EPS growth of 4% per year, and that's before further capital activity, which really is the kicker on top of this core growth. There are two components to consider: development completions and asset recycling. And while the timing and phasing of capital activity is, of course, hard to predict and it's by its nature, lumpy, I've assumed around GBP 500 million per year with GBP 200 million for developments and GBP 300 million for asset recycling. Then to model the earnings impact for developments, we assume a spread of around 200 basis points between the yield on cost and our funding costs. And for asset recycling, 100 basis points between what we buy versus what we sell. Taken together then, this capital activity would contribute a further 2% to EPS growth per year, increasing the annual growth rate to 6%, the top end of the range I described in May. So, bringing this back to immediate outlook. Moving into the second half, we expect to deliver at least 28.5p of EPS for FY '26 and from there, at least 6% EPS growth for FY '27 as we benefit from the continued lease-up of our developments, capitalize on the compelling fundamentals of our core business and so move forward with confidence in delivering against our five earnings growth levers. With that, over to Kelly. Kelly Cleveland: Good morning, everyone. You've heard from Simon on the strength of our markets. So, I'll now take you through how that's translated into performance and outline how we're adding value across the portfolio. I'll start with valuations, which have increased by 1.2%. This is the third period I've been able to report positive valuation growth, and it's a good sign that the inflection point is behind us. Valuations have been driven by strong rental growth of 2.4%. On an annualized basis, this is again at the top end of our guided range of 3% to 5%, and we're confident this rental growth will continue. Turning to the operational performance, starting with Campuses. We have leased 486,000 square feet at 3% ahead of ERV. And at the end of the period, we were under offer on 629,000 square feet, 6% ahead of ERVs. And we have been particularly busy since 30 September with a further 308,000 square feet put under offer, and that's a very busy 6 weeks. It's worth pointing out, we're seeing particularly strong momentum in leasing up vacancy. Since March, we've let or put under offer 751,000 square feet on vacant or newly delivered space. Our EPRA occupancy now stands at 88%, up 5% this half, up 10% for the year. As we said in the trading update, Broadgate is practically full. There's just one completed floor to lease across the entire Campus, and it's an exceptional floor, the top floor of our newest scheme at 1 Broadgate. We're in negotiations on that floor, and we'll set record new rents for the Campus. This is good news for our on-site developments, which will deliver into a market with very limited supply. Broadgate Tower is the first to be delivered late next year. This is a 390,000 square foot building with 240 square foot development floors. Since 30 September, we've gone under offer on 59,000 square feet across five deals, taking the building to 49% let. This is a very strong position to be in at this stage. The next to deliver is 2 Finsbury Avenue in 2027, where Citadel are taking up to 50% of the space. Here, we are in negotiations with a number of larger occupiers, 2 years ahead of delivery, and this is a fantastic tower building delivering in a year with very little competition. We've also been proactively identifying where we can take back space and re-let it at higher rents to drive value when there's such little supply. For example, at Exchange House, we proactively took back some floors. We're reinvesting the surrender receipt into much needed on floor upgrades after 35 years of occupation and have already re-let to MSCI, driving rents on by GBP 35 per square foot. This added GBP 10 million to the valuation of the building and sets strong rental evidence for the wider Campus. This is accretive asset management, and we will look to do more of this. Norton Folgate is a slightly different proposition for us at British Land as the product is smaller floor plates, often fitted and therefore, more suited to let post PC. We've made good progress and are now 89% let, under offer or in negotiations. And we're on track to be fully let by the end of the financial year. Simon covered the growing demand coming from innovation occupiers, which is driving momentum across the portfolio. To capitalize on that, we launched 1 Triton Square last month. This is an incredible building. It's a Campus within a Campus and offers real flexibility to tenants. It includes a floor of storey space, a floor of fitted labs, three lab-enabled floors, which look like a traditional office floor, but can easily be converted to lab use as demand evolves and three traditional office floors. You may have picked this up in David's piece, but I'm pleased to confirm that just 6 weeks after PC-ing, we have put 56,000 square feet under offer to two globally recognized science and tech occupiers due to complete later this month. And we have another 211,000 square feet in negotiations. We are very excited about this and look forward to continuing to update you on our progress. Turning to Retail Parks. You'll know it's a very competitive occupational landscape and retailers are keen to secure space. Leasing volumes remain strong at 681,000 square feet, 6% ahead of ERVs and under offers are 554,000 square feet, also 6% ahead of ERVs. Deals this half have been in line with previous passing rent. And thanks to recent strong rental growth, our portfolio is now largely rack rented. And as a reminder, it was over 20% over-rented just 2.5 years ago. So, we're in a great position to generate strong like-for-like rental growth from the portfolio. Retail Parks provide strong cash yields and good opportunities to increase value through asset management. I'll cover just a few of the many examples of asset management on our acquisitions, where we've looked to improve the tenant mix and drive footfall, sales and ultimately, rents. I'll start with the first one we bought when we took the contrarian call to start buying Retail Parks. When we bought Biggleswade Retail Park in 2021, it had 6 high-risk retailers. These are the ones in red. We've re-let all of these to strong category leaders, which has helped drive a 12% IRR since acquisition. Rolling forward to one of last year's buys, Queen Drive Retail Park. When we purchased it, there were two vacant units, both are now let, including to an M&S anchor, which is a major win for the park. The park is full and leasing well ahead of ERV and has delivered a 14% IRR since acquisition. And our most recent buy is Turbary Retail Park in Bournemouth, which we purchased earlier this month for a prospective double-digit IRR and a day 1 yield of 7.4%, which with asset management, we've already increased to 7.7%. And we have a strong pipeline of similar deals. As Simon covered, we're unlikely to see many new Retail Parks built, but we're actively looking for opportunities across the portfolio where we can add space efficiently. Projects like these ones at Glasgow and Rugby are smaller in scale, shorter in duration and lower risk than traditional developments, but they generate meaningful returns with a yield on cost of at least 8%, often double digits. And on top of that, they provide strong wash over to the rest of the park by improving lineup and rental tone. So, I'll leave you with three things. Values continue to rise, driven by strong ERV growth at the top end of our guidance. Our standing Campus assets are virtually full following a strong 6 months of lettings, and we've made good progress on our newly delivered space. And finally, as the market leader in Retail Parks, our active asset management is pushing on rents and values, and we'll look to buy more in the space as we continue to recycle capital. Now, over to Simon to wrap up. Simon Carter: Thanks, Kelly. So to wrap up, let's circle back to where we began. We're a market leader in the right sectors, Campuses and Retail Parks, where demand is healthy, supply is constrained and rents are affordable. Investors are increasing their allocations to these sectors, and we're very well positioned to capitalize on this and to deliver attractive total returns going forward. Thanks for listening. Simon Carter: We're now going to take your questions. Kelly and David are going to join on stage. And I think we'll start with questions in the room. Who's going to be first? We've got a microphone over there. Any questions in the room? Rob? Robert Jones: Someone's going to start. It's Rob Jones, BNP Paribas. I think two. The first one, I don't know if we can go back to a slide on the screen, but if you wanted to, it's Slide 4, which, Simon, was the one where you had the stars looking at times in the past where we've had less than 2% vacancy. Yes, I'm sorry about that. One could read into this that, if we're forecasting less than 2% vacancy '26 onwards, and I guess the '27 to '29, I don't know if that's even right, maybe it's just, I'm not sure, but even if it was, it implies that one could assume a 10% ERV growth going forward. Now obviously, at the moment your levels that you need to achieve -- and David has helped us probably by break down the levers of earnings growth going forward. You don't need anywhere near that to hit your target. So, do you think that, that kind of level of ERV growth, if we have such low vacancy and acceptable levels of credit demand still coming through can actually be a 2%? I assume in '27 to '29 based on the forecast. Surely that must be wrong, because even when you look at your own Slide 36, you got [indiscernible] Bank, Appold Street, likely getting committed with a '28 delivery, I think, which is in that period. Either the brokers are assuming you own 100% net on completion or they're a bit too bullish in terms of that. Simon Carter: Yes. It's a great question. This is directional. It's what the brokers are forecasting. Inevitably, you'll have a little bit of vacancy. But what you're seeing at the moment, the amount of supply that's coming through. So, we think there's something like 5 million square foot of new -- so this is new and refurbished. This isn't the whole city. This is new and refurbished stock coming through. 5 million square feet over this period of time. A lot of that's pre-let. And if you have normal levels of demand of about 2 million square foot a year, you can see how you eat into that supply very, very quickly. And I do think that the schemes that are on site, not everyone, but the schemes that are on site, particularly the BL projects will be delivered with a very, very high level of pre-let. I mean you're already seeing that. Look, we've only just started 2 FA, and we've got 33% let, up to 50% of Citadel exercised their options. We'll probably move to 1 Appold in the future, but that will be on a pre-let derisked basis. So, the market is very, very tight at the moment. Of course, there will always be a bit of vacancy, but that is what is being forecast at the moment. I think by Knight Frank, I think Cushman's have the vacancy rate a little bit higher than that. But what we're saying is sub 2%, you get very strong rental growth. But that is on the new and refurbished space. So look, I think you will have that. And we've seen that on our own new and refurbished space. That is what the rental growth is doing at the moment. Sorry, you had a second question. I just thought answer that one first, and then we'll move on to the second. Robert Jones: I'll pass on to someone else. Simon Carter: Okay. Very generous. Next will be Max. Maxwell Nimmo: I'll try my best. Max Nimmo, at Deutsche Numis. Yes, I guess perhaps a slightly higher-level question just around office development. There's obviously quite a bit of debate about the buy-to-sell model or the develop to sell and the sort of develop to hold. You talked about kind of mid-teens IRRs, but also mentioned the fact that depreciation could be 1%, maybe it's higher, the ERV growth perhaps doesn't always flow through one for one. Just in terms of your thinking about how you get comfortable with that and is it the JV angle? Is it the kind of derisking it? Just kind of some of your thoughts on that, if that's okay. Simon Carter: Sure. It's a really good question. As you saw on the slide on the schemes that are on site and the pipeline, we're projecting yields on cost north of 7%, mid-teens IRRs, so compelling returns. And those are derisked returns by the point we commit, because we place a fixed price contract, normally with an element of pre-let. And then also, as you say, we've brought in partners. So that's very compelling returns. The MO of British Land as it has been for the last 5 years is create this great product, lease it up, deliver compelling returns. And then yes, in time, we look to recycle. I think David referred to it as the fuel in the machine. The investment market has been quieter as we know. That's now catching up because everyone can see the rental growth we've just been speaking about. And so, we think we'll see increasing activity that then allows that engine of growth to go for us. We're not necessarily the best long-term owner of a stabilized office asset, because there is depreciation, and that will be a lower return. And we've got other uses of our capital. Today, we have more opportunity than we have capital. So we would like to do more of that development, more of that buying of Retail Parks that we've spoken about. Thomas Musson: Tom Musson at Berenberg. Just a question on the fee income growth that you hope to grow 10% a year, which obviously becomes more material to earnings growth as that compounds. Just wonder how you balance the decision between growing an income stream that's based around development mandates with the fact that future income that is aligned to development work inherently comes with a higher cost of equity, at least in the eyes of the listed market. Simon Carter: Yes. Good question. I'll give you an initial thought and then hand over to David on this one. It's the kicker on top. So, we're getting those type of returns. And then, we bring in partners, we're using their capital. We're normally selling ahead of where we would have been before we derisked the scheme. So, we're locking in some profits. And then those fees -- the fees on development mandates are good. It's a relatively high margin business. So, I think, it's a nice add-on. I don't know, David, if you would add anything to that. David Walker: Yes, not really other than to say we clearly we wouldn't commit to a development simply to drive fee income. Often, it's a result of the fact that we've already derisked that scheme by bringing in a partner. There are two principal -- or three principal chunks to it. The first is development fees. That's where we earn the highest margin. There's asset management fees, which is also an increasingly important part of the business, and then there's property management fees on top of that. So, 10% a year on average. Some years, it will be higher, some years, it will be lower, subject principally to, as you described, the developments we commit to. Zachary Gauge: It's Zachary Gauge from UBS. A few questions around development. Just looking at the updated guidance on Page 47, you've dropped your NRI margin by a couple of percentage points from the end of last year. And the reason given is additional void costs reflecting timing of development completions and lease-up. And obviously, you would have known the timing of development completions at the end of last year. So, can I back out of that, that the lease-up is going slightly slower than you had anticipated at the end of last year. And then following on from that, on the individual assets and where we are on ERV, sounding quite encouraging on Triton Square, so potentially getting to 50% by the end of the year, but nothing at Canada Water and nothing at Southwark. So, if you could just touch on the prospect for those individual schemes by the end of FY '26, that would be great. And the other one is on the under offers at 1 Triton Square. I think it breaks out to GBP 115 per square foot. Could you just touch on where that sits in relation to underwrite on the floor space they are taking, whether it's labs, fitted labs or offices? Simon Carter: No, happy to go through all of those. On leasing activity, we were probably slower throughout the period in terms of where we thought we would be. But actually, we saw an acceleration at the end of the period. Kelly, I don't know if you want to talk to some of the activity we've had on the development leasing front. Kelly Cleveland: Yes, sure. I covered in the prepared notes, but we've having completed 1 Triton and being able to show people around the building, we've had really good progress there in the last 6 weeks. We've also had good traction at Broadgate Tower. And again, just in the matter of about 5 or 6 weeks, we've put a huge amount under offer there, another one just recently as well. So with those schemes, we're tracking well in line and ahead of where we would want to be at this stage. Simon Carter: I think it's one of the themes of these results that momentum has built as we've gone through the period and particularly strong post period end in the market, which I think is pretty encouraging. And then I think you had a question on Canada Water and Mandela Way, office lease-up. Kelly, do you want to take those ones? Kelly Cleveland: Yes. I mean -- so Canada Water, we're having some encouraging conversations there. We're also encouraged by the spillover effect that Simon spoke about at the last set of results, where the lack of supply in the core is meaning affordable locations are getting a bit more business. So we'll keep you updated on Canada Water. What I would say is that the Canada Water leasing is not included in our guidance. So, any leasing that we do in pre-FY '27 is upside. Simon Carter: And maybe on Mandela Way. Kelly Cleveland: Yes, Mandela Way. So Mandela Way, that's -- it's a great asset in a very, very central location, which we have, again, only recently PC-ed on as we have always said and as our underwrite set out, that is a product that will lease post PC, because it's multi-let, smaller floor plates and it needs to be seen. But it's a great product. We've been getting people around, and we're in negotiations, and we'll again continue to keep you updated on that one. Simon Carter: And then, I think there was a question, which was sort of unpicking the rental deals under offer. We're probably not going to comment on deals under offer and where the rents are, but we're really happy with where demand is for 1 Triton, I'll say as much as that. Zachary Gauge: Just clarify one of those points. If you're 0% Canada Water at the end of the year, you're still confident on the guidance outlined for GRI? Simon Carter: Yes. David Walker: The leasing risk on 28.5p from here is de minimis. Adam Shapton: Adam Shapton from Green Street. I had two. One on office, one on Retail Parks. We'll do both, one off the other. Yes. So, office back to the indicative broker forecast, and maybe this is one with your BPF hat as well, Simon. Is the city of London concerned about the effectiveness or the attractiveness of the city as a business district if there's no space available? I mean, we've had high-profile comments from Larry Fink and so on about that. So do you think the city of London is concerned that the sort of supply barriers balance is not quite in the right place? And then on Retail Parks, just interested in your commentary on sort of QSR and casual dining. There's some evidence that profitability is being squeezed in that sector. It's been a success story for a lot of Retail Parks. What are you seeing in your portfolio from the drive-throughs and the QSRs in that sector? Simon Carter: Sure. Interesting question around city and lack of space. Just to flag that new and substantially refurbished space there. I think what you will see and what we are seeing today is because there isn't enough of that, customers are making compromises and taking good secondhand space. We have definitely benefited at Broadgate and the standing investments, as you saw from Kelly's slide. I think that's the fullest we've been. This is a 4.5 million square foot estate. And we've got one floor at the top of 1 Broadgate, which we're obviously being a little bit demanding on given that supply picture out there. So there is space. But I think it will -- you'll continue to see this ripple effect. There's some parts of the city that are not -- haven't done as well as Broadgate. It's right above Liverpool Street. It's got the Elizabeth line. That will ripple out. So, there is space for people to take. But they might not get that brand-new headquarters space. Because if you look today, just to sort of cement this point, we think if you want 150,000 square feet of new space, you've only got three buildings to choose from and one of those is 2 FA, if you want new. So look, something to happen. The city supply comes on stream. We know it's a cyclical market. At some point, supply will come back on stream. But obviously, you can't deliver in the next 2, 3, 4 years unless you've got planning, you've -- you started on site. And then, I think, on QSR has been a softer market, and we have seen some insolvencies. You don't tend to have a huge amount on Retail Parks. We've done fairly well when we've seen those insolvencies at reletting those units. But Kelly, I don't know if you want to touch on what we're seeing. You had it on your slide on the drive-thrus. And that's been a fantastically strong market. Kelly Cleveland: Yes. I mean, exactly that. Drive-thrus is just increasing demand for them. And as Simon said, we have limited casual dining when there have been failures and I won't name names, but when that does happen, it's not been an issue for us. We've always been able to just get out and get new formats in there. Jonathan Kownator: Jonathan Kownator, Goldman Sachs. To follow up on 1 Triton, please. Obviously, you repositioned the building with labs, office. Where do you see the take-up in that space? Is it for regular office space? Or is it for the lab type space? And more broadly, perhaps on occupier demand, how wide is it? Because obviously, tech is driving a lot of that demand right now. Do you see any demand from other sectors, please? Simon Carter: Kelly, do you want to take that one? Kelly Cleveland: Yes, sure. I mean, the beauty of that building is that three of the floors that are lab-enabled, we're able to convert them to office use depending on where the strongest demand and where the best returns are. Exactly as you identify, we are seeing really strong demand from science and tech that is -- that's definitely not letting up. It seems to be getting more and more on a week-by-week basis. So, we expect that to continue. Jonathan Kownator: So just to clarify, we're talking about office space, not lab space. Kelly Cleveland: For office space. Correct. Simon Carter: But we have seen demand for the lab space as well at Regent's Place. The incubator space has done well. We did an incubator at Drummond Street, where there was some existing lab space we were able to use, and that filled up very, very quickly. And we're now seeing those businesses graduate into our Crick space at 20 Triton. So that's quite an interesting theme. But I think today, the AI tech demand is definitely stronger than the sort of Life Science demand in London. But both feel like they've got pretty good prospects at this point. That's probably questions in the room, unless anyone's got a last-minute burning question. So should we go to the calls and see if anyone's on the line? Unknown Executive: Yes, it's all on the webcast today. Simon Carter: It's all on the webcast. Okay. Unknown Executive: Exactly. So we have one question from Nikita May at HSBC Asset Management. She says, you mentioned that AI-driven businesses are driving new demand for office space. Is this at the expense of other sectors like financial services? Do you have a limit of how much AI tenant exposure you would want to have? Simon Carter: Great question from Nikita. We haven't got enough data points, I think, to determine whether that's at the expense of other parts of demand in the sector. Today, it feels very much like new demand. These are businesses that weren't there 2 years ago. They've grown very, very rapidly in the portfolio. I think, I spoke to a number of you this morning. We've seen people take space at Regent's Place, very well-known names in the AI market. They've taken 7,000 square feet, they've then 14,000, then 21,000, and then they want more space after that. That feels like it's not today cannibalizing demand elsewhere. But obviously, we'll have to keep an eye on it. If Fintech grows at the expense of traditional banking, you'd look at that. But I think that will take sort of many years to feed through. And then on covenant exposure, we don't tend to set limits, but what we do look is at the covenant strength of every occupier we sign a lease with. Sometimes if it's start-up space, we're more relaxed to look at weaker covenants. But generally, if it's HQ space like 1 Triton, these are strong covenants taking the space in our portfolio. And the bulk of that 1.5 million square feet of additional demand that we're seeing is strong covenants. Unknown Executive: Yes. I've got one more question here. I've got two more questions. One is from Eleanor Frew at Barclays. She's asked, do you have a possible timeframe for larger asset disposals, noting you're seeing the market pick up? Simon Carter: The market is picking up. I think you should think next 6 to 12 months, but it will be dependent on when that strong core money comes back to the market, and we're seeing it come back now, but we'd want to see it there in depth. And I think you'll get that given the conversations we've been having. Clearly, we've got a budget around the corner. People will keep an eye on what's happening on the budget. But I think with these occupational fundamentals, that investment demand will be there, and that will be the market we'll look to take advantage of. So 6 to 12 months on that. Unknown Executive: And I have -- finally, I've got three questions from Mike Prew at Jefferies. The first part, I'll give you all three at once, but you exclude recently completed developments in the last 12 months from your 95% occupancy number. Are Norton Folgate and Canada Water schemes backed out of this? The second part of the question is Retail warehouse price performance seems to have slowed markedly from 2025. Is the repricing maturing/mature? And the final part of the question is, was the Southern multi-let logistics scheme profitable? And what is the progress at Thurrock, please? Simon Carter: Okay. So on -- David, I might need you to help on this on the occupancy numbers. I think -- am I right in saying that Norton Folgate, Kelly, it looks like you've got the answer to this one. David Walker: Yes. Yes, you are. Simon Carter: So Norton Folgate isn't excluded. That is in our... David Walker: That's correct. So, one of the things that's driven that delta over the last 6 months, Mike, would be the move from Norton Folgate into that kind of standing portfolio mix, if you like, from an occupancy perspective. We exclude developments that completed in the last 12 months. Simon Carter: And Canada Water hasn't -- didn't complete 12 months ago, so it is excluded. Is that right? David Walker: Correct. Correct. Simon Carter: Okay. Retail warehouse market slowing performance. What you're seeing now is the key driver is ERV growth. I think we've said that for a while. But we are seeing more and more people want to buy Retail warehousing. That's tending to focus on the very core long-let Southeast product, some of the product we create. I think Kelly alluded to it in the presentation. We tend to buy schemes with a bit of vacancy. We then lease them up, get to a really nice yield on them and then institutional capital, I think, will increasingly come in and drive performance there. But at this point, we're not assuming yield shift. I think you will see further yield shift, but what will be good is the ERV growth, and that will drive performance there. So, that would be the view there. And then Kelly, I don't know if you wanted to pick up on Southwark and Thurrock. Kelly Cleveland: Yes. I mean, Mandela Way, it's probably a bit early to be asking that question, where we've just PC-ed. And we're looking to get that leased up. So we'll keep you updated on that one. And on Thurrock, we are at 90% EPRA occupancy. Simon Carter: And that's as a Retail Park. So we decided to keep that as a Retail Park given the depth of demand in that market. That was the best thing to do there. And I think actually on Southwark, there was a profit release in the period, because we've delivered the scheme, and so there was an element of profit that came through in the period. So any more questions? One more? Unknown Executive: Yes. There's one more question. It's from Marcus Phayre-Mudge, Columbia Threadneedle. Congratulations on the cost efficiency improvements. I presume this has been driven by headcount restructuring. Is there more streamlining of decision-making to help bring overheads down in the future? Simon Carter: David, one for you, I think. David Walker: Yes. Thank you. Obviously, really delighted with the progress that we've made over the last 12 months, costs down 12% year-on-year for the first half. It's been quite a holistic view of the cost base, Marcus. So some headcount cost is included in that. But more generally, I'd just point to a sharper mindset on what we're spending and how and making sure that all of our teams are as efficient and effective as possible at what they're doing. More to go, it will remain a focus, but really pleased with the progress so far. Simon Carter: Any more questions? Great. Well, thank you very much for coming over to Broadgate. It's great to see you here today, and we'll see a number of you on the road over the next couple of weeks. And thank you very much for your time.
Operator: Good morning. My name is Tom, and I will be your conference operator today. At this time, I would like to welcome everyone to Viking's Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the program to your host for today's conference, Vice President of Investor Relations, Carola Mengolini. Carola Mengolini: Good morning, everyone, and welcome to Viking's Third Quarter 2025 Earnings Conference Call. I am joined by Tor Hagen, Chairman and Chief Executive Officer; and Leah Talactac, President and Chief Financial Officer. Also available during the Q&A session is Linh Banh, Executive Vice President of Finance. Before we get started, please note our cautionary statement regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release as well as in our filings with the SEC. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-IFRS financial metrics, which are reconciled and described in our press release posted on our Investor Relations website at ir.viking.com. Tor and Leah will begin today's call with a strategic overview of the business, including a recap of our third quarter results and an update of the current booking environment. Following their remarks, we will open the call for your questions. To supplement today's discussion, an earnings presentation is available on our Investor Relations website. With that, I'm pleased to turn the call over to Tor. Torstein Hagen: Thank you, Carola, and good morning, everyone. This was a great and memorable quarter with very good financial results, a strong booking environment and highlighted by a significant operational milestone. Starting on Slide 3, you can see that in the third quarter, net yield increased 7.1% year-over-year. Leah will provide more detail shortly, but I want to highlight that our consolidated net yield this quarter was $617, the highest in Viking's history. Turning to the overall booking environment. We continue to see strong momentum. As of November 2, 2025, and for our core products, 96% of our 2025 capacity was sold when 70% of our 2026 capacity was already booked too. I believe that this reflects the strength of the Viking brand, the resilience of our target customers and the appeal of our destination-focused products. As we continue to grow our fleet, this forward visibility gives us confidence in our trajectory and in our ability to deliver long-term value to all stakeholders. I also believe that our well-defined product and clear focus on our customer base have enabled us to build a robust travel platform and support a steady fleet expansion. This has also allowed us to extend the brand into new destinations that further strengthen our guest loyalty. Our guests value and understand Viking. We do not try to be everything to everyone. We focus on the destination and on cultural enrichment while providing an intimate elegant atmosphere on board. Now if you look at the next slide, #4, you can see how this strategy has brought us to a remarkable milestone. We started Viking 28 years ago with 4 river vessels. And today, we have a fleet of more than 100 ships, 103 to be exact. I believe that this growth reflects both disciplined execution and an innovative approach. First, we have been modernizing river voyages. In addition, we have been reinventing Ocean Voyages and perfecting the expedition experience. Each of these products is approached with the same philosophy of thoughtful design, cultural depth and operational discipline. We have been modernizing river voyages by transforming what River Cruising can be. We have introduced new elegant and efficient ships with immersive itineraries that bring guests closer to the art, history, and culture of every destination. Today, River Cruising has become a globally recognized way of travel and Viking with a fleet of 89 river vessels offer the most extensive and enriching collection of river itineraries across the world. We have also been reinventing ocean by bringing the same vision that is modernizing the River Cruising. We are redefining what an Ocean Voyage can be, introducing new small, elegant ships designed not for entertainment, but for enrichment. At Viking, we said that we are for the thinking first. True to that promise, our ocean itineraries with a fleet of 12 ships focus on cultural discovery and meaningful experiences, bring our guests closer to the world's most inspiring destinations. And lastly, we have been perfecting the expedition experience. With purpose-built ships, we enable our guests to explore the most remote regions of the planet from Antarctica to the Arctic and also closer to home on North America's great lakes. These itineraries are designed with safety and comfort at the core by placing science, exploration and sustainability at the heart of every journey. In doing so, we are creating a new category of travel, one that feels less like tourism and more like meaningful discovery. This innovative approach is also reflected in the extraordinary breadth of our offerings. As shown on Slide 5, we are currently providing itineraries that cumulatively span more than 85 countries across all 7 continents, all 5 oceans, 21 rivers and 5 lakes calling on over 500 ports. Looking ahead, we remain committed to setting the standard in experiential travel, offering opportunities to explore the world in ways that are comfortable, cultural enriching and environmentally responsible. As we reflect on this milestone, achieving a fleet of 100 vessels, let me turn to one of our key advantages that have helped fuel the growth in the river segment, which is the docking locations. On Slide 6, you will see how these set Viking apart. Our river vessels dock in the hearts of cities and towns, near historical and cultural attractions. They provide our guests with more time ashore to enjoy the local culture. Today, we control or have priority access to 113 of the most coveted docking locations in various regions of the world. This includes premier locations in Paris, just 800 meters from the Eiffel Tower and in Luxor, close to the Karnak Temple. This unique access not only enhances the guest experience but also reinforces Viking's leadership position in the River Cruising. Now to conclude this section, I will share some great news about how our product is being recognized across the industry. On Slide 7, you can see that Viking has once again been rated #1 for oceans and #1 for Rivers by Conde Nast Traveler, now for the fifth consecutive year in the 2025 Readers' Choice Awards. We were also honored as a World's Best by Travel + Leisure in the 2025 World's Best Awards. No other travel company has simultaneously received such honors across these product lines from both publications. What makes these awards especially meaningful is that they are voted on by the guests, reinforcing that our distinct approach resonates with those who value meaningful travel. They also reflect the dedication of our entire team, whose commitment ensures that every voyage lives up to the Viking's name. By staying true to our principles, small ships, destination-focused itineraries, and exceptional service, we have been able to lead without compromise. And as we look ahead, we remain committed to maintaining the standards that have earned us [indiscernible]. With that, I will turn to Leah to discuss our financials. Leah Talactac: Thank you, Tor, and good morning, everyone. I will start by reviewing our third quarter results, which were very good and will also mention a few records worth highlighting. On a consolidated basis, capacity grew 11% and net yields rose 7.1%, resulting in a 21.4% increase in adjusted gross margin year-over-year. As Tor noted, net yields were $617 this quarter, the highest in Viking's history. As expected, vessel expenses, excluding fuel per capacity PCD increased 9.6% year-over-year. Consistent with what we shared last quarter, the year-over-year increase was driven by several factors. These included changes in our itinerary mix, which led to higher expenses such as port charges as well as slightly higher repair and maintenance costs compared to the prior years. Repairs and maintenance costs occur when specific work is required on our vessels and the timing can shift depending on operational needs. As a result, the cadence of these expenses may differ from one period to the next and is not always a like-for-like comparison. I will note that with a larger fleet and a different mix of itineraries, both capacity and net yields increased more than offsetting expected cost increases. Regarding SG&A, expenses remained flat as a percentage of adjusted gross margin when compared to same time last year. Following the year-over-year step-up in expenses during the second quarter, we continue to invest in our teams, including through stock-based compensation to support long-term growth. As it relates to overall expenses, we remain firmly committed to disciplined cost management, while at the same time, retaining our talent, supporting our expanding capacity and stimulating demand. We believe that this balanced approach ensures we are not only managing today's environment responsibly but also laying the foundation for Viking's sustained growth and long-term success. Having said this, we are proud to report the highest quarterly adjusted EBITDA in our company's history at $704 million, up 26.9% year-over-year, while also reaching one of the highest adjusted EBITDA margins at 52.8%. As we have shared before, capacity growth, coupled with yield growth translates into strong EBITDA improvement and margin expansion. In summary, you can see that this quarter, we achieved the highest net yield in Viking's history and the highest adjusted EBITDA. We believe that these great results underscore the strength of our business model, the resilience of the demand across our portfolio and the discipline of our execution as we continue to deliver profitable growth. Now moving to net income. This was $514 million, an improvement of almost $135 million when compared to the same period in 2024. I will note that the net income for the third quarter of 2024 includes a loss of $18.6 million from the revaluation of warrants issued by the company due to stock price appreciation. While this quarter in 2025, we recorded nonrecurring charges of $19.7 million in connection with debt refinancing, which are included in interest expense. Adjusted EPS was $1.20 for the third quarter, up 33.2% year-over-year. Now before moving to our reportable segments, which are on Slide 10, I would like to highlight that year-to-date, our consolidated adjusted gross margin increased 21% year-over-year to $3.2 billion, and our net yield is 7.4% higher than in the same period last year. Now I will briefly discuss our 2 reportable segments, river and ocean. Unless noted, I will be referring to year-to-date metrics or 9 months ended September 30, 2025. In the river segment, capacity PCDs increased 5.2% year-over-year, mainly driven by the addition of 4 new ships, 2 for Egypt delivered in 2024 and 2 for Europe delivered this year. Occupancy for the period was 96% and adjusted gross margin increased 14.3% year-over-year to $1.4 billion. As a result, net yield was $589, up 7.8% year-over-year, driven by strong demand for both our Egypt and European itineraries. For ocean, capacity PCDs increased 15.3% year-over-year, mainly due to the addition of the Viking Vela in December of 2024 and the Viking Vesta in June of 2025. Occupancy for the period was 95.4%. Adjusted gross margin increased 28.5% year-over-year to $1.5 billion, while net yield increased 10.9% to $591. Now moving to the balance sheet. On Slide 11, you can see that as of September 30, 2025, we had total cash and cash equivalents of $3 billion. Our net debt was $2.8 billion, and our net leverage ratio was 1.6x, an improvement compared to the 2.1x shared last quarter. Also on Slide 11, we show our bond maturity outlook. In October of 2025, we issued $1.7 billion of senior unsecured notes due 2033. The net proceeds were used to fully redeem all outstanding senior unsecured notes due 2027 and to repay finance leases on 2 ocean ships and 1 expedition ship, with the balance designed to repay the finance lease on an additional ocean ship. To this end, bond maturities are now due 2028 and beyond. Since our last earnings release, we have also realized additional financial achievements. Moody's upgraded Viking to Ba2 from Ba3, and we upsized our revolving credit facility to $1 billion. We believe that all these actions underscore our consistent performance, strengthen Viking's capital structure and enhance our financial flexibility to pursue long-term growth. From a committed capital expenditure perspective and for the full year 2025, the total expected committed ship CapEx is about $910 million or $480 million net of financing. And for the full year 2026, the total expected committed ship CapEx is about $1.2 billion or $320 million net of financing. With that, I'll turn it back to Tor to review our business outlook, including our booking curves. Torstein Hagen: Thanks, Leah. Let's now talk about the booking curves, which are all as of November 2, 2025. On Slide 13, we show our consolidated metrics for our core products. As you can see, we continue to be in very good shape for both 2025 and the 2026 seasons. For 2025, 96% of our capacity PCDs for our core products is already booked. Advanced bookings equaled $5.6 billion, which is 21% higher than the 2024 season at the same point in time, while the capacity has increased by 12%. Because our 2025 capacity is mostly sold out, these metrics are very similar to what we shared last quarter. I will note that as we approach the end of the calendar year, we might experience a few cancellations, which is normal. Now moving to 2026, we are in a very good position there, too. The capacity for our core products is increasing by 9%, and we are already 70% booked with $4.9 billion of advanced bookings. These are 14% higher than the 2025 season at the same point in time for 2024. I'll talk about the advanced booking curves for the segments. On the next slide, you will see the curves for Ocean Cruises. This is Slide 14. I'll begin with the blue line, which represents bookings for 2025. Overall, we have sold 95% of the capacity PCDs for the year, which is an increase of 18%. Advanced bookings are 29% higher than they were at the same point last year, and rates have remained very strong, equal to $717 compared to $661 last year. Now if you look at the yellow line, you will see the booking trend for the 2026 season. As you can see, we are in very good shape. Ocean capacity is projected to increase by 9% in 2026 and approximately 77% of the capacity has already been sold. This equals to about $2.4 billion in advanced bookings at average rates of $783 compared to $749 at the same point for the 2025 season. If we move to Slide 15, you will see the curves for the River Cruises. I will start with the blue line, which graphs the advanced bookings for 2025. Like oceans, we are also having a great year in river, 96% of the 2025 capacity is already sold, which is an increase of 6% year-over-year. Advanced bookings are 16% higher than last year at this point in time and rates equaled $820 compared to $758 last year. Like ocean, we have very little to sell for the '25 season, and our teams are now focused on 2026 and beyond. Now looking at the yellow line, these are the advanced bookings for the 2026 season. As you can see, we have sold $2.2 billion in advanced bookings, representing 62% of our capacity. The river operating capacity is expected to grow 10% year-over-year, a figure slightly higher than the last quarter due to some tender adjustments. These are good trends for the 2026 river, which builds on top of a steep 2025 curve. The rates equal to $920 compared to $853 in 2025. So overall, advanced bookings for our core products are doing very well. They are either in line with or exceeding some of our expectations. Moreover, average rates for the 2026 season have increased. These are currently 5.5% higher than the 2025 season at the same point in time, alongside a 9% increase in capacity. To this end, we are very pleased with how the curves are trending. Now Leah will add some color to our order book and capacity. Leah Talactac: Thank you, Tor. Our order book chart, which is on Slide 16, has been updated to reflect the following: the successful delivery of 4 river vessels and the addition of option agreements for 8 additional river vessels, which, if exercised, will result in 4 deliveries in 2031 and 4 more in 2032. You can see that we continue to prioritize expanding capacity to meet growing demand. At Viking, we believe that by staying focused on delivering meaningful experiences, we will continue to drive strong earnings growth, expand margins and sustain long-term financial performance. With this, I conclude our prepared remarks. I'll now turn it back to the operator to take questions. Operator: [Operator Instructions] And the first question this morning is coming from Steve Wieczynski from Stifel. Steven Wieczynski: Congratulations on a very solid quarter here. So Tor, Leah, if we look at 2026 pricing across river and ocean, both improved not only from your August update, but it also improved relative to the update you gave when you did your debt deal in late September. So I guess what I'm wondering is maybe help us think about what is driving that pricing increase right now? Meaning is demand so strong that you're able to take price action. Or is it something out there where you still have more desirable itineraries, cabin classes, whatever you want to think about it out there that are now being kind of bought at this point for next year? And then maybe help us think about what type of promotional work or marketing you're doing currently in order to drive that demand into '26. Leah Talactac: Steve, I think the key indicators that we're seeing with respect to our yield really shows the health of our consumer. I think we've always said from the beginning that our consumers are different. They're more resilient. They have time, they want to travel, and they have the funds to do so. And in the prior earnings calls, we had mentioned that based on what we can see from the remaining inventory available that we would be able to achieve this mid-single-digit growth in price. So we see that come to bear this quarter. Our marketing strategy has been to engage with consumers rather than take pricing actions, and this continues towards the future. I think we've said also in the past that we would like to be in a comfortable spot ending the year, but also still have enough inventory for next year's wave. So you'll start to see that in our marketing spend, but we also are cognizant that people are also booking forward seasons. So it remains -- the cadence is similar to prior years with respect to marketing. However, we are quite pleased to see that our consumers are willing to travel and are willing to pay to travel with Viking. Torstein Hagen: And maybe I can add, Leah, I just came back from a day on a ship in Malta on the ocean ship. And our customers rave about the product that we have. And they come up to me and said I have 3 more booked, I have 4 more booked. So they're really very much looking forward to experiencing more of the Viking product. And they tell me how different we are from everybody else. Steven Wieczynski: Okay. Got you. And then second question, Leah, in the release, you made a remark that I thought was kind of interesting. You basically said Viking's capital structure is in such a good spot at this point that it's giving you guys the financial flexibility to pursue long-term growth. And I guess the question is, maybe what does the pursue long-term growth mean to you guys? I'm wondering if you could maybe expand upon a little bit more what that means. Leah Talactac: Sure. Long-term growth is really organic growth. You saw that we ordered or have options for more river ships. We still feel that there is potential for us to expand our market share in the luxury ocean segment. And we also -- we remain optimistic that there could be inorganic growth as well. We are watchful again, we want to make sure that it's scalable, margin accretive and complementary to the brand. But with our capital structure the way it is, and we're structuring it with now we have the $1 billion revolver, we feel confident that we could be opportunistic when the opportunity comes. Operator: Your next question is coming from Matthew Boss from JPMorgan. Matthew Boss: Congrats on a nice quarter. With the acceleration on advanced bookings across both river and ocean, maybe to your point, could you elaborate on demand trends that you continue to see globally? Maybe more so, what sets your experience apart from a loyalty perspective? And with that, how you plan to optimize pricing on the remaining capacity? Torstein Hagen: Okay. We have said many times, we are different. I don't need to repeat that. Of course, we only have a tiny portion of our capacity in the Caribbean, I think it's 4% or something like that of the ocean capacity. So any kind of overcapacity that one may see there shall not impact us the slightest. We have seen that people want to go from huge ships to smaller ships, and we are there to capitalize on that, I would say. We haven't seen any weakening in demand. It's strong. When you look at the demand curves, you could see -- when you look at them, of course, you see that we are very far ahead on the oceans, but that's a bit deliberate because we have new buildings coming on stream next year. And we'd rather make sure that we are in good shape as we start that year. So we're about to end that year now when you look at 70% being booked already. So I think you could argue maybe we could have been a little bit greedier on the price. But I think when you see the margins we have, we are fine with it the way it is. And I think we have hit a very, very good spot on the oceans. On the rivers, we are where we usually should be at this time of the year. And we haven't seen -- we have read about competition, but we haven't seen much of it. Matthew Boss: And then as a follow-up, Leah, could you speak to the cadence of recent booking trends over the last 3 months, maybe what you're seeing today as we think about the continued momentum? Just any differences in customer demand for your ocean relative to river experiences? Leah Talactac: I would say that the demand is in line with expectation. With ocean being more booked than river, you can see that we are starting to focus on our river. But our book percentage complete on a consolidated basis is about the same as last year. And we are really agnostic as to whether our guests travel with us on ocean, river being that we are one brand. So I think we are quite happy with where things stand as far as how the pricing has developed. We don't really see much bifurcation with how our consumer is looking towards their experiences. There's no bifurcation between geographies or routes. Both our ocean and river segments contribute to the uplift. So this reflects the consistency of the brand and loyalty of our guests worldwide. And this also is a strong indicator of our sustained pricing power going forward. Operator: Your next question is coming from James Hardiman from Citi. James Hardiman: So I wanted to follow up a little bit on the advanced booking commentary for 2026. I think you answered my first question, which is whether or not the acceleration was a function of sort of mix or other items versus just a stronger consumer. It sounds like it's the latter. But maybe speak to whether or not the relative acceleration between ocean, which has been pretty consistent with where it started out 2 quarters ago in terms of 2026 advanced booking -- bookings per PCD relative to river, which has gone 4 to 6 to 8, right, the last couple of quarters. Is that an indication of stronger demand, accelerating demand in river and more consistent demand for 2026 in ocean? Or are there other factors at play there? Leah Talactac: I think what -- sorry, go ahead, Tor. Torstein Hagen: I thought I'll leave it to you. I think -- I thought I started addressing the question in my comments that the efforts on the ocean side are, of course, a little bit influenced by the new building program that we have. So we'd like to be further ahead. On the rivers, if I read the chart on Page 15, you can see the prices that we get there now are some 8% higher than it was last year at the same time. So there's no weakness to be spotted there at all. Of course, the capacity expansion on the -- that we have on the rivers is smaller than the capacity expansion on the oceans. And that's why we want to play a little bit safe and make sure we are really well ahead on the oceans. James Hardiman: That makes sense. I didn't know if, Leah, you had anything to add to that, or no? Leah Talactac: No, Tor sums it up pretty well. I think that with ocean being a year-round product and river really having a shorter season with the shoulder seasons in the first and fourth quarters, I think the booking pattern reflects a little bit of how the seasons operate. But again, as Tor mentioned, ocean is our growth engine. And so we are quite pleased that we are further ahead from a capacity percentage, but we are also quite pleased with how the river bookings and their price increases has transpired. James Hardiman: And then as a follow-up, obviously, since the last time we spoke, one of your main competitors or I guess, I should say, a new competitor, we've sort of gotten a peak at what they're going to be bringing to the table in terms of a river offering. Any initial thoughts there compare and contrast? And then I forget what slide it was, but you spoke to the fact that you guys have control or priority access to 113 of the world's most coveted destinations. Thoughts on that as a moat? Are there any ways in which you can ultimately play defense as you think about a major competitor getting into that river space? Torstein Hagen: Well, I feel that we are so far ahead as we are. So I just watched a football match between Italy and Norway and Norway beat Italy 4-1. And the reason we beat them is that we stopped playing defense, we've continued playing offense. And I think that's what we plan to do also on the river business. We have a great position, and we want to exploit that fully. Operator: Your next question is coming from Robin Farley from UBS. Robin Farley: Just circling back to this nice uptick in booked revenue per passenger cruise day in the last 3 months. And when we hadn't necessarily seen it move up from May to August, I'm just curious if there is anything you would call out that was sort of in the comparable base that we may not see as easily as you can that has made this uptick? Or would you say that you are actually seeing an improved -- I don't know whether -- I don't know if you'd attribute it to like geopolitical situation being better or things that are actually accelerating the demand? Or just trying to get a sense of if there were things in the comparable base that made it look like an acceleration versus that sort of May to August? Leah Talactac: I think that the booking curves or the trends that you've seen since the last few updates really shows and reflects the strength of our consumer. We did market more earlier in the year, but we saw the consumer respond even beyond what we had expected them to respond, both in volume and price. And so I think this goes back to our guests appreciate and know the Viking value and the product. They're very loyal. They would like to travel, and they're willing to plan ahead. And so I think all of that is coming to bear as the booking curves develop. Robin Farley: And just for a follow-up, actually, on the expense side, you talked about how your marketing cadence will be similar, and that's been successful for you and that you're investing more in the team and SG&A. I know some of the expense in the quarter, you talked about the timing of repair and things like that, that's just a timing issue. Would you say that though broadly, one would expect, given the pretty significant capacity increase you have that other things would scale outside of the kind of marketing and HR expenses that still would be an expectation that investors should have? Leah Talactac: Sure. So you bring up a good point, which is that our SG&A for this year really is a reflection of what we are incurring today to support next year's growth. So that's also something to keep in mind. Having said that, we are committed to also making sure that our expenses are -- they are within reason. So we make sure that -- we have said before, we are not going to save our way to greatness. However, we are very cognizant of how costs could increase. We would never compromise the quality of the product for that, but our operators on our ships are very well versed in how to navigate through price or through inflation and through cost pressures. And as well as in the corporate side, where we have SG&A, we are also seeing some efficiencies as technology plays a larger part in how we do business. But with the growth that we have, there are going to be increases because what we are spending today really is to support next year and as it goes on. So very good observation, thank you, Robin. Operator: Your next question is coming from Brandt Montour from Barclays. Brandt Montour: So one of -- I say, Norwegian is moving capacity out of Europe in '26. Is that a tailwind for you guys? Or is it just sort of too different of a customer to actually matter for you? Torstein Hagen: Norwegian has, I would say, 2 product lines. They have the children's entertainment business; I mean the mass market big ships and whatever they do there doesn't impact us at all. Of course, they have other products, which are more related to our ocean business. And I haven't quite followed to the extent they move any of that out, of course, it means there's less capacity to compete with. But again, I feel we are in such a unique position. So I don't worry too much about what other people are doing. I think for us; it's really a matter of continuing to deliver the outstanding product that we have to the guests that we have and who are such loyal followers of us. So I don't worry too much about it or think about it too much. Brandt Montour: And then just a follow-up maybe to that point, Tor. I guess reading into your answer to James' question about Royal Caribbean and Celebrity. And just essentially, you said you were going to press your advantage. I want to understand kind of maybe what you mean by that? It seems like their product is going to be a little different, right? There's going to be kids allowed. There's going to be more bells and whistles. It's going to be a little bit -- we think more -- a little bit more expensive than perhaps your product. What do you mean by pressing your advantage? And do you think that there is -- how much overlap do you really think you have here with what they're going to try -- the tool they're going to try and sell to? Torstein Hagen: Well, we have some huge advantages in the docking sites we have. It's also the design we have of our river ships, which is quite unique. we can take 190 guests on our river ships. I don't know where they will end up being on the end. There's 160 or thereabouts, 170 maybe. But obviously, if we get 20 more guests on the ships and it costs pretty much the same to operate, then I'd tell you, we have a huge advantage either in terms of making a better offer to our guests or making more returns to our shareholders. So I think the design we have on our ships is really very, very, very unique. And I think a fundamental sound design where we design for cost and efficiency rather than for bells and whistles is a much healthier way of doing business, at least that's the Viking philosophy. Leah Talactac: And can I add to that also, the breadth of our itineraries, we currently have operations in 21 rivers and so I think we will continue to make sure that we remain dominant in that market, the North American market that travels to Europe and other rivers worldwide. Operator: Your next question is coming from Stephen Grambling from Morgan Stanley. Stephen Grambling: Just wanted to follow up on some of your comments around SG&A and just margins more broadly. I guess I know you don't guide, but are there any other puts and takes to consider as we look at the year ahead or even longer term? I know that your order book, I think, is actually lower in '27 right now for ocean relative to 2026. So is that potentially, I guess, in some ways, a tailwind in some ways for SG&A next year as you're investing for the year ahead? Or do you already have to build for 2028? And then any other color you have on kind of gross margin puts and takes? Leah Talactac: Stephen, that's a great question. I think at the end of the day, if you look at our order book, we have growth year-on-year. I note that, yes, we do take 2 ships -- ocean ships for delivery in '26 versus 1 in '27. But I think the one thing to note is that in 2027, then we have 3 new ships operating. So we're seeing continuous growth year-over-year, which means from an SG&A perspective, we will continue to also, at the end of the day, grow that. But SG&A is an area where we do believe we can leverage for margin expansion. And as you can see from the quarter's performance and our year-to-date performance with the capacity we have and the yields we have, we've been able to grow adjusted EBITDA as well. So that's obviously a goal we still maintain. Stephen Grambling: And maybe one other follow-up on that. One of the, I guess, the hallmarks of the business has been the marketing engine. How do you think about utilizing AI or other technology to further bolster that? And are there other opportunities to leverage AI in the broader business? Leah Talactac: Yes, sure. So we do see -- certainly see opportunity both from a marketing perspective and also from a revenue management perspective with the new technology or the technology that we have available. So those are at play now. Could there also be opportunity to use that same technology as we think about how we look at and operate the rest of the business, certainly. So these are certainly initiatives that we have already begun and some of it is also already being used. So there -- and I think when we think about efficiencies and leveraging some of that, there's certainly opportunity in the future. Operator: Your next question is coming from Lizzie Dove from Goldman Sachs. Elizabeth Dove: I wanted to go back on the comments that you mentioned around inorganic growth. And just maybe if you could give us a refresh on what type of things high level could be on the table there. And you've really built up a very, very strong balance sheet, great cash balance. Like to what extent that kind of precludes you from capital returns in other forms over the medium term? Leah Talactac: Sure. So I just wanted to level set on what our guiding principles when we think about acquisitions or opportunities. So we want to make sure that it's scalable, that it doesn't distract from our organic growth. We want to make sure that it's margin accretive. And we also want to make sure that it is complementary to the brand and within the brand ethos because the one Viking brand really is so powerful. So having said that, there are others -- we know that our guests travel and do other things outside of cruising. And we had in the past operated something that we call Viking Tours, which was more geared towards land-based products. At the time that we started it, it was not the right time. I think it was like back in 2009 or something like that, but it was not the right time. But could that be something that we could do in the future? Certainly. But we are a much different company now than back then. And so we have to make sure that we deploy not just our capital but also our human resources where it would make -- generate the most shareholder value. Torstein Hagen: If I may add, Leah, of course, we have also been -- we are dipping our toes into the Chinese market, the Chinese outbound market. So as you probably know, we operate 4 river ships in Europe for the Chinese, and we have an ocean ship, which also will be deployed in some fashion for the Chinese. Of course, the Chinese market is huge and different from other operators of travel, we market our product directly to the Chinese consumer, sometimes with a travel agent in between, but largely directed to the Chinese consumer. This will take time to develop, so we shouldn't boast too much about it now. But I think this could be a significant growth engine in the longer term. So that's something we could reserve funds for. Elizabeth Dove: And then just on the customer side, I mean, you clearly operate in this great demographic, a lot of demand and a growing customer demographic, right? Maybe you could share like in terms of the customer demand you're seeing, like how much is kind of repeat visitation or cross-sell between river and ocean? And also like how much you're seeing in terms of new to brand and new to cruise? Any kind of color around that, I think, would be interesting. Leah Talactac: Sure. Go ahead, Tor. Torstein Hagen: No, you start, and I finish. Leah Talactac: Okay. So from a repeat guest percentage, we are seeing quite a few of our guests repeat. So for the 2024 season, 53% of our guests had traveled with us before. And as Tor mentioned, there are quite a few of them with more than 1 or 2 active bookings. We have seen that there are guests who may have 3 or 4 additional bookings in addition to the booking that they currently are on. And in fact, we have a very good take rate when we think about guests who are currently on an ocean ship, they will book their next journey with us while they are on their current one. So I think that is also a testament to how well the product presents itself. It's not just about marketing. We also operate an outstanding product that guests truly enjoy. As far as new-to-brand is concerned, we continue as obviously, when we're growing the way that we're growing, you want to make sure that your repeat guest percentage remains high, but also that you attract new to brand. And we start to see that. And when we ask them who they mostly come from, we start to see that quite a few of our guests had started with the larger cruise operators. But once they hear about the Viking way of travel, they are drawn towards that way of travel of experiential cruising with destination being the focus, not the ships. And then once they're in the Viking ecosystem, then they continue to repeat. And then, Tor, any follow-ups? Torstein Hagen: Well, that was really the point I was planning to make of the new-to-brand people we have on the oceans. And when we look at it, we ask them, who have you traveled with before? And I will not do free advertising for people we shall not do free advertising for. But you find that 35% of them have traveled with company X and 27% have travel with company Y and so forth. And it really means that as people get older, which happens to the best of us, if people get older, then get tired of being on ships with children. And that's a course of people came up to us and said, yesterday, Malta. This fact that we don't have children on board, it's a quiet serene atmosphere on board our ships really make it very easy for us to convert people who have been having enjoyable times on ocean ship and say here is something totally different. So that's really a very important part of the mission we are on. Operator: Your next question is coming from Trey Bowers from Wells Fargo. Raymond Bowers: You guys have laid out a really impressive, committed capacity growth book for the next 6 years, maybe 8 years in ocean. In terms of that new capacity coming online, is that there's so much untapped itineraries out there at different regions that as you introduce these ships, the itinerary mix should look significantly different in the years to come? Or do you feel like in the kind of current regional mix that you're servicing today that there's so much demand out there that you guys are not able to meet that? So just a little bit kind of under incremental information around kind of how this ocean business is going to continue to develop would be great. Torstein Hagen: Yes. I'd say it's more the latter. We have seen from our booking curves that we are selling far ahead, and we are sold out of many of the itineraries. So I think it's really more of the same and to more customers, which is a fairly simple message to get across. So that's really what it is on the oceans. On the rivers, we have been able to expand the geographic spend a bit. So for example, I feel we own the Nile, we are now in India and so forth. So there, we can add product. But on the ocean, we cover the whole globe. So it's really just more of the same. We have the demand there as we can see it. Raymond Bowers: So looking ahead -- sorry. Torstein Hagen: No, no, go ahead. Raymond Bowers: So looking ahead a few years, if we were to look at what itineraries have looked like for the last few years, the expectation would be it's still predominantly Europe and Northern Europe. You mentioned China. Just curious, that was my thought is will we see maybe a little more Caribbean from you guys in the years to come, a little more Asia in the years to come, especially just given what a leadership role you already laid out that you guys already represent in river as you kind of build this luxury business and represent such a large share of it. Do you feel like there's -- your customers, as you mentioned, in Malta, would love for you guys to introduce, I don't even know, an itinerary where you've never even been there before. And given all the repeat customers, do you feel like that's something that you guys can continue to grow in the years to come? Torstein Hagen: Yes. I think people trust us. So for example, now this itinerary we had in Malta, you go from Malta to Tunisia to Algeria to Casablanca and Cadiz, can you dare do that? No problem, you have a Viking and say fans. So I think that we can do fairly readily. But I'd also like to add, we have a couple of benefits. First of all, we started our -- we have been able to design a type of vessel that is standard. So you can come on board, I think yesterday was a Viking -- I don't know what ship it was, it was a Viking Saturn, I think, which is 2 years old. You can't really tell the difference between it and the Viking Star, which is 10 years old or 11 or whatever. So the fact that we have been able to have consistent, clear standard from one ship to the other to the third, it really makes it very easy. It's all interchangeable. So Southwest is -- has done this quite well. So I think it's a major, major benefit there. But that means that we have good contracts with shipyards in terms of the capital costs. because they like to build more of the same, too. So we don't have to reinvent and have uncertainties. So it's been a fairly smart thing, I would say. So we should stick to that and just continue on the path we have. Leah Talactac: One thing to keep in mind also is that our guest demographic is quite different. They are ready and willing to travel year-round. So when we think about the people who travel on the larger public cruise lines, they have to worry about holidays and when children are in school or out of school, whereas our guests travel year-round. And so right now, for the 2024, Viking from a luxury ocean market perspective, we were only 24% of market share, whereas in river, we're over 50% and so when we look at what is the -- what could we dominate in, we're already over 50% in river. And we see really this white space where people enjoy the product. We have purposefully built ships to have itineraries in Europe where larger ships cannot go. And as -- and we're already seeing that when the larger public cruise lines are pulling out of Europe. And so there's certainly opportunity for us there. We don't really -- we want to go where the destination is the focus, and that's not really the Caribbean. So we will continue to make sure that our guests have the ability to travel Mediterranean in the quiet season or in the Nordic countries. And then certainly, there are other more exotic locations that, as Tom mentioned, our guests are really willing and able to travel to and they want to and then they do feel that comfort and sense of safety when traveling with Viking. Torstein Hagen: Like yesterday, the Mediterranean in the second half of November is a fantastic and nice place to be. Nice temperature, not too crowded and all of that. So I think Caribbean, we only have a tiny sliver there. And even the Caribbean product we have is different. It goes largely out from San Juan, and then it goes to each of the islands. So there's something to see. You not only go to either open sea or even worse. I've heard you go to islands where you can then rent cabanas, which is not really genuine and so forth. I think we are about real life experiences, not fake. So I think we have a very, very good product. Raymond Bowers: And if I could just sneak one quick one in. I think it was Lizzie asked about the nonorganic growth, and you went to non-cruise. Does the -- just that consistency of product kind of preclude you guys from ever adding in a nonorganic basis cruise ship? Is that something you've just decided we're going to only build? Or are there potential other luxury river or ocean brands out there that you could kind of easily make them meet the Viking standard if they came up for sale? Torstein Hagen: You should never say never, but not far from it, I would say, not far from never. It would take a hell of a special situation to convince us otherwise. Of course, it's important -- it's been important for us to be able to secure docking spaces. So there may be some things we can do in that area, I would say, that's high value to create moats. But it's not so -- we -- our guests like the brand we have, and we shouldn't try to confuse them too much. So -- but I will never say never. Operator: That is all the time we have questions for this morning, and this does conclude our Q&A session for today. I will now turn the conference back over to Tor Hagen, Viking's Chairman and CEO, for closing remarks. Torstein Hagen: Well, thank you all for listening to us. I hope you share our optimism. It's been a spectacular year after 27 spectacular years behind us. So I think we look very optimistically towards the future. But we also like to be realist, and it's nice to have a sound capital structure that we have. You never know what happens and -- either in terms of problems or opportunities. So thank you very much. Operator: Thank you. This does conclude today's conference call. You may disconnect at this time and have a wonderful day. Thank you once again for your participation.
Operator: Good day, and thank you for standing by. Welcome to the SQM Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Megan Suitor, Investor Relations team. Please go ahead. Megan Suitor: Good day, and thank you for joining SQM's earnings conference call for the third quarter of 2025. This call is being recorded and webcast live. Our earnings press release and accompanying results presentation are available on our website, along with a link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer; Mr. Gerardo Illanes, Chief Financial Officer; Mr. Carlos Diaz, CEO of the Lithium Chile division; Mr. Pablo Altimiras, CEO of the Iodine and Plant Nutrition division; and Mr. Mark Fones, CEO of the International Lithium Division. Also joining us today are members of our commercial and business intelligence teams. Mr. Felipe Smith, Commercial Vice President of the Lithium Chile division; Mr. Pablo Hernandez, Vice President of Strategy and Development of the Lithium Chile division; Mr. Juan Pablo Bellolio, Commercial Vice President, Plant Nutrition and Specialty Products; and Mr. Andres Fontannaz, Commercial Vice President of International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product and service line growth are considered forward-looking statements under U.S. federal securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update these statements, except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to our Chief Executive Officer, Mr. Ricardo Ramos. Ricardo Ramos: Thank you. Good morning, everyone, and thank you for joining us today. During the third quarter, we experienced a more favorable pricing environment for lithium compared with the previous period. Although the market remains highly volatile, we are cautiously optimistic. Our realized average prices increased. And while we expect this positive trend to continue in the fourth quarter, we remain focused on high-quality production, being a reliable supplier, increasing volumes and continuing to advance our cost reduction initiatives. Demand fundamentals remain strong, not only for electric vehicles, but also from energy storage systems, which already account for more than 20% of global lithium demand. Operationally, the quarter was very strong. We delivered the highest lithium sales volumes in SQM history, supported by low cost and strong efficiencies at our Atacama operations. Our Australian operation also continued to progress as planned. Spodumene sales increased significantly. We initiated lithium hydroxide production, and we reached record sales volumes of spodumene concentrate, an important milestone from this project. We expect commercial activity to remain robust in the fourth quarter. Outside the Lithium segment, performance was also solid. In Iodine and Plant Nutrition, results remained strong. Iodine prices continue at high levels with a balanced supply-demand environment. Construction of our seawater pipeline is now more than 80% complete, giving us the ability to bring additional iodine to the market earlier than expected, if required. We are also expanding our iodine production capacity through the development of a third operation in Maria Elena, which will add 1,500 tons of iodine capacity. This further strength our long-term supply position and reinforces our reputation as a reliable supplier. In fertilizer, we continue to see healthy demand and stable price across most key markets. Our Specialty Plant Nutrition business delivered discrete but sustainable growth compared with last year, both in volumes and revenues. The shift toward tailor-made solutions and higher value blends continues to improve our product mix and supports our strategy of allocating products to the most attractive markets. In iodine, revenues increased 5% year-on-year with prices averaging close to $73 per kilogram. The x-ray contrast media segment, the largest end-use application continues to grow steadily and remains a key driver of long-term demand. We also complete a detailed review of our CapEx program for the period 2025, 2027. Total CapEx is now estimated at $2.7 billion over the 3-year period. Our plan maintains a focus on increasing production capacity, preserving low cost, ensuring high product quality and upholding strong sustainability standards. While some investment decisions have been delayed, this does not affect our ability to meet the production and sales objectives set for each of our divisions. Finally, as announced last week by SQM and Codelco, we received approval from China's antitrust authority. We look forward to advancing this joint venture before the end of the year. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Joel Jackson from BMO Capital Markets. Joel Jackson: I'll ask my questions one by one. Can you talk about what you're seeing right now in lithium demand? Particularly, I wanted to maybe investigate, it seems like inside China, the demand forecast for lithium are a lot higher, like for forecast, they're coming from Chinese forecasters as opposed people outside China in the Western world seem to have lower demand forecast. Do you see this disconnect? Is it around energy storage in China? Can you talk about that? Pablo Hernandez: Joe, Pablo Hernandez here. So regarding 2025 demand expectations, we have recently improved since our last earnings call, so driven by stronger-than-expected EV sales, particularly in Europe and the sharp increase that you mentioned in BSS shipments. So we expect demand to reach over 1.5 million metric tons this year, representing an over 25% growth. In terms of China, it continues to maintain a significant lead in the EV market. We expected 30% year-on-year growth, representing more than 60% of the global EV sales. And regarding the other significant EV markets, Europe this year had a very strong first 3 quarters with more than 30% year-over-year growth. On the U.S., they still had a slower growth of 10% year-over-year, while the rest of the world, of course, had strong numbers reaching 40% year-over-year growth. Joel Jackson: Okay. You, on your last quarter talked about Chilean production for lithium to be up about 10% for you, and then you have about -- excuse me, 20,000 tons for your share at Mt. Holland. Are you still maintaining that 10% year-over-year our at Atacama? And then should we now expect something closer to 24,000, 25,000 tons for the year out of Mt. Holland in spodumene. Gerardo Illanes: Joe, this is Gerardo. Just to be clear, are you asking about production or sales? Joel Jackson: Well, you gave guidance last quarter that Atacama production or sales at the [indiscernible] would be up 10% this year, and then you'd have 20,000 tons out of Mt. Holland. In this particular quarter release, you said Q4 volumes would be similar to Q3 at Mt. Holland, which would imply more than 20,000 tons out of Mt. Holland. So I mean, maybe what do you expect out of Atacama? Like what production do you expect in Chile this year? What production do you expect in Australia this year? Let's do like that. Carlos Diaz Ortiz: Joe, this is Carlos Diaz. Well, our production in Chile is going according to what is schedule. We expect to produce this year close to 230,000 that is lithium coming from the Salar de Atacama. 180,000 of those processed in Chile and 50,000 is going to be processed in China, starting for our lithium sulfate production that we have been very successful with that. We'll continue working with expansion for next year, and we expect to grow next year. We still don't have the final figure, but we continue working to increase the production. That is regarding to the lithium production in Chile. Mark Fones: Joe, this is Mark Fones. To answer the second part of your question, yes, we maintain our production estimation or forecast for this year, which you may recall it was between 150,000 to 170,000 tons of spodumene concentrate at 5.5%. So that still holds. And regarding the sales projection, which you were referring to of 20,000 tons LCE for this year, that you're also right, we are increasing that to a range between 23,000 and 24,000 tons. Joel Jackson: Okay. That's perfect. And then my last question would be, when we look at the different average selling price for lithium that you get between Chile and international, it's about a $3,000 to $4,000 a ton discount. Should we think of that as that's the conversion costs that are basically embedded because you have to pay a toller to produce spodumene on an LCE basis? And then would we expect that international price discount versus the Chilean price realized to decrease across 2026 as you ramp up the Kwinana hydroxide conversion plant? Andres Fontannaz: Joel, this is Andres Fontannaz. Regarding prices for the SQM International Lithium division, please keep in mind that most of our sales are concentrated on spodumene. So more than 90% of our third quarter sales were explained by spodumene. And right now, we are reporting all of our sales as lithium carbonate equivalent. So in order to compare those prices with the prices that we are getting in the Chilean operation, you need to take into consideration the conversion factors and also the refining cost. So that would make a more fair comparison. Joel Jackson: Right. So my question is then across 2026, as Kwinana ramps up, shouldn't your -- shouldn't the international price rise -- realized price on an LCE basis rise closer to the Chilean price as Kwinana ramps up next year? Gerardo Illanes: Joel, this is Gerardo. Don't worry, next year or starting from next quarter, we're going to report the numbers from Australia as the product is sold. So if it's spodumene or lithium hydroxide, you will see the breakdown. So you will not have this confusion of prices without the conversion cost or not. Operator: Our next question comes from the line of Lucas Ferreira from JPMorgan. Lucas Ferreira: Hope you can hear me well. My first question is just to make sure I understand the part of China production. So are you already running 50,000 tons there? Because I remember the capacity was something around 30,000 tons with potential tolling of another 20,000. So I was wondering if there is more capacity to be used in China next year if the market remains good as it is right now in terms of prices. Is China ready full capacity? And the other question I have is also a follow-up on the JV with Codelco. If, imagine the signing, like Ricardo mentioned now by the end of the year, if there is any sort of a retroactive payment that SQM has to do for the year 2025, given that it took long to sign the contract. So in other words, when you look at the free cash flow of the company, even though you consolidate -- most likely consolidate the full thing, is there any sort of adjustment effect or cash transfers that we should be aware of when the contract is fully signed? Ricardo Ramos: Lucas, Ricardo speaking here. First, you're right in terms that we have to pay a dividend to Codelco during next year. This dividend will be in relation of the tonnage volume that belongs to Codelco according to the joint venture agreement. And we will put in our accounting this value as soon as we finish the agreement. That -- it has been stated very clearly in our financial statements that we have to do it as soon as we have the agreement with Codelco. And it is reflected, and you can calculate the number because it's quite clear in the agreement with SQM and Codelco that is public agreement. Carlos Diaz Ortiz: Lucas, Carlos Diaz again. With respect to your first question, our production in China, let me tell you that first that we expect to produce this year like 100,000 metric tons of lithium sulfate. So when you compare to lithium carbonate and hydroxide, you have to divide by 2. So it's equivalent to 50,000 around that. And 20,000 of those is going to be produced in our [indiscernible] plant in China and 30,000 is going to be produced with third parties. So we -- for the next -- for the coming year, we expect to keep increasing the production in lithium sulfate, and we're studying and evaluating to expand our capacity in China in our own plant. That is our plan. Operator: Our next question comes from the line of Ben Isaacson from Scotiabank. Lucy Zhou: This is Lucy on for Ben. And I have 3 questions. With the CapEx plan lower and lithium prices start to rise, how should we think about the need to raise capital in 2026? Is it fair to say that the base case scenario is no capital raise? Gerardo Illanes: Lucy, this is Gerardo. Well, you can see our balance sheet. We have a very strong balance sheet, and we have had always a strong balance sheet. And on these days, even at the current pricing environment, some of our main KPIs are improving. We are deeply committed to maintaining a strong investment grade. And there are several levers we believe can be pulled before pulling the last one, which is raising capital. So we're working on several initiatives. And as long as we keep on having a strong balance sheet, it may not be needed. Lucy Zhou: And for my second question, earlier this year -- earlier this week, Ganfeng suggested 30% to 40% lithium demand growth next year. Do you have any preliminary thoughts on demand growth next year? And in particular, how do you see demand for ESS developing next year? Pablo Hernandez: Lucy, Pablo Hernandez here. So regarding Ganfeng, of course, we will need to look into their assumptions. But of course, this looks like a good and optimistic projection for next year. In our case, regarding 2026, we're still assessing demand growth expectations, and we remain relatively conservative with the expectation to reach more than 1.7 million metric tons. And the main driver will continue to be the EVs and of course, as you mentioned, the very strong demand that we've seen on the BSS side. Lucy Zhou: Perfect. And finally, how much R&M production growth do you expect to see in 2026 that is not from SQM? And is it all Chile based? Pablo Altimiras: Pablo Altimiras speaking. Well, regarding to the third-party production, I mean, with the public information that we have, we believe that most of that will come from Chile, from caliche ore. And we don't have the exact figure, but our expectation is that, that amount will not surpass the growth of the total demand. Operator: Our next question comes from the line of Andres Castanos-Mollor from Berenberg. Andres Castanos-Mollor: Can you please update us on the progress to closing the deal with Codelco and remind us what the milestones are pending? What happens if it doesn't close by 2025? Is there a long stop close there? What will happen? Ricardo Ramos: Sorry, Ricardo speaking. First is we are -- as we announced, we closed with an agreement with the antitrust authority in China that was the last remaining external authorization we needed. And now everything is under the review, especially the agreements between CORFO and Codelco under the review of Contraloria in Chile. Contraloria is like an internal auditing body of the government that needs to review this kind of contracts. We expect that this review will be positive and will be before the end of the year. There's no second one. We will close this year. That's for sure. Andres Castanos-Mollor: That's great. Another question, if I may. This would be asking on 2026 expected mix out of Australia. What mix of spodumene and hydroxide do you expect to get out of Australia in 2026? If you could indicate something about this. Mark Fones: Andres, this is Mark Fones. We have not yet closed our budget for next year on production for Mt. Holland. What I can tell you is that the mine and concentrator at Mt. Holland, we expect to be producing at capacity. So of course, we will be expecting half of Mt. Holland's capacity in terms of spodumene concentrate. What happens with the ramp-up on the refinery on the other hand, is that we've announced the first product this year, as you well know, and we will be ramping up production until almost reaching nameplate capacity by the end of 2026. What's the exact amount of that lithium hydroxide considering all the good work that has been performing covalent with Wesfarmers and SQM at the refinery in addition to all the challenges as any ramp-up in a capital project will happen next year, still remains to be seen, and we will let the market inform in due time. Operator: Our next question comes from the line of Corinne Blanchard from Deutsche Bank. Corinne Blanchard: The first question, I would like to get more color on the CapEx reduction. You reduced it by about 22% versus what we had last year. But I think in the press release, you stated that there will not be -- you will not have an impact on any capacity or projects. So I'm not sure how to think about it. So maybe if you can help us understand the reduction of CapEx and for which business or segment division you come to and maybe any projects that have been pushed out of the 2027 range, that would be helpful. Gerardo Illanes: Corinne, this is Gerardo. Let me give you a breakdown of what we announced. Well, yesterday, we announced that our CapEx program for the years '25, '27 will be somewhere around $2.7 billion. The breakdown, it's going to be somewhere around $1.3 billion for the Lithium Chilean division that basically has -- the main projects that they have is to finish the expansion of lithium hydroxide to reach 100,000 metric tons that should be ready at the beginning of next year. Then the expansion to reach 260,000 metric tons of lithium carbonate capacity in Chile, while we keep on working on initiatives to keep on producing lithium sulfate that is quite relevant, as Carlos was mentioning before. Then for the International Lithium division, the total CapEx that is included within this $2.7 billion is approximately $700 million, which includes approximately $400 million between the expansion of Mt. Holland and the first steps of Azure. Of course, both projects are subject to approval with our partners, but that's what is included in this time frame. And finally, in the Iodine and Plant Nutrition business line, the total CapEx is approximately $800 million. That includes the seawater pipeline that should be ready next year that is going to be critical to give us flexibility to produce more iodine and also the Maria Elena iodine production site that should let us bring additional production or capacity of iodine as of this moment. Corinne Blanchard: Maybe the second question, coming back to the Codelco agreement. Are you still waiting for the local group to be concerted? And if so, like can you provide an update of where you stand with them? Ricardo Ramos: No, no, no. Sorry. Regarding the communities, we had the agreement with the communities that was, I think, a couple of months ago. It was publicly released that we had the final agreement in order to move forward. And the only one that has already explained to you is the internal auditing body of the government that is reviewing the agreements between CORFO and Codelco. And after they finish their review and their approval, we will continue with the joint venture start-up. Operator: Thank you. Our next question comes from the line of Marcio Farid from Goldman Sachs. Marcio Farid Filho: A quick follow-up from my side, please. You mentioned the demand expectations. I think you mentioned 25% growth to 1.5 million tons. I wasn't sure if that was related to 2025 or 2026 because in the presentation, you mentioned 20% expectations for demand growth for '25. And if you can also detail how you're seeing demand for 2026? And also maybe provide some more details around ESS demand, which has been calling the market potential for the last few weeks would be great. And then I'll have a few follow-ups as well. Gerardo Illanes: Marcio, this is Gerardo. Give me one second before answering your question. And just to clarify something over the previous answer I gave. I mentioned 260,000 metric tons of lithium production -- lithium carbonate production capacity in Chile, but it refers to 600 -- sorry, 260,000 metric tons of lithium production overall coming from Chile from lithium chlorine or toll in China from lithium sulfate. Pablo Hernandez: Marcio, this is Pablo Hernandez. So on your question, the information that I previously provided on the 1.5 million metric tons -- over 1.5 million metric tons on the 25% year-over-year growth, that was related to 2025. And as I also mentioned, our expectations for 2026 is that this number is going to be reaching over 1.7 million metric tons. Specifically to BSS, as you well mentioned, and has been mentioned during the call, there's been a strong growth in demand from BSS, which we estimate over -- between 40% and 50% year-over-year growth this year, and we expect those numbers to remain stable for next year as well. Marcio Farid Filho: That's great. And maybe another follow-up on the Codelco deal. Can you provide us what are the expectations in terms of -- you probably need a revision of your offer license if you go ahead with the plan to produce nearly 260,000 tons overall with Chilean assets. Obviously, in theory, it would be ideal that you defer as much CapEx as possible for when the JV becomes effective in 2030. So I'm just thinking if there is any CapEx related to Salar Futuro that we can expect to be spent before 2030? Or can you defer that to beyond 2030 when the JV becomes effective? That would be great. Ricardo Ramos: Okay. First, the agreement will go into effect the same day we signed the agreement that is going to happen in the next few weeks. I hope so. And after we signed the agreement, we signed with Codelco, the agreement is starting. We don't need to wait until 2030. But you are right in terms that Salar Futuro is a great, great project, and we are working very hard on it. We expect to submit the environmental study to the authorities and communities during next year. And it's going to be a complex project and probably we will reach the final agreement during 2029, 2030, means that the initial investment in Salar Futuro that is a big project and a very interesting one, will be 2030 or 2031 starting investment. It means that it will not affect the CapEx in the next 3 or 4 years. It will not affect 2026, '27, '28, and we will continue with our today plan of projects in the Salar de Atacama as usual. That's why this project will have a significant impact, yes, and a very positive one starting, I hope, 2030, if not 2031. Marcio Farid Filho: That's great. And maybe one last one on iodine. Obviously, market has been strong for a couple of years now. I think you're going to be adding about 5,000 tons of capacity once the new pipeline and Maria Elena is ready. So can you talk a little bit about overall supply and demand conditions on iodine, if you expect these prices above $70 per ton or $70 per kilo to remain sustainable? Where are the other areas of supply growth that could put some pressure on prices, if at all, in the next couple of years? Pablo Altimiras: Pablo Altimiras is speaking. Well, as we have been said before, supply and demand for this year is tight because we -- this year, we are not seeing additional supply. Actually, the demand of this year is not growing because of the lack of supply. We believe that demand for the next year will grow in the range of 3%. And why the demand will grow? Because we see more capacity arriving to the market next year. As I said before, it's coming from caliche ore mainly. So we believe that we'll have more supply next year. Operator: Our next question comes from the line of Mazahir Mammadli from Rothschild & Company, Redburn. Mazahir Mammadli: So my first question is, if we assume that lithium hydroxide and spodumene prices stay kind of at the same level as they are today for 2026, would you expect the stand-alone profitability of Kwinana conversion to be positive? Mark Fones: Mazahir, this is Mark Fones. Yes, as we've said before, we continue to see the long-term profitability of Kwinana and the Mt. Holland project to be positive. And we still see ourselves committed with our partners, and we will continue to develop this project. And that's the reason also we announced that we expect a final investment decision on the expansion for the mining concentrator for somewhere next year. Mazahir Mammadli: Okay. And maybe a follow-up on the Codelco deal. So the 201 kilotons of lithium that's attributable to Codelco, do I understand that correctly that will be paid as sort of revenue that's attributable to that amount of lithium? Or is it gross profit? Or is it some other metric? Gerardo Illanes: This is Gerardo. Yes, the amount that is to be paid to Codelco is paid as a function of a certain amount of tonnage per year, which is 33.5 and is paid as a dividend. Mazahir Mammadli: Yes. I just want to clarify, is it going to be the revenue that's derived from 33.5 kilotons or gross profit that's derived from that amount of lithium? Gerardo Illanes: It's the profitability that we get from this tonnage, but the exact calculation and the exact way of how you can get to the number, it's describing the contracts that are publicly available on our website. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the Algorhythm Holdings Third Quarter 2025 Financial Results Earnings Call. My name is Elvis, and I'll be your operator today. As a reminder, this call is being recorded. We have a brief safe harbor statement, and then we'll get started. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statement found in our current and periodic filings. Now I'll turn the call over to Gary Atkinson, company CEO. Please go ahead, Gary. Gary Atkinson: Thank you. Good morning, ladies and gentlemen. Thank you for joining our third quarter 2025 earnings call. My name is Gary Atkinson, company's CEO. I'm also joined this morning by Alex Andre, company's CFO and General Counsel. I appreciate you taking the time to hear about the progress we've made as Algorhythm continues on its growth as a leading AI-driven logistics technology company. This quarter was a major milestone for us. It was the first reporting period since we completed the sale of our legacy Singing Machine business and transition to a clean financial presentation reflecting only our core operations at SemiCab. This is the new Algorhythm, a lean, technology-first organization focused squarely on disrupting freight logistics through artificial intelligence and network optimization. Before diving into our recent progress, I want to restate the core problem that SemiCab is solving and why our conviction in this business continues to grow. First, the global truckload transportation market is massive. It has a total addressable market of approximately $3 trillion per year. Second, the industry remains massively inefficient. On average, one out of every 3 miles driven by a truck is empty. These empty miles cost shippers and carriers over $1 trillion annually, not to mention the hidden impacts of unnecessary road congestion, wasted fuel and avoidable CO2 emissions. Third, SemiCab is uniquely positioned to address this problem. We are one of the first freight technology platforms to embed our AI-driven collaborative optimization model directly into the core of our architecture. Our platform is designed by default, to continuously optimize every single load we process automatically, finding multilateral mattress to reduce empty miles. And finally, we're seeing the proof. It's working. In India, our real-world case studies show many examples of truck utilization rates improving to approximately 85%, outperforming industry average by more than 20 percentage points. If done at scale and with proper execution, we believe SemiCab can be an integral part of the infrastructure that coordinates all full truckload movements around the world. Alex will go into more detail shortly, but I want to call out several major achievements from the last few quarters. During the third quarter, revenue increased approximately 1,300% year-over-year, representing an annualized run rate of about $7 million. This year, we've added 4 new Fortune 500 clients in India, and we've converted 5 pilot programs into multimillion dollar contract expansions. Across all awarded expansions, we are now tracking toward approximately $10 million in annual contractual run rate. This is a forward-looking metric and dependent on continued access to trucks, but it is a strong indicator of the direction and scale that we're moving ahead with. We anticipate further customer activity before year-end, and we look forward to updating you as progress continues. With that, I will now turn the call over to Alex Andre, our CFO, who will walk through the third quarter financial results. Alex Andre: Thank you, Gary. Hello, everyone. The quarterly report that we will be filing with the SEC later today will present our financial results for the 3 and 9 months ended September 30, 2025 and '24. As Gary mentioned, we sold Singing Machine on August 1. Under applicable GAAP provisions, we reflected all financial results attributable to Singing Machine as discontinued operations in our financial statements. As a result, our balance sheet, income statement and statement of cash flows only reflect the financial results of our continuing operations, including the operations of SemiCab. Singing Machine's financial results for all periods reported in our financial statements are reflected in select line items referencing discontinued operations. Moving on to our third quarter financial results. Sales for the 3 months ended September 30, 2025, increased to $1.7 million from $100,000 last year, primarily due to the acquisition of SMCB Solutions Private Limited on May 2, 2025. SMCB, which owns our SemiCab business in India was responsible for $1.7 million of revenue that we achieved during the third quarter of 2025. SemiCab's legacy U.S. business was responsible for the $100,000 of revenue that we generated during the third quarter of 2024. We recently announced the SemiCab's annualized revenue run rate have tripled more than 7 million since January 2025. This growth was reflected in the revenue that we generated this quarter. We expect SemiCab to generate around $2 million during our fourth quarter. During the next 12 months, we expect revenue to increase substantially with SemiCab's annualized revenue run rate increasing to between $15 million and $20 million by the end of next year. This will be largely attributable to the growth in our SemiCab India business but will also reflect some revenue that we expect to generate from SemiCab's new U.S.-based SaaS business that we recently announced. Gary will discuss SemiCab's U.S. SaaS business later during this call. Gross loss for the 3 months ended September 30, 2025, increased to $351,000 from $32,000 last year, with gross margin percentage decreasing to negative 20% this quarter from negative 25% last year. Gross loss is a function of the revenue that SemiCab generates from the managed services that it provides in India and the freight handling and servicing costs that compromise its cost of sales that it incurs in connection with the provision of those services. SemiCab pays for access to trucks and generates revenue by using these trucks to complete shipments for its customers. SemiCab enters into contracts for access to trucks when it enters into new territories, then begins generating revenue in these territories as it acquires customers there. SemiCab does not fully utilize the trucks that it is paying for when it first enters new territories as it obtains customers in the territories and is awarded more routes from its customers, it will be able to more fully utilize the trucks it has under contract. This will result in the amount of revenue generated from the trucks going up, spreading a larger revenue base over the relatively small cost of the trucks it is using in the territories. We expect gross loss to decrease over the next 12 months as the growth in revenue that SemiCab generates from obtaining additional routes from its growing customer base exceeds the increase in the cost of sales that it will incur as it enters into contracts for access to additional trucks. Operating expenses for the 3 months ended September 30, 2025, decreased to $1.2 million from $1.8 million last year. The decrease was due primarily to cost reduction measures that we implemented during the past couple of quarters and a decrease in operating expenses that we incurred during the 3-month period ended September 30, 2024, in connection with our acquisition of the assets of SemiCab's U.S. business on July 3, 2024. We expect general and administrative expenses to increase over the next 12 months as we continue to invest in the growth and development of our SemiCab business. Net loss for the 3 months ended September 30, 2025, decreased to $1.8 million from $2.1 million last year. The decrease was due primarily to the cost reduction measures that we implemented during the past couple of quarters, and a decrease in operating expenses that we incurred during the 3-month period ended September 30, 2024, in connection with our acquisition of the assets of SemiCab's U.S. business on July 3, 2024. Net loss available to common stockholders is expected to remain at similar levels over the next 12 months. We expect cost reduction activities that we are engaged in to beneficially impact our net loss, but expect this to be offset by increases in the investment we will make in the growth and development of SemiCab. That concludes my overview of the third quarter financial results. Gary Atkinson: Perfect. Thank you, Alex. Before we open up the call to questions, I would like to close by highlighting a new initiative that we announced last week that we believe will meaningfully accelerate our growth and further transform our business. The launch of SemiCab Apex, our new SaaS platform for the U.S. and global markets. Apex is an important evolution of our go-to-market strategy and a major expansion of our business model. It offers a combination of high margins, rapid scalability and global adaptability delivered through cloud-based software that is frictionless for customers. Here are a few key reasons why we are so excited about Apex. Apex is a high-margin SaaS product. Because Apex is delivered entirely as software without any physical freight operations, it carries significantly higher gross margin. As adoption increases, we expect Apex to significantly improve our blended company margins and strengthen overall profitability. Apex scales quickly. Unlike our managed services business, Apex does not require access to trucking fleets to grow revenue. Apex can be deployed within any enterprise shippers business that manages their own dedicated fleet or Apex can be implemented with a 3PL warehouse or carrier network. Apex is also extremely easy to implement. We designed Apex to integrate into existing TMS or transportation management systems via commonly used APIs without requiring a major IT integration project. This dramatically reduces customer friction and speeds up time to market. Apex is globally deployable. Because we are solving a global inefficiency that is not dependent on region-specific physical operations, Apex can be deployed in the U.S., India, Europe, Middle East or any market around the world where shippers need better visibility, planning and optimization. I'll close on this note. Apex is the future of SemiCab. We're building toward a world where our platform powers millions of loads every day across tens of thousands of shippers globally, where we are positioned to generate recurring revenue and transaction fees on each and every one of these loads that is coming through the SemiCab platform. With that, I would now like to open the call for any questions. Operator: [Operator Instructions] We have a question from [ Brian Tantalo ] an investor. Unknown Attendee: Congratulations on a great quarter. I appreciate the update. Just one quick, you talked about Apex, sounds extremely exciting. What -- can you just explain what the go-to-market strategy is? What we should be looking for as points of progress? Gary Atkinson: Yes, absolutely, Brian. Thanks for that question. I'm happy to talk more about Apex. I mean, again, we are very, very excited about this product launch, particularly in the U.S. So in terms of sort of the go-to-market strategy, we've identified 3 different verticals that we're going to be going after with the Apex product. So the first one that we touched on are enterprise shippers. So these would be fast-moving consumer goods companies, very similar in profile to the companies that we're servicing in India and basically, any enterprise customer that has its own dedicated fleet. So for example, let's say, customers like a Pepsi or a Coca-Cola or a Walmart or basically large clients that have 50% to 60% of their trucking is internally managed, they could deploy SemiCab Apex platform right sort of on top of their TMS system. And so it's a very -- we're not asking a customer to replace their entire TMS system. We're just asking them to add some API hooks that go into our cloud-based Apex platform to help optimize what they're already doing. So that's one distinct vertical. The other one we're looking at is essentially 3PL warehousing customers that offer freight brokerage services. They could be then utilizing the SemiCab Apex platform to offer new services to their existing customers. So it would sort of be like a white labeling of our platform where 3PL warehouses could advertise themselves as a 5PL service provider and basically white label our platform to their customers. So that's another way of generating revenue. And then finally, the last segment that we've identified is the carriers themselves. So if you're a large transporter with thousands of trucks, you could utilize SemiCab to help improve what you're currently already doing. And so that's sort of the 3 different verticals that we've identified, and we're going to be sort of growing our sales team over time as we progress our conversations with those different customer groups. So hopefully, that answers the question. Unknown Attendee: It was helpful. Congratulations again. Operator: Next, we have Eric Nickerson of Third Century Partners. Eric Nickerson: I came on to the call just as you were finishing up your comments and opening up for questions. All I really want to ask is, is this call going to be -- is it going to be on the website so I can listen to it there? Gary Atkinson: Yes. This call is recorded. It will be available up on our website a little bit later today once the recording becomes available. And we can share it out with you, Eric. Eric Nickerson: Okay. Good. I'll do that. Just one other question. A moment ago, you said you're particularly excited about the United States. Is that to say that you think the U.S. market is going to be a better immediate place to attack than India? Did I hear you right? Gary Atkinson: Well, I mean, yes, so I don't want to -- I think the thing that I'm so excited about the U.S. and the Apex launch in particular is the margins on SaaS are typically 90% to 95% gross margins. So the ability to transform the financials of the company are just much more meaningful with the Apex launch and also the ability at which it can scale. Right now, I'd say, one of the sort of gating items on the growth in India is just access to trucks. Whereas here, with the Apex launch in the U.S. we're not limited at all by any physical access to really anything. It's pure software. It's cloud-based. It can scale as fast as a customer wants to scale and so there's no -- it's just a much easier to scale and deploy as opposed to India, which is not to say we're not excited about the growth in India. I mean we've got massive, massive growth opportunities in India, but it does require more of an operational lift just because you need to have access to trucks. You need a full team on site to manage. So they're both good businesses. We both think they complement each other well. It's just one can move a lot faster than the other. Eric Nickerson: Okay. Good. I won't bother you with the stuff, it will probably just make you repeat what you've already said. I'll listen to the call on the transcript... Operator: [Operator Instructions] And we have no further questions at this time. Gary, I'll turn the program back over to you for any closing comments. Gary Atkinson: All right. Well, that concludes our prepared portion of the call today. I want to just thank everybody for taking the time to join us and we look forward to continuing to update everybody into the near-term future as we continue to scale the business, add clients, expand clients and continue to grow. So thank you again for all your support, and we'll be talking soon. Thank you. Operator: That concludes our meeting today. Thank you for joining. You may now disconnect.
Operator: Greetings. Welcome to the La-Z-Boy Fiscal 2026 Second Quarter Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now hand the conference over to your host, Mark Becks, Director of Investor Relations and Corporate Development of La-Z-Boy Incorporated. You may begin. Mark Becks: Thank you, Holly. Good morning, everyone, and thanks for joining us to discuss our fiscal 2026 Second Quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Inc.'s Board Chair, President and Chief Executive Officer; and Taylor Luebke, SVP and CFO. Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. After our prepared remarks, we will open the line for questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon. I would like to remind you that some statements made in today's call include forward-looking statements about La-Z-Boy's future performance and other matters. Although we believe these statements to be reasonable, our actual results could differ materially. The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to review those risk factors as well as other key information detailed in our SEC filings. Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain adjusted measures which are also included as an appendix at the end of our conference call slide deck. With that, I will now turn the call over to Melinda. Melinda Whittington: Thank you, Mark. Good morning, everyone. Yesterday, following the close of market, we reported solid October ended second quarter results. We were pleased to once again deliver modest sales growth, particularly in our Wholesale segment, where we also again delivered margin expansion continuing to create our own momentum in what remains a choppy market. Highlights for our second quarter included total delivered sales of $522 million, up slightly from prior year. In our Retail segment, delivered sales increased slightly and total written sales increased 4% with written same-store sales improving sequentially over the last 2 quarters. In addition, we opened 5 new company-owned stores in the quarter, bringing our total to 15 new company-owned stores over the last 12 months. In our Wholesale segment, delivered sales grew 2%, once again led by growth in our core North American La-Z-Boy Wholesale business. And we made continued progress on our distribution and home delivery transformation project with the consolidation of 2 additional distribution centers. Our GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%. We generated strong operating cash flow of $50 million for the quarter, triple last year's comparable period. And we announced a 10% dividend increase marking our fifth consecutive year of double-digit increases. Overall, our operating performance for the second quarter was solid in the midst of a choppy landscape with sales slightly ahead of the midpoint of our guidance and adjusted operating margin that exceeded our expectations. As I noted, total written sales for our company-owned retail segment increased 4% versus last year's second quarter, driven by new and acquired stores. Written same-store sales which exclude the benefit of new and acquired stores, decreased 2% for the quarter, but demonstrated a continued sequential improvement in written same-store sales trends over the last 2 quarters. While consumer trends remain challenging for our industry, we continue to be agile and hone our execution. We saw our strongest results of the second quarter in October, where we achieved positive written same-store sales. However, results in early November remain mixed. And for Joybird, total written sales for the quarter were a positive 1% increase versus a year ago, demonstrating significant improvement versus the prior 2 quarters and driven by strength in retail store performance. We also have made substantial progress against our strategic initiatives, focusing on our core, vertically integrated North American upholstery business. We completed our 15-store acquisition in the Southeast U.S. region, expanding our ownership of important growing markets. We announced the planned exit of noncore businesses including Kincaid casegoods, American Drew casegoods and Kincaid upholstery. And we announced the proposed closure of our U.K. manufacturing facility. Notably, we expect all of these exits to be substantially completed by the end of our fiscal year. And we have strategically realigned our senior commercial leadership as well as realigned our corporate staffing to more efficiently support our streamlined business. These strategic initiatives are a clear demonstration of our proactive approach to driving our own momentum and what remains a challenged marketplace. We remain agile and committed to strengthening our business to prudently navigate the current environment while at the same time, best positioning ourselves for the next 100 years. To expand a bit more on these important Century Vision strategic initiatives, we were thrilled to complete our acquisition of the 15 store network in the Southeast U.S. region at the end of October. These acquired stores are located in attractive markets Atlanta, Georgia, Orlando and Jacksonville, Florida and Knoxville, Tennessee. And our ownership of these markets will enable new store growth on top of the already high-performing existing store base. This is the largest independent store acquisition in our company's history and will add an estimated $80 million in annual retail sales and roughly $40 million net to the total company on a consolidated basis. Recall, our Wholesale segment already manufactured and sold products to this business, and therefore, already recognize the wholesale portion of these annual sales. Given the strong profitability of this network, immediate sales and profit accretion and opportunity for further market expansion, this is a very attractive investment for our company. As an important pillar of our Century Vision strategy, over the last several years, we have maintained a consistent cadence of independent dealer acquisitions. And we see opportunity for a continued pipeline over time with roughly 40 independent dealers and nearly 150 independent stores still in our network. New store growth is another key lever to growing our retail business. And our strong balance sheet gives us the flexibility to make disciplined investments even in more challenging macroeconomic conditions. We opened 5 new company-owned stores in the quarter and closed 3 and opened 15 new stores in the last 12 months and closed 5. As we deliver the most significant period of new retail store growth in our company's history. Looking back even a bit further over the last 24 months, we have added 20 new company-owned stores as we continue to expand our La-Z-Boy store network towards our target of over 400 stores. And with this recently completed acquisition, company-owned stores now represent 60% of the current 370 La-Z-Boy store network, a significant increase from 45% of the approximately 350 store network just 5 years ago. We were also pleased to open our 15th Joybird store just last week in Easton Town Center in Columbus, Ohio, one of the Midwest premier open air shopping and dining destinations. We remain on track to open 3 to 4 new Joybird stores this fiscal year, and are pleased with the ramp-up and performance of our Joybird retail stores. In wholesale, our refined channel strategy is also contributing to our sales momentum as we expand our brand reach with compatible strategic partners. We recently added living spaces, a top 100 furniture retailer with over 40 stores across Western states. We also launched La-Z-Boy product at Costco on floors in over 350 locations as well as on costco.com. This follows the addition of Farmers Home Furniture and there are over 260 stores in the Southeast in our first quarter. Each of these strategic additions are complementary to our existing distribution and expand our brand reach to even more consumers. And lastly, highlighting our industry-leading service levels, we're proud to once again be named to Forbes' 2026 Best Customer Service list, recognizing our team's passion and commitment to our mission of transforming homes, rooms and communities for our customers and consumers. We're also capitalizing on the momentum from our ongoing initiatives to continue rolling out our new brand identity, which has been well received. The response from media, customers and consumers has been overwhelmingly positive, generating headlines such as La-Z-Boy just rebranded to prove its more than your grandmother's recliner and how La-Z-Boy made Comfort cool again. We plan to build on this success and continue executing our strategy to drive brand consideration and purchase intent across a broad range of consumers, including millennials and Gen X. On our final strategic pillar, strengthening our foundational capabilities, including building a more agile supply chain. We are making strong progress on our multiyear project to transform our distribution network and home delivery program. This transformation will reduce our distribution footprint from a total of 15 large distribution centers to 3 centralized hubs. In the second quarter, we consolidated an additional 2 distribution centers. As a reminder, the cumulative benefits of this transformation will include an estimated 30% reduction in square footage across our warehouse network, an approximate 20% reduction in mileage of inventory traveled across our network doubling of our delivery radius from 75 to 150 miles, enabling us to reach even more consumers and improved inventory productivity and working capital levels. All while improving an already strong consumer experience and once completed, delivering 50 to 75 basis points of wholesale segment margin improvement, the equivalent of up to 50 basis points on the total enterprise margin. Finally, as I noted earlier, we are taking steps to optimize our portfolio by focusing on our core vertically integrated North American upholstery business. We have announced plans to exit our noncore wholesale casegoods businesses, which include Kincaid casegoods, American Drew casegoods and Kincade Upholstery. We are currently evaluating alternatives for these exits, and we'll provide more details as negotiations progress. Importantly, we will continue to offer optimized case goods offerings in our La-Z-Boy stores, Comfort Studios and branded spaces as they enable consumers to furnish their homes and elevate our design business. And we are confident our new structure will further enhance our offerings in the future. In addition, while we remain committed to growing our La-Z-Boy business in the U.K., we have announced the proposed closure of our U.K. manufacturing facility in favor of more financially sustainable sourcing alternatives. We are currently in the required 45-day collective consultation period as required by the U.K. statutory process. We expect all of these strategic actions to be substantially completed by the end of our fiscal year. And we are committed to supporting our customers, our consumers and our employees through these transitions. And as we announced last month, we also strategically realigned our executive commercial leadership and corporate staffing to focus on our core and enhance operating efficiency. As our industry continues to evolve, it's important we remain agile and evolve our business to position us for continued profitable growth into the future. Collectively, these initiatives sharpen our focus on growing our core business where we have a leadership position and a right to win with the consumer. They also align with our Century Vision goals of growing double the market and delivering double-digit operating margins over the long term. The furniture industry has experienced tremendous change and challenge in recent years. Despite this, our mission remains the same, to empower our people to transform rooms, homes and communities. Our iconic brand, well-positioned manufacturing base, strong balance sheet and talented team provide the foundation for sustained sales growth and margin expansion. And now let me turn the call over to Taylor to review the financial results in more detail. Taylor Luebke: Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted results exclude items, which are detailed in our press release and in the tables in the appendix section of our conference call slides. On a consolidated basis, fiscal 2026 second quarter sales increased slightly from prior year to $522 million as growth in our retail and wholesale business, partially offset by lower delivered volume in our Joybird business. Consolidated GAAP operating income was $36 million and adjusted operating income was $37 million. Consolidated GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%. Retail margin deleverage due to lower delivered same-store sales and the impact of investment in new stores was partially offset by stronger wholesale segment margin, which included solid operating trends as well as the 110 basis point benefit of a change in our dealer warranty arrangements during the quarter. Diluted earnings per share totaled $0.70 on a GAAP basis and adjusted diluted EPS was $0.71, flat versus last year's comparable period. As I move to the segment discussion, my comments from here will focus on our adjusted reporting, unless specifically stated otherwise. Starting with the retail segment for the second quarter, delivered sales increased slightly to $222 million. Retail adjusted operating margin was 10.7% versus 12.6% due to fixed cost deleverage on lower delivered same-store sales and investments in new stores. For our Wholesale segment, delivered sales for the first quarter increased 2% to $369 million versus last year, driven by growth in our core North America La-Z-Boy branded wholesale business. Adjusted operating margin for the wholesale segment was 8.1% versus 6.8% with 160 basis points improvement driven by lower warranty expense due to the change in our dealer warranty arrangements as well as solid operating trends, partially offset by incremental expenses related to our distribution transformation project and increased advertising expenses. On our Wholesale business, we view our North America supply chain as a competitive advantage with approximately 90% of finished goods produced in the U.S. As such, we are well positioned to navigate the current trade and tariff environment. For Joybird, reported in Corporate and Other, delivered sales were $35 million, down 10%, primarily due to lower delivered sales volume. Joybird operating loss increased versus the prior year, primarily due to deleverage on lower Joybird delivered sales. Moving on to our consolidated adjusted gross margin and SG&A performance for fiscal 2026 second quarter. Consolidated adjusted gross margin for the entire company increased 10 basis points versus the prior year second quarter. The increase in gross margin was primarily driven by lower input costs, led by favorable ocean freight and improved sourcing, partially offset by higher supply chain costs, including friction costs related to our distribution and home delivery transformation. Adjusted SG&A as a percent of sales for the quarter increased by 50 basis points compared with last year due to fixed cost deleverage in our retail stores as well as investment in new stores. This was partly offset by the benefit of a change in our dealer warranty arrangements in the quarter that resulted in a onetime benefit due to a reduction in our ongoing warranty liability. This change has no impact on the end consumer and provides significant improvements in program management and administration. Our effective tax rate on a GAAP basis for the second quarter was largely unchanged at 26.7% versus 26.3% in the second quarter of fiscal 2025. Turning to liquidity, we ended the quarter with $339 million in cash and no externally-funded debt. We generated a strong $50 million cash from operating activities in the second quarter, triple the year ago period with improved working capital and higher customer deposits. We invested $20 million in capital expenditures during the quarter, primarily related to new stores and remodels and supply chain-related investments. We continue to believe that the best use of our cash and highest return on investment is prudently reinvesting back into the business. As such, we remain committed to disciplined investment in new stores, acquisitions and our distribution and home delivery transformation project to profitably grow our core business. Regarding cash returned to shareholders. Year-to-date, we returned $31 million to shareholders through dividends and share repurchases, including $18 million paid in dividends. We repurchased 23,000 shares in the quarter, which leaves 3.4 million shares available under our existing share repurchase authorization. Subsequent to quarter end, reflecting the confidence in the company's financial strength and long-term growth prospects, the Board of Directors increased the regular quarterly dividend by 10%. This is the fifth consecutive year of double-digit increases to the dividend. We continue to also view share repurchases and our dividend as an attractive use of our cash and positive return to shareholders. Capital allocation in fiscal 2026 is tilted more into the business through investments in the recent 15 store acquisition in our distribution and home delivery transformation project. Longer term, our capital allocation target remains consistent to reinvest 50% of operating cash flow back into the business and return 50% to shareholders and share repurchases and dividends. Before turning the call back to Melinda, let me highlight several important items for fiscal 2026 in our third quarter. We expect fiscal third quarter sales to be in the range of $525 million to $545 million, a growth of 1% to 4% year-over-year and adjusted operating margin to be in the range of 5% to 6.5%, reflecting advancement of our Century Vision initiatives, friction costs related to portfolio optimization and supply chain transformation, and a measured view on the uncertain macroeconomic backdrop. We expect to open approximately 15 new company-owned and independent La-Z-Boy stores during the full fiscal year, of which the majority are company-owned as well as 3 to 4 new Joybird stores. We continue to expect our tax rate for the full year to be in the range of 26% to 27%. We expect capital expenditures to be in the range of $90 million to $100 million for fiscal 2026, consistent with prior guidance. This includes investments for new stores and remodels, our multiyear project to transform our distribution network and home delivery program and continued manufacturing related investments. Of note, I want to spend a few moments on expected financial benefits of our strategic initiatives to hone our portfolio, which Melinda covered earlier. With the combined impacts of our 15-store acquisition, our casegoods exit, our proposed closure of the U.K. facility and our management reorganization we expect the going annual impact on our enterprise to be an approximate $30 million net sales decrease in a significant adjusted operating margin improvement of 75 to 100 basis points to the entire enterprise. We expect all of these initiatives to be substantially completed by the end of this fiscal year. And at this time, we do not expect these exits to have a material onetime gain or loss to the enterprise. Lastly, we anticipate adjustments for all other purchase accounting charges for the year to be in the range of $0.01 to $0.02 per share. And with that, I will turn the call back to Melinda. Melinda Whittington: Thanks, Taylor. We are sharpening our focus on our core businesses and enhancing our agility to navigate the challenging home furnishings environment. At the same time, we're executing on our long-term strategic objectives, and I am more excited than ever about the opportunities that lie ahead. Before I close, I want to welcome the employees of our latest acquisition. And I want to thank all of our employees around the world for their continued dedication to our mission of bringing the transformational power of comfort to more homes. And now I'll turn the call back to Mark. Mark Becks: Thank you, Melinda. We will begin the question-and-answer period now. Holly, please review the instructions for getting into the queue to ask questions. Operator: [Operator Instructions] Your first question for today is from Anthony Lebiedzinski with Sidoti & Company. Anthony Lebiedzinski: So first, I just wanted to check in with you about just if you saw any differences in geographic sales dispersion in your markets? Or was it more or less kind of consistent in your operating area? Melinda Whittington: Nothing dramatic, Anthony. Good morning. On any given week, you might see a little bit of choppiness across different geographies, but nothing significant. Canada continues to be more challenged just with trade tariff situation and some of those areas there. So that is maybe a little more bouncing, but nothing dramatic. Anthony Lebiedzinski: Got you. All right. And then just can you also comment on the extent of your pricing actions? And also, just wanted to get a better understanding of how do we think about unit volumes in Q2 and your expectations for Q3 as it relates to unit volumes? Taylor Luebke: Anthony, yes. So on pricing, we mentioned throughout the year in our playbook to deal with trade and tariff changes, one of our levers beyond just sourcing adjustments or inventory moves is some nominal pricing actions. So earlier in the year, we took a round of nominal pricing based on trade policies at that time. Given some changes with the 232 in the sectoral tariffs on upholstered furniture within the quarter, we actually took another round of nominal pricing to help offset, but still well positioned competitively versus our peers. Again, 90% of the products we make are in the U.S., so that other 10%, a little bit exposed, but still very well positioned. So in aggregate, through the course of calendar year '25, we're still in the single digits, which everything we hear from other manufacturers or retailers is at the very low end of what we're hearing is out in the market. On volume per se, directly related to pricing elasticity, hard to piece out in this industry, particularly with everything else going on around traffic and other kind of just general consumer uncertainty. But in our quarter, on our main North America wholesale La-Z-Boy business, we saw volume flat year-over-year, which relatively speaks to our pricing is going well in the market. Anthony Lebiedzinski: And then also in terms of the guidance, you talked about friction costs related to portfolio and supply chain optimization costs, can you expand on that and help us better understand the expected impact of this? And when should we should we see less of those friction costs? Taylor Luebke: Well, a couple of things on the friction costs. So that's a combination of our distribution and home delivery transformation project. We outlined a quarter ago as a multiyear project and hugely excited for the benefit to our network, to our consumers and to the company. Once we're through it, we'll improve all of our stakeholders as well as make us more profitable. In that case, you just have to get a little bit more inefficient in the short term to get way more efficient ongoing with some call it, dual lease costs or they just transition costs as we move out of the, call it, 15 DCs to 3 over time. So manageable, but it's there. On the strategic initiatives that Melinda had mentioned, our casegoods exit, our U.K. shutdown, it's -- we expect to be subsequently out of those businesses or those transitions completed by the end of our fiscal year. So I'm really just talking more about the back half of the year, and particularly quarter 3 as I outlined those friction costs as it relates to those 2 areas. Anthony Lebiedzinski: Got you. All right. And then my last question, so you mentioned expanding into living spaces on Costco. I know last year, you expanded more into rooms to go. How do you guys think about the opportunity there as far as it relates to expanding to other wholesale partners? Just broadly speaking, how do we think about the opportunity going forward? Melinda Whittington: I think a couple of things. Our focus over recent years has been very much around making sure we've got the right strategic partners that are going to represent our brand well and that are looking to grow and accelerate and give the consumer the right experience going forward. We certainly see that those that are winning out there in a very tough marketplace right now tend to be the more sophisticated kind of midsized regional players and a lot of those are the type of partners that we're working with. It's always important that it's compatible distribution that it's not going to -- it's going to reach a consumer that we're not otherwise going to reach in our furniture galleries. We've had some really good wins. As you noted here in the last couple of months with particularly, as you mentioned, the living spaces, the farmers down in the Southeast, recent Costco, which just puts more eyeballs on the product. I think going forward, because we want to make sure that distribution is compatible with also growing our own retail. What we'll see is probably as much an expansion of growth with the existing base and really building with those as opposed to lots of big additional new customers. But at the same time, the world is always changing, and we're going to make sure we're working with the right partners for the medium term and the long term. Operator: Your next question is from Bobby Griffin with Raymond James. Robert Griffin: I guess, first, Taylor, I just want to make sure I understand the impact here of all the different moving parts. So the acquisition of the 15 stores is going to add $40 million of net sales to the enterprise, and we sold off some of the noncore businesses. And I believe in your prepared remarks, you were kind of netting the 2 against each other. So does that -- is it correct to imply that the headwind from selling off the noncore businesses is about $70 million of sales that needs to come out of the wholesale segment? Taylor Luebke: Yes, your math is correct, Bobby. And note, we're in a process now of evaluating sale or other strategic transactions, but net of, call it, this fiscal year, that should be the impact of the entire enterprises that plus $40 million from the retail acquisition, minus $70 million from the exit of these noncore businesses. Robert Griffin: Okay. And then that would -- then you would see the corresponding step-up within wholesale margins from the savings and the better efficiency. So the -- I believe you called it 75 to 100 bps is really kind of just a wholesale margin step-up that segment? Taylor Luebke: The 75 bps, it's all bucketed together, Bobby, on the retail acquisition, these wholesale moves on noncore as well as they call it, commercial leadership realignment. So all of that together is the 75 to 100 bps to the entire La-Z-Boy enterprise. Robert Griffin: Okay. All right. That's helpful. That helps clean it up. And then just secondly, on the tariff aspect has some good commentary. I appreciate that. Does the nominal pricing you guys took here in 2Q, will that cover for the expected kind of modest step-up that we see on Jan 1 in the 232? Taylor Luebke: Yes. Robert Griffin: Okay. So you're all covered now based on what we know today from tariffs? Taylor Luebke: We've executed our playbook and some of it is also adjusting where we make products to more optimize our network for current trade policies, but as well as additional nominal pricing we put into market at the tail end of the quarter to both cover the current as well as the expected change on January 1. Obviously, we'll continue to be agile if anything changes between now and then. But overall, we feel really good and well positioned with our 90% of our product made in the U.S. Robert Griffin: Yes, very good. That's -- you guys got an advantage versus a lot of the industry there. And I guess just on the other side of things, some questions. Inventories were down pretty big this quarter. Is that just some of the efficiency gains starting to flow through? Or just kind of any commentary around that on a year-over-year basis, I was referring to? Taylor Luebke: Just great work by our supply chain team on being really tight on our inventory management while also protecting in-stock and service levels. I mean we continue to get better year-over-year. So really, it's just the everyday blocking and tackling and just getting smarter. This time, we do have a little bit of a build in the comparator period as we were building some stock to protect ourselves in certain cases on cover availability. But overall, just great work across the organization on getting tighter on our working capital management. Robert Griffin: Okay. I appreciate it. And then lastly, I guess, Melinda, this is the big acquisition with 15 stores, so -- and really good to see you kind of get over the finish line. Can you just talk about now with some of the organizational changes, the integration of that? And then also on the retail network, as we think about kind of the next leg of growth here, where are we at from quality of the store base in terms of like which ones -- how many remodels would you like to see and kind of opportunities there for the next multiyear kind of journey? Melinda Whittington: Yes. A couple of things on retail. We will open estimated about 15 this year, and we have talked about continuing the pace of sort of net new stores in the 10 to 15 range. So we intend to continue that trajectory. As we've talked, we see our way to over 400 stores, and we're about 370 across the network at this point. And those will be more heavily weighted towards company-owned stores as we continue that expansion. From a remodel standpoint, we have invested heavily over the last 5-plus years to make sure that our stores across the network, along with our independently owned are the appropriate reflection of our brand. And so I feel good about the overall use of our fleet, if you will, and we're going to continue to make sure that, that see it that way because it's important that consumers are inspired when they come into our stores, particularly when they're going to come in and participate in design and really think about bringing that product and investing into their home. We will continue to expand our rebranding across all of our stores over the next several years, and we're doing that prudently just given the time right now, but we've had such a great reception to the new branding, and we want to get that out across all those stores. But as I say, we're going to do that prudently as we go. The other way to expand the company owned is, of course, the transactions, like you said. I'm very pleased with the integration of this big acquisition. And how that's all been working together for the company. And I think there's still a pipeline there. Again, those are arms-linked transactions, but there are still a lot of independently owned out there. And I think over time, we'll have more opportunity to expand in that way. And then I can't talk about retail without calling out just the fact that super pleased with in-store execution even in really challenging times. And so we continue to strengthen that execution. And then to your point, make sure that we are appropriately but efficiently supporting that -- those operations as well. And that kind of speaks to your point on overall reorganization. So really good about how that's going right now with our 2 commercial presidents and the move of marketing over into the retail organization. We're already seeing some early wins there. And again, important to be as agile and effective as we can be in what's still going to be, I think, a challenging environment here for a while. Robert Griffin: And I guess one final one, if I could sneak one more in. Is the kind of selling the noncore businesses. And then as you think about, given your designers in the stores, the product portfolio they need how do you kind of balance that? I guess, is there opportunities on casegoods for partnerships? Or do you still have some casegood sourcing that could be there, and this is just a different noncore business that was sold? Just anything around that aspect? Melinda Whittington: The short answer to your question is yes. So casegoods are important to us. So what we do best is manufacture and sell custom upholstered furniture. Our casegoods offerings are super important to enhance that upholstery experience to ensure that in store, we have the ability to service the consumer around whole room and particularly with our design sales. And even in our branded spaces and our comfort studios with our strategic partners. It's important that we have the right casegoods to enhance what we're doing from an upholstery standpoint. That said, it's not our core competency to own the entire design and creation of the casegoods or even our right to win with customers on our wholesale casegoods business. It's just -- it's not our core competency. So we believe there are better places to do that, and we're excited about sort of reinventing that space, recognizing that change is always a challenge, but we are committed to having the right casegoods products in our stores to enhance the upholstery side, but do it in a more efficient way and in a way where we have a real right to win on the design side as well. Operator: Your next question for today is from Brad Thomas with KeyBanc Capital Markets. Taylor Zick: This is Taylor Zick on for Brad. Melinda, you gave some good color on trends throughout the quarter. While also noting that November was a bit mixed. If I recall, I think last year, you saw -- the industry saw improved demand in November post-election. So just given the comparable month was a bit stronger, how are you thinking about underlying demand trends as you head into your fiscal 3Q? Melinda Whittington: Yes. Yes, you're spot on. I think the -- first of all, if you just look at -- in the absolute -- the consumer is challenged, and demand remains choppy, and so we need to be agile and prudent as we deal with that. You're absolutely right that the comparison period from post election last year is a challenging one. And so again, that's kind of why we are navigating this in a prudent way and looking to make sure that we are efficient in how we're executing, but doing everything we can to reach those consumers that are out there and driving the strongest absolute results that we can. Taylor Zick: Got you. And maybe if I could just follow up on -- I don't think I heard much on the prepared remarks, but just curious on what you're seeing out there in the market relative to promotions and maybe what you're thinking about -- how you're thinking about promotion -- promotional intensity later in this quarter and maybe into 2026 as the industry kind of seems to be flattening out. Melinda Whittington: Yes. I think to start at the supply side, as Taylor noted, we are -- our pricing has been relatively nominal single digit. And so we're positioned very well. What we've seen from other suppliers, other manufacturers is significantly higher pricing. And so that's going to drive cost into the business overall. We're talking double digits, pretty widespread. Some of that is taking time to ultimately shift all the way out to the end consumer, but we are seeing that. At the same time, if I go back to Labor Day, which was our last big tentpole for the industry. We did see sharpened deeper price points to drive traffic, not overall in absolute bigger discounting, but a lot of again, traffic driving kind of deep attention, getting type of activity increase than from what we've seen, say, like at Memorial Day. So it's a very active marketplace out there and trying to do the right things to drive that traffic and give particularly the increasingly value-conscious consumer an opportunity to take care of their homes and get into our brand. But at the same time, recognize there's still -- you talked about that bifurcated consumer that K-shaped economy. We are still seeing design sales hold up really well. And seeing consumers that are coming in, ready to do whole rooms and leather and power and all those big upgrades. So it is a -- it requires some laser precision to navigate that environment. Taylor Zick: Yes. That's great. I appreciate the color. Maybe if I can sneak one in for Taylor. Taylor, you made commentary that capital this year and fiscal '26 would be tilted more towards reinvestment. As you eye up this exit of these noncore businesses, how are you thinking about capital allocation into 2026 between reinvestments and maybe some return to shareholders? Taylor Luebke: Yes. Good question, Taylor. So right now, a little early to comment to any change in our capital allocation for the year. We're thrilled with where we're at for this year. As we mentioned, we think our best use of cash when it's prudently reinvested back in the business. Last year was a little tilted towards shareholders. Right now, it's a little bit back in the business with this acquisition as well as CapEx on our distribution transformation as well as new store standup. So right now, we're still working through these exits on those businesses that Melinda had mentioned. Any new information as we progress through that, we'll share on capital decisions. But I am thrilled actually with our level of investment back to the business and very pleased to once again return a double-digit increase to our dividend, the fifth consecutive year on which I think speaks a testament to our strong financial footing and confidence in our business moving forward. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Mark for closing remarks. Mark Becks: Thanks, everyone. Melinda, Taylor and I will be in our offices to take any follow-up calls. Thanks, and have a great holiday. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Andrea Ferraz Estrada: Good morning, everyone, and welcome to Klarna's Third Quarter 2025 Earnings Call. My name is Andrea Ferraz, Head of Investor Relations and M&A, and I'm joined today by Sebastian Siemiatkowski and Niclas Neglen. Our Q3 results were released at around 7:30 a.m. Eastern Time, and they are available on the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website as well as filed with the SEC. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2024. [Operator Instructions] Before we move to Q&A, we'll begin with a short presentation. Sebastian, please go ahead. Sebastian Siemiatkowski: Hello, everyone, and welcome to Klarna's first earnings report, quarterly earnings as a public company. Very excited. I'm Sebastian Siemiatkowski, the CEO and Founder of Klarna. And with me, I have Niclas Neglen, our CFO. Let's get right to it. Most of you are probably familiar with Klarna, 114 million active consumers, 850,000 merchants and above $100 billion in GMV. And we have grown this network quite extensively in the last few years. We are having users across all parts of life. These are female, male, all types of educational background, living in all areas. And as you may know also, Klarna is today much more than just buy now, pay later. We offer pay in full, pay later, fair financing. And as you will see, more and more neobank features. Our reach is global, North America, Canada, U.S., most of Europe and Australia and New Zealand. But let's look at today's headlines. So today, I'm very proud to focus together with you on three topics: growth acceleration. It's fantastic that we're expecting to see above 30% revenue growth for Q4. We also have a record quarter for fair financing product. It actually grew over 139% year-on-year, and I'll tell you more about why, associated with the number of merchants that we're seeing growing there. And then we're celebrating that Klarna has now actually issued over $0.5 trillion over our 20 years. And thanks to our leading underwriting technology, we have continuously lower losses than industry standards. Those $0.5 trillion has actually been issued with less than 70 basis points, put that against any benchmark, and you will see that's pretty impressive over 20 years and 26 markets. But let's go back first a little bit in time. 2015, Klarna is -- about 10 years ago, we're sitting down with most of what is the current management team, asking ourselves, what is the future of tech? What is the future of fin? And we realize this world is about to change. Eventually, we will all have digital financial assistance that helps us save time, save money and be in control of our lives. And we realize this will also have large implications for both the financial industry, the retail banking and technology. And you can think about it this way. They -- both of these markets are pretty much malfunctioning. They have the classical fallacies of nonfunctioning markets, such as the fact that it's hard to search and find the right things. But that is going to an end now. AI is going to change, and ignorance will stop being a business model. These lock-ins that people have been able to rely on, forget about them. They're going to go from strategy to nostalgia because now AI agents will be able to move all of my so-called proprietary data, preference and all of that between different providers. And finally, this means the moats are drained, the gates are open. We're going to see a dramatic increase in competitiveness in both financial services and tech. We're very excited about this. And what it means is that trust is the new oil, not data anymore, but trust. The one that customers actually trust to truly care to their best interest are going to be the ones that are going to gather the most following. In addition to that, customer service minimization is going to be something that we can forget about. Historically, banks have put us on 45-minutes holds and the big tech companies, they don't have customer service at all, just FAQs. Forget about that. That's a thing of the past. So the quiet life that we have observed among the big tech and banking companies are over. Complacency means end of business. Marble offices are gone, and the free gourmet cafeteria is no longer culture, it's overhead. This is what we're about to see. And we can see that it's already starting to happen. Pre-AI tech, we saw tremendous perks, 0 customer service, products killed without consequence. And now we're starting to see year of efficiency, intense AI product shipping urgency and the first real competitive threats in 20 years. And that is quite exciting because if you look at those two sectors, fin, retail banking, that's a $520 billion profitable profit pool that is addressable to Klarna. And we only cater to 0.6% of that today. And ads and technology companies are another $500 billion. These two combined is $1 trillion. Now remember, this was estimated by McKinsey, but also by Claude, and I have to admit that Claude was significantly cheaper than McKinsey in making these estimates. Now what does this mean? Well, we say in Sweden, one person's dead, another person's bread. This is pretty much it because this means that Klarna is having a fantastic opportunity to go after these two massive profit pools. And we're going to do that by 100% focus on customer obsession, growth, operational efficiency and leading the AI innovation. And I think that here, I want to highlight that those days when tech companies and banks could not wake up every day like retailers do and restaurants do, focusing on how do I bring in customers through the door, how do I give them the best offer, the best service and how do I make sure I operate very efficiently, so I don't go out of business. Those days are gone. And the businesses in these industries that are willing to really pursue this and work effortlessly on these topics, they are going to win and they're going to grab a lot of market share in these markets. So let's talk about customer obsession at Klarna. Well, what we are doing is very simple. We give people back time, we give people back money and we give back them control. And this goes far beyond. A lot of you will be familiar with buy now, pay later, but we do offer a number of other services like searching for products at the right price, making sure that it's easy to pay your bills and manage your finances, to show you where your packages are in real time, so you can go and pick them up and give you control and insights of your spending habits. And in addition to that, we offer you a lot of give back money. I mean just a number of money that our customers have saved on customer -- on not paying interest with our Pay in 4 interest fee is in the billions. And in addition to that, we offer cash back and other features as well. So this was the very topic. I think something I would like to focus on today a little bit is that our form of credit is really the more sustainable solution. And if you would ask that digital financial provider -- the digital financial assistant of the future in what they would argue is the best form of credit, I can tell you it's not going to be credit cards with $6,500 outstanding balance with tremendous fees and never-ending payback over revolving. That's not going to be the one. It's not going to be point-of-sale financing. Yet again, another way to charge high fees, it starts at 0% financing, but then after a few months, they start to push you into 36%, and it's also not the best one. The best one is going to be the buy now, pay later with Klarna. Why? It's low average order value, so you're only borrowing about $100. Your average outstanding balance with Klarna is $88 versus these others. The interest rate is 0 and you pay back on fixed installments. This is a healthier form of credit, which is attracting an audience that is very aware and conscious about their spending. This is also visible in our credit losses and our charge-off rates, as you can see, are a fraction of these competing credit products. There are other ways in which Klarna already today really distinguish itself. And just today, I want to focus on one to just highlight it to you. Klarna is the only payments network in the world that collects SKU level data on basically a majority of all of our transactions, which means that when customers buy with us, when they buy with a credit card, they're used to seeing what you see on the left-hand side. You will all recognize it from your banking apps. You barely understood where you spent, just some merchant name that you can barely read and some amount. With Klarna, we have the full SKU level. We know exactly what you purchased, so we can show you images of the items that you bought. As you can see on the right-hand side, the Nike Tech here and so forth. You can see the sizes, the colors. You can also then, as a consequence, report returns much more easily or if you have warranties or other things that you want to follow up on. So that is a tremendous value and a differentiation and richness of information that we carry at Klarna. So putting customer obsession is really what we've been focusing on a lot and even more so in the last year. We have this very strict process where we start with insights. So we generate -- we do over 200 consumer interviews every week. We have -- we basically inspect visually 5,000 interactions in detail per week. And this drives a lot of what we call actionable insights, which are average actually about 75 currently per week. The expected value of delivering on them are estimated at $300 million of lifetime transaction margin. And we're very, very important to us that they are crystal clear on what is broken, how could it be fixed and that we have these very quick estimates of the financial impact and the efforts to fix them. And then we obviously work effortlessly to deliver these improvements to our customers. And currently, we're shipping at a rate of about 20 improvements a week with an estimated lifetime value of about $15 million in transaction margin. And each of these shipped improvements is verified for impact, for quality and effort. This is the core of our customer obsession process to just effortlessly talk to customers, look at these recordings and then understand how we could improve on them. The fantastic effects of this are that numbers don't lie. We have 73 in NPS, 54% in global brand trust and 41% in global brand awareness. Remember, as I said, trust is the new oil, more than data. Data will flow freely, trust doesn't come freely. Trust only comes from hard work like the one I just displayed. And this is why we don't just have customers, we actually have fans. These consumers, when you talk to them, they rave about Klarna, they rave about what we're offering them, and they exhibit a huge amount of trust for what we offer them. Now this then brings us to growth. Now with growth, we have our objective #1, and that is that Klarna should be available everywhere Visa is, that we basically -- and we do that through what we call our default global distribution partner play. This means that we go to the biggest PSPs in the world, the ones that are doing over $1 trillion worth of volume. And then we have worked with them to say, Klarna shouldn't just be an alternative that you add on as a merchant. It should be standard, default. When you sign up for the Stripe, Nexi, Worldpay, you should automatically get Visa, Mastercard and Klarna in the default offering. And that is something that we are -- have been pushing for years and are continuing to push for. And you can see now this quarter, we add Clover to this club of signed partners and some of them are already even live like Stripe and Apple Pay that are basically ramping up now with this new offer. And you can see that, that's having a real, real impact on the number of merchants that we're adding because if we're ever going to hit the 150 million acceptance points that Visa has, this is only through global distributions that this will happen. And you can see that it's starting to pay off the strategy as we went -- we added a record of 235,000 merchants this quarter, up, and it's now growing at 38% compared to a year ago at 13%. Obviously, we're also still expanding with the world's best brands as well. So some of the renewed or expanding partnerships, you can see on this, and that is obviously still a big important part of our strategy, but the distributions of our PSPs, acquirers and technology platforms is the key one that's going to drive the most of the millions of merchants that we want to attract to Klarna to be on par with Amex, Visa and Mastercard. Objective 2, and this may be something that you're not familiar with, and that is that a lot of merchants offer Klarna, as we said, about 850,000, but not all of them have been offering all of our payment methods. And this is also an important thing. We want customers to be able to expect that each of the payment method that they recognize with Klarna, which is the pay in full or pay now, it is the pay later and it is the fair financing should be available every merchant. And we have made fantastic progress here, especially on the fair financing side, as you can see, just between last year, we were 80,000, now we're 150,000 merchants. It means that still only 18% of our merchants actually offer fair financing, but it's a significant improvement. And this is driving -- this is what is the explanation for driving that fast growth in the fair financing product. We just doubled the amount of merchants that offer it. And so consequently, you can see more than almost doubling the volume as well. We're also working effortlessly to improve our pay in full offering. This is really -- you could -- if you would like to call it the big wallet competitor to some of our big wallets out there because this allows you to pay the full amount. Currently, we have about 43% coverage, and it is growing, which is great. We do a lot of things here to make sure that debit is an important payment method available at every checkout out there when people see Klarna. Now then we have our third objective, which is to go from payments to full neobank. And in order to explain to you how we do that, I will take you quickly just through the customer acquisition channel that I think is totally revolutionary and very different. Most banks will acquire customers through promotions, through standing in the airports and bug you when you're running to your flight. What Klarna does is we're available in all of these millions of checkouts and people will see us, we are associated there with fantastic brands, be it a Nike, a Macy's, a Sephora, and we bug you and say, "Hey, you know what, why don't you use us to pay this time around rather than your card." And it turns out it is so simple to start using Klarna. It's almost as simple or even as simple as using your existing card. And this drives -- this is what has allowed us to accumulate 114 million active users which is fantastic. But obviously, they only use us -- some of them only use us for a single purchase. So what we then start doing is saying, hey, you know what, if you download our app, you will unlock a world of additional features, additional things that you can do, like we saw on how you can see your purchase history and understand exactly what you purchase or make it easier for you to return. So about 49 million monthly active users and 76% of the total have downloaded our app. So that's the next step. And then we say, hey, when in that app, beyond just seeing your purchase history, you can actually use it for shopping. We have our shopping browser. We have cash back. We have tons of things. And what you can start seeing happening now is there's about 10% of the population that uses these features. So it's much smaller, but look at what's happening on the average revenue per customer. It's going from $28 to $90 on that segment of audience. And now here comes the card, which we're super excited. I'm going to show you some more amazing metrics on our card. And what's interesting here is only 3% so far has picked it up, but it's starting to pick up rapidly. And you can see that when people start using our Klarna card, then the average revenue per customer jumps to $130, which is actually 4x as much as the average active user. And in addition to that, we're also expanding the bank offer, the balances, to store a positive balance, to be able to use our savings products and so forth. And you can see there as well, the average revenue per customer is very, very different. So each one of those are very early, but we can say the funnel is working. This channel is amazing. It brings in customers at a fraction of the cost that our competitors are spending to attract the same users. And we're now seeing that we are able to transform them into a richer relationship that gives consumers more value but also allows Klarna to generate more revenue per customer. So first, what about the card? People ask me about why should I get the card? Well, first and foremost, the purpose of our card was to bring back the control of debit or credit. Some of you may remember when you were kids, at least when I was a kid, working at Burger King, you would swipe your card and press 1 for debit, press 2 for credit. People really loved that. But the problem was banks didn't love it because you weren't borrowing enough money when you did that. You weren't building up a balance. You weren't putting all of your purchases per month on a balance and then you were less likely to revolve, less likely to build up that balance. So banks remove that, but we know there's a big segment of customers in the U.S., we call them the self-aware avoiders, which McKinsey has said is about 20% of the audience, we think it's even bigger. But the point is that, that's an audience who have tried those credit cards, who realize that they're a debt trap, realize that they're product of the devil as some of them call them, and that they're all about pushing into debt. So they really enjoy this control of press 1 for debit, press 2 for credit, and we're bringing that back, and we see tremendous demand for that. But the most common thing I hear when I say that is people tell me, "Yes, that would be a nice feature. But what about my perks? What about my loyalty points? What about all the other perks that I get on my credit card?" And that's what you're seeing here is now not only have we launched the card with 1 for debit and 2 for credit. But in addition to that, we're now rolling out the debit card with credit card perks. And the demand for this has been through the roof. We're very excited about this. It's just about to roll out and get launched, but I can give you a funny example. I tweeted about this and said that anyone who would produce these funny memes will actually give us -- will have an early access code. And it was just -- you should go to X and watch these memes. It's really, really funny. And then one of our customers suggested, look, if you personally cut my Amex, I'm there. And we said, fine, I'll do that. So we had almost 1,000 people who indicated that they wanted us to sign up to get their credit card cut by our -- by me personally. So we think that's showing some very good promise to the demand of this product. And we're seeing across social media, there's tons of interest as we present these products to our audience. So this objective #3, from payments to full neobank, what is the numbers? What is it looking like? Well, the fantastic thing is thanks to the success of the last quarter, we have now surpassed one of our main competitors in global active card users, hitting 3.2 million, which we're very excited about. And we can see that U.S. obviously has been a big contributor to that with going from virtually 0 to 1.4 million active cardholders in the U.S. market. So it's starting to really, really work, and we're excited about trying to continue to accelerate this in additional markets. You should be aware here that Europe was a little bit later to the game. So U.S. was first, and we expect to see even more great success here in Europe as well. And that is also being seen in our card volumes. As you can see on a year-to-year basis, they're now growing almost at 100% rate. And that also has contributed. So I would say, doubling the number of merchants offering financing has grown financing product a lot. You can see here what we have done through the card. And all of this is paying off in an acceleration of our revenue growth. So here again, what you can see now is for the U.S. that we are now actually this quarter reporting 51% growth year-on-year, which we're very excited, which means that we're far outpacing our local competitor in growth. And in addition to that, you can see that it's also picking up across the board in all markets and also the strong growth in the U.S. is contributing a lot to the growth overall of the company, meaning that we're now almost on par in global growth as well. We have picked up to 28%. And this is while increasing take rates, which is a strong sign of the preference and interest in our products. So finally, a few words on operational efficiency. It's fantastic now that we're celebrating that we have underwritten $0.5 trillion since inception. And we've done that with south of 70 basis points of credit losses. And this is partly due to the fantastic short durations of our credit. That means that through the macroeconomical cycles that we have gone through over those 20 years, issuing all of this in over 26 markets, when macroeconomical swings happen, we can change our underwriting models. And in just about 60 days, we have -- more than half of our balance sheet is underwritten according to the new model. That's a level of agility that none of the large banks can compete with. Most of them with their credit card portfolios and their mortgages and so forth will sit and try to refresh their balance sheet for years after economical changes have implications on how you should underwrite. And we have also continued to transform Klarna's productivity. So you can see here that our revenue per employee, as we've been talking about previously, has continued to increase. We're now at $1.1 million per employee, and we hope to continue to do that acceleration. And part of that is due to AI and just a focus on operational efficiency, which not through layoffs, but through natural attrition as we haven't hired for a few years has now led to the number of employees to shrink by about 47%. But we want to highlight here as well is that not all of that comes through on the total staff cost. And the reason for that is we have made a commitment to our employees that all of these efficiency gains and especially the applications of AI should also, to some degree, come back in their paychecks, so that they are fully aligned and -- they are incentivized, aligned with the investors to drive these changes through the company. And that's you're seeing as the compensation per employee has risen from $126 to $203 through that process, which gives us a perfect alignment between our employees and our investors in driving the financial goals of Klarna. So we continue to see very demonstratable value from Klarna's AI assistant. This has been reported before. The update, as you can see, it used to do about 700 full-time jobs, now it's doing about 853 full-time jobs of a saving of $60 million. So we continue to invest in this. And you can see also that the focus on operational efficiency that we said in these AI times will be so important has led us to allow us to do about 108% revenue growth while keeping OpEx flat, which I think is pretty remarkable and unheard of as a number among businesses. With that said, I'm going to hand over to Niclas for the financial update. Niclas Neglen: Thanks, Sebastian. As you mentioned, Q3 was a landmark quarter for Klarna, a quarter where our investments in growth, especially in the U.S. and fair financing started to compound exactly as we expected. I'll now take a few minutes to walk through the financial update. Let's start at the top line. GMV grew to $32.7 billion, and the U.S. grew 43% year-over-year. Consequently, revenue grew to $903 million. And in the U.S., we saw revenue growth of 51%. The transaction margins came in at $281 million, reflecting a planned accounting lag from fair financing that I'll talk more about. Importantly, the lag is temporary. We're actually guiding to $109 million plus increase in Q4 on transaction margin dollars as those revenues start compounding. So this slide really captures the story of the quarter, faster growth now with profitability accelerating right behind it. The foundations for our growth remain the same. It's the building blocks you see on the right, growing with our strategic partners, scaling with the large global merchants, ensuring consumers have the Klarna card and building out that full suite of Klarna's flexible payments at more merchants. As we've already said, fair financing is a key contributor to Q3 '25 performance. In the U.S., it's up 244%. Fair financing is now available at 151,000 merchants, an increase of 3x over the last 2 years. Couple that with the new forward-flow agreement that we put in place, enables a very capital-efficient way for us to continue to expand this product. Overall, revenue growth is outpacing the market. We continue to see an acceleration based on the foundations of our building blocks, and we're coupling that with an increase in take rate in a very sustainable way. This page is central to understanding the impact of our success in accelerating growth through the U.S. fair financing. It creates a short-term profitability lag in Q3 '25. On the left-hand side P&L, we show the transaction margin dollars based on realized losses increasing by 25% year-over-year. You can see that correspondingly on the right-hand side chart, where you see $297 million going up by 25% to $371 million based on those realized losses. In fact, the $91 million of upfront provisioning is primarily driven by fair financing and drives the $280 million transaction margin dollars you see in Q3 '25. While that is the case, we're guiding towards a Q4 '25 of $390 million to $400 million of transaction margin dollars driven by the fact of -- that revenue from the success of the fair financing compounding over time. So let's just recap how accounting for fair financing works. Here's an illustrative example of a consumer who has a 6-month loan. We provision for the potential credit losses upfront, while we actually earn revenue over time as the consumer pays us back. As planned, our numbers reflect the growth in fair financing and the associated accounting processes. You can see that in the chart below. The gray parts of the bars show the upfront provisioning from the success of our fair financing product. While we can see the realized losses, the actual losses that we have recorded are actually very stable and coming down by 1 bp in Q3 '25 based on that continued improved underwriting. In fact, when you look at fair financing, you can see delinquencies falling 5% year-over-year, while GMV has been growing at 139%. Similarly, U.S. charge-offs remain stable within expected ranges. In summary, we have strong top line growth with GMV and revenue driven by an acceleration in the U.S. and in fair financing. That's driven a planned profitability lag in Q3 '25, and we're guiding towards an acceleration in transaction margin dollars in Q4, driven by us being able to continue to compound the revenue that we've seen from the success of our growth. Andrea Ferraz Estrada: Thanks, Niclas. We'll go to the investor questions first, and I will read three questions from say.com. The first question from [ Salem ] is, how can Klarna stay competitive against traditional credit card companies that offer buy now, pay later options? Sebastian Siemiatkowski: Yes. I think Klarna -- I've gotten the competitive question ever since 20 years back when it was us versus PayPal in Sweden and then it was us versus PayPal in Germany and then it was us versus payments companies in the U.K. and the U.S. I think that like -- I mean, in essence, how do you compete? You stay customer obsessed, you make sure that you build -- you listen to your customers, and you build the features that they want. You make sure that you are operationally efficient and don't waste money. And then you just keep on grinding and grinding. I think that, obviously, you could argue that when Klarna was still a small company, the prerequisite -- a small company may be grinding as much as they want, it's still hard to scale it into a large-scale company. But Klarna is at scale now with 114 million users globally, we are one of the largest banks in the world with a number of customers. And now we're exploring and looking into how we add additional value to those customers. And we're seeing that, that is accelerating in the numbers. So I feel we are very well situated to compete against the traditional companies who, most of them, I would say, expose complacency, lack of customer obsession and rely on high barriers of entry and low -- and high switching costs for their competitiveness rather than operational excellence and customer obsession. Andrea Ferraz Estrada: Thanks. The second question is from Benjamin, who asks, does Klarna have any plans to pay dividends to shareholders? Sebastian Siemiatkowski: No, we have no such current plans or ambitions. But I mean, obviously, we hope that Klarna will continue to improve its profitability and so forth. So in the future, nobody knows what's going to happen. Andrea Ferraz Estrada: And the third question is, how do you intend to improve profits on your current business model? Sebastian Siemiatkowski: There are a multitude of things. I mean, as you saw here Niclas explain, spent some time on is the profitability lag that is created through the high growth of fair financing as a product, which is fantastic accomplishments and really primarily stems from the fact that we've doubled the number of merchants that offer this product. But as you can see, that's still only 20% of the portfolio, and we hope to achieve 100%. So we would expect these products to continue to grow. Over time, in most markets, Klarna has on a, what we call, transaction margin. Am I using the right term, Niclas? Yes? Good. The transaction margin has been somewhere around 50%, 60% over a longer period of time in these markets. And a lot of that comes back to maturity, on like having enough repetitive customers, maturing your underwriting models for that specific geography and so forth. And we believe that, that's very achievable in all of our markets. The U.S. is a slight different, which is worth highlighting. And many times, people ask us about credit losses, but what we focus primarily in the U.S. right now is payments fees. Payments fees are actually the same size as losses in the U.S. market. And this is because of the settlement costs that are -- and the nonregulated credit card markets that we see in the U.S. So you may remember that in Europe, there's a regulation, credit cards cost 20, 40 bps. In the U.S., they may cost 150 to 200. So similar as we've seen other companies, some of you have been in payments and fintech for a long time will remember PayPal and how they basically sought to increase the difference between their funding cost and their payment fees. And this is exactly the same thing we're going through. We have tons of initiatives to drive down the payments cost, which should allow the U.S. market that is currently running at positive gross -- transaction margins, but not as high as in some of the more mature European markets. And I think that's the biggest, biggest one that's going to have the biggest implication on the transaction margin. As you can see, below transaction margin, the operating costs, we have no plans whatsoever to increase any spending there currently because of the efficiency gains that we're seeing from AI. We don't believe that hiring is the right approach at this point in time. It could be small hiring here and there, but not anything that will have implications on the net. Yes. Andrea Ferraz Estrada: Great. Thanks, Sebastian. So I have asked the analysts to e-mail me the questions so I can pass them on to management. So I will go ahead and do that. So the first question comes from Tim Chiodo at UBS. And it's about Apple Pay in store. Now they estimate that U.S. Apple Pay could be approaching $1 trillion of volume by 2027, meaning that even if 1% was via BNPL, Klarna would have a reasonable share of that business. Can you talk about how the Klarna team sizes up the potential opportunity associated with the Apple Pay channel even more broadly, including the online experience traction you've already seen? And as a follow-up, Affirm counts Apple Pay-related volumes, which are carded, as Affirm card volumes. Will the recognition be the same here, so we can use for comparability purposes? Sebastian Siemiatkowski: I'll leave the second one to you, Niclas. But I think on the first one, I can answer that. Hopefully, you noted the slide where we were talking about objective one, which is to reach the same amount of acceptance points as the big networks like Visa and Mastercard. Some of you will remember Amex 20 years ago was not accepted widely. You could maybe use it in a restaurant or an airport but not everywhere. And Amex did a fantastic work to roll it out and make it available everywhere. Klarna is going through that process right now, and that is the objective one that we're referring to. And we have already a few years back, identified that this is not going to happen by us signing every merchant ourselves. In order for us to reach that scale, we need to work more closely with our distribution partners. So that's number one. Second, companies like Stripe, like Apple Pay and others who have acceptance everywhere, who can drive that rollout of Klarna, making Klarna more available. So with that said, however, we had worked with some of these partners for many years, but we had never worked as we've always been an alternative payment method, something that merchant would have to go in, post-signing up with a Stripe or Worldpay, et cetera, and then add on. And that as well was clear to us was not going to make us into millions and millions of acceptance points. So we went for our holy grail that has been to become default, meaning that when you sign up with these partners, we should be default and we should be available. And that we're seeing tremendous success with already. You saw some of the ones in the slide. You can see that it is having a very positive impact on the growth of number of merchants. When it comes to Apple Pay, it is slightly different because the acceptance is already there, and it's more about customer adoption. So we have teams that are focusing internally using that customer obsession methodology that we showcase you where we are looking and interviewing customers using that product, looking at customer interactions and then making sure that all the minor glitches and things that can be improved are weeded out and that works really, really well. And we see a lot of scale and growth in that portfolio. But in addition to that, obviously, then the second part is just education, marketing and educating our consumers about the availability. And we have some interesting upcoming things that are going to happen there as well. I don't want to get ahead of myself, but like there's some interesting stuff that's going to come there to make it even more attractive and grow the awareness. As you saw in that slide, becoming a neobank, everything with Klarna is we have so many tons -- great features and many of these features drive additional revenue per customer as well. And a lot of -- but we have 114 million users, right? So there's -- a lot of it right now, the focus is really how do we make sure that all these users actually use us and use all these features. And so that's where a lot of the effort is, and that is true for Apple Pay as well. When we -- regarding reporting, I'll hand -- glad -- over to Niclas on that topic. Niclas Neglen: Thanks, Sebastian. So yes, so today, we don't actually include Apple Pay in our card volumes. This is what you're seeing today where we're announcing things around the card, it doesn't include Apple Pay. Apple Pay is growing really strongly. So is Google Pay. And I think globally, we're seeing really, really strong adoption for Apple Pay as well, particularly in the U.K. Andrea Ferraz Estrada: All right. Thanks. So the next question comes from Sanjay at KBW. And he asks, the 4 million Klarna card sign-ups in 4 months seems really strong. What are you seeing in terms of usage and uplift in GMV from consumers who are signing up for the card? What's the ARPAC from a card customer versus one that doesn't have a card? Sebastian Siemiatkowski: I will gladly leave that to you, Niclas. Niclas Neglen: Sure. So I think we had some of this on the slides, right? But what we're seeing from the card, ARPAC is around about $130. Now that's obviously only 3% today of active card users. So you can see where that's going in comparison to the $28 that we have on average on our 114 million active users. So we'll continue to see, I think, strong performance on that overall. Andrea Ferraz Estrada: Great. The next question comes from Jason from Wells Fargo, and he asks, the credit beta looks good in Q3. But are you seeing any signals in your data suggesting that you may have to tighten the credit box in any of your major geographies, especially as we head into the holidays and consumers potentially lean in more on BNPL? Sebastian Siemiatkowski: Look, I think, again, the key message that we've been trying to get out and that I feel very -- that I really myself think a lot about is the fact that the audience using Klarna is what we refer to as the self-aware avoiders. These are users who usually have used credit cards historically, found them to be not aligned with their best interest or even as I would quote some customers, the product of the devil. And the point is that like you end up racking up debt of $4,000, $5,000, you're paying high interest on that and you're revolving for eternity. Buy now, pay later, $100 average order value, the fixed installments, 0 interest. Obviously, our fair financing products are very affordable as well. So I would argue that the Klarna customer is a more conscious customer. It's one that is a little bit more thoughtful in how to spend on debit, how to spend on credit. And this is partially why we've seen after underwriting $0.5 trillion over 20 years, these below 70 bps losses over time. And the other thing that we highlighted was the agility of the model, right? So because we underwrite in real time, it allows us, when we see macroeconomical shifts, to adjust those models. And in just 40 days, more than 50% of our balance sheet is underwritten according to the new standards. And that gives you an agility. So the question then is, I would say, have we any reason currently to make any adjustments? And the honest answer is no. We have not seen anything in our data or in our spending that suggests that there should be currently any changes. What we have communicated, and I've said on some interviews is that in the midterm, I am keeping a close eye on whether we may see what is the inverse of credit underwriting in my 20 years, which would be that generally speaking, normally in lower -- in more worse performing macroeconomical scenarios, you would see implications for low-income household, blue-collar jobs, et cetera. With AI, it might very well be that the implications are the inverse, that it's actually going to affect high-income households and white-collar jobs to a larger degree. And that's what we're keeping an eye on to see if we want to make an adjustment. But so far, nothing has -- but I'm keeping a close eye and we're keeping a close eye on the unemployment numbers and particularly trying to understand in those unemployment jobs or numbers, what is -- how is the split between these professions and what are the implications for that. So it's one to keep a close eye on, but nothing that we have acted on so far. Andrea Ferraz Estrada: All right. Thank you. So operator, please go ahead and open the lines for the analysts. Operator: [Operator Instructions] Your first question comes from the line of James Faucette of Morgan Stanley. James Faucette: I wanted to ask about your partnership with Walmart and OnePay that was highlighted in your prepared remarks and slides. But wondering if you can give us any insight on how that's developing so far in terms of adoption, credit quality, even if just directionally? Niclas Neglen: So to answer your question, the OnePay, Walmart relationship is really going well. I think we are firing on all engines. External data, you can see that we've basically taken up the vast majority of volume with that relationship. And so we're moving forward really nicely. Generally speaking, it's going to plan with regards to the type of consumers we're seeing. And I think we're just seeing many, many opportunities, James, for us to continue to develop that relationship with OnePay and Walmart. Operator: Our next question comes from the line of Jason Kupferberg of Wells Fargo. Jason Kupferberg: I know you asked one of mine already. But let me ask you this, just on the fair financing side, I think you said you're now at 18% of your merchants. And I was wondering what percent of your total GMV those merchants represent? And then just any targets, where does that 18% penetration rate go to potentially over the next year or 2? Because obviously, that should ultimately be pretty accretive to the TM line. Niclas Neglen: Yes. Great. Thanks for the question. I don't have an exact figure with regards to the percentage of volume overarchingly. But I can say is that as we're continuing to work, to Sebastian's point, with the partnerships, we're going to see this continue to expand, obviously, to the suitable places. But ultimately, we're seeing that we're continuing with the partnerships to be in default in more places, allowing us then to have all of our full features or product sets with each of these merchants, right? So I would expect that to continue to become a very significant number, right? Obviously, with respect to certain verticals, you would have less opportunity for that, right, with a very small ticket, high frequency. But generally speaking, we would expect most of our merchants to be able to have that product set as well. And so it's all about just working through the integrations, working through the partnerships that we have and continuously doing that throughout our 26 markets and beyond. Operator: Your next question comes from the line of Darrin Peller of Wolfe Research. Darrin Peller: All right. Congrats on your first quarter out of the gate being a good quarter. It's nice to see the U.S. GMV growth continuing to accelerate during the quarter. So if you could just touch on the key drivers here again. I know fair financing is one of the main contributors, but anywhere else you're seeing the momentum? And what's the sustainability of that? And I'll just ask my two together. Just one more is on PSP default partnerships. I know that was clearly an exciting opportunity in terms of TAM. So how are the partnerships ramping in line? Are they in line with your expectations? Just a little update there. Sebastian Siemiatkowski: I think that the -- when it comes to the partnerships, as we said, like we concluded a few years back that like growing merchant-by-merchant is just not going to scale. You're going to have to work with PSPs. You look at the Stripes, the Worldpays of the world, JPMorgan Chase, all these guys, they have trillions of dollars of volume, right? So finding out ways to work with them, finding good partnerships and then also not just becoming an alternative that has a small 1 percentage of the volume, but actually coming default is super critical. I think one of the things that actually doesn't get enough attention here is the Stripe Link partnership, which in itself is like many of you now using Stripe will notice that you have this one-click experience, not that dissimilar to what Shopify does and others. And the benefit now is that Klarna is the main provider of that, which means that everyone getting a Stripe Link gets the option to use our buy now, pay later, which becomes an even faster way to reach all of the Stripe merchants that offer that already. So all of this is just like different ways of distribution of Klarna. Another one in Europe, which is actually important is this Vipps announcement. It might sound small, but it means it's opening up for third-party partnerships with local schemas, with local payment schemas and so forth. So all of these things are going to -- but the difference with this kind of growth is obviously, it's not like you launch and then go live and everything. These are like long-term strategic relationships, you need to sign the contracts, you need to find the reasons for them to do it. You need to set up the technical integrations. And as you will be familiar with, some of these companies are M&As. So they will have different tech platforms for different subsets of the volumes. So you need to integrate on all these platforms. But what we're happy about this is we think it's like setting a foundation for long-term growth of the company. And we can see that clearly now is the ones that already are live like the Stripe you saw on the slide or the Apple Pay and so forth, that is actually starting to really be visible in the growth of both number of merchants and volume. So we think this is nice because it sets the foundation and will continue. And there's really no reason why we would -- this would stop or anything. We're on a good trajectory here and things is going to continue. I think that's been very important for the U.S. The other one is making sure that we actually then offer all payment methods, not just one, as you saw. And then the third one, which we're super excited about, is that card growth that has already outcompeted globally -- on a global level, one of our competitors there. But also even on the U.S. level, we think fairly soon, we'll be able to catch up. So I think that the -- there's good belief to be optimistic about the opportunities in the U.S. in the short and midterm. Niclas Neglen: I would just add there, if you don't mind, like basically, if you think of it, there's $7 trillion worth of volume flow through these PSPs that we've signed, right? We're going to start ramping -- we started ramping up with Stripe and a few others that Sebastian mentioned. And over the coming quarters, we will continue to do so. But when we talk about something being live, yes, it's live, but there's still multiyear worth of growth here to Sebastian's point, right, which is really, I think, important to point out and highlight. And with regards to your other question, just around verticals, I was looking through kind of -- we're actually seeing a very broad-based growth across all of our types of verticals, which just shows how we're more and more becoming an everyday spending partner. Sebastian Siemiatkowski: I think it's worth highlighting as well is that in Europe, we are used to being 20% share of checkout. In the U.K., as an example, not uncommon for Klarna to be 20% share of checkout, on par with PayPal. In other European markets, we could see 40%, 50%, even 60% share of checkouts. In the U.S., it's predominantly still 5% to 10%. This is entirely natural. This is exactly the same that we've seen over the years in every market we come in. We're at about 5%, and we start growing 10%, 15% and so forth. So also like as a share of checkout, there's tremendous opportunity to grow in that regards we believe. And then people will have argumentations like is the same going to happen in the U.S. and in Europe, et cetera, et cetera. But from our point of perspective, there's no reason to believe that we could not achieve that, and we're going to definitely work hard to make it happen. Operator: Your next question comes from the line of Mihir Bhatia of Bank of America. Mihir Bhatia: I wanted to just maybe talk a little bit about the provision line item. And I appreciate the detail you guys went into in the prepared remarks. But maybe just to put a little finer point on it, the provisions for credit losses, they're up 17 bps quarter-over-quarter. And I was just wondering if you could talk about the drivers of that. How much of that was new loans versus changes for the loans on balance sheet? Because just given the credit performance, it seems like a pretty big jump. Any color on how we should think about that going forward? Niclas Neglen: Yes. So I mean, obviously, we are scaling the book quite quickly, right? And so given that the vast majority is really on -- is really with the new cohort of growth that we're seeing, right? I would expect that to kind of move -- over time, start normalizing, right? But I think given the speed and the size and the opportunity and the fact that we can continue to compound with so many new merchants through the partnerships that we have, I think it will take a multi-quarter view for us to fully kind of get into a more normalized mix, if that makes sense, Mihir. Sebastian Siemiatkowski: Well, we think it's very good. It's very healthy. It's like a subscription business. You should take the marketing cost upfront and you have revenue over the lifetime of the customer. And that's the same thing we're doing here. I mean the dominant impact on that line is because we're taking the cost upfront while the revenue is coming in over time. And so that makes a lot of sense. Obviously, some of our competitors, when they sell more of what they generate, they book both the cost and the income immediately. But we also know and you -- many of you will be aware that, that is also less affordable. It is actually more profitable to do what we're doing and putting it on our balance sheet. So it's a trade-off between how much we sell off and so forth. But from an accounting perspective, this makes a lot of sense. This is diligence. This is smart and thoughtful to do it this way. And for us that have been -- myself been with Klarna for 20 years as an investor, a shareholder, I've seen us go through these cycles. And as you start growing fast because of the number of merchants that we've added on financing has doubled, then you're going to see these short-term profitability lags' implications on the P&L. Mihir Bhatia: Understood. If I could ask a follow-up just on Southern Europe, pretty strong growth there. Anything in particular -- anything to call out there on what's driving that growth? Sebastian Siemiatkowski: Yes. I think that the -- thank you for highlighting that. We actually -- we spent, I would say, 2022 and '23, Sykes, our Head of Commercial, spent a lot of time on really setting the foundation in Italy, in Spain, in France, in these large markets that at that point in time, we hadn't really been as successful in, and we hadn't yet outcompeted the local competitors that existed. And it's really nice to see that pay off. I think one thing that's underappreciated about Klarna is global coverage. And the point is if you're talking to retailers across the world, if you're talking to Sephora that's operating obviously in all these markets, it just has such a tremendous value to be able to work with one provider as Klarna across all these markets. I remember clearly being in a meeting with IKEA and they once said to me like many years ago, "You moved from the local payment method to the regional one." And I was like, "Yes, but here's global with PayPal. How do I get in that quadrant?" And now we are, right? And what's helpful about that, obviously, we also have salespeople on the ground across the world, right? So we have people in Barcelona, we have people in Tokyo, we have people in Portland, next to Nike. We have across the world, over 40 locations. They sit close and work with these retailers. These are long-term relationships, and we make sure that we're live with these merchants across all markets. So we're getting a lot of value of that in these markets like France and Spain, Italy because they just roll us out. And that allows us to be very competitive on a local level as well. And I think that's being seen. But we actually think there's more potential there. There's more work to be done on improving the quality of the product and so forth. So we think there's a good potential to continue growing in these markets as well. But very helpful to have this global distribution partnership with people like Stripe and others who are going to automatically turn us on in all these local markets. Operator: Next question comes from the line of Nate Svensson of Deutsche Bank. Christopher Svensson: Congrats on getting out there with the first quarter. I wanted to ask on the Elliott partnership that we saw the news come across this morning. Maybe you could talk a little bit more about the process to bring them on board? What they saw in Klarna to get them comfortable? Why you decided they were the right partner? And then I guess we saw that $6.5 billion number there. Does that give you enough runway to meet your ambitions for U.S. fair financing? Or do you think you're going to have to additional partners? And then sorry for making it a three-parter, but just on the revenue recognition, there. It sounds like you will be selling some of the back book over. Should we assume the entirety of the front book will be sold to Elliott? Sebastian, I think you had mentioned making this decision between how much to keep on, how much to sell. So just more details on the revenue recognition from that partnership would be helpful. Niclas Neglen: Sure. Great. So yes, I mean, Elliott is a great partner, and we work with them on a number of other transactions as well. I think generally speaking, it's always going to be a balance for us between profitability, ensuring that we can continue to grow and ensuring that we don't dilute our shareholders in that growth through the capital given that we're a bank, right? So those are really the three vectors that we think about. And I think this is a great partnership. Elliott is a strong partner. They understand us. They know us well. We've done other transactions with them in the past. And from our perspective, this one is a really, really good partnership. I do believe the runway that we have with our growth potential that we've just spoken about here will give us an opportunity to continue to do more of these things over time, right? And again, thinking about those three balances of profitability, ensuring that we minimize dilution to shareholders, grow the best return on tangible equity while also growing the business in the size and ensuring that we can do that. So I think that's really the economics around it. Andrea Ferraz Estrada: Thanks, Niclas. I'm going to take, again, since some of the analysts sort of just ended up sending us the e-mails. So Will Nance from Goldman Sachs is asking, could you talk about your engagement with merchants around advertising into the holidays? Where are you now? And where do you aspire to be in terms of merchants viewing Klarna as a way to drive sales and engagement with consumers? Sebastian Siemiatkowski: Yes. So I think that this is actually one of the things I'm very proud and happy about, and I think has made a big difference in this -- we were talking about this customer obsession work. You saw me presenting a little bit on how we do it. You saw those customer interviews that we do and we review all the experience and so forth. And a big part of that is obviously feeding actionable insights, not only for us, but also for our partners. So what we do out of that process, we come and we recognize like how could we help Sephora grow their business? How could we help Etsy grow their business? How could we help eBay grow their business? And this generates like very, very concrete advice and suggestions of changes, of improvements, marketing campaigns, to your point, and so forth. And that's what our sales teams are then interacting with. And we've seen a fantastic uptick in trust and people wanting to listen because I think maybe more like every other traditional company, we used to come and say, "Hey, we have this idea, and this could have this impact, and it could be like something more complex." But now we're coming with like super concrete, real well-explained, very, very high-impact changes that can be fixed, and we're seeing that having a very dramatic effect. So -- and marketing activities is obviously a big part of that. There's tons of things we can do like how we position the payment method, how we show it on the website. And obviously, 0% financing, fantastic opportunity, one of the things that I think Klarna has underinvested in, and we are now really ramping up and making sure that we're offering. I think 0% financing is such a fantastic opportunity. A lot of merchants and a lot of brands want to offer affordability without lowering their prices. And also, what we see is that 0% financing is driving a fantastic audience to Klarna because it attracts a more broad spectra of FICO scores. So it is fantastic in many, many ways. And that's going to be a continuous focus with our partners. You're going to see us do a lot of things in 0% financing. Andrea Ferraz Estrada: Fantastic. And I think we have time for just one more. It comes from Rob Wildhack at Autonomous. And the question is, wonder if you could talk about the transaction margin by product. What kind of transaction margins are you seeing on the U.S. fair financing volume? And how should we expect them to -- the mix to impact the overall transaction margin as you grow that product? Where does that transaction margin settle out at steady state? Niclas Neglen: Yes. Good question. I mean, look, there's a lot of different products that we're launching, right, and that we're working and building that are new, whether it be through the card and otherwise. But let's talk about fair finance because you mentioned that one. So generally, we target between 3% and 4% transaction margin dollars. I think that's a fair approach. And as we continue to ramp, that obviously will be accretive to the overall portfolio. But again, at the same time, we're also, to Sebastian's point, building out the pay in full elements and such, right? So we are going to have variations to that. I think the key thing for us is really can we serve as much of the customer share of wallet as possible and are we relevant in every single time that they want to make a payment as an everyday spending partner. That's what we really need to focus on. Then as you know, we've spoken about this before, it's all about having a very trend-based focused model, where we look at how we're developing over time, given the fact that we are growing in 26 markets across -- with 114 million users or consumers and with so many merchants, right, and across so many vectors. So we're going to continue to kind of do that. And as we guide, we'll guide towards the transaction margin dollar growth basis on a volume view rather than trying to just nail down a particular unit economics on one or another. Andrea Ferraz Estrada: All right. Thank you so much. And with this, we conclude the call. We thank everyone for joining, for putting up with our technical issues. And with this, we conclude the call. Thank you. Sebastian Siemiatkowski: Thank you so much. Niclas Neglen: Thanks, everybody.