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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.
Stuart Green: Hello, and welcome to ZOO Digital's Interim Results Presentation for FY '26. So whilst you're all reading this disclaimer, let me just say that if you are watching this presentation live, then we will have time at the end for a Q&A session. We'll aim for about 30 minutes presentation, and we'll have up to 30 minutes of Q&A. [Operator Instructions] So just quick introductions for those who haven't met me before, I'm Stuart Green, I'm the CEO. I was formerly the CTO and took the current role in 2006. I am a large shareholder in the business, having invested my own capital over the course of several years. Rob? Robert Pursell: Hi everyone. My name is Rob Pursell. I'm the CFO. I actually only joined in August 2025. So slightly less tenured than Stuart. I spent 15 years operating as a CFO in technology businesses. and I've worked in a combination of both private and public companies. Stuart Green: So a quick recap for those new to the story. What we do is provide both technical and creative services to -- mainly to streaming -- video streaming companies and content producers to take their content and make it available for global audiences. And on this slide, you see some of the streaming platforms that we target in terms of where the output of our work goes. We are tech-enabled, and that's the key thing that sets us apart. So all of what we do for our customers, we do through technology that we've created that makes us very efficient and very scalable. We are what's referred to in our industry as an end-to-end vendor. So as I say, there are some technical things and some creative things. We can do everything that's needed to get original content and make it available on streaming services in any languages that our customers may require. Our previous financial year ending March '25 was characterized by being a period of transition for many of our customers who have gone through strategic reviews and have realigned their businesses. And in the course of that period and until recently, we have gone through a process of restructuring our cost base to ensure that we can deliver profits and generate cash in our business. So after a period that's been somewhat subdued over the last couple of years, we're now seeing signs that our customers are coming back and are ready to start ramping up again. And there are early signs, but we feel that there are kind of green shoots there. And we are in a very good position, we believe, to be able to capitalize on that and to grow the business going forward. So what we do then just to elaborate on this a little bit, is that we -- our work begins usually when a new program, say, a TV series or a new feature film has been completed, and it's made by a production company, and our work ends when we submit the final deliverables into one or more streaming services. So what's sandwiched in the middle there, which is the scope of what we do is divided between 2 areas. We refer to them as localization services, which are predominantly creative processes to adapt things for different languages and cultures. And in the other area, Media Services are mostly technical things that we do to make sure that, that content will play properly on whichever target platform or platforms is targeted for. And as I said, we're an end-to-end vendor so we can take care of everything that's needed in that process. And those -- and that -- those 2 headings that I gave you there are really categories of a whole range of different things. And on this slide, you see the variety of different individual services that we actually deliver to our customers. So this is a complex area. These are very specialized things. We're at this position, able to do all this because we've made investment over many years. We've developed technology -- bespoke technology that helps us to do this in a very efficient and scalable way. What our customers need from us and indeed other vendors that we compete with are set out on the slide. The first 2 of these are absolute necessities. So firstly, vendors who service these big buyers to work on this very high quality and expensive content, must, in the first instance, do an incredibly good job. So they must deliver to a quality into standards that are very high in exacting. And in this regard, ZOO performs exceptionally well, and I'll elaborate on that a little bit in just a second. We receive awards. So on the top there, you see an award that we received from Netflix for being their best performing partner in the Americas in 2024. Secondly, you have to be able to do that to incredibly high standard of security to ensure that there's no chance of the content that you're working on behalf of customers leaking and going into the wrong hands. And here again, we perform at a high standard. We are classified as a gold standard under the trusted partner network, which essentially is a framework for assessing the security undertakings that a particular vendor observes. So those are the 2 kind of stats, and we perform very well on both accounts. And it takes a while to demonstrate to customers that you have that capability. So this is not something that happens overnight. It happens over a period of years, which means that the barriers to entry for new entrants are very high. The next 3 items on this list are what we see as being the emerging requirements and in some cases, the change requirements that we're seeing customers now have as they have come out the other side of this period of this fallow period as it were, look -- and as they look to the future and the kind of partners that they want to work with. So the first thing is that increasingly they're looking for partners who are technologically advanced, are progressive in the use of tech. And in this regard, ZOO as a tech-enabled business, is very well positioned. So the fact that we are embracing AI, for example, in our workflow is something that is seeing very favorably by our customers. Next, as I mentioned, we are an end-to-end vendor. That means we can do everything. And that is increasingly sought after by customers who want to simplify the supply chain. So when in the past they may have had many vendors to cover these services, what they now want is very few vendors, but each of which has to be able to do everything. So the fact that we are an end-to-end vendor and there are very few of those in the market, again, positions ZOO very well. And then finally, our customers want things faster. They want us and other vendors to be able to turn around projects much more quickly because that's dead time for them. Once they finish title, ideally, they just like to get it up on the platform. But the work that we do stands in the way of that happening. So the quicker that, that can be done, the better for them. And this is an area where we excel, particularly through some recent innovations that we call Fast Track, which we'll elaborate on more in just a moment. So by all of these requirements, ZOO is incredibly well positioned, we believe, in the market. I mentioned that the quality is a key absolute requirement. And something we've done this -- in this set of results for the first time, and we'll do it in each half results going forward is that we are publishing a quality metric. This is not a measure that we've taken ourselves. It's actually based on measures that are supplied to us by a subset of our customers. So some but not all of our customers report to us either every month or every quarter, their own measures of the quality of the work that we've done. And we basically combine those to arrive at a weighted score. And as you can see in the half, we achieved 99.9%. So that's based on measures that are accounted for by customers who together were responsible for 58.2% of our revenue in that period. So the remaining amount of that is -- was basically what we did for customers who don't give us these -- don't have such rigorous programs to measure this performance. So the takeaway here is that hopefully, this gives you the evidence on the reinsurance that we are performing at a very high standard. And we believe that these scores put us at the very top of the league table in terms of vendors who deliver these services in the industry. But more importantly, as we'll come on in a moment to talk about the cost reductions we've implemented in the business, what was absolutely critical to us as we went through that exercise was not compromising on those top 2 essential requirements that I covered previously. And as you can see, with scores of 99.9%, we certainly achieved that. So with that, I hand over to Rob to cover off the results. Robert Pursell: Fantastic. Okay. Thank you, Stuart. So hopefully, you had a time to look at the statement we put out today and this presentation is online as well. But what we're trying to do here is really pull out some of the key messages in terms of what we've done and what we've delivered in H1 this year. And I think there's 2 things really. One is that we feel that we've shown that the business has now stabilized. So anyone who's followed the company for a while would have known that the results have been quite volatile over the last few years, and we can really see that's stabilizing. And probably the key message from this half is that we've now finished this cost rationalization program. And again, this is something we've been talking about over the last few releases. And there were 2 things we had to achieve with that. One, we had to really show the improvement in profitability, start to be able to generate some cash within the business after the previous years. But also, as Stuart said, we had to do that in a way that didn't impact on our quality, on our innovation and on all those attributes that our customers absolutely demand from us. And we feel we've done that now. So we feel that we can show higher margins, and we feel that we've done that in a way that isn't impacting on our ability to grow in the future. So getting down into some of the numbers. So firstly, in the half, revenues decreased by 19% to $22.4 million. Now we expected this. And the reason for this was that in H1 FY '25, we had a lot of backlog work coming through from the writers and actors strike that happened in Hollywood in FY '24. So we had a very, very poor year in FY '24 and then that came through -- some of that work came back in the first half of FY '25. As I said, that as expected. There's no surprises there for us. But what's important to note is that from the end of H1 FY '25, so for the last 4 quarters, revenues have been stable at around $11 million a quarter or $22 million a half. So that's 12 months of stability that we've had. Now during that time, we've been completing this cost rationalization program. And what you can see here is that one of the most immediate impacts of that is that our gross profit remained at just over $10 million for the half. So that's the same level as it was last year, but on $5 million less revenue, showing the impact of what was achieved. Gross profit was in line with last year. EBITDA actually increased from $1.7 million to $2 million. So we made a higher measure of EBITDA, again on lower revenues. And I'll come on and talk a little bit more about those cost savings. So I think financially, you can see here that we've really made that difference. We said we were going to have to do a lot with the business, and that's what we've done. I've introduced a new KPI measure, we call this cash EBITDA. Okay. So EBITDA is a commonly used name. We use it to measure profitability. There are some accounting things and now there are some costs that end up being capitalized, that end up being excluded from a normal measure of EBITDA. Now for us, there are 2 key costs. One is the payroll, the pay that we pay our developers to develop our technology and our software. That gets capitalized. So it isn't included in EBITDA. And the second is property cost, property leases because of some new accounting standards that gets capitalized as well. Now for me, looking at this, we're going to carry on paying our development team, we're going to carry on paying our property costs. So these are costs that have to be funded and monthly cost in the business that have to be funded. So what I've done is I've added those back into and I've effectively lowered that EBITDA measure to account for those. And what I feel that cash EBITDA is doing for us now is really showing our ability to turn the revenue into cash. So it's in a way, it's like a cash profit. It's the cleanest thing cash profit that we've got. And the reason I wanted to show that is to show that in the half, we actually generated $0.6 million. So the underlying business model is now starting to generate cash. I put some comparators there. So you can see in H1 last year, we made a small loss of $0.1 million. But actually in H2 of last year, so the half just before the one that we're reporting, we actually made a cash EBITDA loss of $2 million, okay? And so that was on the $22 million of revenues, so the same amount of revenue as we've done this half. but a $2 million loss compared to a $600,000 profit. So I think that's a really important measure for us to keep an eye on because we need to start generating cash as a business, but it really does show us again the impact financially of this cost program that we've been doing. Operating loss, again, with that this has improved. It was a loss of $2.5 million, that's down to $1.2 million for H1, and it was actually slightly positive in Q2. So again, that improving trend is we've seen within the half from Q1 to Q2. And in terms of our cash balance, so we've ended the year with $3.3 million in -- so we ended the half with $3.3 million in the bank. It was $4.3 million this time last year, but it was $2.7 million at the end of last financial year, which was the most recently reported number. So financially, I think we've really achieved everything we set out to do with the cost rationalization program. But there are 2 parts of that. From a finance point of view, great, we're starting to generate some cash, we're seeing improvements in profitability. But we have to be doing this in a way that in no way prevents our ability to grow. And there are 2 things that drive that for ZOO. One is the quality of the work that we do, but the second is the innovation and how we are really the leading tech-enabled provider in this space. Stuart will come and talk about these a little bit more coming on. But certainly, we've already shown you the quality metrics. So there can be no doubt that we are still operating at an incredibly high level of quality in the work that we do. And we've mentioned Fast Track. So we are doing something that we believe nobody else in the industry is actually doing at the moment, and that is being able to do dubbing in 24 hours and complete subtitling in around 3 hours. Now to give you an indication, dubbing normally probably take 3 to 4 weeks, subtitling 1 to 2 weeks. So it's a real reduction in the time that it takes to do that. And that's using our technology. And we've also started to integrate AI into a number of our workflows. Now we have to do this with our customers. So within our industry, there is a lot of caution around the use of AI. But we're starting to work with them and show them the efficiency, show them what it could do and with their approval, allow us to start to use AI within their workflows. And then the final thing as well, amongst all these cost savings, this rationalization, we've gone and invested in international operations in Germany, in Korea, in India and some other locations as well. And now we've been able to get all of those people working on our platforms within our -- to the same level of quality that we would be expected to do. And that's allowed us really to help manage costs and to be more flexible. And we're going to carry on doing that. But I think the point here is that not only have we made a significant difference to the financials within the business. But operationally, we haven't taken a pause at all. We are still doing the things that made so special prior to taking out those costs. And it's a combination of those 2 that I think is the real success for this half. So a little bit of a summary in terms of the numbers, and I'll try not to get into too much detail here. But what I wanted to do is you can see in the statement the comparative, so H1 '26 versus last year's H1 '25. But as I said, that benefited from quite a considerable backlog coming in from FY '24. So what we have done is, I've shown you there the results for FY '25 H2. So the half just before the one that we're reporting. I think that's important because you can actually see that, that there's revenue of $22 million, and yes, that's increased slightly to $22.4 million in this half. But if we would say drop down, you can then see, well, on a similar amount of revenue, we've gone from an operating loss of $4 million, an EBITDA loss of $0.5 million all the way to this current half of a reduced operating loss of $1.2 million, but that adjusted EBITDA of $2 million. And like I said, even the cash EBITDA is positive. So that really, I think, shows the impact of that change and to put it into another way. If I look at the fixed cost of the business, so people, property, IT costs, we've actually reduced those by 1/3. So that's quite a substantial change for a business to go through. So that's been completed. Now to maybe mention a little bit about the revenue, you can see that there is a small growth there from $22 million up to $22.4 million from H2 to H1. And dubbing, which is part of our localization is still in decline at the moment. So that declined by $2.7 million. So excluding dubbing, all our other revenue streams from Media Services to Subtitling actually grew by 19%. So we've already started to see the growth coming back in those areas. And we do expect dubbing to come back as well. It just takes a little longer as it's more dependent on original content. That's the content that's most likely to be dubbed, but it's just taking a little while for the industry to recover with that. So hopefully, that gives you a little bit more context in terms of those numbers. And then if we come and look at even more detail, what you can see here is we split our business really into 3 revenue streams. So Localization, which is the dubbing and subtitling; Media Services, which is more of a technical service, reformatting or getting the correct formats for the content so then be distributed onto the platforms. We have a legacy piece of licensing that is still in place, and that's what comes under Software Solutions. And so there's a lot of information there to look at. I think if I could just take you right down to the bottom of those tables and look at that total number there. What this is showing is that our gross profit, the percentage of profit we're making on those revenues is up now at 45%. And previously, that was at 37%. And 45% is -- I went back as far as 2018, and that is higher than we've had really achieved before. The next highest I could find was 38% in FY '23. So when we talk about the way in which we've shaped the business, we've really been able to improve the amount of profit that we can make of the revenues. And you can see that particularly in Media Services, where we've really been leveraging those investments that we've made in India and really being able to drive up the percentage of that. So that gives you a little bit more idea about what's going on within the revenues. And let's come to the balance sheet now. I'm not going to talk too much about this other than really to maybe sort of refer you to sort of the current liabilities line. And in previous meetings, there was concern about were our liabilities too high. We've obviously gone through a period of cash going out of the business and the inevitable pressure that, that put on creditors. And along with completing that cost program, along with still delivering the same level of quality and innovation, we've actually been able to significantly reduce the amount of liabilities within the business and on the balance sheet. So that's really helping just give us a bit of breathing room on the balance sheet and normalize that position a little bit. Then the final statement really to talk about is our cash flow. You can see, as you go down there, that we've generated cash from operations and just to pickup that number, that's $488,000 of cash that has been generated from the work that we've done. But if you look there, you can see that included a $5.3 million payment reduction in payables, which again is just reaffirming the idea that we're really sort of helping improve our liquidity in that situation. And that was partly done by the cost savings ensuring that, that cash EBITDA that we're generating cash at that level, but also we were able to improve the speed in which we're doing some invoicing and therefore, reduce the amount of receivables by being paid a little bit earlier as well. So that gave us positive cash flow operations, and you can see that, that flow through right down to the bottom to an increase of -- in cash from the end of the year of just under $700,000. Final point for me, so. So in terms of how we manage the liquidity in the business, how do we cope with growth, if we needed to -- we have more business coming through and the pressures of that, that can put on us and where we have 3 main facilities. We have a financing facility of $3 million in the U.S. from HSBC. We have GBP 2 million within -- in Europe. And what this allows us to do is to when we issue an invoice, we don't have to wait for the 30 or 45 days for it to be paid. HSBC will effectively pay us a little bit in advance amount. And at the end of the period, we drawn down $1.7 million out of that, around $6 million in total. But we still have $3.3 million in the banks. We still had enough money in the bank to cover what have been drawn down. But it's just helping us manage working capital a little bit better. And also what you could see, if you look at our balance sheet, you can see that we're kind of neutral in terms of our net current asset position and that was a slight deficit. It was in that liability at the end of the year. So I think the key message really is that we've completed the cost rationalization program. It has had the impact that we said it would do on our finances. We've done into a way that it's still allowing us to deliver the same level of work with the same level of quality, is not restricting the opportunities that we're seeing ahead of us, and it's leaving us absolutely on target to meet market expectations. Stuart Green: Thank you, Rob. So I'll just say a few words about the market and the trends that we're seeing there and those that -- in particular, that are pertinent to the ZOO business. So the first thing is that there are various commentators who look at how much is being spent globally on producing new entertainment content. And they all point to that some spend increasing over time. So all commentators think there's going to be more spend on content and our assumption is that more spend means more content is being made and more content is obviously good for us because in normal times, most of the work we do is related to new original content that's produced. Just a couple of data points very recently to speak to that point. In a recent announcement, Paramount, which, as you may know, was -- has gone through a transaction with Skydance Media. And the new CEO of Paramount has said that they're going to be spending an additional $1.5 billion a year on their content budgets. And also Disney, who last week put out a quarterly earnings indicated that they would be spending an extra $1 billion a year on producing original content. So obviously, those are 2 anecdotal things, but overall, the sense that we have here is that spend on original content is continuing. That's obviously a good thing for us. That doesn't -- that's really a proxy. Looking at that as a kind of proxy for the opportunity for ZOO because obviously, we're not tapping into content production budgets. We're tapping into those budgets are being spent on localizing that content. But what we know there from research by Slater, which is a market commentator in the localization field, is that the services market for media localization is worth around $3 billion a year. And our estimates are that about half of that spend is with the major global media companies that we target. So we think that the addressable market for ZOO in media localization is roundly $1.5 billion a year. And that excludes any spend on media services, where we don't have any market commentators giving us steer on that. So that tells you the ZOO's opportunity in terms of an addressable market is at least $1.5 billion. The other things that we are, I guess, to be mindful of is that localization remains and will we believe continue to remain a key strategy on the part of our customers in maximizing the return on the investments they're making in the original content. So that's to say they're choosing to make content that they believe will be appealing to audiences in different countries. And that, of course, then necessitates that, that content is localized. We're seeing more interest by streamers in commissioning content, which is delivered live or near live. So things like sports, another time-sensitive content such as chat shows, talk shows, current affairs programs, those kinds of things. Obviously, this is an area where we can excel and as I said, I'll talk a little bit more about that in a bit more detail in just a second. In the period, we've also seen our customers actually looking to license more third-party content. And this is at a time when their output, their current output of original content is actually lower than it would be normally as a consequence of their changes in content strategy. Something that we believe will sort of ride itself probably over the course of the next calendar year. Our customers all want things faster. So there's a real push to -- for faster turnaround and they're all increasingly looking to work with end-to-end vendors. So that's to say, suppliers like ZOO, of which there are a few who can actually do all of these things for them. These things we're getting a feel for as a result of the fact that we've -- there have been more RFPs issued that we've participated in, of course, the last few months than we've seen in several years. So this is buyers getting to the point where they're now ready to look ahead and think about who they want to partner with for these services. And again, we think that this is an indication of the market starting to move again and is giving us a feel for the kind of partners that they want to work with. And those trends are all favorable for ZOO. So these all play to ZOO's strengths. Obviously, AI is something words on everyone's lips. What I say about this is that actually, we published a white paper very recently. You can find it on the website, and we also delivered a webinar to talk about it, and you can watch that too in our Investor Relations section of the website. In a nutshell, we are using AI in certain areas. It is delivering benefits to ZOO and that it's reducing the time it takes us to do the work we do, and it also reduces our cost to fulfill that work. And of course, customers are also looking for benefits and the benefits they're looking for are the same as the ones that we're looking for, namely, they would like us to be able to deliver results faster. And also, obviously, they'd be very happy to take some savings of costs. So what we're doing is share the moment -- is with those customers who we're choosing to use AI or choosing for -- or permitting us, if you like, to use AI, we are sharing the cost with them. So our costs are coming down. We're charging a lower -- a slightly lower fee. But these are -- this is -- we're talking 10%, 20% difference in pricing. We're not talking a dramatic reduction in costs. And the reason for that is that to do localization in particular to the standard that is required by our customers, it is absolutely crucial that it has human oversight to be sure that all that context or those subtleties, nuances in the source programming is not lost and is correctly preserved authentically in the adaptations to the different languages. To do that, you need people. You can use -- and then we are indeed using AI to help us in that process to make it more efficient. But this isn't a -- this is like a 90% reduction in costs and time. Those kinds of levels of reduction are possible in media localization, but only if you're prepared to tolerate lower quality. And there are some segments of the market where we don't participate where that is the case. So if you think of user-generated content, such as the kind of programming you see on YouTube or TikTok, for example, these AI systems are being used quite successfully there. But that's not our market. Our market is the high end producers and distributors of this content who demand the highest quality. And therefore, our adoption of AI is designed to be consistent with the outputs that our customers want. Just one last thing to say about AI is it provides opportunity to trim costs in certain areas, we expect that, that will result in greater market demand. There is always that opportunity that if you can reduce the cost of something, you will be able to sell more of it. And we think that, that is true here, too. We provided this little diagram to give you a feel for where we are already using AI and where we're planning to use it in the future. So AIA in this diagram refers to Artificial AI Assistance. So it's where we are using AI not to displace a traditional process, but to augment it, to assist experts to do their job, but to do it more quickly, more efficiently potentially to a better standard. So we're already using it right across -- all across, pretty much all our customers for transcription. And for some customers who have given their explicit consent, we are also using it for translation as a way to produce a first pass that will then be further worked on by human specialist immediate localization. So the blue boxes show you where we're currently using AI. The orange boxes tell you the areas that we're very actively developing and expect to deploy new capabilities in the near to midterm. The red boxes are things where we are mostly already working, but the realization of those benefits is going to come a little bit further downstream. So right across our operations, looking at deploying AI as a way to assist existing processes. And even in translation, transcription, we're not done there. This is such a fast pace, quick moving field that we have it to continue to keep track of new developments in third-party systems to make sure we're using the best of breed. So our approach is to use best-of-breed technologies where they make sense in our workflows to deliver services for our customers. So I'll just talk about we have 5 pillars of our strategic plan that we talk about every time. These are the 5 very briefly, just in terms of the progress we've made in each area. In innovation, we have been, as I said, working on AI pretty extensively, and we've also developed a new proposition called Fast Track, which I will tell you about in the next slide. For scalability, we have really pressed ahead with our follow the sun strategy. So this is a strategy that we use to move projects in the course of 24 hours from one of our facilities to the next in a very efficient, streamlined way that effectively gives us 24/7 service capability without having to pay over time to shift work in each location. On collaboration, we are working with third parties. These are just 3 of the partners we work with on technologies for AI. AWS, which you may think of as a service for providing cloud-based compute and storage services. They actually also provide a range of other services, including for AI and where they make sense in our business, we use those. On customers, we are working very closely with our customers in a number of different areas and as I mentioned, have been recipients of RFPs from several of those customers who are looking to the future afresh and want to streamline the way in which they work, which, again, is all opportunity for us. And then finally, for talent, we have part of the reductions in costs that we've been able to implement that Rob has taken you through are because we are able to move certain functions to India and operate at a lower economic cost, very efficient and scalable services. So Fast Track then. So this is a new service that we have introduced in the period. It's a service that is designed -- that we designed specifically to deal with very time-sensitive content, especially, as I said, think of sports and current affairs and so on. But actually, what we found as we pitched this to our customers is that generally, any reduction in the time it takes to perform these kinds of services that we provide is increasingly sought after. So in fact, we've been engaged by customers to deliver our Fast Track service, which is a premium service, for which we can charge a premium. We've been asked to apply that service for a content type that isn't necessarily time sensitive but the customer would just simply like to get it to market more quickly. So the way we've gone about this is by further enhancing our cloud-based workflow platforms so that we can do much more work concurrently. So we still do the same amount of work for our customers, but much more of that work can be performed in parallel. And as a result, we've been able to take subtitling down from something that would take a week or 2, down to 3 hours and dubbing from something like a month or 2 down to 24 hours. So those are radical reductions in the turnaround time, which are essential for, as I say, live and near-live content, but also are increasingly sought after for content more widely where we see great opportunities. Just by way of example, we worked on a project recently for a customer where they wanted us to produce outputs in 32 different languages in the space of 3 hours or so. So we had within our systems around 700 of our operators around the world, all working on the same project at the same time. So what our systems are doing here is orchestrating what could be enormous resource pools in a very efficient and coordinated way to be able to deliver these outputs in a dramatically reduced time frame. And our clients for this are major streaming services for which we've already worked on a number of very high-profile titles. So just wrap up then with a few words on outlook. So we're on track for achieving full year market expectations. As Rob has taken you through, we've restructured our business for growth. What we're finding is that our customers are looking for faster turnaround, as I described, and that is creating new opportunities. They're looking to -- look again at how they want to work with vendors. We've seen many RFPs coming through, which we're participating in, and we're optimistic that we will be successful in a number of those. And also in live and near-live programming, we see more of that coming on to streaming based on what we're hearing from our customers. And there are -- we're not aware of any other vendor that can offer a truly multilingual, multiservice, fast-track type solution in the time frames that we're able to deliver. So just to wrap up with investment summary. So we're a trusted partner to the biggest names in the industry. We're a technology-first pioneer which obviously augurs very well as our customers are looking more and more to work with partners that are embracing technologies such as AI. We're already working with all of the major streamers and content producers. We've already implemented AI in some of be workflows and have -- are actively working on using that more widely. So AI for us is a great opportunity. We're delivering a premium solution in a market that is seeing structural growth. And so with a leaner and more efficient organization we built through the efficiencies that Rob's described, we're very well positioned to build on this position and grow as our market recovers. Thank you very much. So as I mentioned, if you have questions that you would like to pose, please submit them to the -- in the questions section on the right side, which I think should be on the right side of your screen. Stuart Green: We've already received a few questions, so we'll just dive in and take those in the order that they were submitted. So the first question comes from Andrew. Have you finally abandoned plans for the acquisition of the Japanese services provider? Have your customers' plans for this region diminished? So for those who are not familiar with this, a couple of years ago, we had plans to acquire a partner in Japan, and that was driven by requirements from our major customers for their plans to expand and do more activity in Japan, and they essentially saw an opportunity for us to partner with that provider that we had a base in the country. So we were looking to acquire a partner to do that. Since that time, obviously, this whole industry disruption occurred. And so we put that on hold. Based on the information from our customers, they are not ready yet to really drive forward in Japan with additional activity and sourcing of content and distribution of additional content in Japan. So for the moment, we are not pressing ahead with that. But we do expect that in due course, Japan will be a strategically important territory, and we would expect to have some solution for that region. Next question comes from Chris. In your update, you mentioned increases in RFPs. Please, can you clarify how your RFPs work as to say, are they for specific projects like a TV series? Or are they RFPs that set out the basis for a contractual way if you were to work with a vendor on multiple series or films, et cetera, going forward. So the answer is the latter. So typically, these RFPs are -- they're a process that our customers tend to go through every 3 or 4 years and during which they're going to the market and they're making sure that they're working with the best vendors getting the best price, the best quality and so on with partners who can drive down that delivery time and so on. And it just happens because of the development in the market, we're seeing a whole host of these all coming through at the same time, whereas normally they'd be staggered over a longer period. So these RFPs really are -- will lead to framework agreements that will cover usually a wide scope of services over a prolonged period of time, usually several years. So they're not -- we don't usually go through RFPs for -- on a more granular basis than that, for example, a specific project. Next question from Andrew. I've noticed much of your sales team has now been lost in the recent restructuring. Does this not signify -- significantly negatively impact on your ability to grow revenues going forward? It's not quite right that much of our sales team has been lost. We have -- there are members of our sales team who are no longer with us. I mean as part of the cost-saving initiatives that Rob has taken you through, that was obviously part of what we needed to do. We believe that at the moment, we've rightsized our commercial function. And I would expect that if and when our customers come back and start to ramp up again, and we see more activity there then it may be a time at which to kind of reinvest in business development -- additional business development bandwidth. Next one also from Andrew. You mentioned revenue stabilization. Are you not concerned this will be perceived as revenue stagnation. Is there any tangible evidence you're seeing from your customers of this stagnation being reversed? You tell them? Robert Pursell: Yes, sure. So as -- I think it's obviously a valid point. Like I said, we've been at $11 million for 4 quarters. So that is a good question. I think I'd refer to one point what I said was that if you take dubbing out of it, certainly in the H2 coming through to H1, the other service lines have grown by 19%. So we are seeing growth in media services. We are seeing growth in subtitling. What we are seeing is a continued decline that's been going on for a number of quarters now in dubbing. We feel that, that is really coming to the bottom now for 2 reasons. One is that, as Stuart said, Paramount, even Disney came out and said they're planning to spend an extra $1 billion on content next year. Our customers are getting their content strategies in place. They're getting more confidence in them, and therefore, we'll see more work coming through. I think alongside that, so even today, we believe that our customers are spending around $1.5 billion in localization. So what is really encouraging is when we talk about seeing being invited to additional RFPs and being able to access maybe channels or programs that we haven't been able to before is a way of, therefore, growing that revenue incrementally beyond just an underlying growth in the market. And in terms of what are we seeing from our customers? Well, I think the biggest change really and it may be the last sort of 6-or-so months has been that previously, some of our customers are very wedded to the idea of doing localization through a number of different partners with physical studios that actors would turn up to, and that isn't the ZOO model. So that excluded us from some of those channels where they were insisting on that. As the industry is changing and they want things quicker, and what we're being able to do in terms of using technology, particularly with Fast Track, where we've been able to -- one of our customers, we delivered dubbing to them within 24 hours. And they said that was as good as anything that they would see from their premium suppliers taking 2, 3, 4 weeks to do. So I think being able to demonstrate what we're able to do with our model is opening more doors than we've seen before. And that's coming through in terms of those additional RFPs. So I really feel like there are definite green shoots in those conversations with customers, the tangible evidence is the number of RFPs that we're looking at. The fact that we're being invited to go and meet and participate in programs that we probably wouldn't have. And by programs, I mean, actual sort of channels within our customers or individual programs, and that would give us a far, far greater access to their spend. So it's a very fair point in terms of the last 4 quarters, but we do feel confident having now stabilized ourselves financially, but in a way that doesn't restrict that growth, there are an ever-growing number of opportunities out there to get back to growing that revenue again. Stuart Green: Thanks, Rob. So this is the last question that's been submitted so far. So if you do have any other questions, that will be a great time to submit them. So you don't miss your chance. So this question comes also from Chris. So I'll start this and then I think, Rob, you can probably provide a bit more color in terms of how you model and think about this thing. So Chris asked you mentioned anticipation of increased spend in new content. As this happens in the medium term, where do you see your split in revenue normalizing to, i.e., percentage split between localization versus media services. So just to give a bit of context for those who are not so familiar with our business. As I say, when content -- a project comes to us, usually, there will be some combination of media services and media localization that we have to fulfill with that. But -- and as far as we're concerned, whether the content is new or old, it doesn't really matter that much to us. It's the same kinds of services that we do to the same standards on the same time frame. So whether it's new or old, it's not that important, we don't even track it in our systems. We don't even tag it to say this is the new title versus this is an old catalog title. However, the nature of the services that are required tends to be quite different between those 2. So something that is new. So it's been newly produced, it's been produced of the current technical standards. When it arrives to us, it will never have been because it's brand new, it will never been localized. So generally speaking, our customers will want -- definitely want us to localize it. They may just want it subtitling in multiple languages, they may want it to be dubbed into some languages because it's -- there will definitely be some media services that are needed together onto a streaming service. But because it's produced to a very high and current sort of standards of quality and so on, the amount of media services that's needed is modest. So for a new content, essentially, the service lines are much more skewed towards localization than the media services. Whereas if this is old content, then usually what's happening is that a distributor, such as a streaming service, has done a licensing deal with a content producer who have some catalog of old stuff. And the deal is that for a fee, they receive that material, and it goes on to the streaming service, and they'll come to us to get that content registered to that service. If it's old, then it's been produced to standards that are not necessarily up to the required standards for streaming today, and therefore, there may be some restorative work, you could say, that needs to be done to bring it up to scratch. So for example, the resolution, if it's old TV stuff, it may be produced a standard definition resolutions. If it's going on streaming service, it has to be, at the very least, high definition standard. So there's -- so generally, there's more -- there's a lot of media services work that needs to be done there. But if this is content that belongs to someone else, a distributor or a streaming service, generally won't pay for that -- for someone else's content to be dubbed. So for old stuff, it's skewed much more towards media services. And to the extent that there are localization services that are required, they're almost always restricted subtitling. So old stuff doesn't get dubbed. So that's sort of -- that's the dynamic between -- to Chris' question between thinking about the content and how things are changing there as this new content coming through what could happen there, and the split between localization of media services. And those services have different margin switch. I'll now hand over to Rob to talk about how we think about that. Robert Pursell: Yes. Thank you. So yes, I mean in one of the slides, we split out that revenue between sort of localization and media services, and you can see that localization margin is around 30%. We've got media service up to about 76% now. So they are quite different in terms of their profitability. So that mix becomes important when you're thinking about where we go as a business. There are a number of things that play here. So I'll try and not overcomplicate this too much. But I think the first thing to say is that we probably see currently more growth potential in localization than media services. We think they'll both grow but there'll be a greater rate of growth within localization. Two reasons, again, just the growth within the market, the fact that as more original content goes to be produced again, as Stuart says, that is going to require more dubbing because of the investment that's been put in there. So that naturally increases dubbing. But also, as we're working with our customers and as they're getting more familiar and comfortable with our approach to doing this, we see ourselves being able to access more of their spend. So there's probably more growth potential in localization. Now as I said, subtitling is already growing, but dubbing has been declining in the last half. So when does that change? Yes, we think it's going to be soon, but it's an opinion. The other thing that's really happened is that our customers have stopped working with quite so many suppliers. So before they'd often go out and use different suppliers to do different activities, different languages, different services. But now they want to just really look at working with fewer suppliers who can do everything there. So that's what we refer to an end-to-end supplier. So on the other hand, we see more growth potential in localization though we expect it to be more bundling of services. So we want to do the localization and the media services as well. So I think there are going to be some changes that we see. I would expect, if you see at the moment, localization is just slightly above where we are with media Services. So let's call out almost a 50-50 split. If you go back to H1 last year, it was nearly 50% higher than -- sorry, localization was nearly 50% higher than media service. So we went from about being half of our business to 2/3. And if you actually go back into the years when we've been doing significant amounts of revenue, so $70 million to $90 million, again, you sort of see that relationship with localization is around 2/3 of the business and media services is the 1/3. So I would expect that we would see localization increase as a percentage from where it is in H1. It would probably, as a maximum go back up to being 2/3 again, but it may not quite get there because of this bundling of services. So it's going to be in that range somewhere. But until we start to see what happens with these RFPs, with these conversations that we're having other than that range, I couldn't be more specific in terms of what I think will happen. Stuart Green: So a question from Randy. Good to hear from you, Randy. Are there other large content companies you haven't penetrated but need to? You mentioned Disney and Paramount. Are there any big global ones you're not yet working with? And if not, why not? So we are already -- to some degree or other, we are already working with all of the major global distributors, global streaming services and a big U.S.-based headquartered content producers. Obviously, given what I've said about the market size, we're not -- our market share currently is very low, and there in lies obviously a great opportunity. What these RFPs, in some cases amount to is the -- is those buyers opening up certain areas of the operations, that hitherto have been -- we've been denied access to for whatever reason, it could be some historical reason, to do with relationships with certain vendors. It could be because of -- as a result of restructuring the organization, it could be because where something used to be fragmented between different international operations has now been consolidated and it's been now purchased centrally and so on. So we're seeing here opportunities for us to be able to increase our share of spend by these big players on the services that we deliver. So in terms of global companies, there are -- the major ones are all U.S. corporations. Obviously, we are also targeting content producers and distributors in other regions as well. But at the moment, the bulk of our business is in relation to large U.S. media companies. And then, Randy, as a follow-up question on the RFPs, how many different companies are competing for on each one on average? That's a good question. Generally, we aren't told that. We infer it from various things. But I guess, typically, there may be a sort of a dozen-or-so companies that are in play, and they may be looking to select 3. So that's been a case for a particular assignment that we've secured recently, where for a large volume of work, a particular customer went out and spoke to 10 or 12 partners and have selected 3 of which ZOO is one. Now the question from Andrew, do you see project visibility improving anytime soon? Robert Pursell: Yes, I would think that it would do because I think as our customers get more settled in their own content strategies because remember, they've been through quite a bit of sort of disruption, followed by not only the strikes, but also with these changing business models and what that means. But it's -- that will help -- in conversations with them, that will help give us more visibility in terms of the work that they see coming to us. And also, I think as we get more embedded in some of these channels that Stuart's saying we weren't part of before that creates, again, a more reliable stream of revenue. I mean the nature of our business is that we work on programs, and those programs could be a number of episodes of an hour long or it could be a film. So by that nature, it's pieces of work that we do. I think one of the things that we're really looking for, and this requires a shift within our customers. So we shouldn't overstate this. But certainly, where Fast Track is probably going to be most beneficial to where we've got kind of episodic content that's going out every week. More in that sort of broadcast model than traditionally what we've seen streams, and that could be sports, that could be dating shows or current affairs or something like that. Now we're currently -- we believe the only people who can actually provide localization for that, so that itself having that repeatable business is coming in every week and would again give us more visibility. So I think that -- I would hope that those things would start to give us a little bit more visibility. But as I said, you look back at the last 12 months, we've had a lot of stability and visibility. It's just that we know that that's the run rate of the business. What we've now got to do is trying to step that up and show the revenue growth. So yes, hopefully, that answers it a little bit. It's a bit up in there at the moment, but we definitely see it moving in the direction where 1 or 2 or 3 of those matters could actually help us give us a little bit more sight or confidence in the longer-term forecast. Stuart Green: We're coming in to the hour. So I'll take this as the last question. It comes from George and his question is, when the AI bubble bursts -- a big assumption, which of the multimodal AI natives would you buy? So obviously -- I don't quite know what to do with that question, but I guess what I would say is that we have -- if you look at our strategy for AI, we're taking the view that there are quite a few well-funded companies out there that are doing a pretty good job of creating technologies. And our -- the way we see the opportunity here is to evaluate those, understand, understand then some what they're good at, what they're not so good at, where the risks are, how to mitigate those risks and then how to kind of embed those capabilities within our platforms in order to deliver a better service to our customers. So we haven't done any exclusive arrangements there. What we've said is that we want to be completely agnostic. We'll just use best-of-breed. So for example, I mentioned that we're already using for certain customers on certain content, we're using AI to do the translation. But we're actually choosing different platforms for different languages. So we find that, for example, for Latin American Spanish, the best platform is Platform A, whereas for I presume French, it's platform B. So the way our systems are configured is we just -- we'll just hook in given a particular situation, whichever we believe is the best platform to use. And what that means is, over time, obviously, we're continuing to evaluate these with each new iteration of the technology to make sure we always know which is the best of breed, and we can make sure that we're using the most appropriate solution. So I'm not sure, George, that we would actually go out and buy something because I think that in -- I guess your question is if the bubble bursts and all the kind of funding evaporates, what would you do that? Well, I guess we'll cross that bridge when we come to it and if I should transpire, then there may be some interesting assets to pick up at a much more interesting price that you'd have to pay today. With that, I think we should call it a day. Thank you so much, everyone, for joining the call, and we hope to see you next time. Robert Pursell: Thank you. Stuart Green: Thanks a lot.
Operator: Good day, and thank you for standing by. Welcome to the Carlyle Credit Income Fund Fourth Quarter 2025 Financial Results and Investor 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, Joseph Castilla. Please go ahead. Unknown Executive: Good morning, and welcome to Carlyle Credit Income Fund's Fourth Quarter 2025 Earnings Call. With me on the call today is Nishil Mehta, CCIF's Principal Executive Officer and President; Lauren Basmadjian, CCIF's Chair and Carlyle's Global Head of Liquid Credit; and Nelson Joseph, CCIF's Principal Financial Officer. Last night, we issued our Q4 financial statements and a corresponding press release and earnings presentation discussing our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question-and-answer session for analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on the Form N-CSR. These risks and uncertainties could cause actual results to differ materially from those indicated. Carlyle Credit Income Fund assumes no obligation to update any forward-looking statements at any time. During the conference call, we may discuss adjusted net investment income per common share and core net investment income per common share, which are calculated and presented on a basis other than in accordance with GAAP. We use these non-GAAP financial measures internally to analyze and evaluate financial results and performance and we believe these non-GAAP financial measures are useful to investors gauging the quality of the fund's financial performance, identifying trends in the results and providing meaningful period-to-period comparisons. The presentation of this non-GAAP measure is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation. With that, I'll turn the call over to Nishil. Nishil Mehta: Thanks, Joe. Good morning, everyone, and thank you all for joining CCIF's quarterly earnings call. I'd like to start by reviewing the funds activities over the last quarter. We maintained our monthly dividend at $0.105 per share or 24.1% annualized based on the share price as of November 12, 2025, which is now declared through February of 2026. The monthly dividend is supported by $0.51 of recurring cash flows for the quarter, providing 162% of dividend coverage. New CLO investments during the quarter totaled $34.9 million with a weighted average GAAP yield of 13.7%. The aggregate portfolio weighted average GAAP yield was 14.4% as of September 30. We continue to optimize the portfolio and rotated out of 10 CLO investments for total proceeds of $36.5 million. Within CCIF's portfolio, we completed 7 refinancings and resets in Q4 2025, reducing the cost of liabilities, extending the reinvestment period and bolstering equity cash flows across these CLOs. We expect refinancing and reset activity to continue, taking advantage of historically tight CLO liability spreads. We continue to leverage Carlyle's long-standing presence in the CLO market as one of the world's largest CLO managers with a 15-year track record of investing in third-party CLOs to manage a diversified portfolio of CLO equity investments. While lower liability costs and extended reinvestment periods have continued to support CLO structures, tighter loan spreads continue to weigh on portfolio yields and valuations during the quarter. Repricing activity remains driven by the persistent supply-demand imbalance in the loan market with limited net loan issuance over the past 3 years, set against continued record levels of CLO formation. The weighted average spread on the underlying loan portfolio was 3.12%, a decline of 10 basis points over the past 3 months and 34 basis points over the past 12 months. As a result, quarterly payments declined with CCIF producing an average cash yield of 21.8% for the quarter. Loan spreads have historically followed multiyear cycles, and current levels are similar to those observed in 2018 when loan spreads tightened to the lowest level post financial crisis, following a record amount of loan repricings in 2017 and the first half of 2018. This was followed by meaningful spread widening in the following 2.5 years due to a better supply-demand balance and market volatility. We believe CLO equity today is positioned to benefit from a similar dynamic. We expect loan activity will increase in 2026, supported by declining base rates, normalization of tariff and regulatory policy and continued economic growth. We are starting to see the beginning of this trend as LBO issuance in the broadly syndicated loan market in October 2025 was the highest in over 3.5 years. And Carlyle's capital markets and private equity teams are also seeing an increase in deal activity. CLOs are locking in historically low funding costs and any loan spread widening can significantly increase returns for CLO equity. I'd like to share some key stats on the portfolio as of September 30. The portfolio generates a GAAP yield of 14.44% on a cost basis, supported by cash-on-cash yields of 21.8% on CLO investments quarterly payments received during the quarter. The weighted average years left in reinvestment period remained flat at 3.3 years. This provides CLO managers the opportunity to capitalize on periods of volatility through active management. There are also 0 CLOs in the portfolio that are post reinvestment period. We believe the portfolio weighted average junior overcollateralization cushion of 4.59% is healthy and offsets potential defaults and losses in the underlying loan portfolios. The weighted average spread of the underlying loan portfolio was 3.12%. The average percentage of loans rated CCC by S&P was 4.3%, below the 7.5% CCC limit in CLOs. As a reminder, once a CLO has more than 7.5% of its portfolio rated CCC, the excess over 7.5% is marked at the lower of fair market value or rating agency recovery rates and reduces the overcollateralization cushion. And the percentage of loans trading below 80% decreased from 3.1% to 2.6%. We continue to leverage the depth of the Carlyle Liquid Credit platform and our collaborative One Carlyle platform to source and invest in high-quality CLO portfolios through a disciplined bottom-up 15-step investment process. With that, I will now hand the call over to Lauren to discuss the current market environment. Lauren Basmadjian: Thank you, Nishil. I'd now like to provide an update on the recent developments across both the loan and CLO markets. CLO issuance totaled $52 billion for the quarter, up from $49 billion in the prior quarter, reflecting a meaningful pickup in activity. CLOs continue to serve as a key source of demand for the loan market, absorbing steady primary issuance and supporting secondary liquidity. CLO liability spreads tightened across the capital stack with AAAs moving approximately 10 basis points tighter and BBs compressing 40 basis points during the quarter, approaching the post-financial crisis tight we saw earlier in 2025. Reset and refinancing activity remained robust with $38 billion of refinancings and $66 billion of resets pricing during the quarter as managers extended reinvestment periods and lowered financing costs. The share of U.S. CLOs out of their reinvestment period has declined to roughly 13%, down from about 40% in 2023, reflecting a market with expanded reinvestment capacity. Moving to the loan market. U.S. leveraged loans delivered another resilient quarter supported by steady investor demand and stable credit conditions. The LSTA loan index returned 1.7% and the index ended the quarter a little over $97 with nearly half of loans trading over par. Moderating inflation and steady economic conditions provided additional support for the asset class. Credit fundamentals across the U.S. leveraged loan market remained stable during the quarter. Within Carlyle's portfolio of nearly 600 borrowers in Carlyle's CLO management platform, which we view as a representative proxy for a third-party managed CLO portfolios, borrowers reported year-over-year revenue growth of 5% and EBITDA growth of 4.6% during the quarter. The average borrowers' interest coverage ratio increased to 3.6x quarter-over-quarter, reflecting the impact of growing EBITDA and shrinking base rates. Overall, borrower credit quality and performance remain consistent with historical averages, supporting a stable outlook heading into year-end. From a default perspective, though recent bankruptcies have raised questions about the health of the leveraged borrowers in our market, we do not believe these events reflect current underwriting trends. While we will continue to see defaults both in and out of court, we do not forecast a meaningful increase from today's default rate of 3.5%, which is below the cycle's peak of 4.5% reached in the fourth quarter of 2024. CCIF's underlying loan portfolio experienced a default rate of just 1.1%, inclusive of out-of-court restructurings, less than 1/3 of a broader market. CCIF has been able to achieve a lower default rate by leveraging our in-house credit expertise from over 20 U.S. credit analysts to complete bottom-up fundamental analysis on underlying loan portfolios. I will now turn the call back to Nelson, our CFO, to discuss the financial results. Nelson Joseph: Thank you, Lauren. Today, I will begin with a review of our fourth quarter earnings. The cash-on-cash yield of 21.8% on CLO investment quarterly payments resulted in $0.51 per share of recurring cash flow. Total investment income for the fourth quarter was $7.7 million or $0.37 per share. Total expenses for the quarter was $4.6 million. Total net investment income for the fourth quarter was $3.2 million or $0.15 per share. Adjusted net investment income for the fourth quarter was $3.6 million or $0.17 per share. Adjusted NII adjusts for the $0.02 per share impact from the amortization of the OID and issuance costs for the fund's preferred shares and credit facility. Core net investment income for the fourth quarter was $0.32 per share, providing dividend coverage of 102% of our monthly dividend of $0.105 per share. We believe core net investment income is a more accurate representation of CCIF's distribution requirement. Net asset value for September 30 was $6.13 per share. Our net asset value and valuations are based on the bidside mark we received from a third party on 100% of the CLO portfolio. We continue to hold 1 legacy real estate asset in the portfolio. The fair market value of the loan is $2.2 million. The third party we engaged to sell our position continues to work through the sales process. Now turning to the funding side of CCIF. During the quarter, we entered into a $30 million credit facility. The credit facility allows for borrowings at a rate of SOFR plus 3.25% with no unused fees and can be upsized to $50 million. Additionally, on October 30, we issued 7.375% Series D term preferred shares that generated net proceeds before expenses of approximately $29.4 million. The Series D Term Preferred shares are listed on the New York Stock Exchange under the symbol CCID. Also on October 30, we completed a private placement of 5-year 7.25% Series E convertible preferred shares that generated net proceeds before expenses of approximately $16.3 million. The holders of the Series E convertible preferred shares have the option after 6 months to convert the shares into common stock at the greater of NAV or the average closing price of the 5 previous trading days. The fund used the proceeds from both offerings to redeem all $52 million of 8.75% Series A term preferred shares on November 3, reducing the cost of capital by approximately 1.42%. With that, I will turn it back to Nishil. Nishil Mehta: Thanks, Nelson. We remain confident in the fundamentals of CCIF's portfolio, which is diversified across high-quality managers and structured to withstand evolving market conditions. We've positioned the portfolio defensively, emphasizing experienced managers and transactions that demonstrate strong par build and credit discipline. CCIF continues to deliver a competitive dividend yield that remains fully covered by core net investment income, reflecting the strength and stability of the underlying cash flows in the portfolio. We continue to deploy capital selectively, focusing on opportunities that offer compelling relative value across both new and seasoned transactions. Operator: [Operator Instructions] Our first question comes from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I was hoping to get some more color on the investment opportunities you're seeing in the market between primary and secondary? Nishil Mehta: It's Nishil here. So we continue to see opportunities across both the secondary and primary markets. We think the relative value between the 2 markets is relatively similar. So it's not that one -- we're focusing on one market versus the other. We're seeing unique and interesting opportunities in both today. Gaurav Mehta: Okay. And during the quarter, the investments that you made, can you provide details on the breakdown between primary and secondary? Nishil Mehta: I don't have the breakdown on the top of my head, and we'll come back to you on that. But I think it was -- I think this quarter was probably more secondary focus, but we continue to look at primary as well. Gaurav Mehta: Okay. As a follow-up on the investments that you sold, do you think you have more opportunities to recycle in the next few quarters? Nishil Mehta: Yes. Look, we're always looking to optimize the portfolio. And so a couple of things that we've been focused on in the last 6 months is really looking at positions that unfortunately have underperformed expectations, and as a result, have low GAAP yields. And so most of that is obviously driven by the spread compression and loan repricings we've seen. And so we continue to look at the portfolio, and we continue to do kind of rotation trades, even post quarter end. So I expect that to continue maybe to a lesser extent to what we've done over the past 6 months though. Operator: Our next question comes from Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start, if I look at the portfolio and look at the number of investments that are out of their non-call period and still have relatively wide spreads on them. It looks like the potential opportunity for resets and refis is maybe smaller than it was 3 months ago? Is that -- would that agree with your assessment as well? Nishil Mehta: Yes, Erik, I agree with that. Because if you think about it, our portfolio today is about 54 positions. We've completed about 30 resets and refinancings in the fiscal year. So just the pool continues to shrink. With that being said, I would say, it's probably at least another 25% of the portfolio today that could be refinancing or reset candidates. And then that pool will continue to expand as deals that were previously refinanced and reset come off their non-call period, which can be accretive just because as debt spreads continue to tighten and we approach post-GFC types again, that can create significant value in the portfolio. Erik Zwick: Got it. Yes, I know you've been very successful over the past few quarters in capitalizing on those opportunities. And so that kind of leads me, I guess, to my next question, I noted that 7% of the portfolio did not make a distribution in the most recent quarter due to refis, resets as well as some that haven't made their first distribution. So if I look at recurring cash flow for the most recent quarter at $0.51 per share, just slightly under my calculation for dividend plus operating expenses. So if there's going to be a lower volume of resets and refis and you get some of those -- making those first distributions, it would seem that at least directionally, the recurring cash flow could be moving in the direction, if not even exceed the dividends and expenses going forward. Is that a fair characterization? Nishil Mehta: Yes. I think it's fair to say that the number of deals that will -- the number of deals making distributions should increase if the pace of refis and resets slows down just given what we've done over the past year. Erik Zwick: And then last one, just looking at where the stock trades today relative to NAV, curious to your thoughts of using any capital for share buybacks or if that's not as an attractive relative to the investment opportunities you see in front of you? Nishil Mehta: Yes, it's a great question. It's something that we are constantly discussing internally within senior management and our Board as well. And it's something that we do consider. The one thing that we are concerned about is given -- we continue to think the fund overall is subscale. And by buying back shares, that just further reduces the size of the fund. And so we are focused on really growing the fund. Obviously, we're not able to do that today. But if the fund continues to trade at these considerable discounts, it's something that we will consider in the future. Operator: [Operator Instructions] Our next question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: In the prepared remarks, you talked about working through the sales process of the 1 real estate asset. I was just wondering if you have any timing on when that could be done and how you plan to kind of recycle that capital? Nishil Mehta: Yes, Tim, it's a good question because we've been holding on to that asset for about 2 years now. It's a piece of land that's open for development outside of Austin. We've been working with various number of brokers to try to sell that property. It's just -- I'm by no means a real estate expert. I've been surprised by just the time period it takes to sell these types of properties. So it's something that we continue to focus on, on the near term and just able to recycle that into kind of our existing focus on CLO equity. So hopefully, we'll have a more material update on the next call. Timothy D'Agostino: Okay. Great. And then just kind of touching on the last question. You had mentioned that the platform is under scale and kind of a difficult period to grow it. But I was just wondering, looking over the next 12 to 24 months, what are some like the levers you could pull in order to see some growth of the platform and maybe get to the size that you would like to be at? Nishil Mehta: Yes. Look, I think the #1 focus right now is obviously making sure -- or trying to get the stock to trade above NAV. We obviously have no control of that. So focus right now is optimizing, one, the portfolio. I talked about doing kind of the portfolio rotation; two, completing kind of the accretive refinancings and resets. And even on the liability side, Nelson just talked about kind of the refinancings that we did to reduce the cost of capital. So what we can control is really how the fund performs. And so really just focusing on that. And hopefully, over time, the fund trades above NAV. Once that does, I think we'd go back to kind of raising capital through the ATM. We think that's a very efficient and accretive way to raise capital. And then we have our existing convertible preferreds that can convert into common stock at the higher of NAV or the 5-day average closing price. So that would help grow the fund as well. But right now, we're just focused on making sure that we're optimizing both the portfolio and the liabilities. Operator: I'm showing no further questions at this time. I would now like to turn it back to Nishil Mehta for closing remarks. Nishil Mehta: Thank you, everyone. We look forward to speaking to everyone next quarter, if not sooner. Please feel free to reach out if you have any questions, and thank you for all your support. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Data Storage Corporation Third Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexandra Schilt, Investor Relations. Thank you. Please go ahead. Alexandra Schilt: Thank you. Good morning, everyone and welcome to Data Storage Corporation's 2025 Third Quarter Business Update Conference Call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer; and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 third quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC. Except as required by law, the company assumes no obligation to update or revise forward-looking statements. I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck. Charles Piluso: Thank you, Alex. We appreciate everyone joining us today. First, I want to acknowledge the delay in the reporting of our financials. We require additional time to finalize the accounting adjustments related to the sale of our CloudFirst subsidiary, and the team worked diligently to complete this as quickly as possible. However, we're happy to be here with you today to discuss our results and our strategy moving forward. This quarter represents a defining period for Data Storage Corporation as we completed the sale of our CloudFirst subsidiary, and repositioning the company for its next phase of disciplined growth, what we call DSC 2.0. The CloudFirst sale completed on September 11, 2025 was a significant milestone for our company. That provided strong financial foundation while simplifying our structure and allowing us to focus on long-term shareholder value creation. In addition, the Board of Directors established a special committee to oversee our tender offer and buyback process, ensuring full transparency and alignment with shareholder interest. Once the tender process is completed, we'll be able to determine our final cash position, which will reflect the balance after completing all buyback transactions. We expect to move forward shortly with the tender and also a plan to launch our new corporate website in the coming weeks to highlight the company's streamlined profile and future direction. Before discussing our broader strategy, I'd like to turn this over to Chris Panagiotakos, our CFO, for a review of our financial results. Chris, take it from here. Chris Panagiotakos: Thank you, Chuck. Good morning, everyone. As Chuck mentioned, on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. At the time of the sale, CloudFirst was projected to generate approximately $25 million in annual revenue and $5.5 million in EBITDA with no debt. As a result of the transaction and in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our Nexxis subsidiary. Sales from continuing operations, which consists of our Nexxis subsidiary, were $417,000 for the 3 months ended September 30, 2025. An increase of $92,000 or 28.2% from $325,000 in the same period last year. The increase was primarily driven by the continued expansion of our voice and data telecommunication solutions to new and existing customers. Sales from our continuing operations were $1.1 million for the 9 months ended September 30, 2025, an increase of approximately $159,000 or 17.6% from $900,000 in the same period last year. The increase was primarily driven by an expanding customer base in our Nexxis Voice and Data Solutions business. Selling, general and administrative expenses for the 3 months ended September 30, 2025, increased $313,000 or 31.8% to $1.3 million from $984,000 for the 3 months ended September 30, 2024. The increase was primarily driven by an increase in noncash stock-based compensation, primarily related to the accelerated vesting of equity awards in connection with the divestiture which triggered a fundamental transaction cause in the equity award agreements with employees as well as an increase in salaries and directors' fees due to the annual merit-based adjustments. These increases were partially offset by a decrease in professional service as certain legal and consulting projects from the prior year were completed. Selling, general and administrative expenses for the 9 months ended September 30, 2025, increased $376,000 or 13.1% to $3.2 million from $2.9 million for the 9 months ended September 30, 2024. The increase was primarily driven by an increase in noncash stock-based compensation, primarily related to the accelerated divesting of equity awards in connection with the divestiture, which triggered a fundamental transaction cause in the equity award agreements with employees as well as an increase in salaries and director fees due to the annual merit-based adjustments. These increases were primarily offset by a decrease in professional fees as certain legal and consulting projects from the prior year were completed. Net income attributable to common shareholders for the 3 months ended September 30, 2025, was $16.8 million compared to net income of $122,000 for the 3 months ended September 30, 2024. Net income attributable to common shareholders for the 9 months ended September 30, 2025, was $16.1 million compared to net income of $235,000 for the 9 months ended September 30, 2024. The significant increase in net income for the 2025 3- and 9-month period was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, cash equivalents and marketable securities of approximately $45.8 million at September 30, 2025. The compared to $12.3 million at December 31, 2024. However, as Chuck noted, our final cash position will depend on the outcome of the tender offer and share buyback process, which will commence shortly. Thank you, and I will now turn the call back to Chuck. Charles Piluso: Thank you, Chris. The sale of CloudFirst was a transformative event for our company and our shareholders. It allowed us to unlock value, strengthen our financial position and focus on building DSC 2.0, a streamlined company pursuing selective opportunities in high-value markets. Our near-term emphasis is on disciplined execution, prudent capital allocation and operational efficiency. We are currently exploring strategic acquisitions that provide recurring revenue streams within emerging areas, such as GPU-based computing, AI enabled infrastructure, cybersecurity, but we are approaching these opportunities carefully and strategically. They remain areas of active interest, not current commitments. Our Nexxis subsidiary continues to perform well and provides a stable recurring revenue base. We see ongoing opportunities to expand Nexxis organically and through targeted acquisitions that complement our communications and data services offerings. We are also in the process of forming a special advisory group composed of experienced leaders in technology, infrastructure and cybersecurity to help identify and evaluate strategic opportunities that align with our long-term growth objectives. In addition, we are actively engaging strategic consultants to ensure that every potential investment or acquisition supports our long-term vision of profitability and sustainable growth. Looking ahead, our priorities are to complete the tender offer and share buyback process, after which our cash position and capital allocation plans will be finalized. Launched a new corporate website reflecting the company's refined focus. Also to close on an acquisition that will provide recurring revenue and to continue to strengthen Nexxis, our core operating platform today. Our experience and disciplined management philosophy, combined with our NASDAQ listing, a clean balance sheet, no debt positions us to act decisively as we uncover opportunities to invest in while continuously focusing on shareholder value. With that, I'd like to open up the call for questions. Operator? Operator: [Operator Instructions]. Our first question today is coming from Matthew Galinko of Maxim Group. Matthew Galinko: Maybe firstly, can you just remind us on what the possible outcomes of the tender look like for your cash position? Like can you bound what the low end and high end might be? Charles Piluso: Matt, that's difficult. I've run a number of models to see what that would be. And also having calls with some of our larger investors when we first announced the tender. I really cannot guess on that. If we tended all, everything, the lowest end would be approximately, I think, around $5 million. I'm estimating and then at the higher end, it could be between $10 million and $15 million. So I think it's in that range between $5 million and $15 million, but it's really -- it's too hard to really forecast that. There are really guesses with a low confidence level of what it could be. But we also have a $10.8 million ATM that's also there if we find a right opportunity that by spending that money, we're actually increasing shareholder value and not diluting them and not increasing the value. So it would be nice to be left with at least $10 million to $11 million in the company. And then as we find the acquisition cap that ATM or otherwise. But we're not going to just do it to dilute everything. We're going to do it because we have a reason. So we are trying to create a funnel of potential acquisitions that we can get done. I mean, I'm putting the pressure to try to do something by the end of March. But the smaller company sometimes are not ordered it and have to get audited. So we're pushing us to create the funnel. We also found that about sub-$5 million companies or sub-$10 million is a problem. So we need to move upstream a little bit to $10 million to $20 million. We would do more than that if we saw someone that had the right kind of bank debt, not a poisonous debt, but actually not sure. So that was a long answer. If I had to guess, I would say, it would be great to be ending up with between $10 million and $15 million. Matthew Galinko: Got it. No, I appreciate the color. That's very helpful. Maybe as a follow-up, just on a housekeeping question. But I know you mentioned there were fees that were nonrecurring in '24 compared to '25 and SG&A. Was there anything in the third quarter SG&A that for '25, that was nonrecurring. So in other words, should we see SG&A come down in the fourth quarter as we move past the major part of the carve-out of the segment? Or are we still kind of -- is the third quarter SG&A number a good run rate to be thinking about? Charles Piluso: Chris, do you want to answer that, Chris? Chris Panagiotakos: So there were not any nonrecurring charges in the quarter. All the transactions associated with the sale were booked with the sale. So I think the Q3 number is a good number to use going forward. Matthew Galinko: Got it. Very good. And then one more, and then I'll jump back in the queue. But with respect to the direction you go for acquisitions, I think you mentioned in the script that you'd consider doing a tuck-in or something small to bolster Nexxis. I'm wondering if that could end up being with some of the volatility we're seeing around expectations in the AI and infrastructure space and HPC, if kind of data and voice might be a quiet but productive use for deployment. So is there a scenario where you push harder exclusively into Nexxis? Or is that not realistic as a use of capital? Charles Piluso: Let me answer it this way. John Camello does a fantastic job in running Nexxis. And he has a small staff that we continue to add to. The platform and the building that is on makes it very easy for us to go out and let's say, pick up a $5 million VoIP company. Most of the VoIP companies have -- I'm not going to say all of them, but have maybe 40% of their revenue is in Internet access data services. And with that, you can pick that up, I think, at a decent multiple. Frankly, there's not a lot of loyalty with dial tone. So as long as you're doing a good job on customer service and dial tone exists. A lot of times, it's an easy base. I mean, many years ago, we did roll ups in telecommunications. So it's not far and technology has changed. So the multiples are not too high on it, and we are actually looking for VoIP and data access companies that are doing just what John is doing to be able to add to that base on that. And I think it's -- I don't want to use the word easy, but I believe that John can move from his $1.5 million revenue to $5 million rather quickly and $5 million can go to $10 million. It's not sexy on shareholder value, but we have running the pulp company we have some good expenses. I think our run rate in the public company is typically around $2 million a year. So picking up loyal dial tone revenue and data circuits that John does can reduce or eliminate that burn. So yes, it is a good focus. And on the AI side, with GPUs, it's very volatile. You have companies that have $750 million in revenue, and the valuation is $16 billion. So we're watching, we have some ideas on that. We've been talking to folks but as to the Nexxis piece, yes, it's an easy one first because John has a great platform, great billing, and all of that for us to be able to do that. Actually, one of our board members that was in that business that sold that business to Magic Jack for a good amount is actually helping out, trying to line up some of the brokers for us to start talking to those VoIP and data access companies. Operator: [Operator Instructions]. Our next question is coming from [ Sean Lee ] of Private Investor. Unknown Attendee: Yes. Just curious about your position on the tender offer or the one that -- is it likely to happen or the probability of that happening? Charles Piluso: Yes. Well, we stated that in the proxy when we did that. So we need to do the proxy. It's stated in there and we will be doing it. I believe that we have 90 days from close to get that actual done. So yes, that is going on. The special committee is evaluating with the price of that buyback should be for the per share but just that's happening. Unknown Attendee: Thank you. Operator: Thank you. At this time, I would like to turn the floor back over to Mr. Piluso for closing comments. Charles Piluso: Thank you. Thank you for the questions. In closing, this quarter represents a turning point for Data Storage Corporation. The successful sale of CloudFirst provided both capital, strength and strategic clarity. As we advance our M&A growth strategy, we remain focused on disciplined execution, operational excellence and shareholder value creation. We continue to evaluate new technology-driven opportunities that complement our history in enterprise infrastructure while maintaining conservative and focused approach. I'd like to thank our employees, our Board of Directors, advisers and shareholders for their continued confidence and support. We look forward to updating you on our progress in the months ahead. Thank you for joining today. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2025 Fourth Quarter Results Conference Call. [Operator Instructions] Also note that the call is being recorded on Wednesday, November 19, 2025. I would now like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead. Sharon Kadoche: Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our fourth quarter, which ended on September 27. With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy Division. During the call, we will present our fourth quarter results and comment on its highlights. We will then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2025 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2024 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law. I will now turn the call over to Nicolas. Nicolas Amyot: Okay. Thank you, Sharon, and good morning, everyone. I will now go over our Q4 results, starting with a comment on our Toronto freezer situation. As you are all aware, operations at our frozen distribution center in Toronto have stopped on Friday, September 12, as a result of a mechanical issue with the refrigeration system. Since then, our teams have been working hard on securing supply for our Ontario food retail network. Our contingency plan is ongoing and working well, and Eric will be sharing more color on the state of the DC in a minute. On my end, I will be focusing on the financial impact of this situation in Q4, as well as the expected spillover in our first quarter of F '26. The after-tax financial impact of this situation on our fourth quarter was $22.5 million or $30.6 million before taxes, which includes $24.5 million for inventory losses as well as $6.1 million for other direct costs related to temporary equipment rental to keep the temperature down in our freezer as well as incremental transportation and third-party logistics costs for the execution of our contingency plan. Looking forward to Q1 of F '26, we estimate that the direct costs associated with the rental of temporary chilling equipment and with the execution of our contingency plan will impact our net earnings by approximately $15 million to $20 million. The impact on sales and margin is expected to be modest, given the contingency plan in place, and we expect being essentially back to normal by the end of December. Now turning to our Q4 results. Total sales reached $5.1 billion, an increase of 3.4% versus the fourth quarter last year, driven by higher sales in our discount and pharmacy retail networks. Food same-store sales grew by 1.6% in the quarter, while pharmacy same-store sales grew by 4.8%, supported by 5.5% growth in prescription sales and a 2.9% growth in front-end sales. Our gross margin reached $1.022 billion, 20% of sales versus 19.7% in the same quarter last year. The year-over-year increase is partly attributable to shrink improvement in food retail activities as well as productivity gains at our food distribution centers. Note that the direct costs related to the freezer were recorded under operating expenses. Turning to operating expenses. They were $535 million in the quarter, up 4% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.4% in the fourth quarter last year as they were unfavorably impacted by $6.1 million of direct costs related to the temporary shutdown of our freezer. Excluding these costs, operating expenses grew by 2.8% year-over-year and represented 10.4% of sales, the same percentage as Q4 last year. EBITDA for the quarter amounted to $485 million, that's up 5.5% year-over-year and stands at 9.5% of sales. Adjusting for the $6.1 million direct costs incurred for the Toronto DC, adjusted EBITDA stood at $491 million, up 6.8% year-over-year, reaching 9.6% of sales, an increase of 30 basis points over Q4 2024. Total depreciation and amortization expense for the quarter was $140 million, up $4.1 million. Net financial costs for the fourth quarter were $34.4 million compared to $32.6 million last year due to higher interest on net debt. Our effective tax rate of 24.1% is lower than the effective tax rate of 24.5% in the fourth quarter last year, largely driven by the Terrebonne tax holiday. Adjusted net earnings were $246 million compared to $227 million last year, an increase of 8.6%, while adjusted fully diluted net earnings per share amounted to $1.13 versus $1.02 last year, this is up 10.8% year-over-year. These results are adjusted for the $22.5 million after-tax impact of the freezer situation. Our capital expenditures in fiscal '25 totaled $511 million, down $69 million versus last year. The lower year-over-year CapEx level is mainly the result of the completion of our automated distribution centers in the summer of '24. Looking forward, we expect CapEx in F '26 to reach approximately $550 million as we continue to invest in our retail network. On the food retail side, in fiscal '25, we opened 14 stores, including 5 conversions and carried out major expansions and renovations at 17 stores for a net increase of 294,000 square feet or 1.4% of our food retail network square footage. Under our normal issuer bid program as of November 7, we have repurchased 8.7 million shares for a total consideration of $848 million, representing an average share price of $97.51. Closing in on fiscal '25, we are very pleased with our financial performance and the fact that we delivered against our financial framework. I will now turn it over to Eric for more color on our DC situation as well as on our overall performance. Thank you. Eric La Flèche: Thank you, Nicolas, and good morning, everyone. We delivered another solid quarter to finish a very good year, meeting or exceeding our financial framework metrics. In fiscal '25, we grew sales by 3.7%, adjusted EBITDA by 5.5% and adjusted earnings per share by 10.9%. Before turning to the quarterly results, let me share some color on the state of our frozen DC in Toronto. I'm pleased to report that operations resumed on November 10, and that we started shipping to our stores yesterday. We expect to essentially be back to normal by the end of December. The mechanical issue responsible for the shutdown affected several components of the refrigeration system and the repairs were complex. The setback was not related to the automation system. Our automated freezer DC in Quebec assumed a substantial portion of the Ontario volume together with 3 Ontario-based third-party logistics providers and also increased direct-to-store deliveries from several suppliers. I want to thank all our teams and partners who have worked nonstop on our contingency plan to minimize the impact on our customers. We have insurance coverage and are currently working with our insurers to confirm the amounts that we will be entitled to recover. Turning to the fourth quarter. We recorded sales growth of 3.4%. Food same-store sales were up 1.6% and 3.8% over 2 years. Discount continues to drive same-store sales faster than Metro with the gap between them remaining consistent with the prior quarter. Food same-store sales were negatively impacted by about 30 basis points due to the shutdown of the freezer over the last couple of weeks of the quarter and also by the lift we had during the LCBO strike that occurred in the fourth quarter last year. Total food sales growth of 3.2% reflects the performance of our new stores and conversions, which we are very pleased with. Our internal food basket inflation was below the reported food CPI of 3.4%. We continue to see inflationary pressures on certain commodity prices, namely in the meat category. We are presently in our price freeze period. However, we continue to receive price increase requests from our vendor partners at levels higher than a typical 2% to 3%. We continue to negotiate hard to minimize the impact on consumers going forward. During the quarter, our Metro stores saw an increase in average basket, partly offset by a slight decrease in transactions. On the discount side, both basket and foot traffic were up as customers continue to search for value. Promotional penetration remains at elevated levels and consistent with prior quarters. Private label sales continue to outperform national brands by a healthy margin. The competitive environment remains intense but rational, and our market share was flat for the quarter. Online sales grew by 19.8% in the quarter, driven by the ramp-up of click-and-collect and the launch of home delivery at both Super C and Food Basics as well as third-party marketplaces. Last month, we celebrated the first anniversary of the Moi loyalty program in Ontario. Although still early in the program, we continue to see encouraging metrics with a growing member base and improved penetration rates. Turning to pharmacy. The business sustained its momentum with another quarter of strong Rx sales growth and positive front-end performance. Prescription sales were up 5.5% driven by continued organic growth, specialty medications, GLP-1s and clinical services. In fiscal '25, we recorded 5.4 million clinical services in our network of pharmacies, a number that is well aligned with our leading market position in the province of Quebec. Commercial sales were up 2.9%. The strong performance was driven mainly by growth in beauty and cosmetics and partly offset by a slow start to the cough and cold season. As Nicolas mentioned, we are on track with our plan to accelerate the development of our growing discount banners as we successfully opened 9 new stores and converted 5 stores in fiscal '25. We continue to see more opportunities in the coming years, and our plan calls for a dozen new discount stores in fiscal '26 including a few conversions. Looking forward, halfway through our first quarter, we are seeing similar trends to Q4 in food same-store sales. On the pharmacy side, prescription sales continue to be strong, but sales of OTC products are softer due to the slow start of the cough and cold season. To conclude, in addition to the ramp-up of the freezer, our focus remains on realizing efficiency gains throughout our supply chain and store network while we continue to execute on our plan to accelerate the development of our growing discount banners. We remain steadfast in our efforts to deliver the best value possible to our customers through our effective merchandising programs, strong private labels, the Moi program and consistent execution at store level. Thank you, and we will be happy to take your questions. Operator: [Operator Instructions] First, we will hear from Chris Li at Desjardins. Christopher Li: Thanks first for quantifying the impact on the same-store sales with the DC shutdown. Eric, I was wondering, are you still seeing some impact in Q1 when you said the trends are in Q1 and similar to Q4, or is that 30 basis points pretty much now behind you in Q1? Eric La Flèche: The answer is we continue to see an impact from the freezer situation. It is impacting our same-store sales a bit. So that's continuing. I said the 30 basis points was 2 events, the freezer for 2.5 weeks and the LCBO last year. So the freezer situation is having an impact. We're losing a bit of sales and margins. It doesn't show too much to the consumer, but we don't have a full assortment in certain categories, and frozen bakery is an example. So when I say similar trends in Q1 to Q4, we're in the same -- very much in the same ballpark. And we continue to be affected by the freezer situation. It is a bit of a drag included in that number. Christopher Li: Okay. And presumably, once it's fully back online by end of this calendar year, I mean, that shouldn't really be a headwind anymore? Eric La Flèche: That's correct. Christopher Li: Okay, okay. That's helpful. And then just maybe a quick one on gross margin. It continued to benefit nicely from the productivity gains at the food DCs. Is it fair to assume we'll continue to see the benefits manifested in fiscal '26? Nicolas Amyot: Chris, so I would say, yes. However, I guess, as you know, we are in a very competitive industry. So we're always looking at preserving, gaining market share. So not to say that some of these benefits would not be "reinvested" in promotional activities. But the -- I would say that, yes, the benefits that we've been able to capture are there to stay. Christopher Li: Okay. That's helpful. And maybe last question on the pharmacy business. We had another very strong year both in terms of prescription and commercial sales growth. I guess my question is, do you expect kind of similar drivers for this year that have supported the strong growth in the previous fiscal year? And then what are some of the things that you guys are watching closely? Eric La Flèche: Yes. We expect the same fundamental trends. The Rx growth has been very strong the last couple of years. We're seeing still good growth. The expanded scope of practice going forward is going to be a tailwind on Rx eventually when Bill 67 kicks in. On the front-end, it's a competitive market. We're well positioned. We have a great network, good merchandising, good programs, and we're confident in our ability to continue to see decent growth in our front-end sales. The fundamental drivers are still there. Aging population, health trends, clinical services, expanded scope of practice, these are all good tailwinds, structural tailwinds for pharmacy for us in Quebec. Operator: Next question will be from Mark Carden at UBS. Mark Carden: So just to start, just wanted to see your latest thinking on the health of the consumer. Has purchasing behavior changed much from last quarter? And then just related, are you still seeing much of a Buy Canadian push? Eric La Flèche: So consumer behavior is very similar to what we've been reporting for several quarters, as I outlined in my opening remarks, so not much to add there. Buy Canada, it has softened up. There's still more growth in Buy Canadian product sales than non-Canadian product sales, but that growth has somewhat narrowed versus what we saw in spring and summer. So it's declining a bit. And since counter tariffs were lifted in -- on September 1, some of these products, U.S. products prices have gone down, so that's maybe contributed to the narrowing of that gap. Mark Carden: Okay. Great. And then just on prescription drugs, you guys continue to do well there, slight deceleration from the last few quarters, though. Just curious what the primary drivers you're seeing in the growth of prescription drugs are from a category standpoint. What you're seeing from the GLP-1 angle? And then any update on your outlook for health care services? Eric La Flèche: I'll let Jean-Michel have a crack at that. Jean-Michel Coutu: Yes. So I think Eric highlighted the drivers very well. So GLP-1s continue to be a tailwind. There's been some changes in that category as new products have come into market in Canada, and that's also continuing to boost growth in that category overall. In terms of professional services, we're continuing to see growth on professional services. Although since there's no new services, we're starting to see that it's moderating a little bit, but with Bill 67, we do expect that to pick up. We don't have any news on the Bill 67 front. Right now, we're probably looking at a January time line depending on the negotiations between the government and AQPP. But on that is the same underlying drivers that are going to continue to maintain that momentum in F 2026 for us. Operator: Next question will be from Irene Nattel at RBC Capital Markets. Irene Nattel: I think we're all kind of hyper focused on any marginal changes in the environment, kind of competitive intensity consumer behavior. But based on your comments, Eric, like are there really any or is it fairly stable to, let's say, earlier in the year? Eric La Flèche: I think it's fairly stable, like very consistent environment, I would say, and consumer behavior. The accelerating square footage growth is not new for this quarter, but it's been something that we've opened stores, others have opened stores. So there's industry square footage growth out there that's having an effect. It's making the market certainly more competitive. So the level of same-store sales we're reporting, I think, reflects some of that new competition, new square footage in the market. So that's the only comment I would add. Irene Nattel: That's really helpful. And then just coming back to a comment that you made about requests for price increases being in excess of the historical 2% to 3%. I think you called out meat, but what about other categories? And what would be your expectation for where things actually settle out versus the request? Eric La Flèche: So price request of over 2%, 3% is not unusual. We've seen that before, mid-single digits, high single digits, sometimes more, it depends on the category, the ingredients, particular situations. So this is, I would say, normal situation. The quantity remains elevated of price increase request, but we deal with it as best we can. We negotiate in good faith with our vendors. We pushback when we can. And when it's justified, it will be a market increase and we will have to take it. As I said in the opening remarks, we're in the freeze right now. So there were some price increases before November 15, and the next wave will not come before February. So consumers -- we're trying to protect consumers as much as we can and give value as much as we can. What the outcome of those negotiations are, we expect to be normal and we expect it to be manageable and we expect to stay in a range of inflation in the 2%, 3%. But the jury is out, and I don't have the famous crystal ball. We'll see where it lands. Irene Nattel: That's great. And just one final one for me, please. You mentioned the accelerating square footage growth, yours and the others notably in discount. What kind of returns are you seeing as you open these real estate projects? And are they any different from historically? Eric La Flèche: In general, we're pleased with our returns. We analyze investments very carefully. We have our internal thresholds. We're meeting our investment thresholds. So market by market, investment by investment, we're careful to make the decisions that will contribute to long-term shareholder growth and capture the market share that we think is out there to capture for us in a responsible and disciplined way. So short answer is we're meeting our financial targets. Operator: Next question will be from Michael Van Aelst at TD Cowen. Michael Van Aelst: I just wanted to go back on your answer to one of the earlier questions about the industry's square footage growth. And I mean, I think it makes sense that it's moderating the levels of same-store sales growth. But you also said that it's making the industry more competitive. Now I guess I'm wondering, is it just making it more competitive in terms of lowering that same-store sales growth? Or is it also impacting your gross margins? Because your gross margin up 23 basis points was actually quite solid. And so I'm kind of curious as to whether you're seeing pressure on the gross margin. Eric La Flèche: The comment was more of the same. When there's a new store opening across the street, it makes it more competitive for your existing networks. So I said, square footage makes it more competitive because it adds competition in certain markets and it impacts same-store sales for that market. So for me, it's one and the same. The gross margin, we're pleased with our results this quarter. So we're able to manage through this competitive environment and pleased with our performance. I think we have experienced merchandisers, and we're doing what we can to meet our targets. But we're in a competitive environment and we always have been. Michael Van Aelst: Okay, so okay. And then Nicolas mentioned that the DC efficiencies that you're getting are helping to drive that gross margin higher. I mean that was the case, obviously, in this quarter in the face of some of these competitive pressures. So what might change? What do you think might change over the next -- over fiscal '26 that might require you to reinvest some of that margin improvement back into promo activity like you suggested might be necessary? Eric La Flèche: I don't want to speculate. We are competitive. We always will be competitive in the market to protect our share, protect our sales and deliver decent margins to our shareholders for the business. What might change? It's hard to give you a straight answer or clear answer to that. We're in a competitive market and we're confident in our position and our ability to compete. We're well positioned with our network of stores, both Metro and discounts in both provinces with a very good market share. I think we're well positioned to continue to do well. Michael Van Aelst: Okay. So maybe just I'll ask it a little bit clearer. Is there anything that you're seeing now that's causing you to reinvest some of that gross margin gain that you got in Q4? Or is that just a possibility in future quarters? Eric La Flèche: Well, it's always a possibility, but we don't give guidance like that, and I think we should. That's all I'm going to say. Michael Van Aelst: Okay. Just to be clear on the DC impact. When you talked about the direct impact of $6 million, all of that was in OpEx, I believe you said. So when you say you got -- you had -- I don't know, you said 30 basis point impact from 2 factors. So let's call it 20 basis points from the freezer. Was that adjusted for in the EPS? Or is that not? Or was that left to flow through? Nicolas Amyot: No. So what I said, as you've mentioned, is that all the direct costs associated with the freezer were recorded under OpEx. When the freezer situation happened, we completely stopped operating the freezer, shipping products out of the freezer. So the gross margin benefit that we've seen was realized, if you will, prior to that situation and is "not adjusted for." It just does not include any impact for the freezer. All the direct cost, incremental costs are in OpEx. Eric La Flèche: Just to pick up on that, we did not adjust for the lost sales and the margins on those lost sales. We adjusted for the loss of inventory in the warehouse and the direct cost. Nicolas Amyot: Was that clear, Mike? Michael Van Aelst: Yes, that's clear. Operator: Next question will be from Mark Petrie at CIBC. Mark Petrie: Thanks for all the comments on the consumer and the competitive environment. That's very helpful. Hoping you can elaborate on the steps you took with regards to the frozen DC just to get it back on track to full operations. Was it repair, replace? And how have you sort of addressed the risks of recurrence? Eric La Flèche: Thank you for that question. So I'm not an engineer, and I don't want to say things that are way out of my league. But there was a complex repair and set up. So it involved compressors that were repaired, heat exchanger that is being replaced. So we are changing some components of the heat exchanger system to a different system, and we will be adding some redundancy so that we will avoid the situation. We will do eventually or in the not-too-distant future. We don't face the same risk in Terrebonne, our other frozen automated frozen facility in Quebec. That one is a fresh and frozen building on a different refrigeration system. We made sure that we have enough capacity and redundancy there. We will add even more, but we are in a good position there. And I think the risk is well managed. I think the good news in this catastrophe is what Terrebonne, our Quebec DC was able to pick up from Ontario. So very pleased that we were able to increase capacity in Terrebonne in short order quite substantially. So that proves that we have good networks, good facilities with good systems that can operate. Again, the breakdown in Toronto was really mechanical, refrigeration related, not IT or automation related at all. I hope this answers your question. Mark Petrie: Yes, it does. And I'm not an engineer either, so that's more than enough for me. But I guess maybe just to follow up, the cost for whatever you did have to do with Terrebonne, that's included in the $15 million to $20 million for Q1 or that's just included in your overall CapEx budget? Or where do those costs fall? Eric La Flèche: So the $15 million, $20 million that we flagged out for Q1, a lot of that is transportation costs, and that includes Terrebonne. So we're shipping from Terrebonne to Ontario stores all over the province. So that has a substantial cost, transportation costs, and that's in that number. Mark Petrie: Yes. Okay. Sorry, I just meant the cost of the equipment, but I think it was probably relatively small. And then my only other follow-up question, just on the same-store sales and, I guess, specifically to inflation. It seemed like the gap to CPI was wider this quarter than it has been in the last number of quarters. Would that be a fair interpretation? And if so, when you look at your internal data, what would account for that? Eric La Flèche: I wouldn't say the gap to CPI increased. We're in the same ballpark. CPI for our markets was 3.4% We're in the 3% range. So it was about a similar gap in the previous quarter, if I recall. And we don't see a huge gap, but there's a gap. Operator: Next question will be from Vishal Shreedhar at National Bank. Vishal Shreedhar: I just wanted to circle back to the GLP-1s that will go generic and have an impact on Metro's drugstore business. Is it fair to suggest that there'll be an impact on same-store sales growth and gross margin dollars? Or do you anticipate some of that being completely or more than offset by volume? Jean-Michel Coutu: Yes. So I could take this one. So it's a good question. Right now, the challenge is we don't have a crystal ball, so we can't really tell you when Ozempics could be genericized. There's been some delays. We know that the first submission did receive a notice of noncompliance. So clearly, it's going to be pushed further into F 2026 for us. Some people are saying spring. And then the question becomes, will they have enough supply to meet the demand. That also is going to change the dynamic and the impact of GLP-1s for us. But when you look at it right now, the submission is for Ozempic, which is primarily for diabetes. Are they going to be prescribing also for weight loss? Chances are, yes. But there are other alternatives, as I mentioned earlier, on market right now that have also continued to bring a little bit more dynamics to that category. But yes, it will -- a generic, if the demand doesn't pick up because of the lower cost, will create some deflation in our same-store sales. Right now, when we look at latent demand, we do expect some pickup because of the accessibility of the new price point. And then in terms of margin, in our model, it can create some margin decrease as we make margin as a percentage from wholesale. So that's, I mean, that's the dynamic right now in the market, but there's still a lot of unknowns for F 2026. Vishal Shreedhar: Okay. That was helpful. With respect to the Jean Coutu network, is that sufficiently outfitted to capture the growing demand for professional services? And how can I think about the size of that business for Metro? Jean-Michel Coutu: Yes. So right now, it's more of a same-store sale business, and we get royalties on those fees. But when we look at our network, we are very well positioned. We've invested for a long time in making sure that our stores have sufficient consulting rooms on average 2 per store. And now we're looking at stores with 3 and 4 as we're renovating and continuing to expand our stores. So we are in a very strong position to continue to offer these professional services across our network. It's something we've always invested in, and we see it right now, we're capturing our fair share of professional services and it's continuing to grow. Operator: The next question will be from John Zamparo at Scotiabank. John Zamparo: I wanted to follow up on the gross margin gain topic. The year-over-year gain this quarter was significantly more than what Metro had posted over the last 3 quarters. I know you called out shrink improvements and productivity gains from the DC. But is there any color you can add on why this made a more meaningful improvement this quarter versus the past 3? Eric La Flèche: Not really. Maybe Marc can add color, but not really. Marc Giroux: Maybe a comment on the 2 questions regarding margin. Gross margin is a very dynamic and fluid concept of results. Our focus is winning on customer value and driving tonnage and maintaining share and delivering, as Eric said, the bottom line and shareholder value. So the rate itself for us is a guiding post but not an objective in itself. So depending on the quarter, depending on the dynamic, depending of the tonnage available, our merchandising team will invest and deploy strategy to win in the marketplace. As you've seen in the past, our gross margins have been quite stable for multiple quarters. Some -- to Nicolas' point earlier, some of the productivity gain and shrink gain sometimes are reinvested to drive tonnage and sometimes they're flowing to the bottom line. I don't know if that helps and provides additional color. John Zamparo: Yes. And just a follow-up on that, the fact that shrink is listed as the first factor, should we interpret that as that was the larger of the 2 drivers between that and productivity? Nicolas Amyot: Not necessarily, John. I would say it's a combination of shrink, DC productivity, including DC within the DC as well as all of our logistics around transportation. So I would say that they are similar contributors. John Zamparo: Got it. Okay. And then in the outlook, you talked about 12 new or converted stores in F '26. Apologies if I missed it, but can you say what you expect for net square footage growth for this year? Eric La Flèche: It's a little -- for fiscal '26, we're seeing above 1%, 1% to 1.4% where we land. Operator: [Operator Instructions] Next is a follow-up from Michael Van Aelst. Michael Van Aelst: Just a quick one on the insurance claim. I know you said you're still negotiating it. But is your expectation that it's going to cover most or all of the direct and indirect inventory hit or just one of them? And then do you have any idea of the timing? Eric La Flèche: Michael, I would have liked to report that exactly that we're going to get it all back. These are complex policies with several insurers. So what I read is -- what I'm told, I should say, we're making our claims. We're going to get as much as we can. We think we're well covered with good coverage, and hope -- we will keep you posted, and we hope to get most, if not all of it back, but we'll see. We'll see where it ends up. Michael Van Aelst: Yes. Can you comment at all on the timing? Eric La Flèche: Hard to say, too. We're going to get some advances. It looks like they're going to -- they recognize liability. So we're going to get some money pretty early. For the rest, I don't know how long it will take. So we'll keep you posted. Operator: Next question is a follow-up from Chris Li. Christopher Li: Sorry. I'm sorry if you talked about this already, but just a question on your SG&A expenses for the quarter. If we exclude the $6 million of nonrecurring costs, it was fairly normal. I think it was up just under 3%. And I know you don't give any sort of guidance for this year, but I'm just wondering like is there anything over the horizon that would cause you perhaps to deviate from that 3% growth for this year if you exclude the onetime costs that are still coming in Q1? Nicolas Amyot: Yes. So as you've mentioned, I think adjusted for the direct cost of the freezer, the year-over-year growth of SG&A was 2.8%. Nothing specific to highlight, multiple categories contributed "normally" to the increase. Nothing that we see on the horizon that should have a material impact. We have always ongoing union labor negotiations that could come and have an impact. But as you've mentioned, we don't give specific guidance. And I would say nothing specific to highlight. Christopher Li: Okay. That's helpful. And then on the share buyback. You bought back, I think, $800 million of shares in fiscal '25. Do you expect a similar amount in fiscal '26? And then maybe related to that, you do have still a very strong balance sheet. I think your leverage is only 2.2x, which is below your target. Do you anticipate there's more room maybe to use that to accelerate the buybacks if you think it's appropriate? Nicolas Amyot: Yes. I think at this point, as I've mentioned, we've -- as of November 7, we have repurchased 8.7 million shares. The total approved program was 10 million shares. We're obviously not going to get to that by November 26. I would say that next year, at this point, I would expect a similar program and similar kind of operating conditions, meaning we're not necessarily going to totally fill it. And I think leverage wise, we've been saying that we are in a good position balance sheet wise. We might increase leverage in the future depending on conditions and I would say, for the moment, message is the same. Operator: Thank you. And at this time, we have no other questions registered. Please proceed. Sharon Kadoche: Thank you all for your interest in Metro, and please mark your calendars for our first quarter results on January 27. Thank you. Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you disconnect your lines. Have yourselves a good day.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers Conference Call on the Third Quarter 2025 Financial Results. We have with us today Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers; Mr. Nicos Rescos, Chief Operating Officer; and Mrs. Charis Plakantonaki; and Mr. Constantinos Simantiras. [Operator Instructions] I must advise you that this conference is being recorded today. We will now pass the floor over to your speakers, Mr. Spyrou. Please go ahead, sir. Christos Begleris: Thank you, operator. I'm Christos Begleris, Co-Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to our conference call regarding our financial results for the third quarter of 2025. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on Slide #2 of our presentation. In today's presentation, we will go through our third quarter company highlights, financial results, actions taken to create value for our shareholders, cash evolution during the quarter, vessel operations, our investments in our fleet, the latest on the regulatory front and our views on industry fundamentals before opening up for questions. Let us now turn to Slide #3 of the presentation for a summary of our third quarter 2025 highlights. The company reported the following: Net income amounted to $18.5 million with adjusted net income of $32.4 million or $0.16 adjusted income per share. Adjusted EBITDA was $87 million for the quarter. During the third quarter, we repurchased 250,000 shares for a total of $4.4 million, while from the beginning of the fourth quarter until today, we have bought back 360,000 shares for $6.7 million. Our Board of Directors decided to continue prioritizing returns to shareholders given the company's strong position, declaring a dividend per share of $0.11 for the quarter payable on or December 18, 2025. Our total cash today stands at $454 million. Meanwhile, our total debt stands at $1.028 billion. Through undrawn revolver facilities, we have additional liquidity of $115 million, resulting to pro forma liquidity of more than $570 million. We have approximately $91 million remaining from our recently renewed share repurchase program. Finally, we currently have 15 debt-free vessels with an aggregate market value of $336 million. On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was $16,634 per vessel per day. Our combined daily OpEx and net cash general and administrative expenses per vessel per day amounted to $6,421. Therefore, our TCE less OpEx and cash G&A is approximately $10,213 per vessel per day. Slide 4 provides an overview of the company's capital allocation policy over the last 3 years and the various levers we have used to strengthen the company, increase the increasing value of our shares and return capital to our shareholders. In total, since 2021, we have taken actions totaling $2.8 billion in dividends, share buybacks and debt repayment to create value for our shareholders. At the same time, Star Bulk has been growing the platform at opportune times through consecutive fleet buyouts by issuing shares at or above net asset value. On the top right-hand corner, we illustrate how the company has used both dividends and buybacks over time to return capital. We have returned in total $13.2 per share in dividends since 2021. This corresponds to approximately 70% of our current share price. On the bottom of the page, we saw our net debt evolution. Since 2021, our average net debt has reduced by 50%, reaching a level where it is covered by the fleet scrap value at a comfortable level. Slide 5 graphically illustrates the changes in the company's cash balance during the third quarter. We started the quarter with $431 million in cash. We generated positive cash flow from operating activities of $92 million after including vessel sale proceeds, debt proceeds and repayments, CapEx payments for energy-saving devices and ballast water treatment systems, share buybacks and the dividend payment for the second quarter, we arrived at a cash balance of $457 million at the end of the quarter. I will now pass the floor to our COO, Nicos Rescos, for an update on our operational performance and the investment we continue to make on our fleet. Nicos Rescos: Thank you, Christos. Please turn to Slide 6, where we provide an operational update. Operating expenses for Q3 2025 stand at $5,096 per vessel per day. Net cash G&A expenses were $1,325 per vessel per day for the same period. In addition, we continue to rate at the top amongst our listed peers in terms of RightShip Safety Score. Slide 7 provides a fleet update and some guidance around our future dry dock and the relevant total off-hire days. During October, we entered into 3 prompt recent renovation agreements with Hengli Shipbuilding for three 82,000 deadweight scrubber-fitted Kamsarmax newbuildings scheduled for delivery in Q3 2026. Our 5 Kamsarmax newbuildings under construction at Qingdao Shipyard are expected to be delivered during Q3 and Q4 2026. We have secured $130 million in debt on the five Qingdao newbuilding Kamsarmax vessels, plus another $74 million expected against the three Hengli Kamsarmax vessels. As of Q3, we have completed 51 EST installations with 4 vessels completed during the quarter and with 9 remaining and planned for 2025. On the top right of the page, we have our CapEx schedule, illustrating our newbuilding CapEx and vessel energy efficiency upgrade expenses. On the bottom of the page, we provide our expected [ dry ] expense schedule, which for the remaining of 2025 and '26 is estimated at $20 million and $47 million, respectively. In total, we expect to have approximately 580 and 1,140 off-hire days for the same period. Please turn to Slide 8 for an update on our fleet. On the vessel sales front, we continue disposing non-Eco vessels opportunistically, reducing our average fleet age and improving our overall fleet efficiency. We'll continue to optimize our fleet through selected disposals and acquisitions. During Q3, we sold and delivered 6 Kamsarmax and Supramax vessels, collecting total proceeds of $75.5 million with another 2 Supramaxes, Star Runner and Star Sandpiper delivered in October, generating around $25 million in proceeds. We maintain 8 long-term chartering contracts, which provide flexibility and leverage across market cycles. Considering the aforementioned changes in our fleet mix, we operate one of the largest dry bulk fleets amongst U.S. and European listed peers with 145 vessels on a fully delivered basis and an average age of 11.9 years. I will now pass the floor to our CSO, Charis Plakantonaki, for an update on recent global environmental regulation developments. Charis Plakantonaki: Thank you, Nicos. Please turn to Slide 9, where we highlight the key milestones on the ESG front. For the seventh consecutive year, Star Bulk has published its annual environmental, social and governance report, which provides a comprehensive overview of the company's sustainability strategy, performance and future goals. Through transparent and data-driven reporting, the publication highlights measurable progress towards long-term ESG objectives, supported by detailed action plans and sustainability-focused key performance indicators. The report has been developed in accordance to the global reporting initiative standards, the Sustainability Accounting Standards Board for Marine Transportation and aligns with the United Nations Sustainable Development Goals. In October 2025, during the latest IMO by the Environment Protection Committee, the IMO member states decided to postpone the adoption of the Net-Zero Framework for 1 year. The framework had been previously approved during the April MEPC. Despite the developments around global regulations, the company's decarbonization strategy remains focused on fleet renewal, energy efficiency and research and development on green technologies. We also continue to contribute to the work of the Maritime emission reduction center together with our partners and have participated for 1 more year in the carbon disclosure project on climate change and water security. On the technology front, we have commenced assessing the application of artificial intelligence across the company, having completed the diagnostic, identified and prioritized use cases and selected the first ones to be developed. We also continue our technology upgrades on board our vessels, including fiber installations and Starlink deployment. As part of our enhanced corporate responsibility program, during Q3 2025, we delivered anti-harassment training to all employees across company offices in line with regulatory requirements. I will now pass the floor to our Head of Market Analysis, Constantinos Simantiras, for a market update and closing remarks. Constantinos Simantiras: Thank you, Charis. Please turn to Slide 10 for a brief update of supply. During the first 10 months of 2025, a total of 31.2 million deadweight was delivered and 3.9 million deadweight was sent for demolition for a net fleet growth of 2.6% year-to-date and 2.9% year-over-year. The newbuilding order book remains modest at 10.9% of the existing fleet as contracting activity has been soft during 2025, falling to a 5-year low of 22.1 million deadweight year-to-date. Limited shipyard capacity availability up to late 2027, high shipbuilding costs and uncertainty over future green production have kept new orders under control. Furthermore, the IMO's decision to postpone the adoption of the Net-Zero framework for 1 year is likely to extend this ordering caution well into 2026. At the same time, the fleet is aging. And by the end of 2027, roughly 50% of the existing fleet will be over 15 years old. Moreover, the increasing number of vessels undergoing their third special survey is estimated to reduce effective capacity by approximately 0.5% per annum during 2026 and 2027. Average steaming speeds have picked up slightly in recent months, supported by firmer freight rates and lower bunker prices, but remain close to historical lows. Furthermore, environmental regulations become stricter every year and are expected to continue to incentivize slow steaming and moderate effective supply. Finally, global port congestion eased during Q3 and has returned to long-term averages. For the remainder of 2025 and 2026, congestion is expected to follow seasonal trends and to have a relatively neutral impact on effective supply growth. Let us now turn to Slide 11 for a brief update of demand. According to Clarksons, total dry bulk trade during 2025 is projected to expand by 1.4% in ton miles. Total dry bulk trade volumes underperformed during the first half, but experienced a strong recovery during the third quarter. Trade volumes increased by 5.1% year-over-year during Q3, supported by strong iron ore, grain and minor bulk exports and a recovery of coal volumes. Ton-miles have received extra support from stronger Atlantic exports, longer Pacific trade distances and war-related inefficiencies. The recent ceasefire agreement in the Middle East has intensified the discussion for the return of Red Sea crossings, and we should expect a gradual normalization during 2026. Chinese dry bulk imports recovered and increased 4.4% year-over-year during the third quarter after having contracted by 4.2% during the first half. Imports to the rest of the world increased 4.6% year-over-year to a new record high and remain on a strong upward trend over the past 2 years as lower commodity prices and a weaker U.S. dollar helped stimulate demand for raw materials. During 2026, dry bulk demand is projected to increase by 2.1% in ton miles. The IMF forecast for global GDP growth stands at 3.1%, slightly below 2025 levels, while Chinese GDP is projected to slow down to 4.2% from 4.8% this year. U.S. agreements with trade partners and the 1-year truth with China should help reduce uncertainty and support trade activity over the next year. Iron ore trade is expected to expand by 0.8% in 2025 and by 2.8% in 2026. During the first 3 quarters, Chinese steel production declined by 2.5% year-over-year, driven by output cuts that began in May with a target to reduce overcapacity, while output in the rest of the world increased by 0.5% year-over-year. China's property sector remains under pressure, but record high steel exports have helped mitigate the weakness in domestic consumption. Iron ore imports increased to all-time highs during Q3, assisted by lower domestic production in the first half and seasonal restocking. As of 2026, ton miles are expected to benefit from new high-quality iron ore mines in Guinea that should gradually replace lower quality Chinese production and imports from shorter distances. Coal trade is expected to contract by 6.2% in 2025 and by 1.1% in 2026. Volumes experienced a strong recovery during Q3 after a strong pullback during the first half of 2025 due to weaker demand in China and India. Chinese coal fundamentals have recently improved as domestic output is contracting, thermal electricity generation has recovered and domestic coal prices are moving higher due to the expectations of a colder winter. India new thermal energy capacity, strong demand from Southeast Asian economies and global focus on energy security are expected to support coal trade over the coming years. Grain trade is expected to expand by 2% during 2025 and by 5.3% in 2026. During the third quarter, total grain volumes surged by 11% year-over-year, driven by record harvest in Brazil and the U.S. and strong exports from Argentina following the temporary export tax suspension. Grain exports from other sources have recently increased but Black Sea volumes remain weak due to war-related disruptions. It is worth highlighting that China had not purchased any soybean cargoes before the October trade through. Since then, buying activity has resumed and is expected to intensify over the coming months as China agreed to buy 12 million tons in 2025 and 25 million tons per annum through 2028. Minor bulk trade is expected to expand by 5% during 2025 and by 2.1% in 2026. Minor bulk trade has the highest correlation with global GDP growth and continues to benefit from healthy outlooks across major economies. Wide price differentials continue to fuel Chinese steel exports and backhaul trades despite rising protectionist measures. Furthermore, bauxite exports from West Africa continued their strong performance and helped inflate ton miles for the Capesize fleet. As a final comment, despite geopolitical uncertainties, we remain optimistic about the medium- to long-term outlook for the dry bulk market, supported by a favorable supply outlook, stricter environmental regulations and easing trade sanctions. We remain focused on actively managing our diverse scrubber-fitted fleet to capitalize on market opportunities and deliver value to our shareholders. Without taking any more of your time, I will now pass the floor over to the operator to answer any questions we may have. Operator: [Operator Instructions] Our first question comes from Chris Robertson with Deutsche Bank. Christopher Robertson: Assuming you guys can hear me. So my first question is looking at the new financings, you secured up to $204 million on the 8 newbuilding assets being delivered in 2026. So taking these financings into account and then the regularly scheduled amortization or planned repayments during the year, what is your expectation around the total net change in debt in 2026 as a whole? Christos Begleris: Just a clarification, please. We have secured financing for the first 5, that's $130 million. And we are in discussions about the financing of the last 3 that we have confirmed this month. So the final numbers and figures for those vessels will be actually disclosed during the next disclosure of March. Christopher Robertson: Okay. Got it. I guess just related then to planned amortization during 2026. Could you comment around that? Christos Begleris: Our amortization will remain around the $50 million mark per quarter. What is happening is that some older facilities are getting refinanced. And then the new facilities for the new buildings have an amortization profile of 17 years, has not impacting in any major way the amortization profile of Star Bulk. So our amortization profile will remain around $50 million to $52 million per quarter for 2026. Christopher Robertson: That's helpful. As a follow-up to that, just as it relates to the dividend policy on the minimum cash balance per owned vessel, is that being calculated based on the pro forma size of the fleet after the newbuild deliveries? Or should we think about that as an average number per quarter as the deliveries are taking? Or is it being calculated right now at pro forma? Hamish Norton: Okay. So our dividend policy is perhaps slightly confusing. But the -- were you referring to the $2.1 million per ship that we have to keep on our balance sheet before we want to pay a dividend? Christopher Robertson: Yes, Hamish. Hamish Norton: Okay. Well, so basically, there has been no change to that. And we're so far above that level in terms of our cash balance that we -- it's not been an obstacle to any dividend payments in the last 2 years. I mean we have something on the order of $450 million of cash. And we have 142 vessels growing by the number of newbuildings. Petros Pappas: To Chris' question, though, I mean, the amount of CapEx -- equity CapEx required for the new buildings have already been covered by proceeds of past vessel sales. So essentially, funds that we have been using from operation to pay dividends are not impacted from these they have already generated process. Hamish Norton: I think I understand the question. I think I was misunderstanding the question. We don't have to allocate cash to specific accounts. We just take the number of vessels and multiply by 2.1. And that our aggregate cash has to be greater than that. Christopher Robertson: Right. My question was related on the number of vessels specifically, Hamish, the 2.1x the certain number. Now is that number being -- is that number pro forma the newbuild deliveries? Or like in 4Q, for example, is that as the fleet stands today? Or are you already taking into account the number of newbuildings? Hamish Norton: I mean it's as the fleet stands today, but we're so far above that level that it's not impacting our ability to pay dividends. It's not even closed. Christopher Robertson: Right, right. Okay. All right. Last question for me, just turning to rates. Looking at the strong rate performance right now in the sub-cape segment, do you attribute that to a waterfall impact from the stronger Capesize rates? Or is that a function of just stronger demand fundamentals in the sub-cape segment? Petros Pappas: Well, first of all, I think there is a spillover effect from the bigger vessels. But let's not forget that grain trade improved by 11% during Q3 and that coal did very well as well during the third quarter. So that helped a lot the Kamsarmax vessels. And on the Supramax vessels, minor trade was doing well as well. And I think also perhaps there was an urgency in ordering more cargoes whilst we didn't know whether there was going to be major tariffs, and that also helped out. Operator: [Operator Instructions] Our next question comes from Omar Nokta with Jefferies. Omar Nokta: Just wanted to ask maybe just a follow-up to the new buildings. And I guess maybe in general about fleet composition. You've acquired these 3 Kamsarmaxes that will deliver next year. You've got the other 5 Kamsarmax newbuildings. And if I recall, you got chartered in maybe long term last year, was it 5 other Kamsarmaxes. So you've been very active on the Kamsarmax front, at least with respect to, say, bringing in new buildings there. And just wanted maybe to kind of get a refresh as to what's behind that? What is it maybe specifically about that class that keeps you coming back to it, say, versus the Ultras/capes? Petros Pappas: Omar, first of all, we ordered Kamsarmaxes because our existing Kamsarmax fleet is getting older. So we need to do some renewal on that level. Second, we actually -- our S&P department managed to get very early deliveries during 2026, which we expect to be a good year. The prices were low. The vessels had scrubbers, so they're eco vessels. So we're happy with how they are doing, how they will be doing. Then think about this. Kamsarmaxes at $35 million equals $70 million, which basically is the cost of the Capesize. It's difficult to find Capesize vessels to order for anywhere close to 2025. I mean, I think that if we were going to order, it would probably be end '27 or '28. So who knows what will happen in 3 years from now. But if you calculate that Kamsarmaxes may, let's say, 2 Kamsarmaxes will do $16,500 per day, meaning $33,000 per day for 2 vessels minus $10,000 for the OpEx. That actually ends up at $23,000. So we get EBITDA of $23,000 on the 2 vessels, which actually would equal a charter rate equivalent of $29,000 for a Cape. Therefore, as long as we cannot order Capes and we found the opportunity to order Kamsarmaxes delivering very early comparatively. And as we think that the investment will bring the same results with the Cape, we went ahead and bought Kamsars. Omar Nokta: Okay. That's actually very, very interesting and clear the methodology there. I guess as you kind of think about that because I know in the past, and I know, Hamish, we've talked about this, post the Eagle transaction, you've been a bit maybe bottom heavy in terms of the Ultra Supras and hoping to maybe naturally get into Capes to kind of even things out. What do you think you can do there then? Obviously, Petros, you just mentioned the arbitrage perhaps of acquiring Kamsars versus Capes. But is there a means to maybe bolster the cape presence? Is it -- it seems like, obviously, you said new buildings are far off. How about the sale and purchase market? Petros Pappas: Well, the Supras actually, there's an equivalent calculation for the Supras as well. But there also, we have engaged in a trade, which we call the pendulum trade we return -- especially the Supras, you can return to the Atlantic with steel cargoes and other cargoes, which is not as easy for the Kamsarmaxes. And then -- and you can do that at low teens right now. But then on the front haul, you can do $23,000 to $25,000. And therefore, if you add the 2 and divide by 2, you get an average of around $17,000, which makes Supras Ultras equivalent to Kamsarmaxes. And therefore, according to the calculation I gave you earlier, equivalent to Capes. And actually, Supras are cheaper. Supra newbuildings are cheaper than Kamsarmaxes. Omar Nokta: And I think he also wanted to know what we could do around Capes. Petros Pappas: Okay. Around Capes. Right now, everybody keeps the Capes close to his chest and they are expensive and everybody whoever sells Capes likes to sell the worst performers that they have. And therefore, to find an opportunity is not as easy or you have to pay a very high price and not for new buildings, for secondhand. I mean there are cases where secondhand vessels are -- prices are equal to those of new buildings. When we took over Eagle Bulk, we had a big number of Supras under our ownership. So during the last 1.5 years or 2 years, we have disposed of about 28 Supras. And therefore, we're bringing the balance of Capes, Kamsars, and Supras more on an equal foot basis sorry, -- and we're keeping basically our Ultramaxes. We have sold the Supras, which are older, not eco, and we're keeping the better vessels. Omar Nokta: Yes. No, certainly. Well, very detailed response as usual, Petros, but obviously very logical. So very helpful to understand that. And it looks like the value really is perhaps now even though the outlook may be more exciting as we think about it just sort of conceptually, the outlook may be more exciting for Capes. If you have them great, but if you want to deploy capital, it sounds like the sub-capes where it's at. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Mr. Pappas for closing comments. Petros Pappas: No further comments, operator. Thank you very much for listening in, and good night. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Welcome to the Powell Industries Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Ryan Coleman, Alpha Investor Relations. Please go ahead. Ryan Coleman: Thank you, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2025 fourth quarter and full year results. With me on the call are Brett Cope, Powell's Chairman and CEO; and Mike Metcalf, Powell's CFO. There will be a replay of today's call, and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until November 26. The information on how to access the replay was provided in yesterday's earnings release. Please note that information reported on this call speaks only as of today, November 19, 2025, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international, political and economic risks, availability and price of raw materials and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett. Brett Cope: Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2025 fourth quarter and full year results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. Our fourth quarter marked a solid finish to another record year for Powell. Compared to the fourth quarter of last year, we achieved gross profit dollar growth of 16%, revenue growth of 8% and the generation of $61 million in operating cash flow. Our teams delivered a record quarterly gross profit of 31.4%, which was 215 basis points better than the prior year and a record quarterly earnings per share of $4.22 per diluted share. Our fourth quarter performance is a testament to the ongoing high level of project execution across all of our operations, combined with the steady progress against our strategic goals. The revenue profile of fiscal 2025 was driven by the strong growth in our nonindustrial markets, including both the Electric Utility and our Commercial and Other Industrial sectors. These 2 markets accounted for 41% of our revenue in fiscal 2025 and currently comprise 48% of our total backlog. Five years ago, these 2 market sectors accounted for just under 20% of our backlog as our focused effort to diversify the business and grow in these strategic markets has produced important results for the future of Powell. The Light Rail Traction market also had notable contributions during the year, with revenue nearly doubling compared to the prior year as we experienced increased levels of commercial activity in this end market throughout fiscal 2025 versus the prior year. We booked $271 million of new orders in the quarter, which was roughly 1% higher than the prior year. There were no mega projects in the quarter as our order book was comprised of a higher volume of small- and medium-sized projects. For the full year, we booked $1.2 billion of new orders, 9% higher than fiscal 2024. We finished the year with a backlog of $1.4 billion and registered a book-to-bill of 1.0x for the full year. Today, our backlog and project schedules are well balanced across the markets and geographies we serve. We also benefit from a healthy mix of large projects as well as core smaller and medium-sized projects that help maximize productivity across our manufacturing plants. With that said, we have begun to see some divergence emerge as we close out 2025 across our key end markets. We believe this is reflective of a global economic environment that is operating at very different speeds, driven by country, region and sector imbalances. Overall, the quality and visibility into future order activity continues to be very good, with strength driven by Electric Utility, data center and natural gas market opportunities, including large-scale LNG and related natural gas projects, which is offsetting some softness in portions of our traditional oil and gas and petrochemical markets, such as refineries and polyethylene and polypropylene facilities. We continue to actively review and evaluate our available manufacturing capacity. In August, we announced the next phase of our $12.4 million investment that will add an incremental 335,000 square feet of productive capacity at our Jacintoport facility in Houston. While the Jacintoport yard can be utilized to support any of our customers and market sectors, this investment is primarily focused on supporting our Oil and Gas customers, particularly the incoming wave of anticipated LNG project development work that we expect to come to market over the next 3 to 5 years. The production and export of U.S. LNG is clearly going to play a critical role in the global energy landscape, and this investment ensures that we continue to advance our industry-leading role in the fabrication of engineered-to-order power distribution solutions for critical applications. This announcement brings our cumulative investment at the Jacintoport fabrication yard to approximately $20 million over the past 8 years and nearly $40 million across our 3 Houston manufacturing facilities to support our organic growth plans. We expect this phase of the Jacintoport expansion to be completed by the second half of fiscal 2026. We continue to evaluate our entire manufacturing footprint for opportunities supporting growth and expansion, along with options that may further improve productivity. We believe that investments like these are the best use of our capital as the project time lines and execution, return on capital and payback periods are highly compelling for our shareholders. On the inorganic side, we closed the acquisition of Remsdaq during the fiscal fourth quarter. We continue to be incredibly excited around the future of our electrical automation strategy as we now work to complete the integration of the Remsdaq team into the larger Powell family. We are already experiencing commercial interest around Remsdaq's products across the multiple markets that we serve, including Electric Utility as well as data center applications within our Commercial and Other Industrial market sector. Our teams began quoting Remsdaq's products and technology in North America during the fourth quarter, introducing these products to customers on this side of the Atlantic as well as integrating their existing commercial efforts in the U.K. with Powell's customer base there. We are confident in our ability to scale our total Powell automation offering at margin-accretive economics in the coming years. As we enter our fiscal 2026, the Commercial environment for each of our end markets remains positive as we are optimistic that the momentum we built throughout our fiscal 2025 will continue into the new year. The fundamentals in the Oil and Gas market support our expectation for continued order strength. Specific to the fundamentals of the U.S. natural gas market, the pipeline of LNG projects that we are tracking continues to support our expectation for continued momentum for both greenfield and brownfield orders. Activity within our commercial and other industrial market also remains healthy, and our progress to further penetrate this market is progressing well. Recent data points and industry commentary by data center operators continue to identify power availability and reliability as key constraints to capacity growth and AI data center expansion. As a critical supplier of power distribution and control equipment, we continue to see elevated levels of activity as operators execute their capacity growth plans. Opportunities are growing in both size and volume as well as product applications as we expand our presence in this strategic market. The outlook for our Electric Utility market remains robust and balanced across the customers and geographies that we serve. The growing wave of investment in electrical infrastructure to meet growing demand levels is broad and durable, and we expect another strong year of activity in 2026. I want to thank the entire Powell team for another record year for their commitment to Powell and our customers and suppliers alike by helping to further our unique position as a supplier of critical electrical distribution components to a growing array of applications. With that, I'd like to turn the call over to Mike to walk us through our financial results in more detail. Michael Metcalf: Thank you, Brett, and good morning, everyone. I will begin first with the fiscal fourth quarter business results and then move to the total fiscal year 2025 results. Revenues for the fourth fiscal quarter of 2025 increased by 8% to $298 million compared to the same quarter in fiscal 2024 of $275 million, and was also higher sequentially by $12 million, driven predominantly on the strength across our electric utility sector. Net orders for the fourth fiscal quarter were $271 million, $4 million higher than the same period 1 year ago, driven by strong year-over-year activity in our commercial and other industrial, Light Rail, Traction power and Electric Utility sectors, which was offset by lower commercial activity across our petrochemical and oil and gas sectors. Overall, we remain encouraged by the level of commercial activity across all the end markets that we participate in. Considering this level of new order bookings, coupled with the sustained strength of our top line performance, the book-to-bill ratio was 0.9x for the fiscal fourth quarter and 1.0x for the full year fiscal 2025. Reported backlog at the end of fiscal 2025 increased to $1.4 billion, $41 million higher than the end of fiscal 2024 on an increasing proportion of Electric Utility, commercial and other industrial and Light Rail Traction power backlog, partially offset by lower petrochemical backlog levels versus the prior year. As we exit fiscal 2025, our Electric Utility and Oil and Gas sectors each now make up 1/3 of our total backlog. Overall, we are very pleased with both the execution across the business, driving record revenue levels for the year as well as our orders performance continuing to grow and diversify our backlog position as we enter fiscal 2026. Compared to the fourth quarter of fiscal 2024, domestic revenues of $239 million increased by $4 million or 2%, while international revenues increased by 38% to $68 million on higher volume across most of our international manufacturing and service locations. From a market sector perspective, revenues from our Petrochemical and Oil and Gas sectors were lower by 25% and 10%, respectively, on challenging comparisons resulting from the large industrial project orders that were booked in fiscal 2023 and executed predominantly in fiscal 2024. In the fourth quarter of fiscal 2025, the Electric Utility sector doubled versus the same period 1 year ago, while our Light Rail Traction sector increased by 85%, albeit on a smaller revenue base, and the Commercial and Other Industrial sector was lower by 9% on project timing. We reported $94 million of gross profit in the fiscal fourth quarter of 2025, which was $13 million or 16% higher than the same period of fiscal 2024. Gross profit as a percentage of revenues increased by 215 basis points to 31.4% of revenues in the current fiscal quarter. The higher quarterly margin rate is primarily attributable to continued strong project execution across the business, delivering favorable project closeouts, resulting in an incremental 100 basis points to the fourth fiscal quarter margin rate. Additionally, we have maintained pricing levels and combined with strong throughput across the business, which is driving incremental volume leverage and productivity, these variables have created a tailwind to margins across most of our operating divisions. Selling, general and administrative expenses increased by $5.5 million or 25% on higher levels of compensation expenses as well as the Remsdaq acquisition costs. SG&A expenses were $27 million in the fiscal fourth quarter or 9.1% of revenue compared to 7.8% of revenues a year ago. In the fourth quarter of fiscal 2025, we reported net income of $51.4 million, generating $4.22 per diluted share compared to net income of $46 million or $3.77 per diluted share in the fourth quarter of fiscal 2024. We generated $61 million of operating cash flow in the fiscal fourth quarter, driven mainly on higher earnings during the period. In August, we completed our recently announced business acquisition of Remsdaq Limited for a total consideration of $18.4 million, which includes cash acquired of $4.6 million. This transaction had a net cash impact of $11.5 million in the fiscal fourth quarter with contingent payments of roughly $2 million to occur in future periods. In addition, investments in property, plant and equipment totaled $1.8 million during the fiscal fourth quarter as we invest in capacity and productivity projects across the business. As we recently announced, we've embarked on a critical project that will expand our capacity at our offshore yard in Houston, further strengthening Powell's position in supporting the production and export of U.S. LNG. This roughly $12 million investment falling predominantly during fiscal 2026 will help to ensure that we can confidently fulfill delivery commitments to our customers. Now recapping our total year fiscal 2025. Revenues of $1.1 billion increased by $92 million or 9% compared to fiscal 2024. Notably, our Electric Utility and the Commercial and Other Industrial sectors were higher versus fiscal 2024 by 50% and 19%, respectively, while the Petrochemical sector was lower versus the prior year by 19%. Orders were $1.2 billion, 9% or $94 million higher versus fiscal 2024. Overall, we've been very pleased with the activity across all the end markets that we serve and the resulting orders mix through fiscal 2025. Gross profit as a percentage of revenues grew 240 basis points year-over-year to 29.4% or $51 million higher than fiscal 2024. The margin rate continues to benefit from a stable pricing environment, exceptional project execution, coupled with incremental volume leverage and successful operational and commercial strategies that continue to address the macro inflationary challenges across the supply chain. Selling, general and administrative expenses were higher by $11 million versus the prior year. Overall, net SG&A expenses as a percentage of revenues were higher versus the prior year by 20 basis points at 8.6% of revenues in fiscal 2025 versus 8.4% in the prior year. In fiscal 2025, research and development spending increased $2 million or 17% versus the prior fiscal year as we continue to make progress on new product design and development. Total R&D spend in fiscal 2025 was $11 million or 1% of revenues. We reported net income of $180.7 million or $14.86 per diluted share in fiscal 2025 compared to $149.8 million or $12.29 per diluted share in the prior year. Operating cash flow generated in fiscal 2025 was $168 million versus $109 million in the prior year, driven by higher income generated versus the prior year. In addition to the acquisition of Remsdaq, which was a net cash, cash usage of $11.5 million in fiscal 2025, total capital spending on property, plant and equipment was $13 million in fiscal 2025, $1 million higher than the prior year as we completed the expansion of our breaker manufacturing facility in Houston, which spanned across both fiscal 2024 and fiscal 2025. At the end of fiscal 2025, we held cash, cash equivalents and short-term investments of $476 million, $118 million higher than our fiscal 2024 year-end position, reflecting the sustained level of commercial activity across our end markets, coupled with the strong execution across the business. The company holds 0 debt. Looking forward, we are confident that the strong commercial momentum we experienced across our key end markets in fiscal 2025 will carry into fiscal 2026. We believe that the composition and the quality of the current backlog, combined with the sustained business profitability supported by a stable pricing environment, volume leverage and disciplined project execution will provide meaningful tailwinds for continued performance. In addition, the company's strong liquidity position and solid balance sheet support significant financial flexibility, positioning Powell for another successful year in 2026. At this point, we'll be happy to answer your questions. Operator: [Operator Instructions]. And your first question today will come from John Franzreb with Sidoti & Company. John Franzreb: Congratulations on another impressive quarter. Gentlemen, I'd like to start with the current operating environment. Can you talk a little bit about if there's been any meaningful change in the competitive landscape or maybe the pricing environment today versus, say, a year ago? Brett Cope: John, thanks again. It's Brett. So if you -- try to answer each of our 3 main sectors. As I noted in the prepared comments, Oil and Gas is still a very good healthy market for Powell. We are seeing some parts of that subsector of that market like in Canada, the North Sea of the U.K. with policy in the U.K., a little softer, not as much as we might see day-to-day, but then other parts of the market, the gas, as we talked a lot about in the last couple of years. But more recently, utility taking another step up. That's a market we strategically have been pursuing for years. And now with the increased demand part and then the C&I part with data center. I would say that market is more demand-driven speed, maybe a little less price sensitive, whereas the other part of the market that -- the aforementioned subsectors of oil and gas, because it's a little softer, a little bit more price sensitive. So it's a tale of different scenarios regionally by different sectors right now. And so it's a little different, not just kind of one ubiquitous market across the board. John Franzreb: That makes sense. That makes sense. I'm kind of also curious about your thoughts about seasonality, especially considering the backlog profile. I know in years past, it's been de minimis to volatile. How would you kind of characterize how should we expect the upcoming first quarter to kind of lay out given the current job outlook? Michael Metcalf: Yes. John, this is Mike. I'll address that one. As we always see in every fiscal year, our first quarter of fiscal is the October, November, December with the holidays and such. We do anticipate that sequentially, as we exit fourth quarter and report our first quarter, it seasonally is softer due to what I just mentioned. That said, as we look forward on a total year basis, we still are very optimistic about next year. John Franzreb: Okay. All right. And just one more question, I'll get back into queue. Regarding the SG&A, you mentioned there is maybe some onetime M&A expenses in the quarter. How big were those expenses, just so I can maybe rightsize SG&A on a go-forward basis? Michael Metcalf: Yes, sure. So on a discrete 4Q basis, John, we were up about $5 million year-over-year. Roughly $3 million of that was due to compensation -- variable compensation items and $2 million -- a little less than $2 million was acquisition-related, legal, valuation services. Operator: The next question will come from Chip Moore with ROTH Capital. Alfred Moore: Maybe just first for me, C&I, it sounds like you feel very good about the trends there. I think you called out opportunities growing and maybe some urgency on price. Just with the modest decline in the quarter, was that largely timing or anything to call out there? And then on the go forward, how are you viewing the opportunity in some of the newer products you're offering there? Brett Cope: Yes. I think on the quarter, just timing. If you look at that sector -- Chip, Brett, by the way, the opportunities are clearly growing, both for things that we have noted on the earlier calls that we're aspiring to bring to market to get inside the 4 walls of the data center. But also on the outside, we continue -- that's an area we are always able to play. But on both fronts, we're making good progress and the size and breadth of the opportunity for Powell is clearly growing. I just look at the last quarter's activity, it's -- there's a lot of people, a lot of conversations going on, a lot of what ifs. And so -- and we're quoting some pretty big things today, and it's grown really nicely over the last 2 years for us. Alfred Moore: Got it. And Brett, I guess, the corollary on utility, that phenomenal growth this quarter. You've been working on that for a long time. But I guess, sustainability of growth there, the trends you're seeing, obviously, it looks like in backlog, demand is quite healthy, but any more color there? Brett Cope: Really. This is -- this particular strategy around utility that we're working hard at for well over a decade, I'm super pleased with, and I appreciate the question. Mike and I were just talking before the call today, if you look at oil and gas in the backlog profile to utility, they're equal weighted. So we want both. We absolutely love our oil and gas customer. We have decades of relationships we're going to own, and we're going to build that same profile with the North American and U.K.-based utility customers. So -- we think the demand profile looks good. That includes both where we have been fighting our way into the distribution side of the substation. And now with this kind of increase in demand, we're going to do everything we can to grab as much of that as we can as well. This is a great growth sector for Powell on the distribution side with the electrical automation strategy and the service strategy. So all 3 of our strategies play here. Alfred Moore: Great. And sorry, maybe one more on C&I data center and maybe kind of technical, but Brett, I'd be curious to get your thoughts if you have any -- a lot of buzz around 800-volt DC architectures down the road. Just do you guys play there? Or what would be a potential role? And how do you see that evolution? Brett Cope: Yes. We -- a couple of the folks that we're meeting -- we've got the DC switchgear that we provide to traction. So we have a DC breaker today that fits. We have a design on a rectifier. We would have to do some R&D around that to apply it to a DC structure for the data centers that the power levels are talking about. So if you look at how the future DC might develop, you still have the AC tie. So at the power levels today, we'd have the 38 kV primary switchgear, which would still be the same tomorrow at the DC. But then as you get inside the DC distribution of the data center potential on the architecture, the Powell technology would play. We'd have to do a little investment around the rectifier as a solution. There are other solutions to -- as there are frequently when you're doing the distribution scheme into any facility. But -- we've had a few folks up that are in the space, seeing what we do and how we do it and chats about what we'd have to do to finish off a few things to get it where they want it to be for tomorrow. So we're in that conversation. Alfred Moore: Great. Appreciate that. And maybe, Mike, for you, just back to the margins and pricing. I think you called out you feel good on backlog and sustainability. Just remind us, I think you called out 100 basis points this quarter, but how should we think about '25 sort of normalized? Is sort of 28% the right ballpark? Or how are you viewing that? Michael Metcalf: Yes. I mean, look, it was another really outstanding quarter operationally. We generated roughly 100 basis points of margin due to project closeouts. And from a year-to-date perspective, exiting the year at 29.4% on a year-to-date basis, this had about 125 basis points of project closeouts. So when we think about the sustainability and considering the margins that we see in backlog, we do anticipate a continuation of solid project execution through next year. And considering this margins in the upper 20s for the total year of fiscal 2026 are realistic. Operator: Next question will come from Jon Braatz with Kansas City Capital. Jon Braatz: Brett, a question on the LNG market. It's been about 9 months, 10 months since the pause has ended. And I suppose some would have thought some LNG projects would have reached FID by now. And as you look at those projects, is there -- are you surprised they haven't reached -- some haven't reached FID yet? Or is there a little bit of a hang up for some reason? Brett Cope: How to answer this question. It's a very -- as I've said in other calls, it's extremely active. It has taken a little more time, to your point, Jon, to spin back up. I think given -- again, just sitting as Brett, looking at the macro picture with each model and how they're going to market, where their cargoes are going to go, who they're signing up in their production agreements. I kind of get a feel for where -- why some of the delay, but I'm not overly worried about it. I still feel really good about the fundamentals on many of the projects. And it is -- I didn't have much in my comments on the prepared side on the space other than the general comment that we feel still really good about the sector of gas. And I just reiterate that with you on the question here, it's very strong activity, and I feel good the investment we're making in offshore is going to be very well timed for what's going on, on this next wave. Jon Braatz: Okay. Okay. A couple of questions on the end markets. In the C&I segment, beyond data centers, what might be active in that area? And then also in the Traction area, orders were up significantly. What are you seeing there that's driving the business in Traction? Brett Cope: Yes. So on C&I, yes, clearly, the main driver of that is data centers. And it's -- as I noted earlier with John Franzreb, it's a very active area, and we are seeing some nice opportunities grow. The balance of that would be other industries that we've always had presence, but never really, I'd say, overly hunted. Mining has been one of note. We occasionally see a cycle on pulp and paper integrated facilities. They have a lot of power usage and moving a lot of fluids and pulp slurries and so that uses a lot of medium voltage. And so that kind of rises and fall. And then occasionally, we'll see some other commercial activities sneak in through an E&C or a distributor because some of that market to distribution that we're getting exposed to, we're seeing -- occasionally, we'll see some broader industries that we might not have seen as directly in our Powell sales channel. Jon Braatz: So mostly data center still. Brett Cope: It is largely driven by data centers, and it is growing for us for sure. Jon Braatz: Yes, okay. Brett Cope: The Traction piece, yes, it's a nice story. Look, I always said -- and we talked about it in the company. I love Traction. I think we do it very well. The DC side, we've done it now for nearly 30 years. We're good at what we do. There's a lot of people play in this market, but there's a lot of people that sort of put the fingers in this market and on the contracting side and muddy it up. And there's a reason there aren't that many people that play on the gear side because by the time it gets to a company like Powell, got all kind of crazy terms and things that just make you wonder. So there was a lull last couple of years. It does -- it takes a long time to get these projects to market just because of the, what I'll call the government side, if you will, of the contracting. But there is a broader set of projects that are getting to market now around the East Coast, Ramada up to New York, over Chicago and even in Canada, there's a number of projects that are sort of just timing out at the same time, and we see some other things continuing on into next year, quite frankly so. Jon Braatz: Okay. Okay. Good. A question for you, Mike. In terms of SG&A, as we look forward, obviously, in the fourth quarter, you had some onetime items. But as you continue to see the robust revenue line and the progress that you're seeing there, do you think you can leverage SG&A costs? Or would you think that maybe we'll still see a little bit faster growth in those expenses over revenue? Michael Metcalf: No, Jon. I think you'll see leverage, especially when you compare it to what we reported in our fourth fiscal quarter with those unusuals. When you look at the year-to-date numbers, we reported 8.6% of revenues in the total year '25, that compares to 8.4%, 20 basis points, as I noted in the prepared comments, 24 basis points above where we ended 2024. So relatively flat, and that also has the acquisition cost. So yes, nothing crazy that we see going forward. Jon Braatz: Okay. Any acquisition costs in 2026 from the most recent acquisition, obviously? Michael Metcalf: No. Those all were incurred in 2025. Operator: Next question is a follow-up from John Franzreb of Sidoti & Company. John Franzreb: Yes. I guess I'm still thinking about the closeouts. And I'm wondering how you would characterize 2025 compared to prior years. Is this kind of a normal level of activity, maybe on a percent of revenue basis or how we should think about it? I just want to get a bit of handle on that. Michael Metcalf: Yes. John, this is Mike. Yes, closeouts, I would say, in 2025 were a little bit heavier than in prior periods. As you'll see in our K that will be filed this afternoon, the closeouts ran a little better than 1.5% of total revenue, 1.7% to be exact. And as I mentioned in my response to Chip, I mean, we do expect to continue this execution -- the outstanding execution into 2026. So we should expect to see some project closeouts in a favorable fashion in 2026. John Franzreb: Got it. Got it. And regarding the uptick in R&D, can you talk a little bit about maybe where the spend is going? And when do you expect to see the commercialization of some of these projects? Brett Cope: John, it's Brett. I'll take this one first, and Mike can add color. I think we're going to -- you'll continue to see spending at this level for the next couple of years. I feel good about the progress we're making. When you bring -- we're bringing some wholesale products to market to fill some gaps in our 038 strategy on distribution. So we had some nice wins. We had some learning experiences in '25, but that's normal in the course of getting the engine back up and going and flying the plane at Altitude. I think in '26, I expect to see some products hit the market that we should see some tangible results to report back to the street. Not done, some. And I think there'll be some iterative effort that will continue on into '27 and '28 just because that's the process. But I do think we'll see more tangible results as we get through the fiscal year next year. Michael Metcalf: Yes. And I would mention, John, just to get an appreciation of the lead time of some of these projects, these electrical distribution equipment projects. They do have a long lead time, but well better than a year after they've been tested and the like. So yes, the R&D has ticked up the last couple of years, and you should begin to see some of these projects exiting the pipeline, but they do take quite a while. John Franzreb: Got it. Got it. And I guess in light of the capacity expansion, can you give us an updated CapEx budget for 2026? Michael Metcalf: Well, the $12.4 million for the Jacintoport expansion, that I expect that to hit in its entirety in fiscal 2026 on top of maintenance and productivity projects that we normally execute call it, the $5 million to $7 million range, and that's what I would expect in 2026. John Franzreb: Got it. And I might have missed this in the prepared remarks, and I apologize. But how much of the backlog is deliverable in the coming 12 months? Michael Metcalf: About 60% is convertible in 2026. John Franzreb: Got it. Got it. And one last question, and again, this is just a point of clarification. Data center revenue, I mean, maybe for all of fiscal 2025 as a percentage basis? And how does that comp to like 2024? Just trying to contextualize it. Michael Metcalf: Yes. If you look at our backlog, our backlog for C&I is about 15%. Roughly half of that is today data centers. that's probably 100 to 200 basis points higher than it was last year. Operator: The next question is a follow-up from Jon Braatz of Kansas City Capital. Jon Braatz: Mike, just a question on the incentive comp. Was that sort of a catch-up number in the fourth quarter? Michael Metcalf: Yes. It is, Jon. What we typically see is we will accrue based on our expected results as we progress through the year. And given the results of our results that we had this year, we did have a catch-up in the fourth fiscal. Jon Braatz: Okay. Any -- can you tell us how much it was -- how much of a catch-up? Michael Metcalf: Well, as I mentioned to John Franzreb a little earlier, the variable compensation of the $5 million year-over-year increase, variable compensation and compensation in general, which would include headcount adds and the like was about $3 million. And then the legal and valuation services related to the M&A activity was just under $2 million. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brett Cope, CEO, for any closing remarks. Brett Cope: Thank you, Nick. As you've heard from Mike and I this morning, we are very pleased with the financial results for our total fiscal 2025 financial performance. And we are very proud of the Powell team that delivered for our shareholders. The markets we serve continue to support our belief that fiscal 2026 will be another strong year for Powell. I would like to welcome our new team members from Remsdaq Limited to Powell. I am very excited to write the next chapter on electrical automation and how Powell will help drive that future. With that, thank you for your participation on today's call. We appreciate your continued interest in Powell and look forward to speaking with you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Peer Schlinkmann: Good afternoon, everybody, and welcome to the 9 months earnings call of the Wacker Neuson Group. My name is Peer Schlinkmann, Head of Investor Relations and Corporate Communications. Thank you for joining today on the occasion of the release of our 2025, 9 months results. As usual, we will first start with the operational and financial results of the 9 months 2025 and give additional insights on the recent developments. Following this, we are happy to answer your questions in the Q&A session. Available to follow today's call via the webcast, the presentation slides are also available for download at wackerneusongroup.com/investor-relations. Please note that the entire call, including the Q&A session, will be recorded and a replay will be made available on our corporate website by the end of the day. And now I would like to hand over to our executives, Karl Tragl and Christoph Burkhard, who will lead you through this call. Christoph Burkhard: Thank you, Peer. This is Christoph Burkhard, CFO of the Wacker Neuson Group. Welcome, everybody, to our earnings call, and thank you for joining. Karl Tragl: Dear all, a warm welcome from my side, too, and thanks again for joining the conference call. I'm Karl Tragl, CEO of the Wacker Neuson Group. I would like to start the presentation with a brief overview of our key financials for the first 9 months of 2025. Our operational recovery continued in quarter 3 of 2025. Despite a challenging macroeconomic environment, which had especially weighed on the first quarter of this year, we were able to increase both our revenue and EBIT margin in quarter 3 year-over-year. This positive development is, among other things, the result of efficiency measures that we initiated last year. Now let's take a closer look. Our revenue for the first 9 months of 2025 amounted to EUR 1.625 million, marking a 5.6% decline year-on-year. This decline was primarily due to the weak first quarter of 2025 as well as persistently weak demand in the U.S. Our 9-month EBIT margin in 2025 amounted to 6.0%, which is 0.3 percentage points below the previous year. Also here, we were negatively impacted by the weak beginning of this year. However, it is apparent that we have succeeded in further stabilizing our improved profitability. The EBIT margin in the third quarter was at 7.5%, thus nearly on the same level as in quarter 2 2025 despite the lower revenue base of quarter 3. Moreover, this quarter's EBIT margin was 2.7 percentage points higher compared to quarter 3 in 2024. Looking at the net working capital ratio, we see a slight decrease compared to previous year. However, our yearly strategic target of approximately 30% remains under pressure, especially due to the uncertainties in the U.S. market. Our free cash flow surpassed the triple-digit mark and amounted to EUR 116 million. Christoph will explain both developments in more detail. Now let's look at the developments of our business segments after the first 9 months of this year. In general, the overall picture remains challenging. Recovery of compact equipment was slower than initially expected. It faced a year-on-year decline of 10%. Nevertheless, certain product groups like dumpers differed from the general trend, demonstrating resilient customer interest in our innovative products. The Light Equipment Products segment stabilized and remained only 1% below the previous year. And moreover, services grew again year-over-year by 1%. The 9 months year-to-date book-to-bill ratio was at 1.1. Nevertheless, we see the agriculture as well as construction industries recovery slower than initially anticipated. We, therefore, keep monitoring our markets closely, and we remain cautious regarding the developments in the last quarter of 2025. Let's take a closer look at our regions during the last 9 months. Revenues in the Europe region, EMEA, after 9 months of 2025 stood at EUR 1.269 billion and made up 78% of our global group revenue. Also, quarter 3 of 2025 revenues increased year-over-year. The 9-month revenues remained 4% below the prior year, still impacted by the negative effects of the weak first quarter. Moving to Americas region, accounting for 20% of our group revenue, we saw a decline of 10%, resulting in revenues of around EUR 322 million. Demand in the first 9 months of 2025 was further characterized by greater caution in ordering behavior in the U.S. compared to Europe due to ongoing macroeconomic and geopolitical uncertainties, mainly due to the effects of the U.S. tariffs. Demand declined not only in the U.S., but also in Canada and Mexico. In the Asia Pacific region, which represents 2% of our business, revenue dropped by 21% to approximately EUR 34 million. The region was primarily characterized by a decline in demand in Australia and China. I will now hand over to you, Christoph, to give some more insights into our financials. Christoph Burkhard: Thank you, Karl. Let's take a closer look at where we stand with our net working capital. Our net working capital ratio based on the last 12 months revenue at the end of September stood at 32.4%, slightly below the value at the end of the second quarter in 2025. In comparison to last year's figures, however, the progress we made is more apparent. Over the course of 12 months, net working capital dropped by EUR 116 million from EUR 808 million at the end of September 2024 to EUR 692 million at the end of September 2025. This reduction is mainly driven by a steady reduction of inventories and an increase of trade payables in the last 12 months. This is the driving force behind the reduction of 1.8 percentage points of net working capital and in the net working capital ratio over the last 12 months, which stood at 34.2% at the end of September 2024. Now looking towards year-end, I expect a slightly higher working capital ratio, predominantly caused by higher inventories in the U.S. Alternatively, we could have adjusted our production plan for 2025 downwards to the current lower demand in the U.S. This again would have triggered underutilization in our European plants. In light of our stable cash flow generation and in preparation for 2026, we decided to prioritize stable production output over short-term working capital optimization, leading to this temporary increase in finished goods inventories by year-end. We believe that this is the right decision because we avoid additional underutilization costs and at the same time, we expect inventories to decrease again towards springtime due to overall market normalization in 2026. Now let's have a look at our cash flow. Although our revenues decreased by 5% quarter-over-quarter, we were able to keep our profitability stable on a level of above 7.5% on a quarterly basis. This is also reflected in our stable cash flow from operating activities. Therefore, we could continue in Q3 with a positive free cash flow generation now for the sixth quarter in a row. Due to the just mentioned rising inventories in the U.S. by year-end, I do not expect cash flow generation in Q4 to continue as in the previous quarters. However, I stick to my previously made statement of a triple-digit free cash flow number at the end of the year. Also on the positive side, we further reduced our net debt in Q3 down to EUR 258 million, reaching the lowest level since the first quarter in 2023. Consequently, also our leverage ratio reduced further down to 0.9. And last but not least, the picture of our capital structure is completed by a robust equity ratio of 60%. And with this, back to you, Karl. Karl Tragl: Thank you, Christoph. Before concluding with the current outlook, I would like to give you an update on the implementation of our Strategy 2030. Despite the challenging market environment, along our strategic levers, we are continuing to implement the milestones, which you can see on this slide. The John Deere Cooperation is fully on track. We have successfully started delivering first serial excavators for John Deere from this. At the same time, we are ramping up the production line of our U.S. plant for further models and will start their delivery in 2026. On the chart, you see a picture of our modernized production sites in Menomonee Falls in Wisconsin. I can tell you, it really looks good. On the other hand, we have advanced our light equipment portfolio. We expanded the range of reversible plates and also introduced new battery-powered versions. The battery-powered rammers gained on efficiency through a feature called the integrated speed control. The compaction performance can now be optimally adapted to the respective application. And last but not least, we have expanded our zero emission portfolio in compact machines and added 2 models of excavators. With just a 1.2 ton operating weight, ESET 10 electric is particularly well suited for applications with a restricted floor load such as indoors. The green illuminated active working signal increases safety on both internal and nighttime construction sites. The second model introduced, EZ26 Electric is a bigger tracked zero tail excavator. Its emission-free, quiet and low vibration operation makes it the ideal choice for legally restricted or noise sensitive and environmentally critical areas as well as for special work sites with local and time restrictions. As you can see, one of our strategic focus areas remains our investment in sustainable construction. We believe that this is the future of construction, and we are ready to seize the future opportunities. Now let's move on to our outlook for the year 2025. Also, we have a stable order book development in the course of this year, market recovery is slower than we initially anticipated. Industry outlook partially stagnated as well. And moreover, we have faced a significantly weaker market demand in the U.S. due to geopolitical uncertainty as well as the tariffs. Due to supply chain issues of Nexperia, we only expect a minor impact on our production in the last 2 months of 2025. However, we will closely monitor the situation. Due to all of these factors, we have decided to narrow our yearly guidance. For 2025, we now anticipate a revenue in the range between EUR 2.15 billion and EUR 2.25 billion and an EBIT margin in the range between 6.5% and 6.8%. We expect our investments to reach around EUR 80 million and our net working capital to be at around 34% by the year-end. As we already mentioned, we succeeded in stabilizing our improved profitability in the current market environment in quarter 3 of 2025. Looking ahead, we will continue to counteract the weak market, especially in the U.S. with efficiency measures and cost discipline. For 2026, we expect market recovery in Europe as well as normalization of market demand in the U.S. Nevertheless, we still remain cautious and track our market developments continuously. Summarizing the key messages from our first 9 months. Revenue is in line to reach full year guidance. Narrowed margin guidance is driven by underlying U.S. tariff impact and geopolitical uncertainties. We are ready to seize the opportunities in the years ahead presented by the German special fund. Strong balance sheet is our foundation to execute our Strategy 2030 and drive future growth. Before we now jump into the Q&A session, let me send a sincere thank you to all our employees of the Wacker Neuson Group, who relentlessly are giving their best for our customers and our company, even more so in challenging times. So really thank you. Nobody is perfect, but a team can be. Thank you for listening. Operator, we are now ready to start the Q&A session, and we're very much looking forward to answering your questions. Operator: [Operator Instructions] First question is from Stefan Augustin of Warburg Research. Stefan Augustin: The first one would be actually on the book-to-bill just for Q3. And let's say, with that, maybe a little bit the progression throughout the quarter. Was that rather a stable quarter? Or was it more, let's say, weaker versus the end, something like that and the color on the current situation. That will be the first question, and I'll take them one by one, 2 more. Karl Tragl: Stefan, thank you for asking the question. The EUR 1.1 billion in the year-to-date was driven by a lot in the April and the [Baumol] effect. In quarter 3, we have been fluctuating around EUR 1.0 billion. So it's stable at the situation. Stefan Augustin: Okay. The next one is then a little bit more complicated, and I try to square it a little bit up. Starting from the net working capital ratio that goes up to -- in the new guidance, 34%. And you mentioned the production shipment into the U.S. Is that the right calculation to think about if you are now at 32% and you go up to 34%, that is roughly something like EUR 40 million in additional inventory. And how would this square up with shipments from Linz to the U.S. for Deere, which have been mentioned, I think, in the range around EUR 20 million for this year. Is there other shipments that are also impacted here? Or is it inventory that is not only in the U.S.? How do you need to think about that? Christoph Burkhard: Stefan, Christoph here. Well, you need to add to your John Deere calculation, of course, the imports from Europe that are already phased into 2026. And that, of course, is easily adding up to the number that you have in mind. I don't know, could -- is that the direction you wanted to. Stefan Augustin: Yes. I think I get this now. I just wanted to come, let's say, how do I come from the EUR 20 million to EUR 40 million, but that's a plausible answer. And then you cut on your investments. Is that actually something you abandon here? Or is that push out? And what is -- what has been, let's say, what is the cause of the lower -- the EUR 20 million lower investments? Where do you think? Karl Tragl: Stefan, Karl speaking here. There is no major investment which has been affected by this one. It's just many smaller investments, which we just moved a little bit forward to be on the safe side on that end. So it doesn't affect any future growth or any strategic investments. I would call it, it's a normal effect of cautious cost and cash flow management in such a situation. Christoph Burkhard: And Karl, if you allow me to add one thing here, Stefan, something that sometimes gets a little bit in the background is that our investment number does also comprise investments in terms of our sales network and sales channels. And so we are always evaluating, will we now replace a certain sales outlet. We will replace rent by a purchase of building and real estate, et cetera. So there are just some moving parts where we can be more conservative on the investment side without basically affecting the plants that are really adding to our capability for innovation. So it's not purely plant related. Stefan Augustin: All right. And then the last one is maybe a little bit on the pricing situation. What do you see right now? Is it okay? Or is it starting to deteriorate in Europe or the U.S.? How do we have to think about that one? Christoph Burkhard: Yes. Pricing situation, pricing expectations towards 2026, Stefan, let me differentiate between 2 major areas here. The first one is, I think we have been discussing that is the current situation in the U.S. where we encounter really difficult to increase prices. Here, we believe that -- I know it's a little bit vague, but sooner or later, I think the market will have to accept some price increases. I know this is pretty fuzzy, but that's, I think, all of us, even -- and also our competitors are calculating with this for 2026. And so the first part of the -- of our expectation that we will see modest price increases in 2026 is certainly in the U.S. And the second area for Europe, I think we will see the regular slight increase. So altogether, a slightly positive trend from our point of view. Stefan Augustin: Okay. And finally, a bit of housekeeping question. Can you remind us on the ramping up, the phasing of the Deere operation going from this year, the EUR 20 million to what roughly bracket in '26? And when does the production start in the U.S. Karl Tragl: Okay, Stefan, let me take the question. Karl speaking here. On the first hand, I would just want to remind us all that this is another partner who is not on the table, and we have to be careful not to jeopardize any communication from that side, especially we talk about start of production or start of deliveries. But in general, what we can say is, as I said, the cooperation is fully on track at the time we both agreed. Linz is fully operational, as we mentioned. There is start of production in U.S. by end of this year for the first model, which means then delivering next year. And as we always communicated, we are working with a 1-year interval in between 2 start of productions. So start of production of the next model is then obviously somewhere second half of next year in U.S. Operator: A lot has been clarified. I see there are no more questions in the queue right now. [Operator Instructions] There seem no questions to be incoming anymore. So with that, I'm handing the floor back over to Peer Schlinkmann. Thank you. Peer Schlinkmann: Thank you. Ladies and gentlemen, as we can see, there are no further questions left from you. That brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact me or the entire Investor Relations team via phone or e-mail. If you would like to meet in person, please let us know or check our website and financial calendar for all relevant roadshow days in the coming months. Thank you again for joining our call, and we wish you all a wonderful winter and Christmas season. Have a great day.
Operator: Good morning, everyone. Welcome to Lowe's Companies Third Quarter 2025 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. As a reminder, this conference is being recorded. I'll now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer. Kate Pearlman: Thank you, and good morning. Here with me today are Marvin Ellison, Chairman and Chief Executive Officer; Bill Boltz, our Executive Vice President, Merchandising; Joe McFarland, our Executive Vice President, Stores; and Brandon Sink, our Executive Vice President and Chief Financial Officer. I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on Lowe's Investor Relations website. During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2025. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of our annual report on Form 10-K and our other SEC filings. Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found on the quarterly earnings section of our Investor Relations website. Now I'll turn the call over to Marvin. Marvin Ellison: Thank you, Kate. Good morning, everyone, and thank you for joining us today. Third quarter sales were $20.8 billion with comparable sales increasing 0.4% year-over-year, despite a roughly 100 basis point headwind related to Hurricanes Helene and Milton. During the quarter, adjusted operating margin expanded approximately 10 basis points, leading to adjusted diluted earnings per share of $3.06, which is an increase of 6% versus last year. These results reflect continued operational discipline and strong execution across our perpetual productivity improvement or PPI initiatives. And auto sales results continue to be impacted by softer demand within an uncertain macro environment, we're encouraged to see improvement in DIY customer engagement and discretionary projects across many areas of the home. We're also pleased with our performance in the North and West divisions, which were not affected by storms in the prior year. And we're seeing strength across all 5 key initiatives within our 2025 Total Home Strategy, which we launched at our analyst and investor conference last year. Let me give you an update on the performance of our Total Home Strategy, beginning with the small to medium Pro, where we once again delivered growth this quarter. We're enhancing our Pro offering through our Pro extended aisle, which is a direct interface with our supplier systems. It allows our Pro sales associates to sell directly from their product catalogs with the suppliers opting fulfilling their orders directly to the job site. This expands our product assortment, inventory quantities and delivery capabilities for larger orders. Second, when it comes to accelerating online sales, we delivered online sales growth of 11.4% this quarter, driven by increased traffic and continued strong conversion. We're also continuing to enhance the online experience across lowes.com and our mobile app to make it simpler and faster for DIY and Pro customers to find all the products they need. Looking ahead, we're pleased with the ongoing build-out of our marketplace. This allows us to expand our product assortment to offer our customers everything they need for their homes across the price spectrum from value to premium without assuming the risk of owning the inventory. Third, we're leveraging our loyalty ecosystem to increase our customer preferences for Lowe's, so they choose us first and shop more often. In fact, our 30 million MyLowe's Rewards members shop twice as often and spend over 50% more than non-members. Through both our DIY and Pro loyalty programs, we're gaining deeper customer insights, which help us tailor more personalized value-enhancing offers through data-driven marketing. Fourth, we're really pleased with the strong results this quarter in home services, where we delivered double-digit comps. Later in the call, Joe will discuss the initiatives that are driving these gains. And the fifth and final initiative in our Total Home Strategy is increasing space productivity. We made great progress optimizing our selling space, and Bill will provide details on a couple of key initiatives later in the call. Overall, I'm very pleased with the progress that we have delivered through our Total Home Strategy and the strategic alignment we're driving across the organization. Let me now discuss the importance of generative AI to improve how we sell, how we shop and how we work. This is what we refer to as our AI framework. And as we continue to make strategic investments in our AI capabilities, we're already seeing tangible results. Our virtual assistants, Mylow and Mylow Companion, which are built on an OpenAI platform, are answering nearly 1 million questions per month about everything from product specs to project know-how to the status of a customer order. In fact, when our customers engage with Mylow online, the conversion rate more than doubles, which is clear evidence that AI is simplifying decision-making and driving sales. And when our associates use Mylow Companion to help customers shopping in our stores, we're seeing customer satisfaction scores increase 200 basis points. And every interaction with our virtual assistant is feeding our proprietary models, allowing us to continually improve accuracy and build a durable advantage in home improvement expertise. Within our technology team, engineers are using AI tools for development and code review, leading to double-digit productivity gains and accelerating our speed to market. In fact, Lowe's has just been recognized by OpenAI with their 100 billion token milestone award as a reflection of the depth and breadth of AI adoption throughout the organization. Achieving this milestone places Lowe's in an elite tier of companies that are not just experimenting with AI, but operating at a true enterprise scale. Looking ahead, we have a detailed road map of several additional high-impact AI initiatives that will drive further enhancements to the Pro and DIY customer experience, both in-store and online. This will include our participation in agentic commerce so we can continue to meet our customers where and how they choose to shop. And we also anticipate incremental productivity gains as we leverage AI to drive operating efficiency across the enterprise. Now let me turn to our acquisition of Foundation Building Materials or FBM, which we completed in October. I'd like to begin by extending a warm welcome to the entire FBM team. As a reminder, FBM is a leading distributor in interior building products, including drywall, metal framing, insulation and ceiling systems. FBM's business mix is balanced evenly between commercial and residential. And while the housing market is currently under some pressure, we're pleased with the momentum we're seeing with FBM's commercial sales. Some recent highlights include several data center projects, a luxury 150-unit residential high-rise and medical facilities, as FBM leverages a strong reputation for reliability and technical expertise to win these contracts. And when we consider the impact to Lowe's, this acquisition gives us a more comprehensive product portfolio, expands our revenue streams and further enhances our offering to our Pro customers. In fact, efforts are already underway to quickly connect FBM's product catalog to our Pro extended aisle. And FBM customers will gain access to Lowe's complementary products like tools, safety gear and fasteners so they can more quickly and conveniently source everything they need for their jobs. FBM's 370 locations nationwide also strengthens our fulfillment capabilities, especially in high-density urban markets in California, the Northeast and the Midwest, where Lowe's has less of a physical store presence. Our acquisition of FBM and Artisan Design Group, or ADG, creates a comprehensive interior solutions for our homebuilders with everything from drywall and insulation to doors, flooring, cabinets and appliances. And I look forward to updating you on the progress we're making with both acquisitions in the future. Now let me transition to our view of the macro environment. Overall, the U.S. homeowner remains healthy. Balance sheets are strong and consumers continue to spend. However, affordability and uncertainty in the broader economy continue to weigh on consumer confidence, particularly when it comes to larger discretionary purchases as borrowing costs have been elevated for longer than originally anticipated. Looking ahead, lower interest rates, including for home equity loans could begin to spur demand even as many homeowners remain reluctant to move and give up their historically low mortgage rates. This cycle is different from past housing slowdowns in a few important ways. First, homeowners today have record levels of equity, roughly $400,000 on average. And at the same time, they are more likely to invest in the home they already own instead of giving up the low mortgage rate. This is referred to as the lock-in effect and could make home equity financing a more attractive solution. So while the near-term macro backdrop reflects an anxious consumer, the combination of strong fundamentals, substantial home equity and the potential for lower rates ahead gives us confidence in the long-term health of the home improvement sector. And we remain confident that the continued execution of our Total Home Strategy will position Lowe's to win in the short and in the long term. Before I close, I'd like to wish all of our associates a blessed and safe holiday season. Our associates are our competitive advantage, and I appreciate all they do to make Lowe's a great company. And with that, I'll turn the call over to Bill. William Boltz: Thanks, Marvin, and good morning. This quarter, we delivered positive comps in 10 of our 14 merchandise divisions, and solid performance across both DIY and Pro despite lapping hurricane activity last year. Starting with home decor. We delivered positive comps in appliances, flooring, paint and kitchens and bath. We continue to strengthen our leadership position in appliances by providing customers with a value proposition that no other retailer in the industry can match. This includes the widest assortment of top brands and innovative products, all at a must-win price point. And by leveraging our market delivery network, we're the only retailer who can deliver and install major appliances in virtually every ZIP code in the U.S. next day. This capability is crucial for items like refrigerators or washing machines that often need to be replaced immediately. One example of our innovative product offering is an exclusive new Bosch hybrid tub dishwasher line available only at Lowe's. These models combine the quiet operation Bosch is known for, along with the durability of stainless steel, in the affordability of polymer. The result is a better clean and a better value with the most accessible price points in the industry. Turning to flooring. We saw a broad-based strength across soft services, vinyl and tile flooring. In carpet, customers are enthusiastic about the benefits of STAINMASTER PetProtect. Its LeakDefense backing helps prevent spills and pet accidents from seeping into the carpet pad or subfloor. STAINMASTER is the most trusted brand in carpet and it is exclusive to Lowe's. Touching on paint. We drove broad-based growth across stains, primers and paint, along with accessories and applicators. And we're excited to announce the launch of Sherwin-Williams ProBlock Quick Dry primers, an innovative product that block stains and provides outstanding coverage and drives in less than an hour. This new primer is available only at Lowe's and Sherwin-Williams locations, marking the first time that we have co-launched a product. This product provides Lowe's with true differentiation within the home center channel as we continue to build on our strong relationship with this key supplier. Lastly, in kitchens and bath, we recently completed a reset of our bathroom vanity showrooms and these new sets are delivering results ahead of our expectations. The updated showroom provides a much better shopping experience for both Pro and DIY customers because they can now see and interact with a larger number of products and the stock products are now much more accessible and readily available for quick take with. This is an important way we're driving space productivity and leveraging our larger stores as a competitive advantage. Turning now to building products. We drove positive comps across millwork, rough plumbing, lumber and electrical. We're supplementing our already robust in-store Pro offering and building products with our Pro extended aisle. As Marvin mentioned, this initiative expands our product offering, increases our inventory depth and enhances our delivery capabilities. And in millwork and rough plumbing we've seen strong performance driven by higher installation sales in home services, which Joe will discuss shortly. Millwork is another area where we're seeing innovation like the Larson 60 MT storm door with magnetic technology that keeps the door closed. It offers both performance and curb appeal and it gives customers a reason to upgrade. Turning to hardlines. We delivered positive comps in lawn and garden, with particular strength in live goods and hardscapes. Customers were inspired by the outdoor vignettes that showcased everything they needed to build their vertical gardens, along with upgrading a mailbox display and more. And the mild weather gave customers more opportunities to tackle more outdoor projects which helped drive extended demand. We're also pleased with a strong start to the holiday season in our tools, Trim A Tree and decor categories. Shifting gears to tools where we also delivered positive comps and we saw strong performance in hand tools and tool storage. Customers responded to our value offerings and improved assortments like the Kobalt 46-inch Workstation available in a wide range of colors. During the quarter, we leaned into value and drove strong online engagement during our DEWALT Days event supported by a homepage takeover and a compelling free tools battery offer. Now let me give you an update on one of our key Total Home Strategy initiatives, increasing space productivity, which is all about driving incremental sales opportunities by optimizing our sales footprint. This quarter, we completed the rollout of our rural format in 150 additional stores, bringing the total to nearly 500. We're also on track to complete rollouts of workwear and pet to more than 1,000 stores, giving us an opportunity to drive these assortments beyond our rural stores. In line with our pet expansion, which is focused on grab-and-go items like toys and treats, we're pleased to announce our new private brand, Heart & Herd. It offers pet owners high-quality, value-priced products for dogs and cats, just in time for holiday gifting. And as part of our space productivity efforts, we've made significant progress on our SKU rationalization initiative designed to improve our inventory productivity. By the end of 2025, we're set to achieve our multiyear goal of reducing our in-store SKU count by 15%. As we head into the holiday season, we're delivering new exciting products, both in-store and online through our Black Friday buildup event. We're giving customers an early start on their holiday shopping with great deals, including several that are already available now. In closing, I'd like to thank our merchants, inventory and supply chain teams, along with our MST associates and our supplier partners for their continued efforts to deliver results for our customers ahead of the busy holiday season. And now I'll turn the call over to Joe. Joseph McFarland: Thank you, Bill, and good morning, everyone. Let me begin by recognizing our store and supply chain associates who show up every day with energy and commitment to serve our customers. Quarter after quarter through changes and challenges, they've proven themselves to be our company's greatest asset. And that's why I'm particularly pleased to share that the investments we're making to support our frontline associates are truly paying off. New training programs are better equipping our store teams to sell complete customer projects, including featured seasonal products and services by enabling our associates to deliver more comprehensive solutions. These programs are boosting their knowledge, confidence and effectiveness at driving sales. And as Marvin mentioned, they can also rely on our AI-powered Mylow companion for product details and for help answering customers' questions. Add it all up, and we're empowering our associates with the tools they need to sell more effectively across all departments in the store. Additionally, a few weeks ago, we concluded our associate annual engagement survey a critical component of our proactive listening strategy, which supports our efforts to become the employer of choice in retail. Scores across the key measures of engagement and associate well-being as well as leadership effectiveness have all continued to improve, and our 95% participation rate continues to be industry-leading. All told, our better train and highly engaged associates are elevating the Lowe's shopping experience, which is reflected in improved customer satisfaction scores for both the DIY and Pro. To focus now on the Pro, enrollments in our MyLowe's Pro Rewards program continue to grow as our core small to medium Pro customers experience firsthand the benefits of our easier-to-use loyalty platform, which allows them to start earning rewards immediately and achieve higher rewards with lower levels of spending. We're also pleased to see Pro's taking advantage of our enhanced digital capabilities as they shift to more shopping online. And looking ahead, we're encouraged that our recent Pro survey overall sentiment improved for small to medium Pro's as they remain confident in their job prospects and report stable backlogs. Shifting now to performance in Home Services this quarter. We're pleased with our double-digit growth in this key initiative within our Total Home Strategy. The team delivered broad-based strength across a number of product categories including windows and doors, HVAC, water heaters, kitchens and bath and window treatments. These strong results were driven in part by tech-enabled solutions, which have enhanced the experience of customers, installers and associates alike. For our customers, we've accelerated the process from inquiry to completed installation by providing intuitive solutions for scheduling, quoting and payment. These enhancements have transformed what was a time-consuming process by removing friction and pain points along the customer journey. Turning now to our focus on operating efficiency. I'd like to thank our asset protection teams for continuing to deliver one of the best inventory shrink results in big box retail. Despite the challenging environment, these results are driven by a combination of outstanding leadership in industry-leading technology. We also focus this year on a number of perpetual productivity improvements or PPI initiatives in our stores including our front-end transformation, streamlining our BOPIS fulfillment and the freight flow optimization. And we're already working on our PPI roadmap for 2026 for store operations as we leverage AI-enabled solutions to further enhance the customer experience while also driving labor productivity. Before I close, let me take a moment to discuss one of our new initiatives to support veterans. As part of our long-standing commitment to the military community and the support of our objective to deliver 10 million square feet of impact in 2025. As a marine who served in combat, I'm particularly proud to share that in partnership with Building Homes for Heroes, and our hometown of Mooresville, North Carolina, we've just broken ground on Freedom Hill. This first-of-its-kind community will provide mortgage-free housing and support services for up to 15 households of injured veterans and first responders. As the executive sponsor of Lowe's philanthropic support of our military communities, it will be an honor for me to see lives changed through this initiative. With that, let me turn the call over to Brandon. Brandon Sink: Thank you, Joe, and good morning. Starting with our third quarter results. We generated GAAP diluted earnings per share of $2.88. In the quarter, we closed on our acquisition of Foundation Building Materials or FBM. We recognized $105 million in pretax transaction costs, including the fees associated with $9 billion in bridge financing. To finance the $8.8 billion purchase price, we issued $5 billion of bonds with a competitive weighted average coupon of 4.38% and borrowed $2 billion under a 3-year term loan. Given our better-than-expected cash flow generation, we financed the remaining $1.8 billion with cash on hand. We also recognized $24 million in non-GAAP adjustments associated with Artisan Design Group, or ADG. And keep in mind that in the third quarter of last year, we recorded a pretax gain of $54 million associated with the 2022 sale of our Canadian retail business. Excluding these impacts, we delivered adjusted diluted earnings per share of $3.06, exceeding our expectations. This is a 6% increase compared to adjusted diluted earnings per share in the prior year quarter. My comments from this point forward will include certain non-GAAP comparisons that exclude these impacts where applicable. Third quarter sales were $20.8 billion with comparable sales up 0.4% driven by DIY engagement across project-related categories as well as another quarter of growth in Pro, online and appliances. As Marvin mentioned, we also lapped storm-related demand, which was a roughly 100 basis point headwind to sales this quarter. While we continue to manage through an uncertain macro environment, we are pleased that we delivered positive comps in 10 of 14 product categories. Monthly comps were up 2.5% in August, up 0.9% in September and down 2.6% in October when storm-related demand was most concentrated last year. For the quarter, comparable average ticket increased 3.4%, driven by ongoing strength in Pro and appliances, mix shift into larger ticket purchases and modest price increases while comparable transactions declined 3%. Gross margin was 34.2% in the quarter, up 50 basis points as we cycle a number of storm-related pressures in the prior year. We also saw improvements in credit revenue and better sell-through of inventory as we drive our SKU rationalization efforts. Adjusted SG&A was 19.6% of sales, deleveraging 36 basis points as we cycled lower bonus attainment in the prior year and also invested in sales driving actions. Adjusted operating margin rate of 12.4% was up 10 basis points versus prior year and the adjusted effective tax rate of 24% was in line with prior year results. Inventory ended Q3 at $17.2 billion, down approximately $400 million versus prior year. This net decrease also reflects the inclusion of inventory from recent acquisitions of approximately $600 million and higher tariffs. These results were driven by several inventory productivity initiatives across the company as we leverage advanced AI inventory solutions to enhance our demand planning, allocation and replenishment while also driving our SKU rationalization efforts. ADG operating results were accretive to EPS on a non-GAAP basis for the third quarter and pressured operating margin by approximately 15 basis points, in line with expectations. Turning now to capital allocation. In Q3, we generated $687 million in operating cash flow, inclusive of the payment of federal and state taxes of roughly $900 million that have been deferred under a provision related to Hurricane Helene. Capital expenditures totaled $597 million as we continue to invest in our strategic growth imperatives. In the quarter, we paid $673 million in dividends at $1.20 per share. Adjusted debt to EBITDAR was 3.36x at the end of the quarter after we repaid $1.75 billion in debt maturities and borrowed $7 billion to finance the acquisition of FBM. The structure of this financing in conjunction with the timing of our existing bond maturities will allow for steady deleverage to our 2.75x target, which is expected by mid-2027. We ended the quarter with $621 million of cash and cash equivalents and delivered a return on invested capital of 26.1%. Turning to our financial outlook, which we are updating to include our year-to-date results and our expectations for FBM. We are seeing a cautious consumer amid ongoing uncertainty in the macro environment and the timing of an inflection in the home improvement in housing markets remains unclear. We're now expecting comp sales to be roughly flat for the year, which is at the bottom end of our previous guidance. When we include FBM sales of approximately $1.3 billion in the fourth quarter, we are expecting sales of approximately $86 billion for the year. We also now expect full year adjusted operating margin of approximately 12.1%, which includes 20 basis points of dilution from FBM and ADG. We're expecting adjusted diluted earnings per share of approximately $12.25, which represents a 2% growth over the prior year. Please note that this includes the impact of FBM, which is roughly neutral to adjusted EPS, and we expect capital expenditures of up to $2.5 billion for the year. On an annualized basis, we expect FBM and ADG to negatively impact consolidated adjusted operating margin by approximately 50 basis points. We are already working collaboratively with the FBM and ADG teams on cross-selling opportunities as we expand the offering for our Pro customers. We've also begun the efforts to extract cost synergies from our overlapping areas of spend. Taken together, we remain confident that there are compelling long-term EBITDA synergies from both revenue growth and lower operating expense. These investments in our Pro growth initiative, along with the other investments in our Total Home strategy will position us to capitalize on the expected recovery in housing and home improvement and continue to deliver long-term sales growth and shareholder value. And with that, we will open it up for your questions. Operator: [Operator Instructions] Our first question comes from the line of Chris Horvers with JPMorgan. Christopher Horvers: So my first question is about just how you're thinking about the trend in the business in light of the performance that you've seen over the past 6 months and a harder compare and then into '26. So you noted that quarter-to-date is positive. Is there anything you could elaborate on that? And is the flat guide for the fourth quarter simply just like, hey, there's uncertainty and there's a harder compare. And then as you think to '26, if the home improvement market is flat to slightly down this year and you're putting up a flat comp. If you take a look at the sum total of everything a little bit of lower rates, a little bit of replacement cycle, a little bit of innovation and what you're doing on the self-help side, should your sort of -- should the market and should Lowe's comp accelerate in '26 relative to '25? Marvin Ellison: Chris, this is Marvin. Bill and I will talk about November then we'll let Brandon share a tiny bit about how we think about '26 because as you can respect, we're not going to get into a ton of detail about that until our February call, we'll provide guidance for the year. Relative to November, look, we're very pleased with the positive comp performance to start the quarter in spite of storm overlaps from last year. We've seen improvements in the top line since exiting October. And we just believe that some of the key elements of our Total Home strategy are working and we're excited about November because there are some great things on tap. So I'm going to let Bill talk a bit about November, but also talk about appliances, which we think is really key to our performance, not only for the quarter, but what we're seeing in November. William Boltz: Yes. Thanks, Marvin. And Chris, we're excited about kind of the early start to the quarter, obviously, coming off of October. Strength for us really broad-based across the store, but particular strength within our seasonal categories, holiday, Trim A Tree, tools, appliances and other gift-related businesses that are getting off to an early start. Our stores look great. We're starting to see live trees show up now. Poinsettias showing up now as we get ready for next week. And we're seeing some early excitement around some key areas of the store. So whether it's by now and installed by the holidays within our flooring and cooking areas or you look at cobalt and some of the strength that we're seeing there with some new products in workstations, the buy and get offers within our tool business, driven by DEWALT, Craftsman, and Kobalt. We've got just a lot of strength going on right now that we'll carry into next week with Black Friday. So we're excited about how things are progressing. And in our appliance business, we've had really since last year, 4 straight quarters now of comp growth and unit growth, which is telling us the health of that business and that consumer responding to the offers and the innovation and the new products that the team has put up. Brandon Sink: And Chris, this is Brandon. I think when I step back and look at the totality of the year, we're now 3 quarters of the way through, obviously, navigating a lot of factors, a very choppy macro. But when I look at just the trends of the business, I think a lot for us to be cautiously optimistic about as we look ahead to '26. We're seeing acceleration on 1-year comps when you exclude storm-related activity for Q3 and what's implied in our Q4, also 2-year comps accelerating nicely as we've moved through the year, ongoing strength in Pro online. Bill just spoke to appliances, some early signs of life in our home services business, which is really positive. We cited broad-based performance across categories with 10 or 14 categories, geographies broad-based, really excited about FBM and ADG as we start the integration efforts. And obviously, just really pleased with the bottom line performance and the ongoing operational discipline that the company and has been able to show. So please through 3 quarters. And as we look ahead into 2026, as Marvin mentioned, we'll have more to come in February, but those are early thoughts. Christopher Horvers: And then on a related question, I mean, kitchen and bath, I think you said it was positive looking back, it seems like you'd have to go all the way back to 1Q '23. What's changed there? And as you think about it, Marvin, you've talked about like we have a lot of big ticket. We have a line remodel, the kitchen and bath, the appliances. And when we sort of need lower rates to improve that sort of big-ticket remodel category, but you are seeing signs of life. So is there sort of a misperception around sort of how remodel-oriented you are amongst investors or how do you think about maybe that category showing signs that it will inflect to the positive? Marvin Ellison: So Chris, I think it's 2 things. I'll take the first part, and I'll let Bill just talk about some of the work in resets and new products. I really believe that this is more about lowest taking share in this space. If you can go back to 2018 at our first Analyst and Investor Conference, I presented how we were managing this installed business with binders and whiteboards. And it's taken us a while, candidly, to get this business digitize with a technology platform that makes this entire process easy for the associate, the installer and most importantly, the customer. We think now we have a best-in-class tech stack for this space. We have central selling and so what you're looking at outside of kitchen and bath, which Bill will speak to, you see in categories like windows and doors in HVAC and water heaters. These are more replacement categories for customers who are living in the oldest housing stock in the history of the U.S., but because we have a better go-to-market strategy. Bill's teams given this great pricing. Brandon seems given us a great credit portfolio we're taking share in this area. But we're also seeing, to your point, signs of life in areas that make us cautiously optimistic that maybe there are brighter days ahead. And I let Bill talk about some of those categories. William Boltz: Yes. So Chris, I'll mention in my prepared remarks that during the quarter, we had completed our vanity reset across the stores. And that's one of the nice bright spots driven -- driving our kitchen and bath business. But we're also seeing broad-based strength, toilets, bathing, faucets, disposable kitchen sinks, bath repair. So it's really kind of broad-based across the categories. We're excited about that. But it really boils down to the strength. I think we're also seeing within our central selling organization where the store associates take the lead. We get -- turn it over to our central selling team, and they're helping to close the deal on a kitchen cabinet. The strength of what Joe's team is doing in the store to take good care of the customer. There's just a lot of things that are adding up to the strength of the kitchen and bath business, but those are just a few highlights. Operator: Our next question is from the line of Zack Fadem with Wells Fargo. Zachary Fadem: I wanted to follow up on your comments around improving Pro survey sentiment. And I'm curious if there's any extra color you can talk through in terms of how that's trended through the year? To what extent do you think this is a good leading indicator for your business? And then what do you think is driving the recent improvement? Marvin Ellison: So Zack, thanks for the question. Just to hit it at a high level, our small to medium Pro business remains very stable. And roughly 75% of our Pro's are very confident in their job prospects. And also, this segment of the Pro consumer continues to work on smaller ticket repair and maintenance projects, and that's been very consistent with what we've been saying all year long. So when we look at our Pro's, when we talk to our Pro's, they feel very confident in their business. They feel confident in their access to credit and even feel a little more confident about their ability to hire and attract labor. So we feel great about what our pros are telling us. And let me hand it over to Joe to just talk about some of the things we're doing in the store to drive this continued growth and, in my opinion, market share gain with the specific customer segment. Joseph McFarland: Well, thanks for the question. And we're really pleased with the flywheel effect that we're seeing from the transform Pro offering. And when you think about where we've been headed with the loyalty through MyLowe's Pro Rewards, a relaunch there, we have just a wonderful enhanced digital experience that Pro extended aisle we have made investments in fulfillment. The last 3 years, our Pro inventory investments are really beginning to pay off. The order modifications of fulfillment flexibility in the in-store experience. So we're excited to see this flywheel effect all come together with the great product offerings that we have. And we have a good confidence that when this does bounce back, we're well positioned to capture the share. Marvin Ellison: And Zack, the only thing I'll add to that, I mentioned in my prepared comments that we're in the process of adding FBM to our Pro extended aisle platform. That's going to be a huge deal for us because it is very challenging for us today to fulfill a large order of something, let's say, drywall to a customer job site and do it efficiently. We now are working to just transition that entire fulfillment process to a company that's best-in-class at it, and that's FBM. And so we think this is going to be great for FBM. It's going to be great for Lowe's, but more importantly, it's going to be great for the customer. So again, we see this as a sustainable growth strategy, and we feel great about the work we've done thus far. Zachary Fadem: Appreciate that. And I know we aren't guiding for '26 yet, but since the model is different with FBM and ADG, could we talk through early margin scenarios in both a status quo environment as well as the scenario where perhaps we see some benefits from tax stimulus and low rates? Brandon Sink: Yes, Zack, I'll just hit briefly what we're looking at in terms of margins on the FBM and ADG transactions. When you look at 2025 taken in isolation, I mentioned in my remarks, we're roughly 20 basis points on 2025. So that's coming roughly split even 10 from FBM and 10 ADG. And then when you look at as we wrap the year for 2026. That's going to be 50 basis points on the year. So I think 30 basis points of wrap into 2026. And the majority of that 50 basis points when you think of 2026 is going to be weighted towards gross margin on that. So I'm not going to get into any more details as it relates to base business or run rate, but that's just some early views of geography and impact from the transactions in '26. Operator: Our next question is from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: I wanted to ask to put the macro hat on again, there's a -- I don't know if it's a bear case, but there's a housing scenario that it just stayed in this -- it's treading water position for a longer. You have new prices that are lower than existing homes and the age of homeowners is pushing close to 40 years old. So I think affordability is the issue. It sounds like you may reject that premise, Marvin, given some of the bright spots, but I wanted to hear how you react to it. Marvin Ellison: No, Simeon, it's a good question. So I'll give you my thoughts, and I'll let Brandon provide any additional comments. The way we see it is this. I think that mortgage rates obviously are elevated longer than any of us anticipated. But the one thing that's different, as I said in my prepared comments is the fact that you have a healthy homeowner financially, and you have $33 trillion in equity that is in the system. And we think where between $11 billion to $13 billion, $1 trillion of that is capable. So we think this lock-in effect is real because at some point, customers are going to be looking at these sub-3% 30-year fixed mortgage rates. They like the neighborhood that they live in. They have excess equity in their home, and we think HELOCs are going to become the next opportunity for us to drive discretionary remodel big-ticket projects. So we think that is a strong possibility in the future. Now we're not going to try to time it. We're not going to try to build it in our forecast. I think that would be reckless. But we do think that, that is a very plausible hypothesis that takes you away from the bear case. So I'll pass it on to Brandon to see if he has any other thoughts. Brandon Sink: Simeon, I'll add, as Marvin mentioned, the mortgage rates, we're looking at those remaining elevated at least as of now 6% to 6.5% tied more to the longer-term yields, and that's continuing to pressure both existing home sales and new home starts. And I think as we start to look ahead into 2026, we're not anticipating meaningful near-term improvement there. But we are potentially excited about what could happen with the funding coming from home equity. We've seen 150 basis points of rate cuts from the Fed here over the last 18 months, the consensus would suggest we're going to see more -- we've seen these HELOC rates go from neighborhood of 10% to 12% down to 8% to 10%. And that's creating, I think, some opportunity as we look at project backlog, when we look at the data about $50 billion of projects that have been delayed or deferred with the equity now with the potential to be a significant funding mechanism. And if we do see further near-term rate reductions that could act ongoing as an additional stimulus. So we're investing in the business through our Total Home Strategy to be prepared for that type of environment and excited about the potential upside related to that into 2026. Simeon Gutman: And my follow-up, it's on the medium-to-larger Pro. Can you, Marvin, set up what Lowe's strategy is there. We've talked about the pieces of it. Will you keep supply chain separate? Are there categories that you think are essential to addressing that customer, whether it's an existing home remodel or even a new homebuilder and will you cross-sell that customer using the rest of the Lowe's asset base? Marvin Ellison: Yes. So Simeon, I would say we feel great about the current strategy with the smaller medium Pro is working. We've had quarter-over-quarter growth. We think it hinges on our MyLowe's Pro Rewards loyalty platform. It's resonating well where our customers we think it hinges well on the products that Bill's team brings to the table every day, and that was a huge gap in deficit for us 7 years ago, and that is no longer the case. We also think it's important that we maintain a very competitive credit portfolio. We have a best-in-class, 5% off every day for our Lowe's credit cardholders, and that also extends to the Pro customer that resonates exceptionally well. And we have every intention on leveraging FBM for fulfillment in every intention on taking the roughly 40 million FBM Pro customers and getting them connected to complementary projects, product and projects at Lowe's. But we see a very specific void in the marketplace for serving the small-to-medium Pro. That's why we've been so intentional about focusing on that customer. And we think we can focus on that customer in the brick-and-mortar stores and Lowes.com. And we can have a very robust strategy and platform with FBM and ADG and we can do both concurrently. One of the reasons we talk about the importance of FBM's commercial business is because it's countercyclical. When housing is down, that commercial business tends to outperform, and that's what we're seeing right now. So overall, we think we can do both and the data has proven that we have a very effective strategy with the small-and-medium Pro. Operator: Our next question is from the line of Kate McShane with Goldman Sachs. Katharine McShane: We wanted to ask a little bit more about the marketplace, just in terms of like what the initial performance has been, what you've seen with regards to seller onboarding product expansion and customer adoption? And just when you expect to scale this platform to a point where it could start to contribute more meaningfully to margin? Marvin Ellison: No. Kate, thank you for the question. We are really excited about the launch of our marketplace. The caveat is it's really early. And so we're not going to get into a lot of conversation relative to performance other than to say if exceeding expectations relative to financial performance, exceeding expectations, relative to the number of sellers and the quality of sellers. So every seller that we've approached and we are literally looking at 4-star plus rated sellers are required to get on this platform. And we again had great adoption with [indiscernible] technology, and they actually awarded Lowe's as the fastest launch partner they've ever had. So we were able to get that done quickly and we feel incredibly excited. And one of the unique characteristics that we have is at virtually everything purchase as a marketplace item can be returned in a physical Lowe's store because Joe his team partnered with technology some years back to create the technology rails to make that happen. So it creates incredible convenience for the customer when they need to return something. And again, I'll let Bill talk about how the merchants are playing a role to make sure that we have a really balanced approach to how we're thinking about this. William Boltz: Thanks, Marvin. And Kate, the only thing I would add is, obviously, early, but we're learning a lot as we progress with marketplace. We're finding that it's an opportunity to expand programs that our current vendors are providing in our stores to provide stuff that would be found on Lowes.com. And we're also entering and finding new products, products that quite honestly, we didn't think that could be available on Lowes.com that now is available and the consumers are engaging and buying them. So we're excited about that learning and what that can do. But at the forefront of when we put this together based on being a closed system, is that we wanted it to complement what we were doing with what's happening inside of our stores, and that's exactly what we're seeing early on here. Operator: Our next question is from the line of Seth Sigman with Barclays. Seth Sigman: I wanted to ask about operating leverage going forward. You've been delivering really strong operating margin improvement this year on pretty low comps. I guess it's been mostly driven by gross margin this year. So how do you think about the sustainability of gross margin as the primary driver of that? Or does the composition of margin expansion change over time? And then I guess, in general, if you could speak to how you are thinking about the leverage point in the business? That would be helpful. Brandon Sink: Sure, Seth. This is Brandon. Thanks for the question. I think as it relates to margin, very focused at this point on delivering that the 12.1% operating margin that we communicated as part of our guide. And just as a reminder ex, the dilution from the acquisitions, that's at 12.3% consistent with the flat bottom end of our range that we communicated at the beginning of the year. So the team has done a really great job balancing flow-through, the balance between gross margin, SG&A, managing the tariff pressure that we've been dealing with. And honestly, the PPI initiatives continuing to deliver $1 billion split roughly between SG&A and gross margin, that has been the primary driver in our ability to deliver amid softer sales. I think as we look ahead into 2026, a few things I would highlight we're continuing to look at FBM and ADG what we think housing and commercial markets are going to be looking like in the business performance there in '26. I mentioned earlier, new home starts both single-family and multifamily remain under pressure, but confident with these businesses that we can gain share in a down market. Marvin also mentioned a nice balance that we have on the commercial side. So looking at that and how that impacts the margin profile into '26. And then the last thing I'll mention, just as we continue to look at tariffs, those ramp here in Q3, we're expecting that also to continue ramping in Q4 and the wrap to affect the first half of the year. So managing through that and trying to understand how that impacts both sales margin and operating margin going forward. So all that will be waived. We'll look at that in terms of our previous rule of thumb, and we'll have more on that as we get into our call in February for 2026. Simeon Gutman: And then just I guess a related follow-up would be on the gross margin specifically. The gains this quarter really stepped up. Can you just unpack that a little bit more? Are there any timing consideration? I mean you mentioned tariffs starting to flow through, was there a benefit from raising prices relative to the cost coming through? Or anything else you can tell us about the mix dynamics that seem to be supportive this quarter? Brandon Sink: I would say, Seth, on Q3 margin, really nothing related to pricing or tariffs. I would say there, that's playing out very much in line with our expectations just in terms of estimating when the cost is going to be flowing through margin. The great work that Bill and team have done on the merchandising side with our suppliers. It really is the themes that I outlined in my remarks. We're lapping storm pressure from last year. So that is serving as a benefit this year. The credit portfolio has outperformed our expectations on better-than-expected losses. And then Bill referenced the SKU rationalization initiative. We've seen really good sell-through results thus far on the inventory that we're exiting there. That really was the core of the composition of the 50 basis points that we saw in Q3. Operator: Our next question is from the line of Greg Melich with Evercore ISI. Gregory Melich: I'd love to follow up on the traffic and ticket breakdown. If you look at the ticket expansion, it's accelerated like each quarter this year, how much of that 150 bps of acceleration is related to some of the early tariffs going through? How much of it is mix? And how sort of the basket evolving in terms of items in it and the size? Brandon Sink: Greg, I can speak to ticket and transaction. So when we look at ticket growth, it's really similar when we look at Q3 performance as to what we've seen in previous quarters in terms of the drivers. So the strength in our Pro business, also appliances, I will reference that in Q3, we did have some modest price increases. When we look at like-for-like inflation, again, modest. It's very consistent with our expectations and also the year-to-date trends that we've seen as we continue to watch tariffs move through the system. The offset is transactions, and that has been pressured by the lower DIY demand, but I'll also call out the bulk of the 100 basis points of storm-related pressure with the DIY is affecting the transaction. So that's really the driver of the offset when we look at Q3. And then I think when we look ahead to Q4, a lot of those same drivers are expected lift from Pro appliances. There will be some modest like-for-like inflation. Just as a reminder, we also have 100 basis points of hurricane pressure that we're cycling in Q4 that will also pressure comps and pressure DIY transactions in Q4. Gregory Melich: And then maybe just a clarification on before. The 50 bps is the full annualized effect on the margins of the 2 acquisitions, right? So we have like basically 15 bps that show up this year and then 35 bps next year. Brandon Sink: So yes, I would -- Greg, it's 20 on the year for 2025 and then 30 of wrap for a total annualized run rate into 2026 of 50 basis points. Gregory Melich: And if I take the guide for 4Q, it seems like margins should be down around 60 bps, and it's fair to say it's the 2 of those sort of rolling in. Brandon Sink: Yes, I would say when you isolate Q4, the bulk of the operating margin decrease is going to be driven by layering in the transactions. We have $1.3 billion of sales for FBM that will pressure operating margin or dilute it down as well as ADG. So that's driving the bulk of the change in Q4. Operator: Our next question is from the line of Zhihan Ma with Bernstein. Zhihan Ma: I wanted to ask about the FBM, ADG integration that you're doing. Can you just help us understand to what extent you're maybe onboarding ADG onto FBM ERP system, how does that integration work in the near term? Marvin Ellison: Thank you for the question. It's early days. So the first rule that we have is to do no harm to the performance of either business platform, including Lowe's. But we are in the early stages of the integration. The big advantage we have is FBM's current IT platform is the same platform that we are transitioning ADG too. That is not by accident. And also, it's an existing platform that we have in our Lowe's Pro Supply businesses. So we feel like we're going to have the ability to accelerate the IT integration between the companies, but as you can respect, we're in the early stages of that, but we feel really good about the plan. We feel really good about the timetable, and we have the best IT team in retail working on it. So I'm very confident we'll be able to make it happen. Zhihan Ma: Great. And then just a longer-term follow-up. You mentioned the plan to delever to the 2.75 by mI'd-'27. Is the longer-term plan to resume share buybacks by then? Or should we expect additional acquisitions from here? Brandon Sink: Yes. I would say, Zhihan, still very focused on the integration activities. As Marvin mentioned, that's going to be our focus here over the next 2 years. We're pausing share repo and very much expect to get back down to that 2.75x leverage target by 2027. So that's our focus. FBM is going to continue to run their existing play in the meantime, expanding through greenfield expansion, organic growth. And there could be potentially some small tuck-in M&A, but that would only be what we could self-fund with additional cash flow. So I think that's the best way to think about how we're going to be operating here over the next 2 years. Operator: Our last question comes from the line of Robby Ohmes with Bank of America. Robert Ohmes: Just 2 follow-ups. Just on the fourth quarter when you -- the way you're planning it for seasonal and given a little bit more probably tariff prices coming through. Any changes in the timing of promos? Are you doing any promos earlier related to holiday and things like that? William Boltz: No, Robby. I mean the promotional cadence remains relatively consistent to prior years. We started the quarter off with kind of the early pre-Black Friday type stuff that we've been doing. Obviously, Black Friday next week. And then post Black Friday, when you get into Cyber Monday events for dot-com and then you get into that leading up to the holiday time frame. We've got offers out there for both the MyLowe's Rewards members as well as our -- all of our consumers, both online and in-store, so relatively consistent... Robert Ohmes: And then just a follow-up. On flooring and the strength you guys are seeing there, you guys called out soft surfaces. Is there a trade down going on? How do you think you're doing relative to industry? Is there something changing in flooring? Or is it all -- is it something about your positioning in good, better, best? Or maybe a little more color there. William Boltz: Yes. It's nice to be able to give a shout out to the flooring team and all the work that they've been doing. Last quarter, we announced the acquisition and being able to get Daltile into our assortment. So that's starting to roll in now. But specifically, the soft surface, it's really the strength of STAINMASTER and we've called that out as one of our strongest brands, and now we've got LeakDefense being able to be offered. So that is not a trade down, that's a trade-up offering in the assortment. But I think the team has done a really nice job of offering value out there every single day. And I'd stack our soft surface offer out there every single day against what's going on in the marketplace. And then you could go into luxury vinyl, you can go into resilient hybrid and then you go into hard surface tile and the teams have offers out there every single day to close that consumer that's now making the decision to do a flooring project. Joseph McFarland: Robby, I would just add that the investments we've continued to make in our services business, flooring was one of our first to go central selling, where we remove that complexity of the design from the store. We shortened the time to close the customer and take them off the market. And so I think all in all the products the service level, we're really seeing some green shoots. Kate Pearlman: Thank you all for joining us today. We look forward to speaking with you on our fourth quarter earnings call in February. Operator: Thank you. This concludes the Lowe's Third Quarter 2025 Earnings Call. You may now disconnect.
Operator: Welcome to the Williams-Sonoma, Inc. Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jeremy Brooks, Chief Accounting Officer and Head of Investor Relations. Please go ahead. Jeremy Brooks: Good morning, and thank you for joining our third quarter earnings call. I'm here today with Laura Alber, our Chief Executive Officer; Jeff Howie, our Chief Financial Officer; and Sameer Hassan, our Chief Technology and Digital Officer. Before we get started, I'd like to remind you that during this call, we will make forward-looking statements with respect to future events and financial performance, including our updated guidance for fiscal '25 and our long-term outlook. We believe these statements reflect our best estimates. However, we cannot make any assurances these statements will materialize, and actual results may differ significantly from our expectations. The company undertakes no obligation to publicly update or revise any of these statements to reflect events or circumstances that may arise after today's call. Additionally, we will refer to certain non-GAAP financial measures. These measures should not be considered replacements for and should be read together with our GAAP results. This call should also be considered in conjunction with our filings with the SEC. Finally, a replay of this call will be available on our Investor Relations website. Now I'd like to turn the call over to Laura. Laura Alber: Thank you, Jeremy. Good morning, everyone, and thank you for joining the call. I'm excited to talk to you about our third quarter. First, I'd like to take a moment to thank our team for their continued hard work. Everyone at Williams-Sonoma, Inc. has been focused on our key 3 priorities this year, which are returning to growth, elevating customer service and driving earnings. And that focus continues to drive our results. We are proud to deliver strong results in the third quarter of 2025 with an accelerating positive top line comp and continued outperformance in our profitability. In Q3, our comp came in above expectations at 4%, driven by another quarter of positive comps across all of our brands, and we continue to deliver on the bottom line despite the substantial tariff headwinds. Our operating margin came in at 17%, expanding 10 basis points with earnings per share of $1.96, growing 5% year-over-year. We are encouraged by our continued strong year-to-date performance through Q3 and are confident in our outlook for Q4. And therefore, we are reiterating our outlook for the full year comparable brand revenue growth to be in the range of 2% to 5%, and we are raising our bottom line guidance 40 basis points to an operating margin of 17.8% to 18.1% versus 17.4% to 17.8%. We drove this improvement in performance despite continued geopolitical uncertainty and no substantive improvement in the housing market. And we continue to gain market share and outperform the industry, which declined again in Q3. Our continued strong results reflect the power of our operating model, industry-leading channel experiences and strong portfolio of brands. We continue to see exceptional performance in our retail channel, which ran a positive 8.5 comp in Q3. Retail continues to benefit from an improved in-store experience with more inventory availability, enhanced design services and events and the opening of 14 beautiful newly remodeled or repositioned stores so far this year with 7 more to come in Q4. This investment is paying off with almost all of them beating the performance of the prior location. Our stores service brand billboards, and we believe a refreshed store improves customer perception of our brands. As we move into the final quarter of 2025, I want to highlight the specific progress we've made on our 3 key priorities. Starting with growth, our core brands continue to deliver strong results from positive momentum in furniture. Our focus on innovation has driven strong and improving furniture comps. Additionally, we are focused on incremental growth categories like Pottery Barn Dorm and West Elm Kids. We're also broadening our reach through strategic collaborations. These initiatives attract new customers while keeping our brands fresh and relevant. Our B2B business also remains an important growth engine, up 9% this quarter with strength in both trade and contracts, and our emerging brands, Rejuvenation, Mark and Graham and GreenRow continue to perform exceptionally well. Together, they delivered a double-digit comp, and we're excited to have recently opened our 13th Rejuvenation store in Salt Lake City. This year, we're also very proud of our improvements in customer service. We are committed to flawless execution delivering orders on time, damage-free every time, and we're proud that this year, we have record metrics. We're focusing on furthering our improvements through fewer split shipments and faster fulfillment. Finally, our third key priority, driving earnings. Our focus on revenue growth, elevating customer service and maintaining cost discipline has delivered strong earnings with our year-to-date earnings per share growing 5% in a very tough tariff environment. Also in Q3, we used AI as a key business driver to accelerate our strategy. Across our portfolio, AI-powered chat experiences are now live for all brands, providing customer service, delivery support and product guidance. These agents are improving speed, consistency and satisfaction, and we are now resolving over 60% of chats without human assistance, reducing handle times from 23 minutes to just 5. Another notable milestone this quarter was the launch of Olive, our new AI culinary and shopping companion for the Williams-Sonoma brand. Olive helps customers plan, cook and shop with confidence combining our culinary authority with cutting-edge technology to create a differentiated experience. What makes Williams-Sonoma, Inc. unique is how AI can amplify our differentiated foundation with our proprietary data, our vertical integration from design to delivery, our multichannel engagement and our expertise in home design in the culinary space. Our strong balance sheet, coupled with our tech capabilities allows us to apply AI in ways that can drive real scalable impact for our business that others cannot. Looking ahead, we see opportunity to drive down costs and drive up sales with AI, and our early results are reinforcing that confidence. We're using AI to enhance what we do best, guiding customers through shopping and design decisions. Additionally, AI is driving improvements in productivity and empowering associates with tools to amplify their creativity and expertise. Now I'd like to update you on tariffs. Since we last spoke, there have been notable changes in tariffs, such as a new tariff on some furniture, including imported upholstery kitchen cabinets and bath vanities. And now the 20% additional China tariff are down from 30%. Net-net, these changes are a push to our current estimated impact. As we look forward to the future, predictability in the tariff environment and a reduction in the India tariff would certainly be a positive for us. In the meantime, we continue to be actively and aggressively mitigating what we can with our previously discussed 6-point plan. To remind you, first, we are obtaining cost concessions from our vendors. Second, we are resourcing goods to get the best cost for our customers. Third, we're identifying further supply chain efficiency. Fourth, we are controlling costs. Fifth, we are expanding our Made in USA assortment, production and partnerships. And last, we are taking select price increases with a focus on maintaining competitive pricing. Now let's review our brands. Pottery Barn ran a positive 1.3% comp in Q3. We are pleased with the improvement we saw in large ticket, including furniture, upholstery and lighting. Our Pottery Barn stores continue to outperform, led by our standout design and crew services and our increased take at home today assortment. Our strategy of focusing on improving retail inventory availability, refreshing product assortments and enhancing design services is working. We have opened 6 beautiful new remodels or repositioned Pottery Barn stores so far this year with 3 more to come in Q4. Finally, across the brand, we continue a major change that we have made all year, which is to substantially reduce promotions in Pottery Barn. Now I'd like to talk to you about our Pottery Barn children's business, which ran a 4.4% comp in Q3. We saw acceleration in furniture fueled by successful new product launches, continued growth in collaborations and back-to-school and Dorm was a particular highlight in the quarter. In fact, back-to-school delivered double-digit growth, an acceleration from Q2. Our brands have become a destination for high-quality study solutions, durable backpack and on-trend dorm decor. Additionally, our enhanced dorm design tools and pickup near campus options have been important for gaining share in a very fragmented market. Now let's review West Elm. West Elm ran a positive 3.3% comp in Q3. We continue to make progress against the brand's 4 key pillars: product, brand heat, channel excellence and operational efficiency. Throughout the year, West Elm has brought in new successful collections in both furniture and nonfurniture, where the brand was previously underdeveloped. West Elm has significantly shifted the composition of their sales towards new products and the cumulative effect of new introductions since the fall of last year continues to produce results. Retail in West Elm was also a highlight due to improved in-stocks and more new furniture and more new fabrics displayed on the retail floor. And we've opened 2 beautiful new remodels or repositioned West Elm stores so far this year, with 1 more to come in Q4. To remind everyone, we have 119 stores in West Elm. And based on results, we are looking forward to returning to retail unit growth in this brand. As you can hear, we are quite excited by the momentum at West Elm. Now let's review the Williams-Sonoma brand, which continues to fire on all fronts and we had a positive 7.3% comp in Q3. Williams-Sonoma remains focused on premium quality products that are expertly crafted combining style and functionality. In Q3, we celebrated many successful culinary stories from the food and flavors of Spain to authentic Indian flavors through a collaboration with Palak Patel, Founder of The Chutney Life. We also recently launched a Wicked Collection featuring limited-edition Le Creuset Dutch ovens inspired by Elphaba and Glinda. And as we continue to connect our customers to the world's best chefs and products, we are seeing great traction with in-store events. Across the country, we hosted 42 in-store book signing events in Q3. We welcome the fans of celebrities and celebrity chefs like Neil Patrick Harris, David Burke and Melissa King into our stores for amazing cooking demos and cookbook signing. Finally, we've opened 6 beautiful new remodeled or repositioned Williams-Sonoma stores so far this year with 2 more to come in Q4. Now I'd like to update you on B2B, which grew 9% in Q3 with both trade and contract delivering strong comps. Leveraging our design expertise and commercial-grade product assortment, we've built a strong and growing client base across multiple industries. Our B2B offering remains a powerful differentiator, and we are seeing continued momentum. Our biggest success story in Q3 was an increase in commercial workspace wins, including projects with Google, WeWork, TurboTax and PayPal. Q4 brings the ramp-up of our growing corporate gifting program, including our leading assortment of quality giftables that can be customized with logos and company branding. We're also a destination for seasonal favorites that make a perfect client and employee holiday gift, if any of you need help. Now I'd like to update you on our emerging brands. With our proven ability to incubate and scale brands in-house, we are confident in the continued growth of our concepts and their ability to deliver profitability to our results. Rejuvenation delivered strong double-digit comps in the quarter, continuing an upward trajectory fueled by product innovation and category expansion. Our high-quality product offer and proprietary designs are resonating with customers. Both channels are performing well, and we continue to open new retail locations to drive brand awareness. This quarter, we expanded our Rejuvenation store count to 13, with the opening of 2 new storefronts, one in Nashville and one in Salt Lake City. The brand also saw a strong performance from its first ever lighting collaboration. Mark and Graham delivered its best Q3 in brand history, driven by successful new categories, M&G Kids and Bark & Graham as well as continued growth in personalized corporate gifting. As we head into the peak gifting season, the brand is well positioned with thoughtful, personalized gifts for all occasions. I'm also excited to talk about our newest brand, GreenRow, which delivered strong growth this quarter. In Q3, we launched the largest holiday collection to date with handcrafted decor and gifts made from upcycled and natural materials. The brand's colorful and unique products have had a great response and the product line is incredibly beautiful in person. Therefore, we believe retail stores are the next leg of growth at GreenRow and are looking to test a few store locations as soon as possible. Finally, I'd like to share one highlight in our global business. In the U.K., we broadened our brand presence with the launch of Pottery Barn Online and the opening of a pop-up store in our West Elm Tottenham Court Road in London. And so far, we're quite pleased with the performance of Pottery Barn in this new market. In summary, we're pleased with our execution and continued outperformance in Q3 marked by accelerating positive comps and strong profitability. Across the company, we remain dedicated to enhancing our channel experiences and strengthening our brands. Each and every day, we prioritize innovation, product design and exceptional customer service. These are the qualities that set us apart in a fragmented industry and position us to capture additional market share. We see tremendous opportunity to continue to lead our industry as we execute on our vision to own the home and the places where our customers work, stay and play. As we enter the final quarter of the year, we're filled with optimism for a strong finish. This holiday season, we're ready to showcase our best across our stores and online. From all of us, we wish you and your family a joyful Thanksgiving next week and a happy holiday season. Before I hand things over to Jeff, I want to take another minute to express our thanks to our team, our vendors and all of our partners for their ongoing dedication and contributions to our company's success. We appreciate everything they do. And with that, I will turn it over to Jeff to walk you through the numbers and our outlook in more detail. Jeff Howie: Thank you, Laura, and good morning, everyone. Our results this quarter reflect Williams-Sonoma, Inc.'s competitive advantages in the home furnishings industry, including the following: the strength of our multi-brand portfolio across different categories, aesthetics and price points. Our size and scale, providing the ability to drive market share gains as we maximize white space opportunities. The competitive advantage of our multichannel platform, serving customers where they choose to shop online, in-store or business to business. Our focus on customer service and full price selling, creating efficiency and cost savings across our supply chain. And finally, the power of our operating model to deliver highly profitable earnings. Our headlines for this quarter demonstrate these competitive advantages. We delivered positive comps for the fourth straight quarter. Furniture and nonfurniture categories both ran positive comps, reflecting strength across all categories of our offering. White space opportunities, such as Dorm, West Elm Kids and Rejuvenation grew double digits. Retail, e-commerce and business-to-business all drove positive comps. Our supply chain team achieved best-ever results across nearly all customer service metrics while simultaneously improving efficiency and reducing costs. And despite the headwinds from tariffs, we drove operating margin expansion of 10 basis points to 17% and EPS growth of 5% to $1.96 per share. Our results this quarter would not be possible without the team we have at Williams-Sonoma, Inc. I'd like to thank our talented, dedicated team for delivering these outstanding results. Now let's dive into the numbers. I'll start with our Q3 results and then update guidance for fiscal year '25. Q3 net revenue finished at $1.88 billion for a positive 4% comp. All brands delivered positive comps driven by positive comps in both our furniture and nonfurniture categories. We gained market share in the quarter, even as we increased our penetration of full price selling. From a channel perspective, both channels delivered positive comps, with retail up 8.5% comp and e-commerce up 1.9% comp. Moving down the income statement. Gross margin exceeded our expectations, coming in at 46.1%, 70 basis points higher than last year. Higher merchandise margins and supply chain efficiencies drove this gross margin improvement, offset by slightly higher occupancy costs. Merchandise margins delivered 60 basis points of our gross margin improvement, exceeding our expectations. Three factors contributed to this improvement in merchandise margins. First, the impact from tariffs is taking longer than anticipated to flow through to our gross margin. This is due to the delayed effective dates of the tariffs and our aggressive front-loading of inventory before tariff effective dates. Second, we are seeing margin upside from our 6-point tariff mitigation plan, including price increases as well as strong consumer response to our full-price product offering. And finally, lower inbound transportation costs are helping offset tariff costs. Supply chain efficiencies added 30 basis points to our gross margin. Our focus on customer service and in-stock ready to sell inventory is delivering tangible margin improvements from lower accommodations, damages, replacements and out-of-market shipping expense. Occupancy costs were up 5.9% and were 20 basis points higher year-over-year. This was because of our retail outperformance and the higher occupancy costs in that channel. To recap, our gross margin results this quarter exceeded our expectations. Our tariff mitigation efforts more than offset the headwinds from tariffs in the third quarter. Turning now to SG&A. Our Q3 SG&A ran at 29.1% of revenues, 60 basis points higher than last year. Employment expense deleveraged 50 basis points due to higher incentive compensation from our strong results year-to-date. We continue to manage variable employment costs across our stores, distribution centers and customer care centers in line with top line trends. Advertising expenses were 20 basis points higher year-over-year. Our in-house marketing team continues to test and optimize into different levels of spend. During the quarter, we increased our investment in digital advertising after testing and proprietary in-house analytics model indicated we could scale efficiently. The higher spend drove an acceleration in year-over-year site traffic and improved revenue per visit. Our in-house marketing team's ability to test, scale and optimize across our portfolio of brands is a competitive advantage in the home furnishings industry. Finally, general expenses leveraged 10 basis points. On the bottom line, our earnings exceeded our expectations. Despite the tariff headwinds, our operating margin of 17% was 10 basis points above last year and diluted earnings per share grew 5% year-over-year to $1.96. On the balance sheet, we ended the quarter with a cash balance of $885 million with no outstanding debt. We generated $316 million in operating cash flow during the quarter and invested $68 million in capital expenditures supporting our long-term growth. During the quarter, we returned $347 million to our shareholders. We did this through $267 million in stock repurchases and $80 million in dividends. Merchandise inventories stood at $1.5 billion, up 9.6% from last year. Our inventory includes $48 million of incremental tariff costs recorded in inventory as well as $30 million of a strategic pull forward of receipts and lower tariff rates than in effect today. Without this incremental $78 million, our inventory level would be in line with our sales trends. Overall, our inventory levels and composition are well positioned to support our upcoming holiday season. Summing up our Q3. We're proud to have delivered strong results, even as we navigated a challenging tariff environment and historically low housing turnover. Now let's turn to our guidance for fiscal year '25. First, some housekeeping. In the first quarter of fiscal year '24, we recorded a $49 million out-of-period adjustment related to prior year's freight accrual. This benefited fiscal year '24 operating margin results by approximately 70 basis points. Our guidance for fiscal year '25 uses our fiscal year '24 results without the out-of-period adjustment as a comparable basis. Additionally, fiscal year '24 was a 53-week year for Williams-Sonoma, Inc. In fiscal year '25, we will report comps on a 52-week versus 52-week comparable basis. All other year-over-year compares will be 52 weeks versus 53 weeks. On full year '24 results, the additional week contributed 150 basis points to revenue growth and 20 basis points to operating margin. The discrete impact of the additional week on just Q4 '24 was 510 basis points to revenue growth and 60 basis points to operating margin. Now our guidance. Given our strong Q3 results and our outlook for Q4, we are updating our fiscal year '25 guidance. On the top line, we are reiterating our fiscal year '25 net revenue guidance. We expect full year '25 comps to be in the range of positive 2% to positive 5%, with total net revenues in the range of positive 0.5% to positive 3.5% due to the 53rd week impact from last year. Our guidance continues to assume no meaningful changes in the macroeconomic environment or interest rates or housing turnover. Our guide reflects the continued strength in our business, strong customer response to our product lineup and continued traction across our growth initiatives. On the bottom line, we are raising our full year operating margin guidance 40 basis points to a range of 17.8% to 18.1%. This means that despite the tariff headwinds, we are now guiding the midpoint of our fiscal year '25 operating margin to be approximately 20 basis points above last year when excluding the 53rd week impact. Our higher operating margin guide reflects both the strong results we have delivered year-to-date and the expectation that tariffs will have a greater impact on our margins in Q4. Our updated guidance reflects all the tariffs in place as of this call. This includes the new Section 232 tariffs on furniture, the revised 20% additional China tariffs, the 50% India tariff, the 20% Vietnam tariff and an average 18% tariff on the rest of the world as well as the 50% steel and aluminum tariffs and a 50% copper tariff. In fact, our incremental tariff rate has more than doubled from 14% earlier this year to 29% today, inclusive of all the tariffs I just mentioned. We believe the strength of our operating model, combined with the 6-point mitigation plan Laura outlined enables us to mitigate a large portion of these tariffs, which is embedded in our guidance. It's important to note the tariff policy has been volatile and subject to multiple revisions. It's hard to say where tariffs will ultimately land and what impact they will have on our business. Our guidance reflects our best estimates of the impact based upon the tariffs in place as of this call. Also today, we are providing some further inputs for modeling purposes. We now expect our full year interest income to be approximately $35 million and our full year effective tax rate to be approximately 26%. Turning now to capital allocation. Our plans for fiscal year '25 continue to prioritize funding our business operations and investing in long-term growth. We expect to spend between $250 million and $275 million on capital expenditures in fiscal year '25. We are investing 85% of this capital spend on our e-commerce channel, retail optimization and supply chain efficiency. We remain committed to returning excess cash to our shareholders in the form of increased quarterly dividend payouts and ongoing share repurchases. For dividends, we will continue to pay our quarterly dividend of $0.66 per share, which is a 16% increase year-over-year. We are proud to say that fiscal year '25 is the 16th consecutive year of increased dividend payouts. For share repurchases, we announced today that our Board of Directors approved an additional $1 billion share repurchase authorization, bringing our total authorization to approximately $1.6 billion. We remain committed to opportunistically repurchasing our stock to provide returns to our shareholders. As we look forward to 2026, we will balance our long-term growth potential with the tariff and macroeconomic landscape, and we will provide guidance in March. As we look further into the future beyond '26, we are reiterating our long-term guidance of mid- to high single-digit revenue growth with operating margins in the mid- to high teens. Wrapping up Laura's and my comments, we delivered another quarter of strong results despite the headwinds from tariff policy and historically low housing turnover. Our focus remains on our 3 key priorities: returning to growth, elevating our world-class customer service and driving earnings. We are confident we will continue to outperform our peers and deliver shareholder growth for these 5 reasons. Our ability to gain market share in the fragmented home furnishings industry, the strength of our in-house proprietary design, the competitive advantage of our digital first but not digital-only channel strategy, the ongoing strength of our growth initiatives and the resilience of our fortress balance sheet. With that, I'll open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Max Rakhlenko from TD Cowen. Maksim Rakhlenko: Congrats on the nice quarter. So first, can you just discuss the elasticity that you're seeing in the business as you selectively increase prices? And how we should think about the impact to comps from transactions versus ticket in 3Q? Laura Alber: Thanks, Max. We look at prices constantly across our brands, across categories and with our competition. And you know we sell a wide range of products. And so there's not one quick answer to elasticity because in some [ cases ], there's room to take up prices. In other cases, you need to take down prices based on what the market is doing. This is why we're so focused on innovation and bringing new innovative and exclusive products to market because that gives us better pricing power. Also, I would say that pricing is not just about the product itself, but also the service and the experience. And we have been really, really focused, as you know, on improving our service, which has been a huge driver of our op margin, which I'm sure we'll talk a lot about today. But that's a big -- especially as we come up against the holiday season, it's a big deal for customers deciding where to buy their gifts, especially large tickets. If they want to buy gifts from people they trust, they can return things to and that they're going to stand behind their product quality and they can get instructions about how to use that expensive espresso machine. So it's not just one metric, and it's not just one category. It's going to be different depending on the product you asked me about. Maksim Rakhlenko: Got it. And then, Jeff, you noted that it's taking longer for tariffs to flow through. Just how should we consider the impact of tariffs over the next several quarters as it does sound like 4Q will see a pickup? And then just any guideposts on modeling for the next several quarters? Jeff Howie: Yes, let me explain why the tariffs are taking longer to flow through. I think it's important to unpack that. And first, it's really due to the delayed effective dates. For example, the August 7 reciprocal tariff, which applies in most countries like China and Vietnam, et cetera, had an exception for goods that were on the water that had to be received before 10/5. Another example is with the India tariffs that were effective on August 27, there was an exception for goods in the water to be received before 9/17. So this means that these tariffs do not start being applied to new receipts until mid- to late third quarter. And then on top of that, we aggressively front-loaded receipts to bring in inventory at lower tariff rates than are in effect today. So the combination of these 2 really advantaged us in Q3. As we look to Q4, we've certainly said that the tariffs will have a larger impact upon our margin, and that is embedded in our guidance. As we look beyond Q4, it's a little early to talk about '26. There's a lot that could change between now and then, especially with the tariff landscape. So we'll save that conversation for March. Operator: Your next question comes from the line of Zach Fadem from Wells Fargo. Zachary Fadem: Could we start with your take on broader category performance from Q2 to Q3 and whether you saw underlying improvement there? And then just curious, stepping back, how you would frame the improvement we've seen in furnishings in your category relative to some of the broader macro and pressures that we've seen in home improvement and other bigger ticket categories. Laura Alber: We're really pleased with our continuing improvement across quarters and brands. And in particular, the West Elm increase in comps is really exciting for us to see because we expected it to happen, and there's nothing more fulfilling when you see a strategy come to fruition. And I still think there's a lot of room left to go in West Elm as they build out certain categories and their seasonal assortments. And we've been continuing to improve our in-store experiences, and that's been really helping. But in terms of the broader merchandise categories across brands, we have been aware, as everyone is that the housing market has not recovered, and that is really most correlated with furniture and to be able to improve our furniture comps without a significant improvement in housing is a really, really strong sign. And we love that because a furniture collection that we introduced in the season this year, we can build upon for next year with new piece types and also with better inventory stocking positions. And so the continuation of our furniture strength is very important to the short term and the longer term. And then in the holiday season, the categories that are exciting, we saw Dorm pick up from Q2 to Q3. Back-to-school is the broader category for that, and it was a strong season and really, really a good season for us. The Halloween product categories were strong, autumnal and Thanksgiving. Also, we're not done with Thanksgiving yet, obviously, but we're close. And so we've been pleased with our results there. It's too early to comment about holiday. We're actually on the call a week earlier than we were last year. So those of you wondering about the lack of comments there, it's just a little bit too early to comment. But based on what we've seen with the other seasonal holidays, we can see that that's a competitive advantage for us. There's not many other people out there that have the assortment that allows customers to really decorate and entertain for the holidays. And especially at this time of the year, it's a real strength that's a traffic driver for us. Operator: Your next question comes from the line of Cristina Fernández from Telsey Advisory Group. Cristina Fernandez: So I want to follow up a little bit on that last comment on holiday. As we look at the implied Q4 revenue guidance, it's pretty wide. So could you comment on the low end versus high end and your ability to continue this comp trend as you face a more difficult year-over-year comparison? Laura Alber: Thank you, Cristina. Holiday launch season and then it includes January. We are really focused on great price selling. And this has been an important part of our margin profile all year and the improvements that you've seen. And we have amazingly, we've had great success in our margin improvement. Even with the tariffs on top of everything. And as we go into the holiday season, we continue to have opportunity from a year-over-year perspective in pulling back on promotions. And so we're focused on right price selling and hope to have less promotions than last year, hence, the wide range of comp performance. That's one piece of it. The second is when you look at the multiyear numbers, we're mindful of our strong holiday last year. Operator: Your next question comes from the line of Peter Benedict from Baird. Peter Benedict: I guess two. One would be the market seems to be really concerned about how you're going to be able to digest these tariffs as they ultimately come through despite your ability to do so to date. I think expectations next year for operating margins to be lower in the first half of the year. But maybe, Jeff, I'm not asking for specific guidance, but just how should we think about the ability of the business to just even maintain operating margins in the face of what you know about tariffs as they sit today? That's my first question. And then my second question would be around unit growth. Laura, it sounded like maybe a little bit more of an offensive posture there, particularly around West Elm. We know that in aggregate, your units have been kind of coming down. Are you signaling a change there? Should we be thinking about -- I'm just thinking about the magnitude of unit growth we might expect as we look out on the horizon. Jeff Howie: Peter. So where is the operating margin going? That's a great question. But if we look beyond our current guidance, that's not really a question we're going to answer today. It's too early to start discussing '26 guidance. Our focus is on the holiday season delivering in Q4. And the real reason here is the tariff landscape has been incredibly volatile. Just look at what's happened over the past several quarters. Every quarter, there's been new tariffs, repeal tariffs, everything is changing. And there's a lot of uncertainty in this front. I would point out that India is one of our largest sources of goods and where that tariff is going, which is currently at 50% is an open question. We also have the Supreme Court decision on IEEPA tariffs pending. We'll see where that goes. So it's a little hard to understand beyond our current guidance and beyond this year and Q4, where the tariff landscape is going to impact us. We believe that our 6-point mitigation plan that Laura and I have been articulating all year, combined with the power of our operating model will allow us to offset a large portion of the tariffs, but the ultimate amount depends upon where the tariffs ultimately land. What we're really focused on is delivering the current quarter. And everything we know about our ability to offset the current tariffs is embedded within our guidance. In terms of your second question, Peter, where is unit growth going? Look, we've been saying all along that we have done an incredible job, and I want to complement our entire organization regarding our retail repositioning strategy. And there's been multiple legs of the strategy. There's been closing underperforming stores, which I think everyone knows, we've closed about 17% of our stores since 2019. It's about repositioning stores from some of the tired indoor malls to more vibrant lifestyle centers. And it's also been about opening new stores. And we see opportunity for new store growth, particularly in the West Elm brand with Rejuvenation, with GreenRow potentially. And there's a lot of opportunity for us to continue to grow stores. In terms of where overall store count growth is going, as we've been saying all year, it will be mid-single-digit closures this year. And I think we're not necessarily guiding '26, but I don't think we'll see a substantial change in the overall store count as we look towards '26. There's still more room to go on our repositioning strategy, but there's also white space opportunity to infill. And there's some great new locations that we're working on that will come online in '26 and in '27. Operator: Your next question comes from the line of Chris Horvers from JPMorgan. Christopher Horvers: So two quick ones. So I guess playing devil's advocate on the compare in the fourth quarter, Laura, furniture pull forward is behind you. There's a lot of momentum around self-help initiatives. And obviously, there's a tick of pricing coming through here. So as you think about where we are in the cycle, particularly with housing not helpful, why couldn't the growth rate just stay at the growth rate considering where we are? And then a quick one on gross margin. Understanding there was some shift on timing, but asking the question another way, did the drivers in terms of -- in the fourth quarter in terms of the expected tariff headwind versus the expected benefit from the mitigation strategies, did you change those at all in your outlook? Laura Alber: Pull forward first, I don't see any reason to believe we've seen pull forward of anything for that matter. We absolutely could be at the same comp, if not higher. We have a wide range. I was just explaining the differences of why you might look at it and say it's a little bit lower than where you've been. It's very important that we don't play in the promotional game. It's a key aspect of our strategy. At the same time, we're going to have great deals for Black Friday. We have great deals right now for early Black Friday. We bought into them. We have vendor partnerships on them. But we're not going to have as much -- we hope we're not going to have as many needs to promote as we did last year. And so that's the only hesitation on the comp side. And then in terms of the tariff impact in Q4, it's sizably more than Q4 because of the way that the cost flows through every single quarter. And so we did a fantastic job, great success with our mitigation plan in Q3 and throughout the year, and we will continue to do that. And in fact, it's amazing to see the new opportunities that we're finding in supply chain. Supply chain has been just a tremendous positive this year in delivering op margin. And what's great about it, as you know, is it means the customer is getting their products delivered more smoothly and on time and without damage. And that's all good for the brand. It's fantastic for the P&L. And there's still room. As we look at Q4 on the op margin side and the supply chain savings, there's more to go there. We're really optimistic about our AZ DC, which is our new DC that came up last year. And honestly, we're doing better than we have been with that, and that could be -- that could really help us, especially because the calendar this year for Christmas similar to last year is pretty tight. So we want to be able to ship it late and ship it perfectly and not disappoint anyone. That's why people come to us and shop online later with us like they do Amazon and others because they trust us to deliver before Christmas. So there's a lot of really good things happening. But in terms of the impact of tariffs, please don't get ahead of us on Q4 in terms of the margin because the tariffs are going to have a greater impact, as you can see in our guidance and the implied Q4 guidance than they did in Q3. If you look at our op margin ex tariffs, it's expanding. And so for all those that are worried about this, just realize that this goes into the base and we're done with it, and we move forward, and it's about outperforming our competition and continuing to deliver for our shareholders and most importantly, for our customers and giving them incredibly beautiful, well-designed, high-quality product at the best price in the market. Operator: Your next question comes from the line of Jonathan Matuszewski from Jefferies. Jonathan Matuszewski: I had one question and one follow-up. The first question was just on the consumer. You mentioned a better response to full price selling than it seems like what you planned for. So just from like a strategy perspective here, how does that minimal elasticity kind of inform your customer targeting efforts going forward? And is what you're seeing giving you more confidence to target a higher-end consumer, a higher income consumer more in the future than in the past? And are there strategies in place to do that? That's my first question. Laura Alber: Yes, it's a great question. We're lucky where we sit, but we love all our customers. So we want to give them the best price if it's the first apartment, first baby or if it's their tenth one and we do see when we look at our tic-tac-toe as owning the home that we haven't covered the real super high end at scale yet. It's not surprising to me that Rejuvenation is doing so well. Why do we have such great growth, it's expensive, it's absolutely gorgeous, high-quality product. I hope that you've all visited a store, bought some products or seen it in someone's house because when you see it, you understand why we're really growing that business and why we believe so strongly to be our next billion dollar brand. That sits at the high end. GreenRow sits at the high end. We haven't talked about it a lot because it's tiny, but we're seeing that it's a new aesthetic. It is very, very original that is not in the marketplace and that is entirely green products and people care about that. At least that customer cares about that. And so that's at the high end. And we see that we can have retail stores in that brand, which tells me it's bigger than you might think. And then there's Williams-Sonoma Home, which we continue to see as an opportunity for us into the future. But don't mistake the importance of us also covering the upper middle customer, the Pottery Barn, the West Elm and making sure that also those brands are so appealing that people trade into that. I can decorate your house more beautifully and more affordably than the high end, why wouldn't you come to us? And by the way, we'll do the whole thing for you and we'll set it up. And I think you'll see that we can do it for a fraction of the price of what other people do and have it be super interesting and gorgeous. So we're going after all those pieces and there's opportunity right across that tic-tac-toe bar from what we define as our value customer, which is different than the market all the way to the high-end consumer. Operator: Your next question comes from the line of Simeon Gutman from Morgan Stanley. Simeon Gutman: Laura, Jeff, can I ask on tariffs again? The 6-point plan seems to be beneficial, and it sounds like the elasticities aren't awful. What's the chance that we get to the fourth quarter or even the first quarter as this inventory turns, that the impacts are going to be a lot more minimal than we think? And I'm just trying to size up the conviction that we haven't seen anything yet. And then if some of the IEEPA stuff gets, I don't know, invalidated, do you suspect that industry prices go back down? Or do you think retail prices, especially ones that have already changed, they're just going to hold? Laura Alber: First of all, I just want to say that the last thing I want to think is that we're immune to tariffs. We've done a really great job of offsetting them so far, but the amount that they hit us in Q4 is sizably different than it was in Q3. So just -- that's why look at our guidance, please, and understand the impact. IEEPA, there's other tariffs, I'm not focused on that. We're focused on how we give in the current tariff environment the greatest value to our consumers. And where should we be pricing things and where should we be moving things. So I wouldn't spend a lot of time worrying about that. I think it's just one more thing that could change and be kind of distracting in the short term. There's also really good things that like if the India tariff is revealed that -- or reduced by half, that would be great for us. But all that is a backdrop that affects the entire industry. And once it's in and it's rolled through on a yearly basis, we're done with it. So I just -- as I said, just to recap, please don't think that we are in Q4 and beyond. We will offset as much as we possibly can. We've done a better job than I think we even thought we could do in offsetting all of it this quarter. But we have a few things going on in Q4 that I want to make sure, Jeff reminded you in his prepared remarks, I'll let him remind you again about the 53rd week. Jeff Howie: Yes. I mean a couple of other things that I want to highlight, too, Simeon, is, and as Laura said, don't get ahead of us there. We did have an improvement in our merchandise margins, particularly against what we expected in Q3. But it goes back to the timing factor that I talked about, I think, on the first question. The effective dates were delayed for all the tariffs. So as we get to Q4, there will be a substantially larger impact to our operating margin than there was in Q3. And our guidance embeds in there our best estimates of what that impact is inclusive of all of our tariff mitigation efforts. So I can't say it any other way other than we do not expect a repeat of Q3 and Q4, which is what our guidance is. In terms of the 53rd week, I do want to remind everyone that this is a 53rd week for Williams -- we are coming up against the 53rd week for Williams-Sonoma, Inc. On the year, it was worth 150 basis points to revenue growth and 20 basis points to operating margin. But in Q4, where the 53rd week comes into play, it had a pretty big impact at 510 basis points of revenue growth and 60 basis points of operating margin growth. So just on that, the 53rd week and those 60 basis points, we would be down normally on a year-over-year 13-week -- I'm sorry, yes, 13-week to 13-week comparison. Operator: Your next question comes from the line of Steven Zaccone from Citigroup. Steven Zaccone: I wanted to ask on Pottery Barn because the business decelerated a little bit there on the 2-year stack, and it's actually lagging the rest of the segments of the business. You referenced some pullback in promotions. Can you just talk about what's new this year? Because I think that's been the strategy for the past couple of years. And when you think about the performance of that business, what are you seeing from a competitive perspective? Any sort of kind of trade down from the consumer and [ to go ] with some of these earlier questions around pricing, is there anything to call out from a pricing perspective competitive-wise? Laura Alber: We haven't seen that yet. Pottery Barn's furniture has improved this year, especially on the multiyear stack, and that's been good to see. They did have more promotions to reduce out of the base than you might have expected. And so we continue to work on that, and there's still opportunity. Operator: Your next question comes from the line of Chuck Grom from Gordon Haskett. Charles Grom: Laura, just bigger picture, a lot of people have asked about the tariffs. I want to ask a little bit about category growth and how you see sustainability moving into 2026. Broadly speaking, a lot of your peers are doing better. Do you think that continues? And then one more near term, just cadence throughout the quarter, some of your peers have had a lot of volatility. Anything you want to highlight for us and anything you want to speak to so far in November? Laura Alber: We don't talk about the months and the cadence. I do want to talk about the excitement we have as we look forward. We have not seen a housing recovery. It's like the worst housing market in the last 4 years, as you know. And that is a big deal. Now there's really not a lot of great signs that it's getting better quickly, but there are some green shoots. And I personally am very optimistic about housing next year. That would be a big change for us if that happens because we know that when you move, you buy a lot, when you refurnish your house. And we've been very good at getting the remodeler and the redecorator to come to us, but we're excited to be ready with a much more powerful furniture supply chain than we've ever had before when those sales come to us. And we know that when that turns and you see upside again, it's a really big deal. Some people I don't think they're going to be ready for it. But the things we've done to really improve our supply chain are so strategic. I believe and have always believed that the person that owns the furniture network is the one who wins the whole thing. And that is where we've been focused and we continue to build and have all sorts of tech projects in play to make that happen. And you can see it in our numbers this year, how much improvement year-on-year. I read through last year's script, and it's funny when you read it because we were talking about all the supply chain improvements then. But I think if you had asked me, I wouldn't have expected that we would have this much more. And yet we still have more, and that's what's exciting when you think about the power of our operating model in this multi-brand, multichannel company and where this could go in the future as furniture recovery. Operator: Your next question comes from the line of Michael Lasser from UBS. Michael Lasser: Laura, one of the interpretations of your -- some of your comments over the last hour is that Williams-Sonoma has gone through this significant change where it's reduced promotions, improved its profitability while it's been able to drive consistent sales growth. And now it may be at the point at which it can no longer lower promotional activity without it having some impact on the sales. Is that the right interpretation of what has been said on this call? And second, was the magnitude of the benefit to your margin in the third quarter from selling older, lower-cost inventory at new higher prices equal to or greater than it might have been in the second quarter such that we should think about these not repeating in 2026, understanding you're not providing any guidance on 2026 at this point? Laura Alber: In terms of your first question, I mean, you took some liberty there, Michael. I think what I'm saying is that key strategies for our company continue to work. And it has been a focus on innovative product design, high quality, high service and a regular price business, investing in our brands, investing in our tech stack, our supply chain to deliver great operating margins. But I will remind you, our key -- our first initiative this year was return to growth. I kept joking it's 1, 2 and 3 return to growth. We are obsessed with where we can grow, what brand it is, which categories it is and how we outperform. So do not mistake that, that is where our head is and what we're driving towards. On the second question, I'll hand over to Jeff. Jeff Howie: Yes, Michael, honestly, I'm not tracking with you on the question because actually, our margin expansion year-over-year in Q2 was -- gross margin was 220 basis points. There's only 70 basis points in Q3, with the difference, of course, being the impact of the tariffs. So I'm not sure I understood your question, but there was a greater impact of the tariffs in Q3. And while certainly, we have our mitigation efforts, the tariff impact will increase sequentially quarter-over-quarter every year this year. And as we said on the call, it will have an impact on us in Q4 in a much more substantial way than it did in prior quarters this year. Operator: Your next question, and this will be the final question comes from the line of Oliver Wintermantel from Evercore ISI. Oliver Wintermantel: And yes, I think the message on gross margin in 4Q came across. I just want to focus on SG&A. You guys have lowered general expenses for the last several quarters. And especially in 4Q, I think there was 80 basis points in incentive comp headwind and advertising was also up a headwind of 30 basis points in the fourth quarter. So maybe could you talk a little bit about SG&A moving parts into the fourth quarter, how you expect that to shake out? Jeff Howie: Yes. I mean, as you know, we don't guide to specific lines. We guide to top line and the bottom line as it gives us the flexibility to pull different levers as we see results come in. In Q3, our higher employment expense was really almost entirely attributable to higher incentive compensation due to our strong performance year-to-date. And then as I explained in our prepared remarks, advertising deleveraged about 20 basis points because we saw some opportunities during Q3 to spend some additional advertising in the digital space. And one of our competitive advantages is our in-house marketing team that has ability across our portfolio of brands to test, scale and optimize our spend. And they saw some opportunity to spend in Q3 that gave us great returns, drove incremental traffic to the web and higher revenue per visit, and so we leaned into that. So as we think about Q4, we don't guide to specific lines, but our approach is always the same as we're looking to control our SG&A, but where we see opportunities that are going to give us good return on investment, we will, of course, lean into those. But it all depends upon the overall macro. Laura Alber: And I thought that it might be worth spending another minute even though we're a couple of minutes past the hour, talking about our SG&A reductions due to our AI initiatives, because we were joking earlier that we have a 6-point mitigation plan for tariffs, but I think maybe we should launch our seventh as AI because we're seeing some really exciting results both on the sales side and also on the margin. I'll let Sameer make a few comments about that before we close the call. Sameer Hassan: Sure. Thank you, Laura. Like Laura mentioned earlier, in Q3, we are seeing really, really impactful results. She shared a couple of the data points around our customer service automation. She shared our launch of Olive, our AI, again, that's customer-facing. If you haven't used that, I really encourage you to go on the Williams-Sonoma site today. It's super helpful for planning for the holidays and is driving sales, driving engagement, driving loyalty. It's really exciting. And we're already -- just on the topic of SG&A, we're already seeing reduced payroll costs where automation absorbs -- AI automation absorbs repeatable work, reduce vendor costs when we streamline external spend. And we're also seeing the same tech grow the top line. In supply chain, we're cutting out of market shipments, improving routes, lowering damages, replacements, trimming shipping costs. Inventory, we're using AI to raise in-stock rates on key items, all the stuff supports conversion. It's driving down costs, but it's also driving the top line. Digital guided journeys, better content coverage. All of this is driving SG&A leverage. All of it's driving reduced costs, but it's also driving demand leverage, which is really exciting to see it impact both on the cost side as well as the top line side. So we really see this compounding benefit as we head into 2026. I'm really excited about the continued impact we're seeing from our AI road map. Operator: And we have reached the end of our question-and-answer session. I will now turn the call back over to Laura Alber for closing remarks. Laura Alber: Yes. Thank you all for joining us today. And as I said earlier, I wish you all a very happy Thanksgiving with your families. Hopefully, you get a chance to stop by our stores and do some shopping. Look forward to talking to you in the new year. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bullish Global Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Michael Fedele, VP of Finance. Please go ahead. Michael Fedele: Good morning. Welcome to our third quarter earnings call. I'm Michael Fedele, Vice President of Finance, and I'm joined on today's call by our Chief Executive Officer, Tom Farley; Chief Financial Officer, David Bonanno; and Director of Corporate Development, Liam Foley. This call will contain forward-looking statements, including those relating to our expected performance and business opportunities. These statements are not assurances of future performance. They are subject to risks and uncertainties, and our actual results could differ materially. For more details on these risks, please refer to today's earnings press release and our SEC filings, including our prospectus dated August 12, 2025. We undertake no obligation to update or revise any forward-looking statements. This call will also include a discussion of non-IFRS financial measures. A reconciliation of these measures to the most directly comparable IFRS metrics can be found in our earnings press release and presentation, which also contain additional information regarding non-IFRS financial measures and key performance indicators. I'll now turn the call over to Tom. Thomas Farley: Thank you, Michael. Thank you all for joining our call today. I'm Tom Farley, the Chairman and CEO of Bullish. We're pleased to share that Bullish continues to win. For Q3 2025, Bullish reported record adjusted revenue of $76.5 million, record adjusted EBITDA of $28.6 million and record adjusted net income of $13.8 million. As Dave will discuss here shortly and can be seen from the provided guidance, we expect more records coming for 2025 as a whole. In the last 6 weeks, our momentum has only increased. On October 31, we fully launched our options franchise and the early results are encouraging. We also launched our U.S. exchange business and have onboarded marquee customers in the early days. We have signed up many new liquidity services customers here in Q4, including high-profile crypto projects. Our index business is gaining traction with many launches of U.S.-based ETFs and other listed products tied to our benchmarks. Our media business growth has accelerated in Q4, now registering in our weekly and monthly reports as the top crypto news site globally measured by views. I will now share some context on where Bullish sits within the broader crypto ecosystem before moving on to discuss our business successes in greater depth. For several years now, Bullish has intentionally positioned ourselves at the intersection of 3 strong ongoing trends that are driving crypto evolution. One, increasing regulatory clarity with regulations that require infrastructure businesses and their customers to operate in a compliant and responsible fashion. Two, increasing numbers of traditional finance institutions operating in crypto in meaningful ways. And three, growing tokenization of major asset classes on the back of the successful tokenization of the U.S. dollar via stablecoins. We are more convinced than ever that we are on the right path. We are squarely positioned at the center of each of these trends. We are proud of our regulatory footprint and are pleased with the ongoing institutional adoption that we are helping to drive. However, I'd like to expand on this third trend, tokenization. Tokenization refers to the process of turning traditional financial assets into crypto assets. We believe this trend will be the most transformational crypto value proposition of the next decade, and we are positioned to be leaders in this space through our liquidity services platform. In fact, the tokenization trend gave rise to our liquidity services business back in 2023. The first major asset that was successfully tokenized was the U.S. dollar in the form of stablecoins. As dollars were tokenized, stablecoin issuers turned to service providers such as Bullish for help, to help them tokenize the U.S. dollar. We saw a market need for listings, liquidity and visibility as these new tokens bridge the chasm from TradFi to blockchain. We spent most of the years 2022, 2023 and 2024 in build mode to meet these needs, and we call the collection of these products, liquidity services, before tokenization was even the hot word on everyone's lips. Today, for stablecoins, we are writing smart contracts enabling bridging from one layer, one blockchain to another. We are listing stablecoins against many other assets on a compliant and regulated global exchange. We are providing liquidity both on Bullish and on DeFi protocols, and we are marketing these stablecoins through our Consensus and CoinDesk properties. In short, with our liquidity services offering, we have built a tokenization platform, and it has become our fastest-growing business. But that is not what excites us the most. The trend of tokenizing assets other than the U.S. dollar is in the first inning. These tokenization services have the potential to continue scaling meaningfully as more and more assets and asset classes are listed on chain in the years ahead. This includes substantially every major asset class you can think of. We look at the successful tokenization of the dollar, stablecoins as a road map for the future tokenization of these new asset classes. And as a partner for substantially all dollar and euro-backed stablecoins, we've learned the value of developing a rich set of capabilities specifically suited to helping that asset class tokenize. We continue to evolve our services targeted at stablecoins. For example, Bullish now has direct [ mint/burn ] capabilities with nearly every stablecoin issuer and also advanced API orchestration tools that allow seamless movement between fiat and stables, powering our partners' growth. We believe that each new asset class will also require incremental asset-specific capabilities alongside our standard offering of the 3 core services every asset issuer needs to tokenize: listings, liquidity and visibility. With this additional functionality need in mind, we have submitted an application with the SEC to receive regulatory approval as a transfer agent, which will further supplement our tokenization and liquidity services strategy for U.S. securities. We look forward to sharing more of our future plans with you over the months ahead, and we look forward to taking this tokenization journey with you. Now, excitement about our liquidity service platform's potential for future tokenization growth aside, how is it doing right now? Our services continue to be sought after. We're adding new and diversified customers, and our momentum has continued into Q4. In the third quarter, we added a record number of liquidity services partners, and our active partner count is up 100% sequentially. We're on track for another strong quarter in Q4, building on the success of our existing Layer 1 blockchain relationships with market leaders such as Solana, Ripple and TRON. We have further broadened our Layer 1 blockchain relationships that we are supporting with liquidity services, adding 4 additional blockchain ecosystems, Canton, Cardano, Midnight and VeChain to our scope of services since we last spoke. We are also pleased to share that our collaboration with the Solana Foundation continues to develop constructively. In the first quarter of this engagement, Bullish minted more than 80% of our stablecoins on Solana. And Solana's total stablecoin value locked, that is how many dollars are tokenized on Solana, grew by more than 40% during that quarter. Shifting gears to discuss our very successful options trading launch, I'd like to first take a step back and remind everyone why we are so excited about this opportunity for Bullish. Crypto options are the most rapidly growing asset class in this space. They've grown to more than $200 billion in monthly trading volume just last month, up more than 230% from the same period last year. Furthermore, given the complex nature of options as well as the sophisticated user base, we are well positioned to carve out substantial market share in this asset class, and we expect to see that asset class grow by multiples in the coming years. Turning to the specifics of our own progress. Our exchange launched in full and without risk caps at the tail end of October. In just over 2 weeks, we've already traded well over $1 billion of volume. And as of today, we have approximately $1 billion in open interest. Our best day was yesterday, where we traded $240 million, about 4% market share by our definition. I'm really excited by the traction we've attained right out of the gate, and I expect it to become a significant contributor to our financial performance going forward. Look, I've been involved with a lot of these derivatives launches over the years, including very successful ones and a few that I rather not discuss. This one has all the hallmarks of a big winner. Our last earnings call occurred less than 24 hours after we received our prestigious BitLicense. We indicated that receipt of this license marked the final step in enabling U.S. onboarding for prospective Bullish exchange clientele. We also shared that it will take time for these U.S.-based customers to go live given their institutional nature and the typical lengthy onboarding process for these types of customers. But with all that said, we are pleased to share that we've already actively onboarded many new customers, including various retail brokers with millions of customers like Webull and Moomoo, institutional brokers such as Cantor Fitzgerald, a very large crypto custodian and other institutional clients. So things are progressing more quickly than we anticipated just a couple of months ago when we last gathered. Our U.S.-based clientele value our already liquid global order book, which helped us launch without any 0 to 1 or cold start liquidity problems. We are encouraged by our early progress in the U.S. and look forward to continuing to seize market share in the months to come. Outside of the United States, we continue to make steady progress growing our exchange. During the quarter, we've added some of the largest retail brokerages in Europe, the Middle East and Latin America and integrated various crypto-focused hedge funds or asset managers that have already started trading derivatives on our platform. Shifting to information services. Our CoinDesk business continues to perform well, supported by significant accomplishments in our indices business. We are pleased to share that since our last earnings call just 2 months ago, our indices have underpinned an additional 5 of 6 total newly launched U.S.-based exchange-traded crypto products as well as 4 additional global ETPs. During the span, we also won 6 new benchmark switches from competitors and have 2 active ETP filings for the CoinDesk 20 Index. On the CoinDesk Insights or media side, we continue to successfully capture more market share against competitors with our market-leading and accessible crypto content and coindesk.com continues to be a highly sought-after destination for advertising. We have also successfully launched CoinDesk Research, a subscription-based vertical dedicated to delivering high-quality research and analysis. CoinDesk Research also serves as a natural extension and upsell to our liquidity services clientele. The thesis that we can land and expand is proving to be true. There are many examples of existing customers in Q3 and so far in Q4, choosing to take advantage of new Bullish company products and services in addition to their existing products and services. Overall, we continue to win, and we continue to execute on the vision that Dave and I laid out when we first joined Bullish. We're proud of our success to date, and we believe that we're just getting started. We're just getting started on a macro level because tokenization of securities and other real-world assets and the shift of financial market infrastructure has only just begun. And we're just getting started today at Bullish generally because we believe we have or are pursuing the right mix of licenses, technology, talent and experience to be a winner in a world that is rapidly shifting on chain. We will continue to execute with focus, discipline and momentum as we position Bullish for sustained growth in 2026 and beyond. With that, I'll turn the call over to Dave, our CFO, my partner, to review the quarter in more detail. David Bonanno: Thank you, Tom, and good morning, everyone. I'll start by walking through our third quarter results and then provide additional context about our operating performance before sharing our outlook for the fourth quarter. As a reminder, reconciliations of our non-IFRS metrics can be found in the back of today's presentation as well as in our 6-K filing published earlier today. Total adjusted revenue for the third quarter was $76.5 million, up 34% sequentially and 72% year-over-year, exceeding the high end of our guidance. Third quarter SS&O revenue, which includes liquidity services and all CoinDesk-branded products, reached $49.8 million, up over 50% versus 2Q and over 300% versus the prior year's quarter. Through the first 3 quarters of this year, SS&O revenue represents 53% of total adjusted revenue year-to-date compared to 28% for the full year 2024. Adjusted operating expenses for the third quarter were $47.9 million, down 2% from 2Q 2025. Adjusted EBITDA for the third quarter was $28.6 million, up 253% sequentially and 271% year-over-year. And lastly, adjusted third quarter net income was $13.8 million. As our business continues to scale, we are pleased with our cost control and high incremental margins, which we expect to continue into the future. Turning to our current financial performance. Quarter-to-date trading volume through November 17 stands at $126 billion with an average trading spread of 1.7 basis points. Our November month-to-date trading spreads are averaging 1.8 basis points, up from the 1.6 basis points you will have seen in our October monthly metrics. We expect materially higher transaction revenue for the full fourth quarter as compared to the second and third quarters of 2025, driven by higher volatility and increased active trading customers. Turning now to our Q4 guidance. We expect SS&O revenue between $47 million and $53 million and adjusted operating expenses between $48 million and $50 million. We remain confident in the outlook for our financial performance and believe Bullish is well positioned to deliver sustained and profitable growth in the coming quarters. Thank you for joining us today. And with that, I'll turn it back to Tom for closing remarks. Thomas Farley: Thank you very much. And as we said last time, thank you very much for your continued attention to Bullish and following along with the story. And we appreciate your time today, and we'll open it up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ken Worthington with JPMorgan. Kenneth Worthington: I wanted to focus on liquidity services. So maybe starting, you mentioned that the number of stablecoins doubled this quarter. About how many stablecoins are you servicing? And then also, you mentioned previously that the pipeline of non-stablecoin tokens was starting to dominate that pipeline. How do the economics look for non-stablecoin tokens compared to stablecoins? And then I'll wrap the follow-up in here, too. Coinbase launched a service related to ICOs. To what extent does that compete with your non-stablecoin promotion business? Thomas Farley: Thanks, Ken. Good to hear from you. I was probably doing my thing where I'm speaking too fast. The -- just to clarify your question, actually, the liquidity services figures, high level that I quoted refer to all liquidity services customers. That is to say we are not saying we doubled our stablecoin customers. In fact, off the top of my head, my guess is that we did not double the number of our stablecoin customers. We doubled the overall. So inclusive of, for example, the 4 Layer 1 blockchains that I described as well as stablecoin issuers. So -- but just to answer maybe the thrust of your question regardless, we continue to add stablecoin customers, which is consistent with our going-in thesis, I think not too dissimilar from your own, that with the GENIUS Act, we will continue to see growth in the number of stablecoin issuers. And what we're seeing is the new issuers need those 3 tokenization or liquidity services products as much as everyone else, the listing, liquidity and visibility. But what's perhaps even more exciting is we're proving the product market fit for these services extends far beyond stablecoin issuers. And so during the quarter, we saw more of a, quite frankly, even mix among kind of 3 broad categories, which are stablecoin issuers, Layer 1 blockchains and then third, just token crypto project issuers. So in other words, not a Layer 1 or a stablecoin, and we're seeing more of a blend. Just to touch on that, I'll let Dave kind of clarify if I butchered any of those figures and coming back to you, Ken. And then on the ICO platform, like where we've really focused is the highest quality crypto platforms, and that's consistent with our kind of reason for being, which is servicing the institutional customers. By and large, they're less interested in the tail of crypto. They're more interested in $1 billion or at least $0.5 billion market cap and up crypto projects. And so, so far, what you described at a competitor versus where we're focusing are just kind of fundamentally 2 different kind of fields of inquiry. So we're kind of focused on sticking to our knitting, building out our liquidity services in our core market and really enjoying the ride as our TAM expands in real time. David Bonanno: Yes, Ken, to your question about the stablecoin liquidity service agreements. As we mentioned before, we are partnered with basically every stablecoin out there, except for USDT currently. I believe that count is about 9 or 10 total stablecoins, both euros and dollar-based partners, with regards to the opportunity to further monetize stablecoins versus non-stablecoin partners. In general, we do see the ability to use our partners' assets that are stablecoins to do other revenue-generating activities just given the broad-based utility of stablecoins throughout crypto, DeFi and otherwise. But we are also able to find other opportunities with the nonstable partners. It depends. Each one of these is a little bit bespoke with varying degrees of utility and contract sizes. We're excited about both sides of the pipeline. And both sides of the pipeline are growing, albeit right now with more emphasis on the nonstable portion given the next wave of, say, GENIUS compliance stablecoins has really yet to go live, but we expect a new wave of those to begin late fourth quarter, early first quarter, and we expect to pick up some new significant wins, which we'll talk about early next year. Operator: Your next question comes from the line of Peter Christiansen with Citi. Peter Christiansen: Tom, David, congrats on the execution momentum here, really impressive stuff here. I want to double-click into the motivation to seek transfer agent capabilities and licensure. Obviously, there's opportunities with some of the coin indices and perhaps even bespoke products. But just curious, how do you think about the competitive landscape or setup for maybe some more commodity type of RWAs out there, single stocks? How are you seeing that competitive setup? And then as a follow-up, I was just curious if you could speak to some of the performance you saw out of the AMM during some of the heightened volatility that we've seen in recent weeks. Obviously, spreads look pretty healthy there. But just curious if there's any other operating metrics that you think are useful for us to consider. Thomas Farley: Sure. Good to hear from you, Pete. Two very meaty topics. I'll endeavor to answer the first, and Dave will take the second. I talked a bit in my prepared remarks about this tokenization trend fairly broadly. But I'd like to add a little more context and kind of contour given your question. When you think about stablecoins, they're really just the U.S. dollar, and it's a question, okay, how do I take the U.S. dollar? I'm going to speak in colloquial terms here for maybe people who aren't crypto heads in this all day every day. But you got the U.S. dollar and then how do I take this U.S. dollar and put it on blockchain, so I can use it for commerce. That is the act of tokenizing the U.S. dollar. Well, if you think about the types of people who do it, some are super crypto native, think Tether or Circle and some are less crypto native. I think more recently, you've seen in the news, Western Union, for example. And then some are somewhere in the middle and think of PayPal or others of their hill. And so now those say, okay, I want to take the dollar and I want to tokenize it. They can do some of that -- those necessary tasks all on their own. But some firms look at it and they go, wow, there's a whole lot of expertise here, and I can't do it on my own. And you can think about, okay, how do you get from non-tokenized to tokenized and you can lay out a spectrum of products and services. For example, do you write the actual smart contract to create the tokens or not? Do you write the effectively Excel spreadsheet or Oracle database on the blockchain that tabulates which accounts own which amount of tokens? Or do you go to a vendor for that? Do you go get the state-by-state licenses in the United States or the federal licenses now required under GENIUS? Or do you rent those? So those are all sort of tokenization services, if you will. And we looked at that and we said, we're going to stick to our knitting, and we're going to do those services that we're really good at. And we said we're going to focus on the active listing the token, not just listing the token stand-alone, but listing the token against many other tokens -- listing the token, not just as a spot transaction, but as a perpetual future, a dated future, an options contract, doing it on a compliant regulated exchange, thereby conferring a certain level of respect to those asset issuers. We're going to focus on the liquidity provision, making sure that even in moments of distress, there are bids and offers available for those newly tokenized tokens, if you will, use the same word twice. And then finally, the visibility. We own the premier properties in crypto. There is no debate about that. CoinDesk is #1 for views in the world for crypto news site. CoinDesk is where important institutional people and companies gather twice a year in Asia and the U.S., and we can help these stablecoins and tokens get their message out, okay? That's been our strategy. So now your question is, hey, tell us about this transfer agent element. Well, we're looking at the world, and we're saying, boy, it feels like the next domino to drop here or at least the next enormous domino to drop, there'll be other little tests along the way is the U.S. securities market, whether that be single stocks or fixed income or what have you. And what we've drifted into and stablecoins, our customers have pulled us into it, is we now have a more expansive offering than just the dead simple listing liquidity and visibility. I gave the example of the API orchestration. I gave you the example of the direct mint earn. And I gave you the example of we're now writing those smart contracts ourselves to facilitate bridging from Layer 1 to Layer 1. Well, what the transfer agent license gives you the ability to do is more actively engage with asset issuers who are tokenizing U.S. securities to offer more robust listings, liquidity and visibility, but also some services around the margin, such as writing the actual smart contract for them or tabulating who owns of what security. That is the license you go for in the U.S. under the SEC regime that gives you the freedom to be able to offer those additional services to securities issuers, whether in a tokenized or, frankly, a certificated form. So that gives you a little more of the thinking behind that, Pete. Hopefully, that narrative -- it was a long one. Hopefully, it wasn't too boring, but gives you a sense of where we're headed. David Bonanno: And regarding dealer... Thomas Farley: Go ahead. Peter Christiansen: No, you're playing the arms dealer side, right? Thomas Farley: Yes. We just want to be helpful in this tokenization wave. We think it's huge, Pete. Just one more quick anecdote, Dave is going to punch me. But we went out and we started this tokenization effort really in earnest, we started building the features in 2022. We productized it in 2023. It really took off in 2024. We called it liquidity services, but it was tokenization. We went in January of 2025 this year. And if you go back, Pete, this around the time we started talking to you and you look at our deck, we talked all about tokenization and there was kind of a big yawn. People just really weren't too excited about it. That's how much has changed in the year 2025. It's the regulatory regime here. It's also just the technologies of the Layer 1s are that much more robust. People have realized it's ready for prime time. People now realize that the benefits of tokenization are real, being able to use those tokens more easily as collateral in a more efficient manner. I'm now speaking on a regular basis to the heads of the very largest banks in the world who are preparing for this wave. And so we've seen this coming. At times, we felt a little crazy because of the looks we were getting across the table, but we've been preparing for it, and we just want to be a part of helping our customers make this leap. David Bonanno: And Pete, with regards to your question around the volatility experience, probably you're referring to mostly October 10, the AMM performance in the -- performance of the exchange in totality, we're really proud and pleased with our performance and the way the technology held up. Every couple of quarters or so, we get really kind of a feature moment to advertise the difference of AMM liquidity versus what we see in other club order books. Way more depth was preserved on our order books during the flash crash on October 10 than you saw in other venues, notably the other offshore venues, where liquidity just absolutely evaporated in major assets like Solana. Our spot prices had far fewer wicks, smaller wicks, our derivative systems had far fewer liquidations than you saw in other venues. And as a whole, we're really proud of the way the system held up. We had a lot of trading revenue that day, and that went noticed by our customers. And I do think that there is a lot of discussion underway in the market more broadly around the way that derivatives and marketing systems and order books function in, say, less regulated venues versus our own. Thomas Farley: Just one more comment on that. I remember way back in kind of 2022, I had a launch with one of the most prominent executives at trading firm in our industry. And he said, I suggest you, Tom, as somebody who's been around kind of clearing and derivatives your whole career, go look at how these perpetual futures markets work on these other venues. You'll be appalled. And I did exactly that. I spent a weekend doing a deep dive and came back to our team and said, we will never do that. It is wrong what happens on these markets. What we saw on October 10 is positions were liquidated for fully collateralized accounts. It's a heads, I win, tails, you lose approach from these unregulated venues. And it underscores for you why real institutions are never going to do business there. They're just not. Real institutions need to know when they're hedged, they're hedged. Their position isn't just going to evaporate in the dead of night when they have gains on it on a fully collateralized basis. Operator: Your next question comes from the line of Dan Fannon with Jefferies. Daniel Fannon: I wanted to follow up on SS&O more broadly. Obviously, a lot of momentum, strong third quarter. But then when we look at the 4Q guide, it is basically flat at the midpoint. So can you talk about that -- squaring that with the kind of longer-term growth opportunity from a revenue perspective and the momentum in the business today versus kind of near-term revenue outlook? David Bonanno: Yes, sure. Thanks, Dan. Great to hear from you. Taking the second part of your question first. We remain very confident in the growth outlook for subscription services and other revenue looking forward. We see the pipeline filling up, new projects coming along. We believe tokenization more broadly is potentially a very large tailwind for that line item. Specifically on the Q4 guide, there are a couple of different cross currents there. I'd say, one, we do continue to experience broad-based growth across pretty much all line items in SS&O in terms of customer wins and new contracts, as Tom has mentioned. Somewhat offsetting that growth would one be seasonality. The fourth quarter is the only quarter this year with 0 events revenue. The third quarter did feature our DC policy event and EDGE conferences. So there was some revenue in the third quarter from events, which will not occur again in the fourth quarter. Additionally, there's a little bit of impact from large price -- downward price movement in the broader digital asset space, which affects partially the indices business, some of our lending business and to a lesser extent, liquidity services, but that is largely offset by the broad-based growth. There's a little bit of a timing element as well, whereas a lot of the new contract signings during the fourth quarter are coming middle end of the quarter versus the third quarter, where we had extreme momentum both in the second quarter leading into the early third quarter. And so when you put all that in the blender, we come out with the guidance you see in front of you today, which is flat to modest growth. Daniel Fannon: Great. That's very helpful. And then I was hoping you could just provide a little more commentary around the momentum post the BitLicense approval. You talked about a few onboardings. But I guess, could you expand upon those comments and talk about kind of the pipeline and how you see the kind of ramping up of that customer base as we go into, obviously, fourth quarter, but more importantly, into next year? Thomas Farley: Yes, sure, Dan. As I said, we've had kind of more early wins and notable early wins than I think we were expecting to be able to reveal to you given that there were only 2 months or 8 weeks between our 2 earnings calls. So some really good early momentum. I would say the other thing that's positive is the pipeline has filled up very, very quickly and has many exciting names who will be known to you and have things like bank or investments in their title and have the potential to really move the needle. I guess the downside is we have seen other than a bunch of early adopters who were quick to sign an agreement, it's hard. Like it's a slog. And I think some of this goes back to FTX, frankly, because we still get questions that are pretty clearly tailored to avoiding an FTX-like situation, where the diligence is just very robust. Hey, let's go through your SOC reports. let's go through your cyber reports. We want to see more working papers in addition to just the publicly available audit. So everything feels good and about on track, and we have some positive upside surprises in terms of the number of big customers who have already signed and have come on board as well as the size of the pipeline, but it's going to take some time. Operator: Your next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Brett Knoblauch: Tom, I think we're expecting kind of CLARITY Act to get put through the Trump's desk before the end of the year and signed. Could you maybe explain to us what you're expecting that will do to your business, particularly from the liquidity services front? Thomas Farley: Sure. And good to hear from you, Brett. I wish this call were Monday and not today. I'll be meeting with 7 or 8 of the 100 U.S. Senators, including many or most of those who are actively involved in, I guess, what was called in the house, the CLARITY Act, but more broadly a market structure bill tomorrow and Friday on the Hill, Brett. So I'll have a lot better sense. I love hearing that the premise of your question was around a bill getting passed this year. You're a bit more optimistic than I am. I am very optimistic that it will get passed because I'm seeing bipartisan support. And I think it will be very helpful for the crypto industry, largely because of preemption, in other words, not having to go to each of the 50 states to get their very particular, in some cases, approvals for operating in the crypto business. I think that will -- that in and of itself will be a boon for infrastructure providers like Bullish. And I think providing the legal certainty, much like it has on the stablecoin side will bring in many institutions and tokenization participants, asset issuers, for example. So getting that done will be great for growth, and I very much would like to see it. And I think it will only be helpful for our business. But I will know a lot more in the next 48 hours. And look, there's a lot to come. I suspect the House Ag will come out with a whole new version of their proposed bill. I suspect that will have to be negotiated with -- I mean, pardon me, Senate Ag, that will have to be negotiated to some extent with Senate Banking. But then ultimately, there will be a conference procedure with the Senate and the House to make sure that we produce a bill that makes sense for our country and for this industry, and we will be a very active participant in that as evidenced by where I'm spending the next 2 days. Brett Knoblauch: Awesome. And then maybe just on the U.S. momentum. It feels like that launch happened a bit sooner than we were expecting and then adoption was much faster than we were expected. Could you maybe pinpoint why it happened so fast and how it's been so good? And kind of what you're expecting, I guess, from the U.S. business, maybe the rest of this year and into next year? Thomas Farley: Yes. I'm going to get PTSD while I give you this answer. So we made a couple of faithful decisions over the last couple of years. One of them, I'm totally happy that we did it, and it's ultimately something that I can share with you as an investment thesis, frankly, but it brought us a lot of pain and heartburn. And what we did, Brett, is we said we're going to go get the toughest regulatory approvals in the world for the provision of spot crypto trading as an exchange. All of them. We're going to get Hong Kong. We're going to go to the freaking Germans, the BaFin, known as the toughest, most thorough regulator. We're going to go to the New Yorkers, not only are we going to go to the New Yorkers who are known for being very discerning about handing out BitLicenses, we're going to wait to launch in the U.S. And on top of all that, and we're going to go to the Brits and we're going to get benchmark administration license. And on top of all that, we're not just going to ask them for licenses like every other crypto exchange has asked for, which is, hey, let me operate an exchange within your jurisdictions and let me operate everything within the 4 walls of your country. We're going to go to them and we're going to say, we want to have one global order book where men from Hong Kong's bid offer can interact with Gerhard's offer or offer to sell sitting in Munich or Elaine in New York's bid can interact with Soso's offer in France. And that was very difficult because imagine telling a regulator, especially a particularly provincial regulator that, hey, yes, we'll onboard in your regime and we'll hold the customer funds in your regime, but we need to be able to operate a single global order book. And so it took us probably 2 years longer than it would have, maybe you could say should have, if we had taken the shortcut approach, which is what nearly every other crypto exchange has done. But the benefit finally is accruing to us, which is when we get that BitLicense and we "open for business," all it really means is these customers have been knocking on our door for 2 years, we can just say, okay, you're cool, come on in, we've approved you. We've done the KYC/AML. We'll hold your funds in the U.S. We'll onboard you in the U.S. But the liquidity is right there. You can trade tomorrow and interact with all of our customers all around the world. So that's what enabled us to kind of get into business so quickly and which -- and the reason why it may look a little different than what you're used to from others. Operator: Your next question comes from the line of Brian Bedell with Deutsche Bank. Brian Bedell: Congrats on the good momentum here. Maybe just talk about another angle on the U.S. traction. Dave, you quoted some pretty good metrics for trading volume so far in 4Q. We typically think of a lot of the onboarding here is contributing to SS&O. But can you talk about the new customer momentum contributing organically to the trading volume outlook? And is that something that has the potential to grow even faster than SS&O just from the U.S. angle alone? David Bonanno: Yes. So thanks for the question. The -- our user counts across the board are continuously hitting new all-time highs. So that is definitely beneficial. This is for trading customers. That is definitely beneficial to the trading volumes. It's always difficult to disaggregate the attribution of more customers versus volatility price or our own internal pricing changes. But when you put them all together, we are certainly realizing more trading revenues, more trading volumes per unit volatility than we have in the past. It is good to see a little bit of fallback in the market. It does bring to light the diversified revenue streams we have with exceptionally strong transaction revenue that we've had so far in the first half of here in the fourth quarter. We continue to believe that over the course of 2026, the U.S. will become a major contributor to that. We're also extremely pleased with the launch of options. We expect options to be a major contributor to our transaction revenues next year. And we're pleased with the overall momentum we've seen on the exchange trading side. And a lot of that is around cross-sells, our liquidity services, our ability to trade in and out of different stablecoins and our laser focus on institutions, the products and services that they need are all paying off. Thomas Farley: Yes. And just to add one element to that. Options -- I don't want to oversell it because we're still single-digit market share. But the early days have been a bit of a revelation. And what we're realizing is a couple of things. One, it's all organic from a product perspective. Obviously, we didn't have options when we gathered 2 months ago. So when I say we did $240 million yesterday, that's all organic, of course. But it's also organic to a great extent, in a customer sense. The options customer base is quite different than the linear customer base, so like the spot customer base. So that's been really good in bringing new customers on to the platform, which is exciting. But then more broadly, we're realizing there's a real need in the market for an options exchange that allows customers in a single account to be able to trade spot and perps and data futures and options on a liquid compliant exchange with portfolio margining. And it feels like we hit the market just right on this one. So I'm excited. Stay tuned. Brian Bedell: Yes, that's great news. And then just on the incremental margins, Dave, you referenced obviously high incremental margins. Fair to say that it's higher on the trading side than the SS&O side or not necessarily the case? David Bonanno: Probably, I'd say that's fair to say on the SS&O side, you do have the events business, which is our only line item that features any meaningful variable costs. So in total, probably a bit more on the trading side. You'll notice incremental margins in the third quarter were actually above 100%. That was due to more advertising spend in the second quarter for an event than there was in the third quarter. If you look at the guidance and the kind of current run rate of the transaction revenues for the fourth quarter, you can pencil out not quite over 100% incremental operating margins, but definitely well north of 80%. And we continue to look forward to demonstrating the operating leverage in the business to demonstrating the benefits of the diversified revenue streams and having that begin to play through in hopefully a more volatile environment than we got in the second and third quarters of this year. Hopefully, that persists into 2026, and we look forward to posting more earnings, higher margins and demonstrating that operating leverage that we've been talking about. Operator: [Operator Instructions] The next question comes from the line of Chris Brendler with Rosenblatt. Christopher Brendler: Congrats on the results as well. Maybe a little bit of an education for me, but I just wanted to ask about the monthly metrics on the spread side. I would have thought the options business would have been higher than spot. And so a function of it's early? Or am I just not thinking about that correctly? And then the other question would just be the negative spread in perpetual futures in October. I imagine that's volatility related. Just give me a little color there on what drove the negative spread, so much larger negative spread in October for perpetual futures. David Bonanno: Yes, sure. So on the options side, early days, we continue, as we do with all the products to experiment with our pricing. And as I've mentioned before, we are always solving for maximizing our total adjusted transaction revenue per unit of volatility. That's across all of the products. The products do tend to work together. And so we've seen benefits from changing prices in certain products with the volumes or maybe revenues we get out of other products. So still early days on the spreads with regards to options, but we look forward to updating you on that as we go. And that is also why we report the monthly exchange metrics so everyone can keep track in essentially real time along with us. With regards to the perpetual futures spread in October, yes, the volatility was largely the driver behind the negative spread there. Zooming out, though, we continue to make good progress on perpetual futures. We do hope that the ramping up of the options activity will filter down into perpetuals as well, and we can kind of move that into positive territory here going forward. It will be variable. It will be somewhat volatility dependent, but we're pleased with the progress, and we look forward to making more progress on perpetual futures. Operator: Your next question comes from the line of Rayna Kumar with Oppenheimer. Guru Sidaarth: This is Guru on for Rayna. With options now officially live on the platform, can you maybe just help us understand the potential capital efficiencies that you'd now be able to offer through greater cross-margining capabilities? And also going forward, given the role that tokenized assets can play here and just improving collateral management, do you see any specific near-term opportunities, perhaps just expanding your relationship with Circle beyond USDC and into USYC? Or just any other tokenized money market product, right? And if I can squeeze another one in directly in relation to the prior question. With options revenue likely becoming material in early '26, when can we actually expect perhaps revenue to turn positive? Thomas Farley: Thank you, boy, a lot there. So in terms of options, one of the benefits that we have, along with that one global order book is one matching engine. And so when you look across the other exchanges, both regulated and unregulated that offer options, they tend to have different matching engines for different jurisdictions. They have a different matching engine for options than they do for perps. In one very notable case, they have a different matching engine for spot and a different matching engine for perps and a different matching engine for options. And so it's very difficult to then aggregate trades and positions back into a single global account. For us, we've always just focused on building simply. We have a single matching engine. We allow customers in a single account to place all of their derivatives transactions as well as their spot transactions and the corresponding collateral that arises from those spot transactions and a single global order book. And so what that enables us to do is just put our thinking cap on and have smart, sensible margining where we capture from each customer the lowest possible margin we can, but no less. So for example, if a customer has sold Bitcoin calls, but they hold Bitcoin collateral, you can take that account and you can provide a reasonable margin. If a customer owns a highly correlated crypto asset and they have sold short another highly correlated crypto asset, you can provide some offset, not a total offset, but some offset. This is the sort of thing -- look, it's not simple, and it's not made for an easy sound bite, but providing that portfolio margining is kind of the lifeblood of the options trading community. That's what they need, and that's why they've rallied to us. I was joking with a colleague yesterday, an old colleague of mine, and he was pointing out that the old company we worked at had just been approved for a new VAR-based margining system that had been in the works for 12 years. So that gives you a sense of how complex this can be. But the beauty for us is we were able to start with something very efficient, which is what's leading to this early success, and it will only become more efficient over time as we have a chance to evolve it. David Bonanno: And regarding your question around tokenization, money markets as collateral, et cetera, we continue to follow the customers and the customer demand. We see tokenization of a variety of different assets opening up new opportunities for us, both across liquidity services and the exchange as collateral trading pairs and otherwise. So we think with hopefully, the passage of the market infrastructure bill as well, a lot of new opportunities will come out of tokenization that touch many parts of our business. With regards to perpetual futures, we're not providing any specific guidance on transaction revenues. That's not something we've been doing. However, again, we do provide the monthly exchange data so that you can follow along at home in basically real time. And as I said earlier, we continue to see progress in that line item. We think 2026 will be a better year than 2025, which was notably better than 2024. But stay tuned and continue to watch the monthly metrics for updates on all of the transaction revenue line items. Operator: Your next question comes from the line of Joseph Vafi with Canaccord. Joseph Vafi: Great progress. Just one quick one for me here on the spot spreads. I know there was some incremental pricing power in Q2. Maybe we just kind of drill down on that just a little bit more and some of the efforts there and what you're seeing in the spot market in Q3 and early Q4. David Bonanno: Yes. Thanks, Joe. The progress there has been -- yes, I think we touched on this in the last call. The second quarter, we spent a good amount of time iterating on our pricing structure in general. It was also a particularly low volatility environment. Those 2 things combined to create what were we hope to be anomalously low spreads during the quarter. You've clearly seen them rebound quite strongly off the lows seen in say, May and June type time frame. Again, we continue to optimize for total adjusted transaction revenue per unit volatility. We feel pretty good with where we are today. But there's always changes going on within the market, within our customer base, within volatility. And so we'll continue to experiment and spread with the spreads. Higher spreads are not necessarily always what we're targeting. We're targeting higher adjusted transaction revenue. There may be circumstances where slightly lower spreads lead to more volume, which more than offsets the decrease in spreads. But I think where we are today represents a reasonably good baseline moving forward. Although, again, I will reiterate, it's a very dynamic situation in the market, and we will continue to make changes to optimize for total adjusted transaction revenue. Thomas Farley: I just want to highlight, we do have to stop right at the opening bell. And I know there's a couple of other people in the queue, and we will make sure to circle back and get to you after this call and also make sure that we call on you early on the next call. Operator: Your next question comes from the line of Bill Papanastasiou with KBW. Bill Papanastasiou: Just a quick one for me. Now that you've successfully secured the BitLicense and have expanded into the U.S., I'm just curious what's next? Are there any remaining geographies that you're looking to tackle and secure a Tier 1 license? Or will the focus remain on consolidating existing markets into the global order book? Thomas Farley: Yes, that great question. Not really. I'll just highlight the U.K. still has not propagated any legislation around crypto trading, and that will come at some point. But no, we have the Asia band, the Europe band and now the U.S. band. There will be incremental spot licenses we will look to pick up, but it's frankly not even noteworthy enough to discuss on this call other than the U.K. But this is a continuing game of licenses. And it's not just for spot, but for derivatives and our index business as well. And so it's like we have full-time staff. This is all they do. And they'll just constantly be gathering licenses, and we'll be sharing those with you. But the big ones geographically are covered. So I just want to jump in because I know Gautam and Owen and Ed, you guys are in queue. Sincere apologies. If I were less verbose, we would have gotten through it all. If I could answer all the questions like Dave. And we'll make sure that we get to you guys early next time, and we'll also circle back over the next 24, 48 hours and have discussions with each of you individually. And finally, I just want to say thank you all again for following along with the Bullish story and look forward to 3 months from now being able to tell you about everything we've accomplished in the meantime. Much appreciated. Operator: Ladies and gentlemen, that concludes the question-and-answer session and today's conference call. We would like to thank you all for your participation. You may now disconnect your lines. Have a pleasant day, everyone.
Alison Schwanke: Welcome, everybody, to the Third Quarter 2025 Knightscope Earnings Call. My name is Alison Schwanke, I'm the VP of Marketing here at Knightscope. And I'm joined by our Chairman and CEO and CFO. We're excited to go through the results and some exciting news for us here at Knightscope. I'll hand it over to you, Bill. William Li: Thanks, Ali. Welcome, everybody. We're livestreaming from our brand spanking new Knightscope headquarters here in Silicon Valley. If you see some noise or stuff going on in the background, we're getting ready for KHQ night, have friends and family here this evening, and we're excited to get everyone to come visit the new facility. So the other important thing to note, we will not be covering any MNPI during the call, so no material non-public information. If you ask a question after the discussion on the earnings, if we can't answer the question, we'll try to rephrase it so we can. But Ali is here to moderate and make sure we stay out of trouble. Alison Schwanke: If you do have any questions, please use the Q&A feature inside of the webinar, and we'll make sure and line those up so we can answer after we address some of the initial findings. William Li: So with that, we're going to turn it over to Apoorv, who's going to walk us through the third quarter. Apoorv Dwivedi: Thanks, Bill. So as we look into our third quarter financials, there's 3 primary themes that are emerging. On one side of revenue, we saw modest revenue growth. Company is still largely early stage in an industry where there's a lot of excitement around robots. However, the adoption is still uneven. We believe that we will be able to better penetrate existing markets and enter new markets with innovative technologies that the company is bringing forth in the near future. On the margin side, on the margin side has been challenged as we continue to build scale economics in manufacturing -- wait 1 second -- in manufacturing, in the field servicing and in our material manufacturing. Historically, our team has been exceptionally scrappy, doing whatever it takes to meet growing demand. This scrappiness has been our superpower, but it doesn't scale. So as we prepare for our next phase of growth, we're completely overhauling how we build and deliver our products. In Q3, we saw a temporary dip in our margins as a direct result of the deep dive we took in our manufacturing operations. Lastly, our investment in product development and innovation. We are investing in innovation and product development, and we believe that innovation will be a critical engine of our growth in the near future. With that, let's jump into the financials. Total revenue of $3.1 million grew by 23.5% versus prior year. This was driven by increase in both sides of the business. Services revenue grew modestly by 2%, while product revenue grew by 82%, largely as the company delivered higher production to catch up from prior quarter's component shortages. Gross loss of $1.6 million is largely driven by $600,000 write-off of slow-moving and obsolete inventory that we identified as part of the move from Mountain View to Sunnyvale, in addition to recognizing higher material costs incurred to meet production demands of the third quarter. OpEx increased by almost 13% and ended at $7.9 million, largely due to intensified investment in R&D, primarily in the next-generation 4-wheeled K7 robot. As such, our R&D investment increased by $2 million as compared to prior year. However, this was offset by cost savings of about $1.1 million across SG&A, primarily in lower third-party professional fees and in lower IR expense. As a result of these dynamics, our loss from operations came in at $9.5 million as compared to $7.7 million prior year. Additionally, our net loss of $10 million came in $1 million better than prior year, primarily due to the $3 million expense hit that we took last year as part of the change in fair values of the warrant liabilities, which are no longer on our books. EPS came in at $0.98 -- negative $0.98 as compared to a loss of $3.58 prior year. And finally, on a great note, our cash balance continues to increase as the company relies on its ATM as well as cost management. So we ended our cash balance at about $20.4 million this quarter versus $5.3 million last year at the same time. With that, I will pass it on to Bill for the next -- for Q&A. William Li: No, before we go to the Q&A, I really think we might have a video at this show. Apoorv Dwivedi: Oh, interesting. Let's do it. William Li: Let's roll it. [Presentation] William Li: All right. Well, hopefully, everybody enjoyed that. We've been working on the Knightscope K7 for a very long time. We're excited to announce that we're going to start a limited series production second half of '26. And we're in very good spirits here as building on what Apoorv said, kind of resetting the stage and foundation for growth of Knightscope. I've never been this excited about the company's future even since inception. So things are looking up here. Ali, do you want to hit us with the easy questions first? Alison Schwanke: Yes, absolutely. Well, the first one I already answered, but I'm going to go ahead and read it again. Robin was excited for us to speak about what was coming. I think maybe that was the video that we referred to, but the earnings were released this morning. So what other news is behind that? William Li: Literally behind us. All new K7 autonomous security robot. We're really excited about building a new foundation to be able to handle much larger environments at much higher speeds with a ton more capabilities. And I think you and I are going to be sharing a little bit more over the next coming months and feeding some exciting news ahead of the launch in the second half. Alison Schwanke: Yes, absolutely. Well, there's a couple of questions here regarding some of the financials. So let's go into those. So Greg says, is the company building first, then selling the inventory or building inventory and then selling products? Apoorv Dwivedi: Well, that's a great question. It's -- traditionally, we've sold the products first, then built them. However, as we kind of move forward towards scaling, I think one of the things we want to do is figure out how do we build the stock and then sell the inventory as demand comes in. It's important for us to be able to -- as we scale to do that because that allows us to then turn the bookings into revenue much faster. William Li: I think historically, if you look at the numbers, we -- at the peak and maybe $6 million worth of backlog. We brought it down to about like $1 million or $2 million. We want to get that down as much as possible and start building finished goods inventory so that we can actually ship quicker and actually the whole operations, the financials, everything get improved. So that was one of the other reasons to move here to a much, much larger facility. In Mountain View, we had about 13,000 square feet. Here in Sunnyvale, we're at 33,000 square feet and a lot more capacity for us to continue to grow. Alison Schwanke: There's a question here about the stock. The stock is down over 99% from the IPO price. How can you justify C-level salaries with such dismal performance? Apoorv Dwivedi: Look, the stock price is rarely an indication, especially for a company like our size. It's really an indication or a performance of the company itself. It's really more driven by market dynamics and what people think the stock and the company will do and what they're seeing. Now the salary expectations and the compensation is really driven by Board. The Board determines what they think we've done and how we perform and how we've done, and they determine that. I think overall, the company has been in a really great point so far. We took us a lot to get here. We're looking forward to the growth. And I think what we're seeing is the compensation reflects where the Board feels that the company is going to be. Alison Schwanke: Fantastic. Let's talk a little bit about the K7 capabilities. There are some questions here about what all can it do what are the capabilities of the new K7? William Li: We're not going to unveil everything today, but it will go up to 10 miles an hour, so much faster than the K5. They handle much more difficult terrain, so light-duty off-road as well as kind of street level type of environments. We're going to -- we're still working on this. It's not ready for prime time just yet, but we're going to work on off-grid capabilities for us to deploy these in much larger environments that don't have power infrastructure. That's another big R&D investment for the next year plus for us to be able to deliver on that capability, still at the R&D stage. We have a few things up our sleeves. But remember what I've often said, we want to put 1 million machines in network that can see, feel, here, smell, speak and autonomously cooperate. And the K7, this next generation of technology is a massive step towards that vision. Alison Schwanke: Yes. One more quick thing to add is the amount of hours that we've now acquired and experience in the field of controlling. William Li: I think if we would have tried to build this much earlier in our development cycle, it would have been that much more difficult. We've now operated well over 4 million hours fully autonomously across every time zone in the U.S. and multiple winters and summers. And it's important to have that field experience and that literally gives us a competitive advantage because we can see designs from science fair projects to start-ups and the like that might have an interesting thing to look at. One quick review, we know this is going to fail, that's going to fail, and this is going to fail and they're going to find out real quick why you're not going to want to go down that path. So having that intelligence and understanding from being out in the field is really, really important. You cannot develop the stuff in a laboratory. Alison Schwanke: Absolutely. Well, let's pivot a little bit back to some shareholder questions. So we have a couple here about what we're doing to drive or specifically address shareholder value. Apoorv Dwivedi: Sure. So shareholder value, again, comes from execution, right? We, as a team, are going to have to figure out how do we execute and deliver on the promises of growth that we're giving to the shareholders. And that's just a process. It doesn't happen in a quarter. It doesn't happen in 2 quarters. It takes a while. The company, as we've talked about in the prior few calls, is going through a true transition period. We grew for the last 10 years through being scrappy. Scrappy is great for innovation. However, in order for us to move forward to the next phase of growth requires us to set in processes, structure and basically set up for scale. And to do that, we need shareholder support to continue to believe in us. But what we'll deliver in the future is higher revenues. We're focusing on that. We're focusing on penetrating new markets. We're focusing on driving our margins lower. Again, right now, it's kind of an interesting time because we have to clean up some backlog and some other just things that have happened in the past. But as we kind of go through that cleanup phase, as we set up for scale, that's how we add shareholder value by showing growth and through innovating. William Li: I think maybe it might be worthwhile recapping what we've done over the last 2 years and why we're excited we've literally turned Knightscope inside out and upside down, going through every single functional area, every single department. We brought in a new seller board. We've got rid of about 40% of the management team. We took about 30% of the payroll out and brought in new talent. We shut down a few facilities. We moved into a brand-new one. We set up a new remote monitoring department, new sales team, new accounting team, new CFO, new VP of Marketing. And now we've got a huge product launch that we're working on with the K7. There's the K1 stuff that we'll talk about next year. So it's a focus on growth, but you need to kind of have a stable foundation that Apoorv was trying to get at. We literally changed everything in the building, including the address of the building. And if you haven't noticed the actual logo of the company, nothing -- no stone unturned to make sure that we're set up for success. And our 3 growth strategies to be abundantly clear. One, organic growth is to grow the base business, the current business that we have and all the blocking and tackling that needs to get done for that. Second is new product development-led growth. So new products, new technologies, new capabilities that give us a sustainable competitive advantage in the marketplace. And then the last one, inorganic growth. A lot of focus on mergers and acquisitions that can build on that top line revenue or give us additional technical capabilities. Alison Schwanke: So that actually is a good parallel to what's being asked here, which is, are you working on any M&A opportunities? William Li: Never crossed my mind. Do you want to cover that one? Apoorv Dwivedi: Sure. So there we are absolutely looking at M&A opportunities. There are 2 primary areas that we're focused on. One is do we -- how do we -- so the way we think about growth engine is really hardware, software, humans, right? Those are 3 critical components of our growth in the future. On the hardware side, we have development here. On the software side, we're looking for partners and/or companies to acquire that allow us things like perception AI or audio AI or sense AI. So those are the things that are going to help us become better at the analytics and being able to give our machines the capabilities to perceive the environment around them in a better way. Third part of it is the human side. We -- as you guys know, as Bill just mentioned, this year or last year, we invested in something called the RTX group, which put humans in the loop. We do believe that really this idea that robots will somehow replace humans is the answer. It really isn't. The answer is you got to pair humans with robots. You got to augment them so humans can become better, right? Humans can become faster at what they do. So we're looking at industries or at least companies where we can find some great humans to work with us. William Li: I think defining the next-generation augmented security guard is certainly a path that we're considering the remote monitoring. And at the end of the day, we had a large VIP client here yesterday. At the end of the day, clients don't care. They say please fix my problem in a way that I can afford it. And all the solutions today really aren't delivering what clients actually need. So what we're off building is that solution that will be comprehensive to actually permanently fix the problem for the clients as opposed to pushing a certain technology or a certain strategy. Alison Schwanke: So this question plays into that a little bit, and it's about autonomous driving. So the fact that it's already being adopted by much larger companies, was there a consideration in teaming up with them in terms of incorporating Knightscope tech into one of theirs? Or are we totally set on developing our vehicles or the vehicles from the ground up in-house? I guess, totally in-house was the clarifier there. William Li: Totally in-house. I think as I often said, there's going to need to be a very large portfolio of technologies. This is what's behind us is just the beginning as was the K5 and the K1. The easy way to think about it is it's very different to secure and protect the school as it might be to secure an underpass of a bridge or a federal court house. You can't have one single technology and fla-la, that's just going to fix everything. If that was the case, then all the camera is going to fix something. Well, there's 85 million cameras in the U.S. I don't think it's fixing much. So I think you need a large portfolio and either we're going to do it ourselves. We may partner with folks or we may buy it. But one way or another, we need to achieve the mission and ends up being a make-buy decision. In some cases, we know a little bit more than what's out in the marketplace. And we're in a little bit of an odd space, right? So you've got the delivery robots making some good progress on sidewalks, less than 5 miles an hour on sidewalks. Then you've got the autonomous vehicle folks and the trucking folks. They're primarily focused at 35, 50, 75 miles an hour on city streets and highways. That's a very different profile than 10 miles an hour around the perimeter of a security location that needs security. So we're still specializing. We're certainly open to partnerships. We've been evaluating them as part of our M&A strategy or as part of our technology development. Alison Schwanke: Fantastic. There's several questions here around government and government contracts. So I'll group these together and people asking, do we have any government contracts that we're pursuing? Or what has been the latest of some of the work you did on Capitol Hill? William Li: So yes, we have local state federal contracts in the stationary side, a good portion of them. The federal side, to be frank, as we always are, rather frustrating. We're in the middle of a whole conversation and then to have the government shutdown is really not productive. So we'll restart those conversations, but that certainly was a little bit of a setback. At the same time, the problem still persists, right? All these military bases need to be hardened. The 10,000 federal security -- sorry, the 10,000 federal buildings still need improved security. And so I think the solutions that we're building, inclusive of us partnering with our friends over at Palantir to get our technology on their FedStart platform is also a huge enabler for us to grow the federal side of things. But as I've said, this is a medium, long-term type of thing. You're not going to all of a sudden have a significant growth on a client that moves very slowly. Alison Schwanke: Yes. Well, speaking of this may be related to that. So how do we think about the K7 having an applicability for border security? Is that rugged enough? William Li: Well, light-duty off-road is really important. The other reason we're looking at the off-grid charging, autonomous charging is also important because you don't necessarily have power out in the middle of nowhere. And I think the Department of Homeland Security is looking out to put a request for a proposal on certain autonomous technologies to do that capability to support our friends over at CBP. So it's certainly on the road map for us. Alison Schwanke: Great. What about the ability for us to share K7 preorder numbers as part of future quarterly reports? William Li: I mean, look, I think we traditionally just haven't been forward-looking. Again, the key is we want to execute first and then talk about what we've done. And I think that's going to stay our course for now. I think over the years, we've had -- we have a lot of existing clients and former clients that have expressed a great deal of interest. So reengaging those folks is certainly at top of mind, inviting them here, doing some beta testing in some of these locations, et cetera. We wouldn't build this if we didn't think there was strong demand for it. But I'll agree with Apoorv, we'll probably make sure these get deployed, and then we'll talk about the actual numbers. Alison Schwanke: Yes, there is a wait list open right now. So if there is interest, people can go and it's on the website, a head under the Autonomous Security tab on the website, it's also on the homepage. William Li: Knightscope.com/... Alison Schwanke: /K7 or again, if you don't have any extra clicks in you today, just go to the homepage and there's a button right on there, you can go see it. Cool. Let's talk about how the K7, maybe just the robots K lines are made in terms of components. So our K components sourced in relation to tariffs versus U.S.-made? William Li: So to be clear, we design everything, we engineer it, we manufacture it, we deploy and we support it. For a majority of our products, if not all of them, were BAA or Buy American Act compliant, and that is the strategy for these machines. And need to be careful with other companies that love to import stuff from China and then have that surveilling your own property without the proper cyber controls or point of origination type of discussion. And so we're being very careful with that. This is technology built and designed in America to protect Americans. Alison Schwanke: Let's talk about the facility that we have here. We have a couple of questions on if it's available to come in for a tour if people aren't able to make it to the event. William Li: I think we're going to have to set that up because we get that request a lot. I haven't talked to you about this, but -- so April 4 or -- April 4. Alison Schwanke: The first week in April. William Li: First week in April is probably the next time we'll do an event. So that will be our 13th year anniversary. So we'll work to have Apoorv do some karaoke that night and get you all here to visit us here at Knightscope. What we want to do for our prospective clients and existing clients is actually have the facility amenable to or set up properly for you to understand and view the technology. You can only PowerPoint and Zoom people to death and e-mail them so much. Sometimes they need to come and see and touch and feel and experience. So we're going to be spending the next probably 3 to 6 months finishing up the setup of what's planned here for Knightscope headquarters, and we'll certainly have an invitation out for you. Alison Schwanke: Robert has a question about our sales force. Have we reassigned your sales force to specialize in different industries, federal, state, et cetera, or local governments and education kind of in the vertical strategy, I guess? William Li: Mixed bag. So we've tried vertical only sometimes has been successful. We've done more regional. We just brought on a new director who specializes on local and state. So kind of a mixed bag, and I think we'll continue to do that. Again, this is new technology. No one in the history of mankind has done this before. So there's a lot of experimentation. Something that works in one region may not work in a different region or one vertical in another vertical. So kind of working our way through that. Alison Schwanke: Do you feel the new K7 will put our competitors such as -- I won't name the competitors specifically in this call, but will we put the competitors in the rearview mirror? And if so, how? William Li: What competitor? Alison Schwanke: Do you want to name them? William Li: No. I don't acknowledge any viable products out in the field. Millions of hours of operation. I'm kidding. So I think first and foremost, most people don't like the next assertion, but we're serious about making the U.S. the safest country in the world. Anyone and everyone who's trying with a new public safety technology, a new law enforcement capability or physical security, we want to support them. We're not that company. It's like, oh, well, everything is cut-throat. It's a zero-sum game. And if you win -- if we win, you lose and you win, we lose. That's not the game here. I want to make it miserable for anyone who wants to cause harm to an American citizen to understand that they can't do that here anymore. And so we want to be supportive. We're always going to have some fun conversations with competitors and so-called competitors. But I think we're very confident in the K7 and its capabilities, and we're also excited to get it out on the road. Alison Schwanke: Competitive-wise, one of the things that is important for us to remember that substitute competitors and our people's perceived behavior and the way that they've always done things is one of our biggest competitors. William Li: That's a great point. I think the actual real problem and kind of what I told Congress on when I was on Capitol Hill is the biggest fear I have of AI is not the technology. The technology is moving very quickly in an exciting fashion. The actual problem is humans. Humans don't want to change. Large organizations don't want to change. I don't think it's new news, like we've been arguing with the Department of Veterans Affairs for 5 years now. I literally went to go see the Secretary of the VA to continue to plead our case, to spend half a decade to try to convince a client that you have a problem you have a budget problem, you have a staffing problem, you have a security problem and the organization continues to want to do business the old way is problematic. And so that's why I've been pushing for a national robotic strategy to basically be that catalyst for the federal government to unstuck this because this continues to happen. And it's not just us. It's everyone that's working on robots or automation or AI or any kind of technology. You have an industry that doesn't want to change. And new news coming for you, it's going to change one way or another. Apoorv Dwivedi: Yes, I think that's what I mentioned earlier in my -- when I opened up the financial themes. The adoption is uneven, especially in the safety and security world, right? And as you mentioned earlier, the more people, the more industries that are out there adapting and adopting to what robots and machines and technology can help them with, the easier actually it becomes for us to go out there and put forth a value proposition. Otherwise, we are competing again against status quo and sometimes it's a harder sell. William Li: Actually, I'll go down a path. I think we shared this with the analysts, I think it would be fair to share it with the audience here. If I can have you visualize a bar chart, and if I put a very large bar here of 3 companies, top 3 guarding companies in the U.S., 1/3, 1/3, 1/3, plus or minus, these 3 companies alone generate, what is it? Apoorv Dwivedi: $30 billion. William Li: $30 billion worth of revenue and employ 0.5 million humans in the U.S. alone. Now if you go over here and you make a little chart here, if you add up all the competitors, folks that have new technologies, anyone working in public safety, law enforcement kind of technology, physical security, you're like almost about 1% of this. And that's pretty much stayed steady for a decade. And that proves my point. Folks don't want to change. The countries addicted to video management systems running Windows are humans and cameras. And then we're wondering why everything costs so much and a violent crime occurs every 26 seconds and a property crime every 4 seconds. Like the system is broken. You've got 1.5 million guards, 1 million law enforcement professionals, 85 million cameras, 300,000 cop cars, not working. We need to change. Alison Schwanke: So this is a question that most likely a lot of companies like us receive, but it goes to you, Bill. Some of these goals, Bill has been saying for years, we've struggled to deliver on them. Why will this time be different? William Li: So I live here in Silicon Valley. There are 22,000 start-ups here, literally 95% fail. So the statistical probability of someone starting a company, getting it funded, growing it, taking it public and still be alive and kicking 12, 13 years later is almost near 0. So first and foremost, I want to thank our investors that have stayed with us all this time, our vendors, our suppliers, the relentless Knightscope team and all our supporters because what we're doing is technically very difficult. Operationally, it's extremely taxing and there's an industry that doesn't want to change. That said, now that we've built that foundation that Apoorv was speaking of earlier, now we have that foundation to actually grow to the next level. I think another thing to put in context, people take for granted that the autonomy side is kind of really easy to do. Okay. Well, about half a dozen folks have tried to literally do what we're doing and no longer exist and given up. And half of them were large corporations and half of them start-ups. I think on the self-driving type of thing, started 2007, '13 started getting some traction. Everybody will be in a self-driving vehicle by 2020. Hey, folks, it's almost 2026. Like it's not scaling across the nation. There's some great progress being done by the team over at Waymo, at Nuro, et cetera. But -- and by the way, the team at Tesla is doing awesome work, but it's extremely difficult problem. So if you think this is just going to over 1 decade, just miraculously appear and it's going to work and Bill just keeps saying the same thing over and over again. Well, you can take it 2 different ways, like Bill is delusional. This will never work. You can try to bet against us, you will fail or maybe he's on to something and this is just going to take some time, but if we can stick with it, crime is not going away. Like there's not a market risk here, right? Technology, yes, can it be improved? Sure. And the last part of the risk is execution, and that's what we really need to focus on. So yes, I've been saying it for a long time. We're focused. We're relentless. And because we're focused and relentless, we're going to get where we told everyone we're going to go. Is it taking longer than we want? Sure. The team at Tesla has promised all kinds of things. Eventually, they get there. And we applaud them for that effort, and we hope to follow in their footsteps. Alison Schwanke: So this question follows that up, might be more in my territory, but Francis says, what are some of the new marketing strategies? William Li: First marketing, new marketing strategy. Go higher [indiscernible] marketing that's a genius. So go for it, Ali. Alison Schwanke: Sure. Well, thanks for that question. There is a lot of foundational work that we are building right now. We have a lot of focus on data and integration of systems to see the whole entire customer journey across the -- knowing about the product to even creating demand and then eventually through the customer experience. So I have got a lot of things planned out for next year. Right now, we're seeing the K7 launch as you've seen hopefully in your e-mail and on social today. But we have a lot of vertical work that we're doing, pairing that with a lot of content and then the new focus on how people are actually finding information online. So we've got -- search engines are changing. We're now looking at how that feeds into ChatGPT and AI discovery. But ultimately, you're going to see a lot more of us at the industry-specific presence next year. So we've got a big focus on trade shows and events and field sales as a lot of people are getting a little bit tired of that digital environment. So we're going to see a lot of more faces in person. And just like we had yesterday here on site with the group that came and toured, lots of excitement. And I think we're seeing the public wake up to the idea that robots are here, and we need to see them in person. William Li: Yes. Robots will be everywhere, taking a little longer than we want. We'll get there. Alison Schwanke: Yes. We're also working on some content production. So we're working on a podcast studio. This is a make shift set up today to show you the K7, but we do have some details that we're working on so we can create content and actually use some of that AI. William Li: Are we getting Apoorv on TikTok? Alison Schwanke: He already knows how to do karaoke, but I'm really excited as a strategic marketer to build out a team that's really data-focused. So Apoorv and I speak the same language of if it's not a number and it didn't actually put up on -- end up on a report, it didn't happen. So that's a big difference that I'm bringing to the team here. William Li: Excellent. Alison Schwanke: All right. Well, we have a couple of questions about drones. So this person has been following for about 8 years. Now are we thinking in surveillance? Is surveillance drones, are they possible? William Li: There's a lot of companies that have been working on it. There's a few technical issues that folks are overcoming. I think you still have the end user desire not to change. There are some law enforcement agencies that have been using it, drone as a first responder. I'm excited to see that work being done to kind of enable a different approach. I think eventually, there'll be drones flying out of these machines. But for persistent 24/7, it's not really yet a thing in the physical security side of things, which is different than law enforcement. I think on the law enforcement side, there's certainly a lot more traction. I think the opposite on the federal side, it's not the drones or drone capability, it's the never-ending drones showing up on military bases that aren't supposed to be there. And so there's actually a more poignant approach on anti-drone technology. And it's getting to be a real serious problem for all the military bases. I don't think this is kind of new news, but there's -- I won't give you the number, but there's thousands of foreign nationals that try to get on U.S. military bases every year. And those bases need to get hardened, not just from the human element, but from the drones as well. Alison Schwanke: There's a question here about our goal of achieving 100-plus K5s in the field. And this was a goal several years ago, but it doesn't seem like we're there. What are the greatest obstacles? Apoorv Dwivedi: I mean I think the -- we have more than 100 total ASR devices out in the field. Really, the biggest challenge comes out to adoption, right? It's the same theme that we go across when you have new technologies. We have certain early adopters that continue to renew and continue to expand. And then there are certain places where we still struggle because, again, it's such a new territory for our potential clients that they just need to get more comfortable. Again, it's just time, as you mentioned earlier, Bill. We just need time to be in the open. We need time to be in front of customers and clients, and we need them to see this our devices in front of them. William Li: So I shared that with Ali when she first joined and woe is me, we're having struggles with these type of clients or having struggles with these type of clients. And I don't understand, we've had clients renew for 3, 4, 5, 6, 7, 8. I think we're coming on a ninth year renewal with the same client. She's like, I want to hear about the struggles. Who are the people that keep renewing for half a decade or almost a decade, like we need to go understand that better. And that's the kind of right attitude and question to ask and kind of where we're going to be very much focused. Alison Schwanke: Yes. And some of the anecdotal feedback from the field is we're seeing a lot more adoption of the technology of what it can do versus it being sort of a shiny object. So I'm really excited for that we're seeing a lot of that happen. William Li: And because there are a lot of investors on the call, I think one other analysis that Apoorv and I did when he first arrived is for those clients that did renew for 3, 4, 5, 6, 7, 8, 9 years, what do the financials look like for those units? And actually, it's lucrative and kind of what we planned. So we're just going to need to do a rinse and repeat on that type of approach. Alison Schwanke: We have one question about maybe what can be done to overcome the fear of the robots. I think it's maybe a general question. William Li: Congress asked me the same thing. I think there's one soft thing to do and then one harder thing to do. The soft thing to do is just communicate, spend the time, do the webinars, invite people over, do the lunch and learn, educate, put out the content, get people to share the content, for places that we've been deployed for a long time, people are bored with it because it's -- yes, it's a robot. It's supposed to be here. It's fine. Move on to the next subject. For a lot of places where we go, it's still a novelty. It's something from science fiction that's off the movie screen and now in front of me. I think educating is probably one of the most important things to do. I think the harder thing, which is my ask of the administration and the folks on Capitol Hill is we need to pass the national robotic strategy to basically have a mini mandate to require every department and agency to take 1% of their operating maintenance and service kind of budgets and thou shall use it for robotics, automation and autonomy. And this is not an ask to increase expenditures for the federal government, it's actually to reduce it. Can you please stop being inefficient with our own tax dollars and use commercially reasonable and commercially available technology that's already proven in the marketplace so we can save taxpayer dollars and you guys can still spend that money elsewhere. And if we can get Congress to actually put that mandate in, we can actually get some footing in this industry, which then has a bunch of positive repercussions. Alison Schwanke: So I'm going to put these 2 questions together. One is about who will be the customer of the K7 and then the other is a question about whether or not the red and blue lights are restricted to law enforcement, only seeing that on the video. William Li: There's no restrictions. I mean you can go look at a security vehicle sometimes has those. And in terms of who the clients are, we're not ready to disclose that yet, but probably the easiest sale you might ever get is from an existing client. So we'll probably start there and do some good amount of beta testing before we do a wider release. Alison Schwanke: Do you envision any entry into the K-12 education market? William Li: I struggle with the K-12 situation, which is different than higher education. Our country, unfortunately, can't pay our teachers properly. The schools don't have enough budget to buy the appropriate computers and tools. And then someone is going to show up and say, you need 6 or 7 figures to come out of nowhere to pay to properly secure this facility. Like this is more of a almost now defunct Department of Education discussion because the schools don't have the budget to do it. That's kind of the first issue. Second issue is we operate primarily very well in 24/7 operations. So health care, casinos, airports, et cetera, work a lot better for us. K-12 don't necessarily run 24/7, I think they should, but they don't actually run 24/7. So I think that's a challenge. Where we've spent a lot more time is with universities and colleges. And sometimes there, there is the actual budget. They run closer to 24/7 and is a better match. It's still, I think, a sore point that needs to get addressed. Alison Schwanke: Can you talk about the other side of the business? It is 2/3 of revenue. I think they're asking that -- is it? Please clarify? Apoorv Dwivedi: Yes. The ECD devices continue to be the primary driver of our revenue today. It's about 60% of overall revenue. William Li: And I think there, we talked about growth being organic. It just basically blocking and tackling kind of the same approach. That said, I think we said earlier in the year that we're looking to revamp the K1 stationary lineup. Today is about the K7. Perhaps sometime in the future, we'll have a Knightscope briefing on a new product launch to discuss the K1 separately. Apoorv Dwivedi: And if I can expand on that, Bill. The other part of it is the dynamics of how the revenue is recognized across both products, right? So on the ECD devices, primarily we recognize revenue as we sell it as a transactional sale. On the robots, it's really the revenue is over a course of time, whether it's every month is 1/12 of the annual revenue or every year is the full subscription price. So as you think about that, obviously, the onetime sales of the ECDs will have a higher percentage -- it will be a higher percentage of our revenue. One of the things that company is also doing very -- as we continue to grow is how do we grow more of our revenues to be recurring. So even on the ECD side, we are growing the services side of that business solely but surely. So we're focused on things like our KEMs that allows our customers and clients to see their -- the health of their ECD devices in real time. We are expanding on the full services maintenance model that allows our clients to essentially be hands-off and pay a monthly subscription fee or an annual subscription fee for us to take care of their units for them. And we believe there's growth there. There's demand there and there's growth there. So that's going to continue to happen. But for now, because the way we sell these devices, the revenue on the ECD devices continues to be higher. Alison Schwanke: So Kevin asks, given so many of our competitors have not been successful in this area, what should we be watching as an indicator that the market has matured enough for Knightscope to succeed? William Li: So what we've been talking about is it's adoption. It's -- once again, it's boring, would be a good thing. At some point in time, there will be a tipping point where if you don't have an autonomous security robot, you're like the outcast weirdo, like the insurance company is going to look at you and go, you don't want to pay the $5, $10, $15 an hour to properly secure your facility, like we're not going to underwrite this policy. At some point, it's going to have a tipping point, no different than like you don't build a building today without fire extinguishers and smoke detectors and fire detectors and that sort of stuff. But I think what you need to really kind of focus on is adoption and use cases, and that's kind of what we're working on. Alison Schwanke: One quick administrative thing. It sounds like your microphone is a little bit lower than Apoorv and myself. So if you can adjust that for us, that would be wonderful. There's a question from Nataniel about he references like the PC was offered to the public, have we created anything for the home? William Li: So we intentionally started business to business because if you start with a new product, business to government, you will fail or like much higher risk of failing. So we started business to business. We've slowly been adding business to government, which is a different animal. Business to consumer, that's a wildly different process, wildly different marketing sales and service, distribution, price points, et cetera. I think we are slowly getting in there, but not on purpose. So we've had clients that have very large estates that look more like a business than a home or an HOA or apartment complex and that sort of thing. I think once we're comfortable with our operating in all 50 states, we're happy where we are with the federal side of things and the local and state government. We've got good penetration in all the rest of the business to business. I think we can start discussing business to consumer, but that's a very, very long time from now. Alison Schwanke: Apoorv, I think this one is for you. A financial question. Greg says, what -- this might be a typo in here, but what was the company last fourth income versus the development expense investments? If expense is greater than income, how is that sustainable? Apoorv Dwivedi: So I didn't quite catch the first part. But the second part of the question is it's -- long term, it's not sustainable, right? That's what we have to figure out is how do we continue to drive business growth, to drive business margins and then obviously drive EBITDA or net income for the -- so be positive cash flow. The challenge is we're a hardware company. Software companies can develop a product and then put it out and get 70%, 60%, 90% margins. As a hard tech company, we have to scale. That's really -- what it comes down to is we got to scale. Once we scale large enough, we can use economics on the manufacturing side, on the vendor management side, on humans and use that to then drive gross margin and EBITDA. And that's really the -- it's an execution challenge and its execution strategy for us. That's really what we have to do. William Li: Take a slightly -- maybe a different nuanced approach for 12 years on every single call, you guys don't have enough money, you're going to run out of money, you're going to hit the wall, it's never going to work. And we've never missed the payroll, never run out of money. We literally have the most cash on hand that we ever had in the history of the company. We actually have the resources now to do what we had planned to do. We're working on improving the gross margins. We're improving the product our fixed cost basis and everything else. And that's why we're excited and that's why the Board is excited is because we actually have a plan to move the company forward in a very exciting way. You don't get talent like this and the rest of the entire management team and the whole team to go work on a very difficult problem if you don't have a way to get from A to B. We've got a way to get from A to B and it's kind of exciting. So I'm in the -- that's not a conversation point anymore of, oh, well, you don't have enough cash on hand to make whatever next quarter, we're not having that conversation. The conversation now is you have the resources, you have the management team, you need to focus on execution. Alison Schwanke: There's a couple of questions around shareholder value from earlier investments. So I'll group them together, and how is Knightscope helping early investors recover losses? Apoorv Dwivedi: Continue to be investors. I mean I think this is a long game, right? So over the long course, as we continue to, again, do the things that Bill talked about, new product innovation, growth in revenue, drive margins, drive EBITDA, drive execution, our share price will reflect that over time. Again, one of the first questions you asked is why is the share price where it is? The share price isn't reflecting today where the things -- where the company is and what things that we've accomplished. It's really more of a -- there are certain players in the market that are able to influence the stock price to where it is, which is outside of our control. That being said, the only way we can continue to combat that or to address it is to really execute. And that's all we're going to focus on. Alison Schwanke: There's also a couple of questions here about pairing drones or additional technology with land-based units or pairing those with police. And so I think the questions revolve around how might we be thinking about that? Or what are your thoughts on those topics? Apoorv Dwivedi: I would say we just got to focus on what we have today. That stuff is in the future. But I'll follow your lead, Bill. William Li: I'm going to -- I'll leave it there. Alison Schwanke: Okay. Fantastic. There's a personal question for you, Bill. How are you doing as a CEO? There's been some dark times in the company history. What makes you want to do this every day for so long? William Li: Thanks for that. Yes, it's been a long 12-plus years. I think I've said this publicly, I'll say it again. I think the first 9 years, I was primarily very focused externally to just get the capital to do what we wanted to get done. And we didn't get the support here from all the VC establishment. So we turned to 35,000 retail investors to give us the capital and invest the capital where we need it to at least get to this point, and we're forever grateful. If you're upset with us, I'm upset too. We're not where we need to be, but I can't fix the past. I got to fix the future. And if you're still a long-term hold with the team, I hope you continue to do so. I think kind of is the first point. The 2 years right after taking the company public were probably the 2 most miserable of my professional career. I won't go through into all the drama associated with it. But one of our largest investors called me and he basically said, hey, Bill, this is not a leeping, leeping, leeping -- this is not a democracy, like take control and go do what you need to go do. And then a couple of our executives, [indiscernible] also called me and said like you need to like go with your gut. And one of the things I hate about getting old is getting older. But one of the things I love is having all this experience. And I think we're going to get out of the mess that was created and being extremely, extremely exciting force in public safety. And what gets me up is I made a commitment that we're going to go try to make the U.S. the safest country in the world. It sounds absolutely freaking ludicrous. But what I told Congress and what I'll tell you is now that we've worked the problem for like 12 years, we actually have a plan on how to get there. There's a line of sight on how to actually physically do it. So that gets me motivated and excited. I think the second thing that gets me motivated and excited is the people that I get to work with every day -- I get to work with and the technology that I get a chance to participate in. I love what we're doing. I know down to my [indiscernible] that we're going to be extremely successful. It's been painful, but that's what will make the victory that much sooner. Alison Schwanke: We have a couple of questions about the K7 in this market, so... William Li: So many questions about the K7? Alison Schwanke: Yes. William Li: Do you think there's maybe something there? I don't know. Alison Schwanke: We have a couple of questions about what it -- could we use it in neighborhoods? How do you keep it from, let's say, people trying to do bad things to it or harm the device? Apoorv Dwivedi: Similar to what we've done with the K5, you end up behind bars, and we have all the evidence to prosecute to the fullest extent of the law. We have and we will continue to do so. You are not to graffiti a police car. You are not to knock over a law enforcement motorcycle. You are not to break a camera or break a fence or a gate. And if you mess with the security robot, like you're going to end up a night in jail. Don't do it. Alison Schwanke: Has the IP been valued? William Li: Most people don't like this answer, but we have like maybe close to a dozen patents. I'm not a big fan. I'm going to get in trouble with the next statement. But typically, investors on the East Coast have a lot more either actual or sentimental value with patents. Folks on the West Coast like the technology moves so fast, like it's not worth it doing. We did some of the basics. If we would have just sat here and literally patented everything we could, there's probably 100 to 120 patents we could have done, and we would have spent an arm and a leg and a massive amount of staff time is not worth the trip. And I'm kind of with the Tesla team in some cases, like the technology is moving so fast. We actually want the country to be successful, like here's our patents, go do what you need to do. It's not kind of very much where we're focused. So we're not like a pharmaceutical where we have like secret ingredients. And the ingredients change. Like 6, 12, 24 months, everything is completely redone. Like why do I want to use the recipe from last year? Apoorv Dwivedi: And I think the other part is, to your point, Bill, is in a world where resources are constrained, where do you allocate the resources for the most result on your investment? Is patent protection the thing that's going to drive this company and give us returns we need. I think our view is that it probably won't. We would rather invest that money in innovation, in people, in talent, in process, and that's where we get the biggest bang. Alison Schwanke: So this question is about the way the company is evolving. And it seems -- so Michael says, it seems like the company is still engineering led. At every shareholder meeting, we talk about R&D, new product development, new tech. Have we ever -- I'll paraphrase this question. Have you really achieved product market fit or a repeatable business model? Are we fundamentally too early or better off embedded in Google X or similar? William Li: I think it's a good question. We've talked about adoption problems. But I still go back to client. It's not a $0.99 download of an app. You can get a client to pay you for 3, 5, 7, 10 years in a row, full price and continue to renew. Like I think we got product market fit. You just got to make sure that the sales team is aligned with the marketing team, is aligned with the client experience team, et cetera, to go after the market that has the best fit as opposed to trying to sell to everyone and every Tom Dick and Harry that would like a robot. Like I make fun of this, but to make the point, one of our worst clients we could ever have is the Chief Innovation Officer that has budget and needs a shiny object to show that here, she did a great job but bringing in new technology and then a year later, I don't want to renew. Well, why not? Well, you didn't fix any problems. Well, you didn't have any problems in the first place, so we shouldn't have sold you the technology. I think bringing Ali in to be like super laser-focused on getting that accelerating where we do have product market fit will alleviate that situation. I think one of our first employee, Mercedes Soria, for the first, I want to say, 10 years, she literally was like, we're too early, we're too early, we're too early. The last couple of years, we were right on time, but we better pick up the pace. She's a lot more conservative in kind of business approach than I am. So to me, that's an important gauge as she focuses on our AI strategies and the like. So it's been a long haul, like it's been very difficult. But I'm telling you, this next 5, 10 years is going to be absolutely freaking epic. Apoorv Dwivedi: And to be honest, what company grows that doesn't invest in innovation? Like how do you drive growth? How do you drive revenue? How do you drive market adoption if you're not constantly investing in R&D? I would say, if anything, we should be doing more because that's exactly where we're going to get things like the K7 and all the things we want to do with the new sets of technologies we're going to bring forward. William Li: That's right. Alison Schwanke: Well, one of the biggest pieces of the data work that we're doing is having that feedback loop actually, then feedback into a lot of the engineering. So I think that, that's going to help us position product market fit even more effectively going forward. We have one question about if we have reached out, so I'm going to read this for verbatim. Have you considered reaching out directly to President Trump? Perhaps Congress was a waste of time, but our efforts might be received better elsewhere? William Li: Tried not to give play by play on a lot of the government relations type of things. I think there's a need for an executive order. And I know this administration has used it to great effect and in some cases, maybe overused. But in this particular case, it probably needs to be both by legislation and by executive order. Remember, an executive order doesn't last. It's not a sustainable type of thing. So we will probably want to do both, but it's very difficult to have those conversations when the government shut down. Alison Schwanke: Sure. We have time for a couple more questions. There's a couple of questions here about expanding to the European market or perhaps Chile. What are your thoughts on expansion? William Li: Absolutely not. And this gets some people on the team and our investors frustrated. But listen, when we've achieved our mission, which is to secure the U.S., we're operating in all 50 states, we've got $500 million cash on hand, we're bored out of our minds, and we have nothing else to do, like we'll go work on Chile and Argentina and Japan and everything else. Having worked on 4 continents, I can tell you, forcing to go do that now, you're near 100% chance of a BTE, nearly a 100% chance of a business terminating event. This is not just software that you just go pop over in South Africa or Japan, and it's just going to work. Like tell me who's going to do all the translation? Have you done all the IHR stuff? Have you done all the import-export things? Oh, great, now you guys set up a subsidiary in Tokyo. You understand the insurance requirements there. Have you done the market research? We shouldn't be there in Americans to think our technology just sticking in Tokyo and it's going to work perfectly. We have the right font. We have the right [indiscernible] on the products and everything else. Then he's going to be arguing about transfer pricing and oh great, now we got to tell the auditors like, hey, go audit the subsidiary in Tokyo, like not doing that. And it looks great on the PowerPoint. Some bankers will push us to go do it. Absolutely, freaking not. I work for the shareholders and the Board, and I'm telling you that's a good way to cause a massive distraction and a massive level of difficulty. So that is not in the cards in the short, medium or possibly long term. Alison Schwanke: So we have several questions here that are more specific to maybe your individual situation. So I encourage you to reach out to us if that can be answered offline. But the last question we have since we'll keep you at time here is there is this concept we've talked about the autonomous security force. Is that the same thing as the K7 or isn't? What does that mean? William Li: I guess since I told Congress, I can tell all of you that tuned in, and we've been hinting at it for the past year. Apoorv has mentioned it on some remarks with the analysts. We've mentioned in some of our communications. And I think in order for us to really bring a software plus hardware plus humans approach, we really need to build the nation's first autonomous security force that can bring the entire portfolio of technologies to bear with almost every element of the human possibly involved that may or may not influence our M&A strategy. But if you're able to bring in a solutions provider that actually has a solution to fix the problem and you need to uniquely combine hardware, software, robotics, AI technologies, perhaps with a future augmented security guard, I think that probably is the right mix and one of the reasons we're very excited about our future. And now I'm going to put Apoorv on the spot and see if he'll elaborate. Apoorv Dwivedi: I mean this kind of goes back to the question we were answering earlier about like how do we look at M&A, how do we look at -- how do we become a force multiplier. The reality is when you were talking about that graph with the $30 billion and the $1 billion, it's -- one of the reasons why the technology firms continue to have a challenge in growing is really each one of us are providing one part of a really complex solution, right? Somebody's got cameras, someone's got a robot, someone's got a LiDAR detector. And if you then go to the Head of Security, we talked about this, they're like, well, now I have -- I don't know which dashboard to look at. I don't know which one is giving me the right information at the right time. And sometimes I miss things. We've come to the conclusion that really for us to be effective in the future, especially in the long run, we need to really create a fully perimeter, a secure solution that combines not just 1 or 2 things, but multiple things and multiple parts of the process of what it takes to secure a perimeter, and that includes, again, hardware, software and humans. So that's what the force is going to be. It's going to be all 3 of those things and under a platform of technology, data insights that perhaps today may exist, but they're definitely fragmented. William Li: And that is what we plan to do to unstuck the adoption problem. If the clients are unwilling to adopt the technology outright, maybe we can -- not maybe, we will put it in a format that they're more accustomed to doing and will be that much more effective in us delivering what we're promising that we want to do from a long-term mission standpoint. So we're well on our way. There's, as you often say, more to come during 2026 and 2027 about that. But just think about those 3 words, and we literally mean it, an autonomous security force. Alison Schwanke: All right. Well, I think we've got some folks on the call that wanted to see more about this K7. Would it be possible for you to give us a little bit of a walkaround? William Li: We got to move the chairs. Alison Schwanke: I mean, I think that -- we've got our producer, Eric, if you'd be able to give us... William Li: You got promoted. Alison Schwanke: If you have to log up, we will continue to do this, but we'll also have additional videos online. So Bill, give us a little tour of what's behind us? William Li: This is the all new Knightscope K7 autonomous robot standing right in front of it. Obviously, it's not too small. And it has a lot of capabilities. I'm going to cut this in half maybe. First, let's talk about the autonomy side of things. It's very important for us internally and operationally, the clients don't care, the clients just want the technology to work and fix their problem. We care because we need these things to run 24/7 and autonomously recharge and be completely hands off. So there's a unique combination of sonar technology, LiDAR technology, actually multiple LiDAR is one up from here. There's a GNSS RTK with monocular camera that will help us with some visual adoption, a good amount of technology, all the camera, all the wheel encoder stuff and combine that so that we can control analogously to what self-driving car might do. And this is a next generation, all new complete do over of the [indiscernible], which we're really excited about. I was mentioning is that we've learned a lot over operating 4 million [hours]. And in some cases, it's making mistakes is how you learn. So what we ended up doing is putting a kind of test procedure in place. There is 1 or 2 or more challenging client locations where with the K5 and the older technology navigation stack, we're having some difficulties. So we literally came up with a test procedure to see if we can get the right sensor stack for the K7 to be able to successfully operate that. And on top of that, do that both in the real world and in simulation. So we're really excited about the autonomous stack on here. It's got 4-wheel steering. Alison Schwanke: So having some challenges with the [indiscernible]. So I just want to make sure I know folks are seeing a little bit late. So would you just want to hold this in your mouth when you're speaking, would that be okay? There you go. Yes. So folks that gave us questions or notes in the chat, let us know if that's a little bit... William Li: Yes, Ali. All right. And [indiscernible] on the video, tons of lights. That's also a different way of doing the physical deterrents, 360-degree view. And what we'll do over the next few months is to start sharing more about what the vehicle sees, how it operates, et cetera. I know of some folks who have already been asking like, I want to see what the detections look like. So we'll work on that. A really loud public address system, so we can do top down through broadcast messages, prerecorded or speech to text or text to speech rather. And I mention it's 4-wheel steering. This will go up to 10 miles an hour. We'll work on higher speeds a little bit later. And this is intended to handle terrains that we haven't been able to control prior. So gravel, dirt, sand, think of light-duty off-road. We're not off-roading like craziness type of thing, not a lot of crimes going out in the middle of nowhere, but enough to be able to handle something like the border or solar farms, really large environments. And so there's also something I forgot to mention here. There's a pencil zoom camera on here. We're working on some capabilities for acoustic event detection. There's maybe some other sensors that we're going to add. We'll talk about that later in an future briefing in terms of new products. But this is going to be able to handle much, much larger environments at higher speeds, providing the physical -- what we included standard is RTS, the risk and threat exposure monitoring. So we will monitor because if most law enforcement agencies or security operations centers are wildly in the shack. And as one of my friends likes to say, you have 1 million cameras and you're literally blind. You can't see because you've got too much data. So if we're able to help with that, it's going to be very important. So more to come, and we're excited to have a huge -- I don't know if it's huge, but we will see how big it's going to be this evening. We've got a good amount of friends and family coming over to Knightscope headquarters to see the K7 in person and check out our new facility and you all get an invite for April for the unauthorized anniversary, a thing that our CFO hasn't signed off on. I think other than that, we can do a wrap. Alison Schwanke: Yes, that sounds good. So we've had a lot of interest, I think, in people having touring of the K7. So in the future, we will actually do more of the video about the K7. So we've got some focus on that. And with that, any closing comments, Apoorv? Apoorv Dwivedi: Well, thank you for joining us. We appreciate the opportunity to talk to you all about what we’re going. And we are excited for you to continue to join us. William Li: To wrap it up, our investors always ask why should I be interested in Knightscope? There's usually 3 risks. Is there a market? No. Execution risk? Well, as I'’ve often said, there’s not a market risk here. Crime’s not going away. Technology, we’'re at the bleeding edge of capabilities and now we have a new strategy with that autonomous security force approach that we think is going to be a big unlock. And on the execution side, I will bet on the Knightscope team every single time. Thank you very much. Alison Schwanke: Thank you. Apoorv Dwivedi: Thank you.
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.]
Operator: Greetings, and welcome to the LuxExperience First Quarter of Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. It is now my pleasure to introduce your host, Martin Beer, the Chief Financial Officer of LuxExperience. Thank you. Sir, please begin. Martin Beer: Thank you, operator, and welcome, everyone, to the LuxExperience Investor Conference Call for the First Quarter of Fiscal Year 2026. With me today is our CEO, Michael Kliger. Before we begin, we'd like to remind you that our discussions today will include forward-looking statements. Any comments we make about expectations are forward-looking statements and are subject to risks and uncertainties, including the risks and uncertainties described in our annual report. Many factors could cause actual results to differ materially, we are under no duty to update forward-looking statements. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures in our earnings press release, which is available on our Investor Relations website at investor.luxexperience.com. I will now turn the call over to Michael. Michael Kliger: Thank you, Martin. Also from my side, a very warm welcome to all of you, and thank you for joining our call. We will comment today on the results and performance of the first quarter of fiscal year 2026 of LuxExperience. As a group, we have now become the clear digital multi-brand leader for luxury enthusiasts worldwide. We are perfectly positioned to benefit from the expected further growth of the digital luxury market as well as from the ongoing consolidation process among the remaining players. As explained last time, LuxExperience reports on the basis of a new segment reporting structure. The 3 segments are Luxury Mytheresa, Luxury NET-A-PORTER and MR PORTER as well as Off-Price. We are very pleased with the results of the first quarter. Across all 3 segments, we have delivered strong results and improvements. Mytheresa continues to demonstrate our unique ability to deliver strong growth and profitability despite ongoing macro headwinds. NET-A-PORTER and MR PORTER clearly show the first signs of the commercial turnaround, which will drive renewed growth and profitability for the 2 store brands after years of decline. In the Off-Price segment, we anticipated a fundamental transformation by focusing on the healthy core, and I am pleased that we have been off to a fast start here also. We just announced that we have reached an agreement to sell the assets powering THE OUTNET platform to the O Group LLC. Shareholders of the O Group LLC include Joseph Edery and Ritesh Punjabi, CEO of Timeless Group of Companies. Both are renowned experts in the off-price luxury fashion sector. The divestment of THE OUTNET assets is a strategic step in line with our transformation plan announced in May 2025, which strengthens the operating model by reducing complexity. We believe that we found a great new home for THE OUTNET, and we can now fully focus on the transformation of the YOOX business and the disentanglement of off-price from the luxury businesses in the back end. This will allow us to also accelerate the buildup of an efficient infrastructure platform for NET-A-PORTER and MR PORTER. The closing of the transaction with the O Group is expected for Q1 of calendar year 2026, subject to certain closing conditions, including customary regulatory approvals and payment of the purchase price, which is subject to adjustments based on inventory levels at closing. As a result of the transaction, the Off-Price segment will purely refer to the business of YOOX from now on, while we classify THE OUTNET as discontinued operations as it is no longer considered part of our core financial performance. Let me now start by commenting on the Mytheresa business. We are extremely pleased with the outstanding results in the first quarter of fiscal year 2026. The ongoing and even accelerating momentum from the previous quarters demonstrates the strength of our business model, which focuses on wardrobe-building big-spending luxury customers. In Q1 of fiscal year 2026, we grew our net sales by plus 12.2% compared to Q1 fiscal year '25. In the United States, which is a key market for our business, net sales growth reached plus 21.9% in Q1 fiscal year 2026 compared to Q1 fiscal year '25. The U.S. accounted for 22.1% of the net sales of our total business in the first quarter. In Europe, excluding Germany, we experienced again an excellent net sales growth of plus 14.1% in Q1 fiscal year 2026. Our clear focus on big-spending wardrobe-building customers is the fundamental driver of our outstanding growth and financial strength at Mytheresa. In the first quarter of fiscal year '26, the top customer base of Mytheresa grew by plus 10.2% compared to the prior year period, significantly higher than in previous quarters. Furthermore, the average spend per top customer in terms of GMV grew again by a very strong plus 15% in Q1 fiscal year '26 versus Q1 fiscal year '25. The average order value last 12 months for Mytheresa increased by a remarkable plus 10.7% to a record EUR 797 in Q1 fiscal year '26, demonstrating the success of our focus on selling full price high-end luxury products to top customers. The continued full price focus at Mytheresa is also evident with the again improved gross profit margin growing by 70 basis points in Q1 fiscal year '26. Our success with big-spending wardrobe-building customers makes Mytheresa a highly desired partner for luxury brands. In the first quarter of fiscal year '26, we saw again many high-impact campaigns and exclusive product launches, underlining Mytheresa's strong relationships with luxury brands. We launched exclusive styles from Loewe Fall/Winter '25 runway collection for womenswear and menswear only available at Mytheresa as well as an exclusive womenswear Max Mara cashmere capsule collection only available at Mytheresa. We were the exclusive prelaunch partner for Brunello Cucinelli's Fall/Winter '25 collection and Calvin Klein Collection Fall/Winter '25 collection for womenswear and menswear. We also launched exclusive womenswear styles from Moncler's Fall/Winter '25 collection as well as exclusive styles from God's True Cashmere and ZEGNA's Fall/Winter '25 collection. In addition to creating desirability for our top customers with exclusive digital campaigns and product launches, we also create desirability and the sense of community for Mytheresa's top customers through unique money-can-buy physical experiences. In the first quarter, we hosted various top customer events, including a private diamond master class and a tailored styling session with Jessica McCormack at her Mayfair Townhouse in London. Together with Givenchy, we celebrated Sarah Burton's debut runway collection with a curated cocktail reception, a private exhibition tour and an intimate dinner in Shanghai. We hosted a top customer cocktail in Madrid at the Rosewood Hotel and also held an exclusive Schiaparelli style suite there. To celebrate London, Milan and Paris Fashion Weeks, we invited top customers to various shows to experience the magic of OneWay firsthand. Furthermore, we hosted style suites in London, The Hamptons, New Jersey, Singapore, Hong Kong, Warsaw, Frankfurt and Zurich, presenting new collections in immersive curated environment. Highlights in the United States included intimate dinners with Michelin Star chefs in Aspen and Los Angeles. We hosted a New York Fashion Week After Party at the legendary Indochine with Calvin Klein Collections. We partnered with Loewe for an exclusive event at The Glass House in Connecticut, showcasing the brand's exclusive collection inspired by Josef and Anni Albers, followed by an intimate dinner by Chefs Riad Nasr and Lee Hanson of Frenchette. Furthermore, we hosted an exclusive 2-day experience with ZEGNA in Turin, featuring an on-stage dinner with a private opera performance at Teatro Regio and next day, a lunch at the famous Ristorante del Cambio. In summary, we are extremely pleased with the Mytheresa business in the first quarter of fiscal year '26, and Martin will later show how the outstanding top line results translated into very strong bottom line results. Let me now comment on the luxury segment comprised of NET-A-PORTER and MR PORTER. In the first quarter of fiscal year '26, we clearly saw the first signs of the commercial turnaround directly resulting from the execution of a strategy that focuses on luxury customers seeking editorial inspiration and brand discovery as well as a strict focus on full price selling. In Q1 fiscal year '26, net sales declined as expected by minus 10.8% versus Q1 fiscal year '25 for NET-A-PORTER and MR PORTER combined. United States declined by minus 10.7% and Europe, excluding the U.K. and Germany by minus 3.6% in terms of net sales in Q1 fiscal year '26 compared to Q1 fiscal year '25. The net sales decline is still driven by 2 little investments into attractive new merchandise a year ago for the current fall/winter season. For the next spring/summer season, we can already see improved results. While the overall net sales declined for NET-A-PORTER and MR PORTER combined, the average spend in terms of GMV per EIP customer, the so-called extremely important people customers grew by plus 4% in Q1 fiscal year '26 versus Q1 fiscal year '25. The average order value last 12 months increased by a remarkable plus 15.5% to EUR 836 for NET-A-PORTER and MR PORTER combined in Q1 fiscal year '26. Finally, the gross profit margin improved by 130 basis points in Q1 fiscal year '26 for NET-A-PORTER and MR PORTER combined, driven by a higher share of full price sales amongst other factors. All these KPIs indicated an already much healthier business. In the first quarter of fiscal year '26, a renewed focus on high-impact campaigns and exclusive product launches was successfully initiated for NET-A-PORTER and MR PORTER with a clear focus on luxury customers, looking for editorial inspiration and brand discovery. NET-A-PORTER launched an exclusive capsule with Jimmy Choo focused on key boot styles for fall/winter '25. NET-A-PORTER also launched an exclusive colorway of the iconic Chloe Paddington bag, which drove outstanding media engagement with audiences as well as an exclusive on-trend animal print Nilii Lotan bag, all drove commercial success and increased brand awareness as the destination for fashion discovery. MR PORTER launched the Bottega Veneta for Winter '25 collection with an exclusive prelaunch for EIP customers. MR PORTER also launched 13 exclusive styles from the Eau Fraîche Déprimés Fall/Winter '25 collection. And NET-A-PORTER and MR PORTER both launched Aime Leon Dore as a new brand, each with exclusive capsule collections. Further new brand launches at MR PORTER include Eleventi, Apprécié, Morehouse and Satoshi Nakamoto. NET-A-PORTER also continued to drive outstanding customer engagements through unique editorial content. In September, the Oscar-nominated actress, Emily Blunt was the cover star of Porter Magazine, marking the most engaged Porter cover in the last 12 months. September also saw NET-A-PORTER present Season 10 of the Incredible Women podcast series celebrated with a private event in London hosted by international model, actress and campaigner Adwoa Aboah. MR PORTER's journal feature on Walton Goggins drove 14,500 visits to the journal section, whilst its video attracted 390,000 views on Instagram Reels. It was featured in media outlets, including People Magazine and the Hollywood report. Partnering with such talent has proven effective in reaching new audiences, enhancing brand visibility and driving traffic to the MR PORTER site. MR PORTER's film with actor Adam Brody modeling key design items has had 593,000 views. NET-A-PORTER created a number of unique experiences for its EIPs, including a dinner in London, celebrating 25 years of NET-A-PORTER to which top clients who have shopped with the brand for the last 25 years were invited. And to route the new runway collections, NET-A-PORTER hosted EIP dinners for its customers in all 4 fashion week cities, New York, London, Milan and Paris. MR PORTER hosted dinners in both New York and Hong Kong for high-profile EIP customers. It also invited to a dinner in London to celebrate its collaboration and exclusive capsule with Drake in attendance where press influencers and EIPs. A share of the proceeds from the capsule collection were donated to the MR PORTER Charity Health & Mind, which runs in partnership with Movember, which supports men's mental health. This story and capsule collection had the highest click-through rate from the homepage to product seen this quarter. Already, we can see that the new leadership team at NET-A-PORTER and MR PORTER is driving the creation of much healthier and resilient business model to regain financial strength and growth. Martin will later comment on the progress achieved in improving the profitability of the NET-A-PORTER and MR PORTER luxury segment. Lastly, let me comment on YOOX' stand-alone performance in Q1 of fiscal year '26. We are pleased with the progress that we have achieved to separate the YOOX business from the luxury of YNAP. The sale of THE OUTNET assets will allow us to accelerate the process of separation further. To create a lean business model that is compatible with a lower margin and lower average order value off-price business, we are focusing the YOOX business on the healthy core in terms of geography and operational fulfillment models. The closure of the marketplace business, warehouses in Dubai and Hong Kong as well as the optimization for higher tariff rates shipping to United States causes a deliberate net sales decline in the short term, but will allow to return to solid profitability. In Q1 fiscal year '26, net sales declined as expected by minus 16.5% versus Q1 '25 for YOOX. Europe, including Germany, increased by plus 1.7% in terms of net sales in Q1 fiscal year '26 compared to Q1 fiscal year '25. The overall net sales decline is, as explained, mainly driven by a renewed focus on a healthy core for the YOOX business. While the overall net sales declined for YOOX, the top spending customer average spend in terms of GMV grew by plus 4.7% in Q1 fiscal year '26 versus Q1 fiscal year '25. The average order value last 12 months increased by a remarkable plus 17.8% to EUR 256 for YOOX in Q1 fiscal year '26. Finally, the gross profit margin improved by 400 basis points in Q1 fiscal year '26 for YOOX compared to the prior year period, driven mostly by last year effects and also a higher share of first price sales. All these KPIs indicate a clear focus on the healthy part of the customer base. As part of the transfer of THE OUTNET assets to the O Group, LuxExperience will, for a certain period after closing, provide certain operational and IT services, all priced at cost level to the buyer. Latest by the end of calendar year '26, all services and activities in relationship to THE OUTNET will have stopped for LuxExperience, significantly reducing the complexity in the group. And now after having reviewed the good commercial results and improvements across all businesses, I hand over to Martin to discuss the financial results in detail. Martin Beer: Thank you, Michael. As Michael outlined, we were able to successfully find a new home for THE OUTNET. Just to highlight the financial implications. THE OUTNET assets will be transferred at closing with an expected cash consideration at USD 30 million, depending on inventory levels at closing. Closing of the transaction is expected in the first quarter of calendar year '26. In line with IFRS requirements, we will report THE OUTNET already in this Q1 of fiscal year '26 as discontinued operations as it is no longer considered part of our core financial performance. The Off-Price business is now fully focused on YOOX, and we adjusted our reporting accordingly. Therefore, with our fiscal Q1 reporting running from July to September '25, we will report quarterly results along our 3 business segments: Luxury Mytheresa, Luxury NET-A-PORTER and MR PORTER and Off-Price business of YOOX and highlight specific developments that influenced each segment's performance. Following that, I will review the consolidated financial results for LuxExperience at group level and give an update on guidance, now excluding THE OUTNET. Unless otherwise stated, all numbers refer to euro. Let's first review the performance of our Mytheresa business. During the first quarter of fiscal year '26, GMV grew by 13.5% to $245.9 million compared to the prior year period. Net sales also grew double digit to $226.3 million, representing a plus 12.2% increase. We continue to take share in an overall soft market. In Q1 of fiscal year '26, Mytheresa's gross profit margin increased by 70 basis points to 44.6% as compared to 43.9% in the prior year period. Main driver was our continuous efforts to increase the full price share. In Q1 of fiscal year '26, the shipping and payment cost ratio increased by 110 basis points to 14.6% as compared to 13.5% in the prior year quarter. The increase is mainly due to the new U.S. tariff situation. As we pay all duties for our U.S. customers, the cost increase for us is reflected in our shipping and payment cost ratio. If you excluded the duties costs, the shipping and payment cost ratio in relation to GMV decreased by 90 basis points from 8.8% to 7.9% in Q1 fiscal year '26. Main drivers of this improved cost ratio were higher AOVs and lower negotiated shipping fees based on increasing group volumes. With these measures, we limited the effect of increased U.S. custom duties in the quarter to 110 basis points increase in our shipping and payment cost ratio and mostly compensated the increase with the above-mentioned 70 basis points increase in our gross profit margin. The net effect of U.S. customs and the combined view of the increased shipping and payment cost ratio and the increasing gross profit margin was therefore mostly compensated and overall not significant. In Q1 of fiscal year '26, the marketing cost ratio decreased by 110 basis points to 10.4%. We are successfully capturing market share, but are mindful of the overall soft market situation. As targeted, we will increase marketing spend throughout the remaining fiscal year if deemed effective. Also, the selling, general and administrative SG&A cost ratio decreased by 110 basis points to 12.9% compared to the prior year quarter. SG&A expenses increased by 4.7% compared to the previous year quarter, and the cost ratio benefited from the strong top line increase. Subsequently, the adjusted EBITDA margin expanded by 210 basis points during the quarter to 3.5% as compared to the 1.4% in the prior year period. Adjusted EBITDA grew by EUR 5 million to EUR 7.9 million in Q1 of fiscal year '26. Q1 profitability in the previous year was very low. And given the cost developments just mentioned, we expect profitability levels at Mytheresa in the remaining quarters in this fiscal year '26, transition year, to be at previous year profitability levels. Inventory levels at Mytheresa are up 4% compared to previous year despite double-digit growth. Let me now comment on the Luxury NET-A-PORTER and MR PORTER segment in more detail. In the first quarter of our fiscal year '26, GMV and net sales decreased by minus 10.8% to EUR 224.5 million and EUR 212.3 million, respectively. The anticipated top line decrease was fully in line with our expectations and due to lower merchandise order volumes from previous year. The new leadership is working on adjusting upcoming seasons buying volumes and aligning subsequent marketing strategy to reembark on top line growth again. We expect to see first signs on GMV growth in the second half of this fiscal year. The gross profit margin in Q1 increased by 130 basis points from 46.5% to 47.8%, with the increase influenced by a higher share of full price sales and onetime effects in the previous year. Core focus of our transformation plan is to bring down the SG&A cost ratio. SG&A expenses in Q1 of fiscal year '26 decreased by minus EUR 4.2 million or minus 6.8% compared to the last quarter, which was Q4 of fiscal year '25, running from April to June '25. Compared to the first quarter of previous year, SG&A expenses decreased by minus EUR 6.6 million or minus 9.7% if you included IT development costs that were capitalized last year. As this is the first quarter of fiscal year '26, we will see more significant effects throughout fiscal year '26 and fiscal year '27. With the top line decrease of minus 10.8% in GMV in the quarter, the SG&A cost ratio increased marginally by 30 basis points compared to the previous year quarter, including capitalized IT development costs in the previous year quarter. Overall, the SG&A cost ratio in the quarter is at 27.6% of GMV compared to 12.9% at Mytheresa. We will continue to bring down this more than 1,000 basis points difference with adjusting the operating model, the IT replatforming, corporate overhead cost savings and reembarking on top line growth. Given the top line decrease of minus 10.8% GMV in the quarter, EUR 9.3 million less gross profit was generated. With the other cost lines in line with our expectations, the adjusted EBITDA margin in the quarter was at a negative minus 6.9%, below the adjusted EBITDA level at Mytheresa. The new leadership teams at NET-A-PORTER and MR PORTER are in the middle of refining and investing in our buying and marketing efforts to set NET-A-PORTER and MR PORTER on a growth trajectory again while focusing on profitability. With the execution of our transformation plan and bringing down the SG&A cost ratio, we expect the NAP/MRP segment to achieve comparable profitability levels to the Mytheresa segment with a targeted adjusted EBITDA margin of 7% to 9% medium term. We expect NAP/MRP to breakeven on adjusted EBITDA margin level already in fiscal year '27. Inventory levels at NAP/MRP are down minus 8.8% to previous year, with a healthy all-season share at targeted levels and in line with the situation at Mytheresa. Let me now review the financial performance of the off-price business of YOOX. Continuing the path of a more comprehensive restructuring effort at YOOX and with focus on profitable customer cohorts, GMV and net sales in Q1 of fiscal year '26 declined by 19.3% and 16.5%, respectively, to EUR 118.6 million GMV and net sales in the quarter, also driven by the deliberate shutdown of the unprofitable YOOX Marketplace, which had a GMV of EUR 4.6 million in Q1 fiscal year '25. YOOX' gross profit margin increased by 400 basis points from 32.6% in the prior year period to 36.5%, mostly driven by previous year destocking initiatives. Core focus of our transformation plan is to bring down the SG&A cost ratio also at YOOX. At YOOX, SG&A expenses in Q1 of fiscal year '26 decreased by minus EUR 6.2 million or minus 15.5% versus Q1 of previous year, if you included all the IT development costs in previous year on a stand-alone basis. With the carve-out of THE OUTNET from Off-Price and reporting it as discontinued operations, we excluded all P&L effects that were directly attributed to THE OUTNET and will fall away subsequently. Certain cost elements in corporate and tech will not fall away with the sale of THE OUTNET and therefore, increased the cost share for YOOX and the group. With reporting THE OUTNET as discontinued operations, EUR 3.6 million SG&A expenses from THE OUTNET were allocated to YOOX already in this quarter. THE OUTNET had net sales of EUR 41 million in Q1 of fiscal year '26. At YOOX, the SG&A cost ratio was at 28.6% of GMV. We will continue to bring down the SG&A cost ratio with significantly simplifying the operating model, subsequent IT downsizing, corporate overhead cost savings and reembarking on top line growth. During the first quarter of fiscal year '26, the adjusted EBITDA margin was at minus 18.1%, in line with expectations in our transformation plan. With the execution of our defined transformation measures, we expect to return to adjusted EBITDA profitability of YOOX in 15 to 21 months and return to top line growth already in fiscal year '27. Inventory levels at YOOX are minus 13% to previous year, in line with our targeted inventory strategy at YOOX. Now that we have reviewed the performance of our individual segments, let's take a look at how these results translate into our group level financials for LuxExperience. In Q1 fiscal year '26, group GMV amounted to EUR 588.9 million, while group net sales were at EUR 557.2 million. GMV and net sales declined by minus 4.3% and minus 4.2%, respectively, as compared to illustrative levels in Q1 fiscal year '25, excluding THE OUTNET. Adjusted EBITDA on group level stood at minus EUR 28.1 million with an adjusted EBITDA margin of minus 5%. Top and bottom line of the LuxExperience Group are at expected levels for Q1 of fiscal year '26, excluding THE OUTNET. At the end of Q1 fiscal year '26 and excluding the inventory of THE OUTNET, group inventory stood at EUR 1.18 billion. Operating cash flow of the LuxExperience Group was at minus EUR 146.4 million, driven by phasing, seasonal and onetime effects. Excluding the onetime effects, we had around minus EUR 40 million negative operating cash flow. Onetime effects relate to restructuring expenses, phasing of accounts payables and custom drawback receivables. Negative cash flow in the first quarter is typical due to seasonal inventory buildup. For the full fiscal year '26, we expect operating cash burn to stay well below EUR 200 million, given fiscal year '26 as a key transition year for our transformation plan. We are executing our transformation plan on a fully funded basis with total cash outflow during all years of the transformation plan to range between EUR 350 million and EUR 450 million. We expect to break even on an operating cash level in 2 to 2.5 years. The group ended the fiscal year with a cash position of around EUR 460 million and additional access to revolving credit facilities of EUR 200 million, of which EUR 42.2 million were utilized end of Q1 fiscal year '26. LuxExperience has a strong balance sheet with EUR 1.7 billion of current assets, mostly inventories and cash, almost no bank debt and an equity ratio of 60%. The integration of the YNAP finance teams and formation of all LuxExperience Group structures have started early and are progressing very well. Key activities included a new group-wide organization and governance setup, an integrated finance consolidation and IFRS 16 tool, new segment reporting, unified accounting and reporting policies with transparent cost center structures to enable accountability and cost savings and a highly efficient and effective finance group team setup. The statutory and group audits for fiscal year '25 under strict PCAOB guidelines were successful, and we filed our 20-F as planned on October 30, 2025. We are in an ideal position to execute our transformation plan to deliver sustainable growth and profitability, supported by our strategic initiatives across our segments. With our continued success at Mytheresa, we have proven that we are the best execution team and global digital luxury. The new leadership teams at NET-A-PORTER, MR PORTER and YOOX have begun their work. And at group level, we are in the midst of implementing the measures of our transformation plan. Given our agreement to sell the assets powering THE OUTNET, we would like to provide an updated guidance for fiscal year '26 that reflects the new structure of our LuxExperience Group. The new guidance takes into consideration the anticipated financial impact of the transaction and reconfirms our guidance for the other business and segments. We remain committed on the full execution of the transformation plan, which includes operational adjustments, technology platform integration and organizational alignment. As communicated, fiscal year '26 will be our key transition year. For fiscal year '26, we expect LuxExperience's GMV at around EUR 2.4 billion to EUR 2.7 billion and an adjusted EBITDA margin between minus 2% and plus 1%. We expect Mytheresa to grow mid- to high single digits in the full fiscal year. NET-A-PORTER and MR PORTER will show growth in the second half of the fiscal year, but a decline by low single digits for the full fiscal year. YOOX will continue to adjust the revenue base downwards, but at a lower extent in the second half of the fiscal year. Our medium-term targets remain unchanged at adjusted EBITDA profitability at 7% to 9% and to return to 10% to 15% annual growth rates. And with this, I hand over to Michael for his concluding remarks. Michael Kliger: Thank you, Martin. We are very pleased with our first quarter of fiscal year '26 earnings results. The outstanding performance of Mytheresa demonstrates our proven ability to drive profitable growth in digital luxury and the clear signs of the commercial turnaround at NET-A-PORTER and MR PORTER show that we are fully on track with our transformation plan. With the agreement to sell the assets at THE OUTNET, we have also found a tailored solution that allows us to accelerate the transformation at YOOX. LuxExperience is in the perfect position to benefit from the continued growth of digital luxury and the ongoing consolidation in the sector. We expect to become the one and only destination for luxury enthusiasts worldwide. We will continue to generate enormous value for our customers, brand partners and shareholders. And with that, I ask the operator to open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Blake Anderson with Jefferies. Blake Anderson: So I wanted to ask on the acquisition. It looks like it's been almost 7 months now since you closed it. There are lots of moving pieces. I wanted to ask what are the strongest signs that you think your plan is working so far and that it's on track? And what would be any areas, if any, that have surprised you? Michael Kliger: Thank you, Blake. Indeed, we closed in April. So a few months into the overall work, we are well on track. As explained in our call, we -- if you look at some of the quality KPIs of margin, of AOV, of spend per top customer, we are well on track. And for the luxury NET-A-PORTER, MR PORTER, we believe and expect positive growth already next year in '26 calendar. So really good developments. We are really happy that we were able to bring a new leadership team so quickly at NET-A-PORTER, at MR PORTER and also at YOOX. The signed agreement to sell the assets of THE OUTNET was a significant milestone. We have announced workforce reductions in multiple locations. So it's all well on track. And Martin explained that we already see the results of very early SG&A reductions. I mean a lot of the activities that we are doing have, of course, lags before they can really take effect in the P&L. So we are very happy. We are not surprised. We knew what was not working. We knew what was working because we did a very extensive due diligence. And are, of course, in a quite unique position of truly understanding the business model of NET-A-PORTER and MR PORTER and also very close to the off-season luxury business. So it looks very, very good. We explained in May that this is a multiyear exercise with continuous improvement. This is not front loaded, back-end loaded, we will continue to show quarter-by-quarter improvements. And this was only the first quarter. Blake Anderson: Makes sense. Still very early. So I wanted to ask on the guidance. It sounds like there weren't really any changes there aside from THE OUTNET sale. Just wanted to confirm that and then see if there were any -- was any color you could provide on a quarterly basis kind of by segment there. And I think you said the Mytheresa segment was maybe mid- to high single-digit GMV growth, which would I think would imply a slowdown. So any more color on that segment as well, which has been really strong for you? Martin Beer: No, you're completely right, Blake. So there is a reconfirmation of the perspective and the guidance for the 2 segments, Mytheresa and NET-A-PORTER and MR PORTER. And it is obviously an adjustment needed if we take out THE OUTNET and then report it as discontinued operations, that is around EUR 212 million of net sales for the full year that we expected. And therefore, we had to adjust that. You see that also we narrowed the range on top and bottom line. I mean we had on bottom line minus 4% to plus 1%, and now we narrowed it down. So I think we are -- as a key success factor is to really start early and really push the transformation plan, we are well on track to see the good movements. So yes, reconfirmation of the guidance, adjusting it for THE OUTNET effect. On the Mytheresa guidance, mid- to high single digits, I mean, there's no specific call out. I mean, as we are seeing very strong support and great signs of growth throughout both luxury segments. But obviously, we want to be mindful in the overall situation of the market. I mean, it's always tough to predict. And therefore, it is -- this is in line with what we expect today in line with an overall soft market. Operator: Your next question comes from the line of Oliver Chen with TD Cowen. [Operator Instructions] There appears to be no audio from Oliver Chen's side. We will move to the next question. The next question is from [ Cedric Norris with Morgan Stanley ]. Unknown Analyst: So I have 2, if that's okay. First, there is this idea that fashion trends follow a pendulum swinging from maximal ease and colorful style to more quiet luxury ones, the latest being more in favor over the recent past. We recently saw sea waves of fashion designers change doing their debut in some of the largest luxury houses. So having in mind that fashion trends are hard to predict, could you perhaps elaborate on what you have seen in terms of consumer appetite for bolder Lux and the overall interest for the luxury category? Have the recent creative directors changes generated more interest? And if yes, for which brands? And then secondly, if you could share what you saw in terms of performance by category, that would be helpful. Michael Kliger: Happy to do so, [ Cedric ]. So you're absolutely right. We have come out of a fashion week cycle with lots of new designers. And at a very high level because each brand has its own story, there was a bit of movement to more bolder, more colorful, more feminine, more femininity across many, many brands. We clearly see more buzz. We clearly see more interest. Most of these collections have not dropped yet. So this is really February, March, April, where we will see how the appetite for consumers are by different Maisons. But we clearly have seen a sort of joint idea of many creative directors to move into a new swing, move out of quiet luxury. But I always insist that the drivers of quiet luxury brands like ZEGNA, Brunello Cucinelli, Loro Piana, they will continue to be successful. This is an additional side of fashion that hopefully will excite customers as we move into February, March, April when a lot of these shows and collections will become available. In terms of what is driving the growth, this is, of course, very much the story of Mytheresa, the story of NET-A-PORTER and MR PORTER. It's clothing. It's ready-to-wear. This is where we see the nicest momentum. This is driven by a very diverse lifestyle of our clients. Vacation remains a big theme, but both summer and winter. And then there is one additional category that we always call out, which is the success of fine jewelry now also on digital. It's probably one of the later categories that have moved, and we see good traction both on NET-A-PORTER and on Mytheresa for fine jewelry in the neighborhood of 20,000, 50,000 pieces. So we are gradually moving up into very nice price points, of course, not odd jewelry, but real luxury products. Operator: [Operator Instructions] Your next question comes from the line of Oliver Chen from TD Cowen. Nicholas Sylvia: This is Nicholas Sylvia on for Oliver Chen. I do believe some of my questions were answered already, but I did want to ask a little bit more on guidance. I know you mentioned that EBITDA margin sounds like was adjusted a tiny bit on the lower end, if I'm not mistaken. I was just wondering if you could provide any additional color on what you think the primary drivers are there, if there are any besides the sale of THE OUTNET? And my second question is if you could just speak a little bit more on what you're seeing regionally. Martin Beer: Yes, maybe I'll take the first question on the guidance, yes, we adjusted upwards. So we had adjusted EBITDA margin for the group minus 4% to plus 1% previously and therefore, now guide towards minus 2%, plus 1%. So if you take the midpoint, it's an improvement. Obviously, the -- as Michael outlined, it is the transformation plan that we are embarking on from a group level. And in addition, the work of the new leadership teams at the brands, we are all working on improving the profitability from the business side, from the back-end side and also then focusing on reembarking on growth. But for us, and we outlined that in the -- in multiple last calls, the SG&A cost ratio was really the key element of improving the profitability. . And it is quite noteworthy that already in Q1, so July, August, September, just a couple of months after closing, we were able to decrease SG&A costs by minus EUR 15 million, if you combine the 2x YNAP segments of the quarter in comparison to the prior year quarter. So we are obviously front-loading a lot of pain, a lot of adjustments that we need to do and we will continue to do so. So this is the core element. And I also guided on growth, especially in NET-A-PORTER, MR PORTER already in the second half of this fiscal year to show growth. And this will obviously also help on the -- on a ratio logic that from a lower expense base to then have obviously profitability improvement on the whole group reembarking on the growth trajectory again. And it always helps to be the #1 worldwide to really push also on the growth side. Michael Kliger: Yes. And let me talk about geography. We continue to see very good traction in the U.S. We highlighted it in our script, that it is actually the fastest at accelerating geography. Europe, excluding Germany, very stable growth rates. So we are across all the segments happy with that -- these 2 geographies. On the YOOX side, as we said, we are really focusing on the healthy core, which is Europe. So we intentionally drive business in Europe. Asia has stabilized, obviously at a low level. So we are really looking forward to continued growth in the short term in the U.S. and Europe. There may be upside opportunity now in China, but probably still early to say. And I just want to highlight that as a group, 31% of our business is now in the United States. So we feel very good about our U.S. business and our scale in the U.S. now. Operator: Appears to be no further questions at this time. This does conclude today's call. Thank you for attending. You may now disconnect.
Stuart Green: Hello, and welcome to ZOO Digital's Interim Results Presentation for FY '26. So whilst you're all reading this disclaimer, let me just say that if you are watching this presentation live, then we will have time at the end for a Q&A session. We'll aim for about 30 minutes presentation, and we'll have up to 30 minutes of Q&A. [Operator Instructions] So just quick introductions for those who haven't met me before, I'm Stuart Green, I'm the CEO. I was formerly the CTO and took the current role in 2006. I am a large shareholder in the business, having invested my own capital over the course of several years. Rob? Robert Pursell: Hi everyone. My name is Rob Pursell. I'm the CFO. I actually only joined in August 2025. So slightly less tenured than Stuart. I spent 15 years operating as a CFO in technology businesses. and I've worked in a combination of both private and public companies. Stuart Green: So a quick recap for those new to the story. What we do is provide both technical and creative services to -- mainly to streaming -- video streaming companies and content producers to take their content and make it available for global audiences. And on this slide, you see some of the streaming platforms that we target in terms of where the output of our work goes. We are tech-enabled, and that's the key thing that sets us apart. So all of what we do for our customers, we do through technology that we've created that makes us very efficient and very scalable. We are what's referred to in our industry as an end-to-end vendor. So as I say, there are some technical things and some creative things. We can do everything that's needed to get original content and make it available on streaming services in any languages that our customers may require. Our previous financial year ending March '25 was characterized by being a period of transition for many of our customers who have gone through strategic reviews and have realigned their businesses. And in the course of that period and until recently, we have gone through a process of restructuring our cost base to ensure that we can deliver profits and generate cash in our business. So after a period that's been somewhat subdued over the last couple of years, we're now seeing signs that our customers are coming back and are ready to start ramping up again. And there are early signs, but we feel that there are kind of green shoots there. And we are in a very good position, we believe, to be able to capitalize on that and to grow the business going forward. So what we do then just to elaborate on this a little bit, is that we -- our work begins usually when a new program, say, a TV series or a new feature film has been completed, and it's made by a production company, and our work ends when we submit the final deliverables into one or more streaming services. So what's sandwiched in the middle there, which is the scope of what we do is divided between 2 areas. We refer to them as localization services, which are predominantly creative processes to adapt things for different languages and cultures. And in the other area, Media Services are mostly technical things that we do to make sure that, that content will play properly on whichever target platform or platforms is targeted for. And as I said, we're an end-to-end vendor so we can take care of everything that's needed in that process. And those -- and that -- those 2 headings that I gave you there are really categories of a whole range of different things. And on this slide, you see the variety of different individual services that we actually deliver to our customers. So this is a complex area. These are very specialized things. We're at this position, able to do all this because we've made investment over many years. We've developed technology -- bespoke technology that helps us to do this in a very efficient and scalable way. What our customers need from us and indeed other vendors that we compete with are set out on the slide. The first 2 of these are absolute necessities. So firstly, vendors who service these big buyers to work on this very high quality and expensive content, must, in the first instance, do an incredibly good job. So they must deliver to a quality into standards that are very high in exacting. And in this regard, ZOO performs exceptionally well, and I'll elaborate on that a little bit in just a second. We receive awards. So on the top there, you see an award that we received from Netflix for being their best performing partner in the Americas in 2024. Secondly, you have to be able to do that to incredibly high standard of security to ensure that there's no chance of the content that you're working on behalf of customers leaking and going into the wrong hands. And here again, we perform at a high standard. We are classified as a gold standard under the trusted partner network, which essentially is a framework for assessing the security undertakings that a particular vendor observes. So those are the 2 kind of stats, and we perform very well on both accounts. And it takes a while to demonstrate to customers that you have that capability. So this is not something that happens overnight. It happens over a period of years, which means that the barriers to entry for new entrants are very high. The next 3 items on this list are what we see as being the emerging requirements and in some cases, the change requirements that we're seeing customers now have as they have come out the other side of this period of this fallow period as it were, look -- and as they look to the future and the kind of partners that they want to work with. So the first thing is that increasingly they're looking for partners who are technologically advanced, are progressive in the use of tech. And in this regard, ZOO as a tech-enabled business, is very well positioned. So the fact that we are embracing AI, for example, in our workflow is something that is seeing very favorably by our customers. Next, as I mentioned, we are an end-to-end vendor. That means we can do everything. And that is increasingly sought after by customers who want to simplify the supply chain. So when in the past they may have had many vendors to cover these services, what they now want is very few vendors, but each of which has to be able to do everything. So the fact that we are an end-to-end vendor and there are very few of those in the market, again, positions ZOO very well. And then finally, our customers want things faster. They want us and other vendors to be able to turn around projects much more quickly because that's dead time for them. Once they finish title, ideally, they just like to get it up on the platform. But the work that we do stands in the way of that happening. So the quicker that, that can be done, the better for them. And this is an area where we excel, particularly through some recent innovations that we call Fast Track, which we'll elaborate on more in just a moment. So by all of these requirements, ZOO is incredibly well positioned, we believe, in the market. I mentioned that the quality is a key absolute requirement. And something we've done this -- in this set of results for the first time, and we'll do it in each half results going forward is that we are publishing a quality metric. This is not a measure that we've taken ourselves. It's actually based on measures that are supplied to us by a subset of our customers. So some but not all of our customers report to us either every month or every quarter, their own measures of the quality of the work that we've done. And we basically combine those to arrive at a weighted score. And as you can see in the half, we achieved 99.9%. So that's based on measures that are accounted for by customers who together were responsible for 58.2% of our revenue in that period. So the remaining amount of that is -- was basically what we did for customers who don't give us these -- don't have such rigorous programs to measure this performance. So the takeaway here is that hopefully, this gives you the evidence on the reinsurance that we are performing at a very high standard. And we believe that these scores put us at the very top of the league table in terms of vendors who deliver these services in the industry. But more importantly, as we'll come on in a moment to talk about the cost reductions we've implemented in the business, what was absolutely critical to us as we went through that exercise was not compromising on those top 2 essential requirements that I covered previously. And as you can see, with scores of 99.9%, we certainly achieved that. So with that, I hand over to Rob to cover off the results. Robert Pursell: Fantastic. Okay. Thank you, Stuart. So hopefully, you had a time to look at the statement we put out today and this presentation is online as well. But what we're trying to do here is really pull out some of the key messages in terms of what we've done and what we've delivered in H1 this year. And I think there's 2 things really. One is that we feel that we've shown that the business has now stabilized. So anyone who's followed the company for a while would have known that the results have been quite volatile over the last few years, and we can really see that's stabilizing. And probably the key message from this half is that we've now finished this cost rationalization program. And again, this is something we've been talking about over the last few releases. And there were 2 things we had to achieve with that. One, we had to really show the improvement in profitability, start to be able to generate some cash within the business after the previous years. But also, as Stuart said, we had to do that in a way that didn't impact on our quality, on our innovation and on all those attributes that our customers absolutely demand from us. And we feel we've done that now. So we feel that we can show higher margins, and we feel that we've done that in a way that isn't impacting on our ability to grow in the future. So getting down into some of the numbers. So firstly, in the half, revenues decreased by 19% to $22.4 million. Now we expected this. And the reason for this was that in H1 FY '25, we had a lot of backlog work coming through from the writers and actors strike that happened in Hollywood in FY '24. So we had a very, very poor year in FY '24 and then that came through -- some of that work came back in the first half of FY '25. As I said, that as expected. There's no surprises there for us. But what's important to note is that from the end of H1 FY '25, so for the last 4 quarters, revenues have been stable at around $11 million a quarter or $22 million a half. So that's 12 months of stability that we've had. Now during that time, we've been completing this cost rationalization program. And what you can see here is that one of the most immediate impacts of that is that our gross profit remained at just over $10 million for the half. So that's the same level as it was last year, but on $5 million less revenue, showing the impact of what was achieved. Gross profit was in line with last year. EBITDA actually increased from $1.7 million to $2 million. So we made a higher measure of EBITDA, again on lower revenues. And I'll come on and talk a little bit more about those cost savings. So I think financially, you can see here that we've really made that difference. We said we were going to have to do a lot with the business, and that's what we've done. I've introduced a new KPI measure, we call this cash EBITDA. Okay. So EBITDA is a commonly used name. We use it to measure profitability. There are some accounting things and now there are some costs that end up being capitalized, that end up being excluded from a normal measure of EBITDA. Now for us, there are 2 key costs. One is the payroll, the pay that we pay our developers to develop our technology and our software. That gets capitalized. So it isn't included in EBITDA. And the second is property cost, property leases because of some new accounting standards that gets capitalized as well. Now for me, looking at this, we're going to carry on paying our development team, we're going to carry on paying our property costs. So these are costs that have to be funded and monthly cost in the business that have to be funded. So what I've done is I've added those back into and I've effectively lowered that EBITDA measure to account for those. And what I feel that cash EBITDA is doing for us now is really showing our ability to turn the revenue into cash. So it's in a way, it's like a cash profit. It's the cleanest thing cash profit that we've got. And the reason I wanted to show that is to show that in the half, we actually generated $0.6 million. So the underlying business model is now starting to generate cash. I put some comparators there. So you can see in H1 last year, we made a small loss of $0.1 million. But actually in H2 of last year, so the half just before the one that we're reporting, we actually made a cash EBITDA loss of $2 million, okay? And so that was on the $22 million of revenues, so the same amount of revenue as we've done this half. but a $2 million loss compared to a $600,000 profit. So I think that's a really important measure for us to keep an eye on because we need to start generating cash as a business, but it really does show us again the impact financially of this cost program that we've been doing. Operating loss, again, with that this has improved. It was a loss of $2.5 million, that's down to $1.2 million for H1, and it was actually slightly positive in Q2. So again, that improving trend is we've seen within the half from Q1 to Q2. And in terms of our cash balance, so we've ended the year with $3.3 million in -- so we ended the half with $3.3 million in the bank. It was $4.3 million this time last year, but it was $2.7 million at the end of last financial year, which was the most recently reported number. So financially, I think we've really achieved everything we set out to do with the cost rationalization program. But there are 2 parts of that. From a finance point of view, great, we're starting to generate some cash, we're seeing improvements in profitability. But we have to be doing this in a way that in no way prevents our ability to grow. And there are 2 things that drive that for ZOO. One is the quality of the work that we do, but the second is the innovation and how we are really the leading tech-enabled provider in this space. Stuart will come and talk about these a little bit more coming on. But certainly, we've already shown you the quality metrics. So there can be no doubt that we are still operating at an incredibly high level of quality in the work that we do. And we've mentioned Fast Track. So we are doing something that we believe nobody else in the industry is actually doing at the moment, and that is being able to do dubbing in 24 hours and complete subtitling in around 3 hours. Now to give you an indication, dubbing normally probably take 3 to 4 weeks, subtitling 1 to 2 weeks. So it's a real reduction in the time that it takes to do that. And that's using our technology. And we've also started to integrate AI into a number of our workflows. Now we have to do this with our customers. So within our industry, there is a lot of caution around the use of AI. But we're starting to work with them and show them the efficiency, show them what it could do and with their approval, allow us to start to use AI within their workflows. And then the final thing as well, amongst all these cost savings, this rationalization, we've gone and invested in international operations in Germany, in Korea, in India and some other locations as well. And now we've been able to get all of those people working on our platforms within our -- to the same level of quality that we would be expected to do. And that's allowed us really to help manage costs and to be more flexible. And we're going to carry on doing that. But I think the point here is that not only have we made a significant difference to the financials within the business. But operationally, we haven't taken a pause at all. We are still doing the things that made so special prior to taking out those costs. And it's a combination of those 2 that I think is the real success for this half. So a little bit of a summary in terms of the numbers, and I'll try not to get into too much detail here. But what I wanted to do is you can see in the statement the comparative, so H1 '26 versus last year's H1 '25. But as I said, that benefited from quite a considerable backlog coming in from FY '24. So what we have done is, I've shown you there the results for FY '25 H2. So the half just before the one that we're reporting. I think that's important because you can actually see that, that there's revenue of $22 million, and yes, that's increased slightly to $22.4 million in this half. But if we would say drop down, you can then see, well, on a similar amount of revenue, we've gone from an operating loss of $4 million, an EBITDA loss of $0.5 million all the way to this current half of a reduced operating loss of $1.2 million, but that adjusted EBITDA of $2 million. And like I said, even the cash EBITDA is positive. So that really, I think, shows the impact of that change and to put it into another way. If I look at the fixed cost of the business, so people, property, IT costs, we've actually reduced those by 1/3. So that's quite a substantial change for a business to go through. So that's been completed. Now to maybe mention a little bit about the revenue, you can see that there is a small growth there from $22 million up to $22.4 million from H2 to H1. And dubbing, which is part of our localization is still in decline at the moment. So that declined by $2.7 million. So excluding dubbing, all our other revenue streams from Media Services to Subtitling actually grew by 19%. So we've already started to see the growth coming back in those areas. And we do expect dubbing to come back as well. It just takes a little longer as it's more dependent on original content. That's the content that's most likely to be dubbed, but it's just taking a little while for the industry to recover with that. So hopefully, that gives you a little bit more context in terms of those numbers. And then if we come and look at even more detail, what you can see here is we split our business really into 3 revenue streams. So Localization, which is the dubbing and subtitling; Media Services, which is more of a technical service, reformatting or getting the correct formats for the content so then be distributed onto the platforms. We have a legacy piece of licensing that is still in place, and that's what comes under Software Solutions. And so there's a lot of information there to look at. I think if I could just take you right down to the bottom of those tables and look at that total number there. What this is showing is that our gross profit, the percentage of profit we're making on those revenues is up now at 45%. And previously, that was at 37%. And 45% is -- I went back as far as 2018, and that is higher than we've had really achieved before. The next highest I could find was 38% in FY '23. So when we talk about the way in which we've shaped the business, we've really been able to improve the amount of profit that we can make of the revenues. And you can see that particularly in Media Services, where we've really been leveraging those investments that we've made in India and really being able to drive up the percentage of that. So that gives you a little bit more idea about what's going on within the revenues. And let's come to the balance sheet now. I'm not going to talk too much about this other than really to maybe sort of refer you to sort of the current liabilities line. And in previous meetings, there was concern about were our liabilities too high. We've obviously gone through a period of cash going out of the business and the inevitable pressure that, that put on creditors. And along with completing that cost program, along with still delivering the same level of quality and innovation, we've actually been able to significantly reduce the amount of liabilities within the business and on the balance sheet. So that's really helping just give us a bit of breathing room on the balance sheet and normalize that position a little bit. Then the final statement really to talk about is our cash flow. You can see, as you go down there, that we've generated cash from operations and just to pickup that number, that's $488,000 of cash that has been generated from the work that we've done. But if you look there, you can see that included a $5.3 million payment reduction in payables, which again is just reaffirming the idea that we're really sort of helping improve our liquidity in that situation. And that was partly done by the cost savings ensuring that, that cash EBITDA that we're generating cash at that level, but also we were able to improve the speed in which we're doing some invoicing and therefore, reduce the amount of receivables by being paid a little bit earlier as well. So that gave us positive cash flow operations, and you can see that, that flow through right down to the bottom to an increase of -- in cash from the end of the year of just under $700,000. Final point for me, so. So in terms of how we manage the liquidity in the business, how do we cope with growth, if we needed to -- we have more business coming through and the pressures of that, that can put on us and where we have 3 main facilities. We have a financing facility of $3 million in the U.S. from HSBC. We have GBP 2 million within -- in Europe. And what this allows us to do is to when we issue an invoice, we don't have to wait for the 30 or 45 days for it to be paid. HSBC will effectively pay us a little bit in advance amount. And at the end of the period, we drawn down $1.7 million out of that, around $6 million in total. But we still have $3.3 million in the banks. We still had enough money in the bank to cover what have been drawn down. But it's just helping us manage working capital a little bit better. And also what you could see, if you look at our balance sheet, you can see that we're kind of neutral in terms of our net current asset position and that was a slight deficit. It was in that liability at the end of the year. So I think the key message really is that we've completed the cost rationalization program. It has had the impact that we said it would do on our finances. We've done into a way that it's still allowing us to deliver the same level of work with the same level of quality, is not restricting the opportunities that we're seeing ahead of us, and it's leaving us absolutely on target to meet market expectations. Stuart Green: Thank you, Rob. So I'll just say a few words about the market and the trends that we're seeing there and those that -- in particular, that are pertinent to the ZOO business. So the first thing is that there are various commentators who look at how much is being spent globally on producing new entertainment content. And they all point to that some spend increasing over time. So all commentators think there's going to be more spend on content and our assumption is that more spend means more content is being made and more content is obviously good for us because in normal times, most of the work we do is related to new original content that's produced. Just a couple of data points very recently to speak to that point. In a recent announcement, Paramount, which, as you may know, was -- has gone through a transaction with Skydance Media. And the new CEO of Paramount has said that they're going to be spending an additional $1.5 billion a year on their content budgets. And also Disney, who last week put out a quarterly earnings indicated that they would be spending an extra $1 billion a year on producing original content. So obviously, those are 2 anecdotal things, but overall, the sense that we have here is that spend on original content is continuing. That's obviously a good thing for us. That doesn't -- that's really a proxy. Looking at that as a kind of proxy for the opportunity for ZOO because obviously, we're not tapping into content production budgets. We're tapping into those budgets are being spent on localizing that content. But what we know there from research by Slater, which is a market commentator in the localization field, is that the services market for media localization is worth around $3 billion a year. And our estimates are that about half of that spend is with the major global media companies that we target. So we think that the addressable market for ZOO in media localization is roundly $1.5 billion a year. And that excludes any spend on media services, where we don't have any market commentators giving us steer on that. So that tells you the ZOO's opportunity in terms of an addressable market is at least $1.5 billion. The other things that we are, I guess, to be mindful of is that localization remains and will we believe continue to remain a key strategy on the part of our customers in maximizing the return on the investments they're making in the original content. So that's to say they're choosing to make content that they believe will be appealing to audiences in different countries. And that, of course, then necessitates that, that content is localized. We're seeing more interest by streamers in commissioning content, which is delivered live or near live. So things like sports, another time-sensitive content such as chat shows, talk shows, current affairs programs, those kinds of things. Obviously, this is an area where we can excel and as I said, I'll talk a little bit more about that in a bit more detail in just a second. In the period, we've also seen our customers actually looking to license more third-party content. And this is at a time when their output, their current output of original content is actually lower than it would be normally as a consequence of their changes in content strategy. Something that we believe will sort of ride itself probably over the course of the next calendar year. Our customers all want things faster. So there's a real push to -- for faster turnaround and they're all increasingly looking to work with end-to-end vendors. So that's to say, suppliers like ZOO, of which there are a few who can actually do all of these things for them. These things we're getting a feel for as a result of the fact that we've -- there have been more RFPs issued that we've participated in, of course, the last few months than we've seen in several years. So this is buyers getting to the point where they're now ready to look ahead and think about who they want to partner with for these services. And again, we think that this is an indication of the market starting to move again and is giving us a feel for the kind of partners that they want to work with. And those trends are all favorable for ZOO. So these all play to ZOO's strengths. Obviously, AI is something words on everyone's lips. What I say about this is that actually, we published a white paper very recently. You can find it on the website, and we also delivered a webinar to talk about it, and you can watch that too in our Investor Relations section of the website. In a nutshell, we are using AI in certain areas. It is delivering benefits to ZOO and that it's reducing the time it takes us to do the work we do, and it also reduces our cost to fulfill that work. And of course, customers are also looking for benefits and the benefits they're looking for are the same as the ones that we're looking for, namely, they would like us to be able to deliver results faster. And also, obviously, they'd be very happy to take some savings of costs. So what we're doing is share the moment -- is with those customers who we're choosing to use AI or choosing for -- or permitting us, if you like, to use AI, we are sharing the cost with them. So our costs are coming down. We're charging a lower -- a slightly lower fee. But these are -- this is -- we're talking 10%, 20% difference in pricing. We're not talking a dramatic reduction in costs. And the reason for that is that to do localization in particular to the standard that is required by our customers, it is absolutely crucial that it has human oversight to be sure that all that context or those subtleties, nuances in the source programming is not lost and is correctly preserved authentically in the adaptations to the different languages. To do that, you need people. You can use -- and then we are indeed using AI to help us in that process to make it more efficient. But this isn't a -- this is like a 90% reduction in costs and time. Those kinds of levels of reduction are possible in media localization, but only if you're prepared to tolerate lower quality. And there are some segments of the market where we don't participate where that is the case. So if you think of user-generated content, such as the kind of programming you see on YouTube or TikTok, for example, these AI systems are being used quite successfully there. But that's not our market. Our market is the high end producers and distributors of this content who demand the highest quality. And therefore, our adoption of AI is designed to be consistent with the outputs that our customers want. Just one last thing to say about AI is it provides opportunity to trim costs in certain areas, we expect that, that will result in greater market demand. There is always that opportunity that if you can reduce the cost of something, you will be able to sell more of it. And we think that, that is true here, too. We provided this little diagram to give you a feel for where we are already using AI and where we're planning to use it in the future. So AIA in this diagram refers to Artificial AI Assistance. So it's where we are using AI not to displace a traditional process, but to augment it, to assist experts to do their job, but to do it more quickly, more efficiently potentially to a better standard. So we're already using it right across -- all across, pretty much all our customers for transcription. And for some customers who have given their explicit consent, we are also using it for translation as a way to produce a first pass that will then be further worked on by human specialist immediate localization. So the blue boxes show you where we're currently using AI. The orange boxes tell you the areas that we're very actively developing and expect to deploy new capabilities in the near to midterm. The red boxes are things where we are mostly already working, but the realization of those benefits is going to come a little bit further downstream. So right across our operations, looking at deploying AI as a way to assist existing processes. And even in translation, transcription, we're not done there. This is such a fast pace, quick moving field that we have it to continue to keep track of new developments in third-party systems to make sure we're using the best of breed. So our approach is to use best-of-breed technologies where they make sense in our workflows to deliver services for our customers. So I'll just talk about we have 5 pillars of our strategic plan that we talk about every time. These are the 5 very briefly, just in terms of the progress we've made in each area. In innovation, we have been, as I said, working on AI pretty extensively, and we've also developed a new proposition called Fast Track, which I will tell you about in the next slide. For scalability, we have really pressed ahead with our follow the sun strategy. So this is a strategy that we use to move projects in the course of 24 hours from one of our facilities to the next in a very efficient, streamlined way that effectively gives us 24/7 service capability without having to pay over time to shift work in each location. On collaboration, we are working with third parties. These are just 3 of the partners we work with on technologies for AI. AWS, which you may think of as a service for providing cloud-based compute and storage services. They actually also provide a range of other services, including for AI and where they make sense in our business, we use those. On customers, we are working very closely with our customers in a number of different areas and as I mentioned, have been recipients of RFPs from several of those customers who are looking to the future afresh and want to streamline the way in which they work, which, again, is all opportunity for us. And then finally, for talent, we have part of the reductions in costs that we've been able to implement that Rob has taken you through are because we are able to move certain functions to India and operate at a lower economic cost, very efficient and scalable services. So Fast Track then. So this is a new service that we have introduced in the period. It's a service that is designed -- that we designed specifically to deal with very time-sensitive content, especially, as I said, think of sports and current affairs and so on. But actually, what we found as we pitched this to our customers is that generally, any reduction in the time it takes to perform these kinds of services that we provide is increasingly sought after. So in fact, we've been engaged by customers to deliver our Fast Track service, which is a premium service, for which we can charge a premium. We've been asked to apply that service for a content type that isn't necessarily time sensitive but the customer would just simply like to get it to market more quickly. So the way we've gone about this is by further enhancing our cloud-based workflow platforms so that we can do much more work concurrently. So we still do the same amount of work for our customers, but much more of that work can be performed in parallel. And as a result, we've been able to take subtitling down from something that would take a week or 2, down to 3 hours and dubbing from something like a month or 2 down to 24 hours. So those are radical reductions in the turnaround time, which are essential for, as I say, live and near-live content, but also are increasingly sought after for content more widely where we see great opportunities. Just by way of example, we worked on a project recently for a customer where they wanted us to produce outputs in 32 different languages in the space of 3 hours or so. So we had within our systems around 700 of our operators around the world, all working on the same project at the same time. So what our systems are doing here is orchestrating what could be enormous resource pools in a very efficient and coordinated way to be able to deliver these outputs in a dramatically reduced time frame. And our clients for this are major streaming services for which we've already worked on a number of very high-profile titles. So just wrap up then with a few words on outlook. So we're on track for achieving full year market expectations. As Rob has taken you through, we've restructured our business for growth. What we're finding is that our customers are looking for faster turnaround, as I described, and that is creating new opportunities. They're looking to -- look again at how they want to work with vendors. We've seen many RFPs coming through, which we're participating in, and we're optimistic that we will be successful in a number of those. And also in live and near-live programming, we see more of that coming on to streaming based on what we're hearing from our customers. And there are -- we're not aware of any other vendor that can offer a truly multilingual, multiservice, fast-track type solution in the time frames that we're able to deliver. So just to wrap up with investment summary. So we're a trusted partner to the biggest names in the industry. We're a technology-first pioneer which obviously augurs very well as our customers are looking more and more to work with partners that are embracing technologies such as AI. We're already working with all of the major streamers and content producers. We've already implemented AI in some of be workflows and have -- are actively working on using that more widely. So AI for us is a great opportunity. We're delivering a premium solution in a market that is seeing structural growth. And so with a leaner and more efficient organization we built through the efficiencies that Rob's described, we're very well positioned to build on this position and grow as our market recovers. Thank you very much. So as I mentioned, if you have questions that you would like to pose, please submit them to the -- in the questions section on the right side, which I think should be on the right side of your screen. Stuart Green: We've already received a few questions, so we'll just dive in and take those in the order that they were submitted. So the first question comes from Andrew. Have you finally abandoned plans for the acquisition of the Japanese services provider? Have your customers' plans for this region diminished? So for those who are not familiar with this, a couple of years ago, we had plans to acquire a partner in Japan, and that was driven by requirements from our major customers for their plans to expand and do more activity in Japan, and they essentially saw an opportunity for us to partner with that provider that we had a base in the country. So we were looking to acquire a partner to do that. Since that time, obviously, this whole industry disruption occurred. And so we put that on hold. Based on the information from our customers, they are not ready yet to really drive forward in Japan with additional activity and sourcing of content and distribution of additional content in Japan. So for the moment, we are not pressing ahead with that. But we do expect that in due course, Japan will be a strategically important territory, and we would expect to have some solution for that region. Next question comes from Chris. In your update, you mentioned increases in RFPs. Please, can you clarify how your RFPs work as to say, are they for specific projects like a TV series? Or are they RFPs that set out the basis for a contractual way if you were to work with a vendor on multiple series or films, et cetera, going forward. So the answer is the latter. So typically, these RFPs are -- they're a process that our customers tend to go through every 3 or 4 years and during which they're going to the market and they're making sure that they're working with the best vendors getting the best price, the best quality and so on with partners who can drive down that delivery time and so on. And it just happens because of the development in the market, we're seeing a whole host of these all coming through at the same time, whereas normally they'd be staggered over a longer period. So these RFPs really are -- will lead to framework agreements that will cover usually a wide scope of services over a prolonged period of time, usually several years. So they're not -- we don't usually go through RFPs for -- on a more granular basis than that, for example, a specific project. Next question from Andrew. I've noticed much of your sales team has now been lost in the recent restructuring. Does this not signify -- significantly negatively impact on your ability to grow revenues going forward? It's not quite right that much of our sales team has been lost. We have -- there are members of our sales team who are no longer with us. I mean as part of the cost-saving initiatives that Rob has taken you through, that was obviously part of what we needed to do. We believe that at the moment, we've rightsized our commercial function. And I would expect that if and when our customers come back and start to ramp up again, and we see more activity there then it may be a time at which to kind of reinvest in business development -- additional business development bandwidth. Next one also from Andrew. You mentioned revenue stabilization. Are you not concerned this will be perceived as revenue stagnation. Is there any tangible evidence you're seeing from your customers of this stagnation being reversed? You tell them? Robert Pursell: Yes, sure. So as -- I think it's obviously a valid point. Like I said, we've been at $11 million for 4 quarters. So that is a good question. I think I'd refer to one point what I said was that if you take dubbing out of it, certainly in the H2 coming through to H1, the other service lines have grown by 19%. So we are seeing growth in media services. We are seeing growth in subtitling. What we are seeing is a continued decline that's been going on for a number of quarters now in dubbing. We feel that, that is really coming to the bottom now for 2 reasons. One is that, as Stuart said, Paramount, even Disney came out and said they're planning to spend an extra $1 billion on content next year. Our customers are getting their content strategies in place. They're getting more confidence in them, and therefore, we'll see more work coming through. I think alongside that, so even today, we believe that our customers are spending around $1.5 billion in localization. So what is really encouraging is when we talk about seeing being invited to additional RFPs and being able to access maybe channels or programs that we haven't been able to before is a way of, therefore, growing that revenue incrementally beyond just an underlying growth in the market. And in terms of what are we seeing from our customers? Well, I think the biggest change really and it may be the last sort of 6-or-so months has been that previously, some of our customers are very wedded to the idea of doing localization through a number of different partners with physical studios that actors would turn up to, and that isn't the ZOO model. So that excluded us from some of those channels where they were insisting on that. As the industry is changing and they want things quicker, and what we're being able to do in terms of using technology, particularly with Fast Track, where we've been able to -- one of our customers, we delivered dubbing to them within 24 hours. And they said that was as good as anything that they would see from their premium suppliers taking 2, 3, 4 weeks to do. So I think being able to demonstrate what we're able to do with our model is opening more doors than we've seen before. And that's coming through in terms of those additional RFPs. So I really feel like there are definite green shoots in those conversations with customers, the tangible evidence is the number of RFPs that we're looking at. The fact that we're being invited to go and meet and participate in programs that we probably wouldn't have. And by programs, I mean, actual sort of channels within our customers or individual programs, and that would give us a far, far greater access to their spend. So it's a very fair point in terms of the last 4 quarters, but we do feel confident having now stabilized ourselves financially, but in a way that doesn't restrict that growth, there are an ever-growing number of opportunities out there to get back to growing that revenue again. Stuart Green: Thanks, Rob. So this is the last question that's been submitted so far. So if you do have any other questions, that will be a great time to submit them. So you don't miss your chance. So this question comes also from Chris. So I'll start this and then I think, Rob, you can probably provide a bit more color in terms of how you model and think about this thing. So Chris asked you mentioned anticipation of increased spend in new content. As this happens in the medium term, where do you see your split in revenue normalizing to, i.e., percentage split between localization versus media services. So just to give a bit of context for those who are not so familiar with our business. As I say, when content -- a project comes to us, usually, there will be some combination of media services and media localization that we have to fulfill with that. But -- and as far as we're concerned, whether the content is new or old, it doesn't really matter that much to us. It's the same kinds of services that we do to the same standards on the same time frame. So whether it's new or old, it's not that important, we don't even track it in our systems. We don't even tag it to say this is the new title versus this is an old catalog title. However, the nature of the services that are required tends to be quite different between those 2. So something that is new. So it's been newly produced, it's been produced of the current technical standards. When it arrives to us, it will never have been because it's brand new, it will never been localized. So generally speaking, our customers will want -- definitely want us to localize it. They may just want it subtitling in multiple languages, they may want it to be dubbed into some languages because it's -- there will definitely be some media services that are needed together onto a streaming service. But because it's produced to a very high and current sort of standards of quality and so on, the amount of media services that's needed is modest. So for a new content, essentially, the service lines are much more skewed towards localization than the media services. Whereas if this is old content, then usually what's happening is that a distributor, such as a streaming service, has done a licensing deal with a content producer who have some catalog of old stuff. And the deal is that for a fee, they receive that material, and it goes on to the streaming service, and they'll come to us to get that content registered to that service. If it's old, then it's been produced to standards that are not necessarily up to the required standards for streaming today, and therefore, there may be some restorative work, you could say, that needs to be done to bring it up to scratch. So for example, the resolution, if it's old TV stuff, it may be produced a standard definition resolutions. If it's going on streaming service, it has to be, at the very least, high definition standard. So there's -- so generally, there's more -- there's a lot of media services work that needs to be done there. But if this is content that belongs to someone else, a distributor or a streaming service, generally won't pay for that -- for someone else's content to be dubbed. So for old stuff, it's skewed much more towards media services. And to the extent that there are localization services that are required, they're almost always restricted subtitling. So old stuff doesn't get dubbed. So that's sort of -- that's the dynamic between -- to Chris' question between thinking about the content and how things are changing there as this new content coming through what could happen there, and the split between localization of media services. And those services have different margin switch. I'll now hand over to Rob to talk about how we think about that. Robert Pursell: Yes. Thank you. So yes, I mean in one of the slides, we split out that revenue between sort of localization and media services, and you can see that localization margin is around 30%. We've got media service up to about 76% now. So they are quite different in terms of their profitability. So that mix becomes important when you're thinking about where we go as a business. There are a number of things that play here. So I'll try and not overcomplicate this too much. But I think the first thing to say is that we probably see currently more growth potential in localization than media services. We think they'll both grow but there'll be a greater rate of growth within localization. Two reasons, again, just the growth within the market, the fact that as more original content goes to be produced again, as Stuart says, that is going to require more dubbing because of the investment that's been put in there. So that naturally increases dubbing. But also, as we're working with our customers and as they're getting more familiar and comfortable with our approach to doing this, we see ourselves being able to access more of their spend. So there's probably more growth potential in localization. Now as I said, subtitling is already growing, but dubbing has been declining in the last half. So when does that change? Yes, we think it's going to be soon, but it's an opinion. The other thing that's really happened is that our customers have stopped working with quite so many suppliers. So before they'd often go out and use different suppliers to do different activities, different languages, different services. But now they want to just really look at working with fewer suppliers who can do everything there. So that's what we refer to an end-to-end supplier. So on the other hand, we see more growth potential in localization though we expect it to be more bundling of services. So we want to do the localization and the media services as well. So I think there are going to be some changes that we see. I would expect, if you see at the moment, localization is just slightly above where we are with media Services. So let's call out almost a 50-50 split. If you go back to H1 last year, it was nearly 50% higher than -- sorry, localization was nearly 50% higher than media service. So we went from about being half of our business to 2/3. And if you actually go back into the years when we've been doing significant amounts of revenue, so $70 million to $90 million, again, you sort of see that relationship with localization is around 2/3 of the business and media services is the 1/3. So I would expect that we would see localization increase as a percentage from where it is in H1. It would probably, as a maximum go back up to being 2/3 again, but it may not quite get there because of this bundling of services. So it's going to be in that range somewhere. But until we start to see what happens with these RFPs, with these conversations that we're having other than that range, I couldn't be more specific in terms of what I think will happen. Stuart Green: So a question from Randy. Good to hear from you, Randy. Are there other large content companies you haven't penetrated but need to? You mentioned Disney and Paramount. Are there any big global ones you're not yet working with? And if not, why not? So we are already -- to some degree or other, we are already working with all of the major global distributors, global streaming services and a big U.S.-based headquartered content producers. Obviously, given what I've said about the market size, we're not -- our market share currently is very low, and there in lies obviously a great opportunity. What these RFPs, in some cases amount to is the -- is those buyers opening up certain areas of the operations, that hitherto have been -- we've been denied access to for whatever reason, it could be some historical reason, to do with relationships with certain vendors. It could be because of -- as a result of restructuring the organization, it could be because where something used to be fragmented between different international operations has now been consolidated and it's been now purchased centrally and so on. So we're seeing here opportunities for us to be able to increase our share of spend by these big players on the services that we deliver. So in terms of global companies, there are -- the major ones are all U.S. corporations. Obviously, we are also targeting content producers and distributors in other regions as well. But at the moment, the bulk of our business is in relation to large U.S. media companies. And then, Randy, as a follow-up question on the RFPs, how many different companies are competing for on each one on average? That's a good question. Generally, we aren't told that. We infer it from various things. But I guess, typically, there may be a sort of a dozen-or-so companies that are in play, and they may be looking to select 3. So that's been a case for a particular assignment that we've secured recently, where for a large volume of work, a particular customer went out and spoke to 10 or 12 partners and have selected 3 of which ZOO is one. Now the question from Andrew, do you see project visibility improving anytime soon? Robert Pursell: Yes, I would think that it would do because I think as our customers get more settled in their own content strategies because remember, they've been through quite a bit of sort of disruption, followed by not only the strikes, but also with these changing business models and what that means. But it's -- that will help -- in conversations with them, that will help give us more visibility in terms of the work that they see coming to us. And also, I think as we get more embedded in some of these channels that Stuart's saying we weren't part of before that creates, again, a more reliable stream of revenue. I mean the nature of our business is that we work on programs, and those programs could be a number of episodes of an hour long or it could be a film. So by that nature, it's pieces of work that we do. I think one of the things that we're really looking for, and this requires a shift within our customers. So we shouldn't overstate this. But certainly, where Fast Track is probably going to be most beneficial to where we've got kind of episodic content that's going out every week. More in that sort of broadcast model than traditionally what we've seen streams, and that could be sports, that could be dating shows or current affairs or something like that. Now we're currently -- we believe the only people who can actually provide localization for that, so that itself having that repeatable business is coming in every week and would again give us more visibility. So I think that -- I would hope that those things would start to give us a little bit more visibility. But as I said, you look back at the last 12 months, we've had a lot of stability and visibility. It's just that we know that that's the run rate of the business. What we've now got to do is trying to step that up and show the revenue growth. So yes, hopefully, that answers it a little bit. It's a bit up in there at the moment, but we definitely see it moving in the direction where 1 or 2 or 3 of those matters could actually help us give us a little bit more sight or confidence in the longer-term forecast. Stuart Green: We're coming in to the hour. So I'll take this as the last question. It comes from George and his question is, when the AI bubble bursts -- a big assumption, which of the multimodal AI natives would you buy? So obviously -- I don't quite know what to do with that question, but I guess what I would say is that we have -- if you look at our strategy for AI, we're taking the view that there are quite a few well-funded companies out there that are doing a pretty good job of creating technologies. And our -- the way we see the opportunity here is to evaluate those, understand, understand then some what they're good at, what they're not so good at, where the risks are, how to mitigate those risks and then how to kind of embed those capabilities within our platforms in order to deliver a better service to our customers. So we haven't done any exclusive arrangements there. What we've said is that we want to be completely agnostic. We'll just use best-of-breed. So for example, I mentioned that we're already using for certain customers on certain content, we're using AI to do the translation. But we're actually choosing different platforms for different languages. So we find that, for example, for Latin American Spanish, the best platform is Platform A, whereas for I presume French, it's platform B. So the way our systems are configured is we just -- we'll just hook in given a particular situation, whichever we believe is the best platform to use. And what that means is, over time, obviously, we're continuing to evaluate these with each new iteration of the technology to make sure we always know which is the best of breed, and we can make sure that we're using the most appropriate solution. So I'm not sure, George, that we would actually go out and buy something because I think that in -- I guess your question is if the bubble bursts and all the kind of funding evaporates, what would you do that? Well, I guess we'll cross that bridge when we come to it and if I should transpire, then there may be some interesting assets to pick up at a much more interesting price that you'd have to pay today. With that, I think we should call it a day. Thank you so much, everyone, for joining the call, and we hope to see you next time. Robert Pursell: Thank you. Stuart Green: Thanks a lot.
Ulf Ritsvall: Good morning, good afternoon, and good evening, wherever you are. Welcome to the quarterly 3 presentation from NEXT Biometrics. Please remember there is a Q&A in the chat where you can ask questions during the presentation and I will try to respond to them at the end of the presentation. You can go to the next slide, please. So with us today, I have Eirik Underthun, CFO of NEXT Biometrics and myself. I also have with me Roy Tselentis, he's a Board member in NEXT Biometrics for answering a few questions. You can take the next slide, please. So I would like to start with a background of where we are, where in the ecosystem we are and on the markets we're at. I want to continue with the highlights of the quarterly 3 and continue with that on quarterly 3 financials that Eirik will present. I will, as usual, continue with business market and product updates, and I will round off with -- go through an outlook what we see in the near-term future for the company. And as I said, we will end with a Q&A session. You can please go to the next slide. So I think we have ended up in a sort of perfect storm. As you know, the Aadhaar national ID program in India temporarily paused its enrollment of new devices as a security precaution. That was done late '24, and that actually ended towards spring '25 because of an incident -- security incident at a competitor's Aadhaar integration. This we have communicated previously in a few different steps. This happened at a time where our distributor had ordered full stock of production, India Aadhaar program was supposed to pick up the goods and anticipating sales. The end client had in its turn, also stuffed their channels with finished goods ready to deploy to the L1 market. The Aadhaar program is recognized for a quality stamp within biometrics. Markets like Africa, Southeast Asia and South America is also looking at India and saw this security incident that UIDAI saw. This, of course, impacted those markets very negatively as people were afraid, is biometric the way forward in these programs? Is it secure enough? UIDAI has since then implemented new liveness detection and anti-spoofing guidelines and testing procedures. The bar to enter the national ID program in India has risen. It's now tougher, even tougher. It was tough before. It's even tougher to actually qualify into the Aadhaar system. Before the stop, there were more than 10 different OEMs that were qualified into the L1. Today, we have 5 -- 7, sorry, 7 OEMs, and we are a part of 2 out of the 7. NEXT Biometrics sensors are part of 2 out of 7. And that was ACPL received its approval in March and Evolute Group in -- now in September. The whole incident in India impacted our sales 2025 dramatically as the Aadhaar programs for NEXT OEM finally opened in 2025. The OEMs first had to empty their stock in the channels with the finished goods as well as the distributor on the side. During Q3, we have seen a real pickup and the channels are normalizing. But this has, of course, not been reflected in our new sales as the product has been taken from the distributor channels. As a direct consequence, even when it was clearly stated in NEXT commercial agreements, NEXT has not received payments from certain of our distributors until the end customer actually paid them. So this part is very important. This has significantly contributed to the fact that we need to restate the revenues in 2024. However, as we are facing some near-term headwinds, the certified high-quality product and the increased market momentum we now see in India and in Africa and other places, combined with an expanded and well-received product makes us confident that this is gradually increasing our revenue during the coming quarters. The increasing market momentum gives a solid ground for optimism. And our main focus, of course, will be to convert the now inventory value at NOK 34 million, which actually corresponds to more than NOK 70 million in actual revenue. We are focusing on converting those into cash in the sales part. You can take the next slide, please. So from the perfect storm, in this significant cause of the restatement of the historic revenues to be ensure full compliance and accuracy according to the Norwegian rules, accounting rules. As you may remember, we had a potential fraud in the -- together with a Chinese partner. That's, of course, one part. We removed that in Q2. And this time, actually, the restatement is about the Aadhaar and channel were stuffed. This is now largely behind us. And of course, the highlight for Q3 going -- also going forward, we are now taking the accounts receivable to the inventory and moving forward to convert the goods into cash. Our Q3 revenue came in low. It was NOK 3 million, lower than expectations compared to the restated Q3, it was NOK 3.7 million. However, if we also include the shipped goods from the channel, it was NOK 5.1 million. Adjusted gross profit, 51% and improved from Q3. We added another 5 design wins. We are continuing as you well remember, we actually have a target to add one new design win every month. We added 5 this quarter. During the quarter, we also successfully made a private placement solving the liquidity needs. It was announced September 16. It was NOK 20 million at a NOK 4.25 price per share. We are also looking at, of course, working capital and cost-cutting evaluation in the coming quarter, as you can read in our financials. I now move over to Eirik and introduce the Q3 financials. You can swap the slides, please. Eirik Underthun: Next slide, please. Thank you, Ulf. I will now run you through the Q3 financial highlights. And as earlier alluded to, the revenues were NOK 3 million versus the restated NOK 3.7 million in quarter 3 2024. And the revenues were impacted by low sales to the India market as well as slowness in the China market. Adjusted gross margin was 51% compared to the restated negative gross margin in Q3 2024. On operating expenses, we ended up with adjusted operating expense of NOK 18.7 million compared to the NOK 17.3 million in quarter 3 2024. The adjusted EBITDA was negative NOK 17.8 million compared to negative NOK 20.3 million in quarter 3 2024, which was restated. On the cash and cash flow, NEXT ended up with a cash of NOK 7.4 million compared to NOK 22.1 million at end of quarter 2 2025. And we had a negative operational cash flow of NOK 13.5 million due to lower-than-expected revenues and also operating losses in this quarter. And we also completed the NOK 20 million share issue, the private placement at NOK 4.25 per share. This was completed in October. So it's not a part of the financial statements that have been issued, but they will be included in the quarter 4 2025 financial statements. With this, I will turn the call over to Roy, who will explain a little bit more about the restatements. Roy Tselentis: Thank you, Eirik. As we know in the second quarter report, we reported irregularities in China. And after the presentation, the company and the new Board of Directors initiated an investigation around these irregularities. We also did a comprehensive review of the historical reported revenues and around our internal controls, we saw the need for further adjusting our historical reported sales and that they did not meet the necessary attributes for revenue recognition. As a consequence of this, we had to restate our revenues and net profits for 2024 with NOK 52 million and NOK 30 million, respectively. And it's important to note that this includes the adjustments that we reported when we presented the 2Q figures, to explain how this is technically done the revenues has been reclassified as goods in consignment. This means that it's no longer accounts receivables and now are listed as inventory. And today, we have NOK 18 million in inventory value. And this approach is done based on advice from independent IFRS experts. And we feel confident now that this would be in compliance with IFRS. Another thing that's important to mention is that these adjustments doesn't affect the historical cash flow. The cash position is the same as reported. But these restatements give the users of the financial statements a better understanding of the business and its financial performance. And at the same time, the management doesn't consider that the restated accounts imply a reduced ability for the company to generate cash collections, but a more accurate presentation of the current status of the different sales. The management of the company, of course, acknowledge the negative impact on equity and the significant adverse consequences for the company. The company will continue to implement measures to ensure robust internal control over financial reporting as well as other key internal controls to safeguard the company and protect investors' interest in NEXT. And by this, I will turn it to you, Ulf. Ulf Ritsvall: Thank you, Roy. Again, there's a Q&A session in the end and you can use the chat function. We may now leave that behind us and look at the business and market and product updates. You can take the next slide, please. So in these different markets we are present in, the government ID and the digital ID market, certification is mandatory. And as I communicated and said, we now have 2 out of 7 approved OEMs in India. These are 2 of the main vendors in India, which will give us hope for the future in India. We have completed the MOSIP compliance, which is Asia and Africa. We have certifications in the U.S. to sell in the U.S., China, Nigeria, Pakistan and Malaysia. What's new since Q2 is that the Bangladesh, the banking part is approved. We can sell our sensors into the bank, and we're waiting for the governmental ID process to be completed. We have now 81 total design wins. And those includes high-volume potentials, high-volume contracts as ACPL, Evolute we announced this last quarter and Commlink in Bangladesh and additional point-of-sales customers. This pipeline will bring us to profitability. And how do we do that? Yes, we do it with the existing products we have at hand. So you have seen we -- during the years, we have developed variants of FAP 20. We have now also FAP 30 as well as we have the Oyster III that is a product that goes into a PC and IAM. We can take the next slide, please. For doing this display technology, we announced 9 months ago that we are targeting to go into a new market segment. That market segment is the most challenging, most demanding, highest reward market there is in technology. It's the mobile phone, smartphone industry. We have since then, of course, worked with our IP protection. We have multiple projects -- patents pending and nearly completion. We have, of course, started talking to industry players. We have NDAs with specifically the supply chain, which is very important. Without this display technology, there will be no smartphones. We have also indications and industry validations with larger OEMs. We sent out a message in April this year. Those discussions have continued and confirming the groundbreaking potential of this product. It's a clear potential to drive a transformative change across the biometric display market. Today, India is the largest biometric market outside cell phones, laptops. If they would be able to have this product, you can get your grains, you can get your SIM card, you can get your bank account by verifying yourself and your unique identity onto the display. This is just one user example that is available. But there's multiple innovations that can be done based on this type of implementation. We remain confident that bringing this innovation to the market. We will share further updates when it comes. We are seeing a massive upside as we have communicated. There's about 300 million smartphone -- high-end smartphone makers or smartphone devices sold every year. And we have the ambition to take a portion out of those 300 million, massive upside, and we have close to 0 R&D work as we are working efficiently with suppliers. You can take the next step, please -- next slide, please. So actually announced 20th of August, just before the Q2 reporting, we got the breakthrough order. We got a first large-scale production order for our FAP 30. It's ready in the production capabilities. We will deliver the first units out of this order during Q4. It's our Granite. It's a FAP 30 product. It serves different markets and use cases. It's spanning our portfolio since FAP 20 is smaller, limited to one certain market. But it's also important to understand that this is not a replacement unit. It's actually a complement in the portfolio. We see now that FAP 30 comes with an impressive result. We have very good biometric performance. And we have a large-sized image, of course, and a phenomenal quality on those. And we have already early samples in customers that are engaged with us, which is fantastic. You can take the next slide, please. Very happy to also announce that Evolute finally came in through the L1 Aadhaar certification, the second OEM in India that -- for using a biometric active thermal sensor. We are expecting high-volume purchase orders during Q4, so very soon. And except the Aadhaar program products, they are actually targeting MOSIP and the MENA markets, Africa and Middle East. It's based out of the standard FAP 20 sensor, and they have 5 different designs basically. They have reader only. They have a point-of-sales terminal and so on. And most important taken out of this is that we are 2 out of 7 certified products in the market. If you take the next slide, please. And also looking at different markets, we are entering also Sri Lanka. So we're adding one more geographical market. It's also a high potential market since they are looking at the Aadhaar system itself. They have already implemented the Aadhaar sort of program. And the biometric and hardware demand is rising in the governmental, banking and telecom sectors. C3 Labs, which is the one that are entering the market together with us. It's a multidisciplinary engineering company, and they make different innovations, including end-to-end solutions. And they also help other manufacturers to do construct the product manufacturer. You can find them online. It's interesting to see. We have secured the first mass production order from this new customer. And it's actually a self-service kiosk for secured transaction banking transactions. In the link, you can see actually a picture, image of the actual device. So delivered scheduled to start in Q4. If you can take the next slide, where it is my last slide going to the outlook. What I see in the near future. We have 3 revenue streams driving growth. We have the recurring quarterly revenues based out of the contractual that we have announced. It means ACPL, Evolute and so on, better predictability and scalable in going forward. We have 81 smaller to medium-sized design wins. They are less regular, but they are expanding. We are expanding our customer base, and we're therefore, seeing additional revenue in this stream. And then, of course, we have the larger tenders, the onetime revenue type of projects that is in the governmental ID sector. Hard to predict when the order is there. What we can do is to secure the hardware design, make sure that it's our sensor that is implemented. We do the implementation, integration and then we can wait for the supplier to get -- to win the tender. And then, of course, we will receive the order. Very hard to predict the timing of this, but the upside is a larger number in revenue. So as I have explained, we are ready. The products are there. The operational momentum is kicking off in early '26. And I think we are increasing -- we see increasing momentum and the 81 design wins creates a solid ground for my optimism. I've been in the biometric industry for 15 years. The first time ever something closed like this in India. But I know that sometimes things takes a long time. A design win can be anything from a design win until it's actually launched, can be -- as we have communicated previously, it could be anything from 9 months to 24 months. Most important is that the hardware is in the design, the tooling is ready, and we are available when the customer will place the order. We have now a valued inventory, valued at NOK 34 million, which actually corresponds to approximately NOK 70 million in revenue when sold to end customers. We see the solid gross margin at around 50% still in our market and continue guiding on the 50%. Due to the slowness of the revenue, we have initiated cost cutting and to preserve cash and liquidity as a measure. I need to come back to the more exact details on this at a later stage. We are now -- this was my last slide. Let's move over to Q&A, if there's any questions online. Eirik Underthun: Yes. Ulf, I have one question here. So how can you explain ending up in a situation where the 2024 financial statements have been significantly incorrect? Ulf Ritsvall: Thank you, Eirik. It's a very valid question, and it's a very understandable question. So we've had -- it's hard to me, myself to understand actually. Our key focus until now has been to make sure that we are able to prepare the adjusted financial reporting that presents the most correct financial situation to the company. I believe the reason for getting here consists of several factors. I explained for you the perfect storm. I would say that one of the items is the -- one of the costs relates to the irregularities discovered in China. But it's also -- in addition to this, it seems to be clear that our operational finance function not have been cooperating and shared information in an adequate manner. Of course, measures has been taken into this. And it's clear that our finance function and operational function needs additional competence to measure -- to address this and this has been taken. Thank you. Any more questions? Eirik Underthun: Yes, I have one more question here now. How have you ensured that the figures presented today reflects the current situation? So I guess that's a question for me. And I believe it's about the balance sheet that we have presented now at 30th September 2025. So what we have done is to go through the transactions and the customers that we have seen are affected by the irregularities, but also have had assistance from external IFRS experts. And we also conducted an external investigation and that the investigator visited and inspected the warehouses where we have distributors. And moreover, we have had a dialogue with our auditor, although it should be noted that the Q3 report has not been audited nor the 2024 restated financial accounts. So due to the effort and the time that we spent to investigate and reclassify the transactions, we believe that the presented figures gives you the best view of the NEXT financial situation as per 30th September 2025. Then there is some other question here. I think this one is for Roy. Roy, could you elaborate on the dispute between NEXT and the Chinese sales and marketing partner? Roy Tselentis: Yes, of course. Thank you, Eirik. As part of the external investigations, the irregularities has been substantiated, and we can see that they have occurred in our Chinese subsidiary. Our go-to-market partner or marketing and sales partner in China has claimed a total payment of around NOK 15.6 million. NEXT is very clear in our position that we have no obligation to compensate our partner and no provision has been recognized. Also in the litigation process which we had in Shanghai, we argue that this is not the right jurisdiction, over most of the claims raised by the sales and marketing partner and that these claims fall under arbitration in accordance with the Norwegian Arbitration Act with Oslo in Norway, a seat of the arbitration. The time line of this arbitration is uncertain, but we are working on it, and there are progress in that situation. We will, of course, continue to investigate the irregularities and we'll take any further relevant and necessary legal action against the relevant companies and individuals involved in these irregularities. Eirik Underthun: Yes. Thank you, Roy. I've got one final question here now. I think, Ulf, this is one for you. Can you disclose the status of the full-screen fingerprint technology? For example, the patent situation, technical progress and interest by display manufacturers. Ulf Ritsvall: Maybe I can elaborate a bit. It's -- some parts are, of course, under NDA, which we need to, of course, see. We are in active dialogues with different display manufacturers. There's a high interest from the display manufacturers. We also have got the information from the market. When I say early feedback from selected industry players, it's actually the selective players in the different smartphone OEMs. So that means the -- maybe the top 10 OEMs in the smartphone industry. I don't mention any names here since it's under, but we -- one of them, we actually have an NDA with. So there we share more frequent updates on the technical progress. IP protection is underway. We have a few patents actually to have our boundaries in the IP, of course. We will not start selling display technology or displays, as we have said, we will be a partner with a display manufacturers. Therefore, we need patent protection and IP protection. That work is continuing. And I will share further updates once the development of the patents when they are actually moving, I will share more updates with you. I hope I answered your question a bit more, even if it's sort of under NDA some of them. Thank you. Do we have any more questions? No more questions. I would like to thank you for participating in the call. My e-mail is always open. If you have any more questions, you can also call me, of course, on my cell phone. Wish you a good day, and thank you.
Stephen Heapy: Good morning, everyone, and welcome to our interim results presentation for the period ended 30th of September 2025. The format this morning will be, I'll go through the first half highlights. I will then pass over to Gary Brown, our Chief Financial Officer, who will give a financial update, and then, Gary will return the microphone to me. And I'll go through a strategy update. There will then be a period after that for any questions, which we would be pleased to answer. So first of all, record passenger numbers, revenue and profitability. Further growth in the first half across all our key metrics, we delivered record numbers. Passenger numbers were 6% higher, including encouraging first summer performance at our Bournemouth and Luton bases. Strong financial performance with group profit before FX revaluations at 1% and earnings per share 8% higher following our GBP 250 million share buyback program. We are also pleased today to announce a further share buyback program of GBP 100 million. We have a strong balance sheet and access to ample liquidity, which are vital in this fast-paced, capital investment -- intensive industry. GBP 3.4 billion of cash gives us financial resilience and supports investment in our growing fleets. We operated 23 Airbus A321neo aircraft in summer 2025, and that represented 17% of our total fleet. We're also delighted to announce the launch of operations at Gatwick Airport, a once-in-a-generation opportunity to accelerate our growth. Next slide. Our growth strategy is to be the U.K.'s leading and best leisure travel business. We've made strong progress against all of our strategic pillars, supported by our fantastic colleagues, who are dedicated to delivering exceptional customer service. Our brands continue to be recognized by a leading, independent, customer-focused organizations, including Which?, TripAdvisor, Trustpilot, Feefo, and of course, the U.K. Institute for Customer Service. Our customers love us, and they come back time after time. Through initiatives like myJet2, we now know them better than ever, and our key metrics in this area show exactly this. We continue to invest in our digital and operational infrastructure, the retail operations center, our revenue management system, and of course, our second maintenance hangar at Manchester Airport. Our fleet renewal program is delivering against our sustainability targets, and we expect to operate 31 Airbus A321neo aircraft in Summer '26, and that represents 22% of the total fleet, which is 5 points higher than Summer '25. Next slide. Gatwick truly is a once-in-a-generation opportunity to accelerate our growth. Gatwick is the busiest single-runway airport in the world. And a once-in-generation opportunity came our way through the release of additional slots at Gatwick Airport. We will have access to 50 million people within a 60-minute journey by road or rail of Gatwick Airport. We have flights and the holidays on sale from March 2026 to 29 destinations across the Mediterranean, the Canary Islands and European leisure cities. The program will consist of 6 aircraft, and we hope to be able to grow that organically as we become established. We expect the new base to be profitable in financial year '29, and it should deliver meaningful profit growth thereafter. In September '25, the DfT approved the Gatwick expansion program to operate a dual runway subject to a 6-week appeal process. The new Northern runway is anticipated to be operational by the early 2030s, enabling the capacity of the airport to rise from 45 million to 60 million passengers per annum. That will present us with a fantastic opportunity to grow significantly. So the next part of the presentation, I will pass you over to our Chief Financial Officer, Gary Brown, who will give you our financial review. Gary Brown: Thanks, Steve. Good morning, everyone. I'm Gary Brown. I'm group CFO here at Jet2, and I'm pleased to present our financial results for the 6 months ending 30th of September 2025, together with some thoughts on how we think about capital allocation here. So moving to Slide 7. We've included this slide, as it's often easy to lose sight of where the business was relatively recently and where we are now. We flew 19.8 million passengers in the financial year ended 31st of March 2025, which means we've been growing at just under 8% a year since 2019. Our revenue has gone up even faster, averaging about 16% since 2019, mainly because more of our customers have been choosing package holidays. In fact, in 2025, these made up 66.5% of our total passengers, up 17 percentage points as compared to 2019, with package holiday revenue making up over 80% of our total revenue. Back then, we had 9 U.K. bases and an aircraft fleet of 90, primarily mid-life Boeing aircraft, a composition that is rapidly changing, as you heard from Steve, underpinned by our firm Airbus delivery schedule. The A321neo is making up 17% of our fleet in Summer '25. Operating profit has more than doubled, up 118% to GBP 447 million in 2025 from GBP 204 million in 2019. And we're also making more operating profit per sector seat, which has risen from around GBP 15 to GBP 20, a 35% increase. Our basic earnings per share are up 132% compared to 2019, and our average return on capital employed over the 3 years since the pandemic is 17%, one of the best in the industry. As you will hear, the strong financial track record and the continuing evolution of our business, ongoing confidence in our future growth prospects. On to Slide 8. Our key stats illustrate how our flexible, fully integrated operating model is capable of adapting to changing consumer trends. They also demonstrate our clear focus on optimizing profitability through a combination of volume, pricing and product mix. First things first, more people are choosing Jet2, an extra 750,000 passengers or 6% up on last year. This summer, more people chose flight-only, which was up by 16% as customer booking trends continue to be late, and we saw more of those last-minute price-sensitive deals. We've consistently stressed that both our products are vital importance, and it's great to see customers recognizing the clear value that our flight-only offering brings, friendly flight times, an industry leader for not canceling flights and with the added benefits of our Red Team of customer helpers, providing their outstanding customer-first service. Package holidays are still a hit, growing 1% to a record 4.73 million customers. And as you know, they bring in a higher profit per customer. Prices for package holidays held up well, rising 3%, as we were able to pass on most of the cost increases from our suppliers. On the flights-only side of the business, the average ticket price dropped 7% to GBP 122 because we ran more promotional offers, which was supported by the targeted reallocation of marketing investment to optimize load factors in a pretty competitive market. Pleasingly, we also made 4% more per passenger from our non-ticket revenue streams, having more flight-only passengers meant we earned more hold baggage income, whilst our in-flight retail offers saw spend per head grow further 4% due to consistently strong onboard product availability, made possible by our in-house retail operations center plus the launch of a new onboard product range. Looking now at Slide 9. Revenue was up by 5%, primarily due to the growth in passenger numbers, but also helped by the increase in the package holidays price. What I would describe as our underlying operating cost base was well controlled and up by 4.8%. Some of the main influences on this growth were in terms of our hotel accommodation costs. They represent about 45% of our full-year cost base. They were up 7% with inflationary rate increases of 6%, plus an increased proportion of bookings to higher-star rated and all-inclusive hotels, as customers treated themselves being the main drivers. Excluding the impact of SAF premiums due to the SAF mandate increase, our fuel costs, which are just over 10% of our cost base, were down 3% on a like-for-like basis, as a 7% increase in flying activity was offset by a 5% reduction in the blended fuel price, a 3% efficiency improvement from the growing A321neo fleet plus some FX benefits. Landing, navigation and third-party handling costs, which are towards 9% of our cost base, rose 10%. The growth above flying activity linked to average rate increases across the U.K. and European airport bases with notable increases in EUROCONTROL charges and third-party handling costs in Turkey. We also saw efficiencies in marketing spend coming through as investments we've made in our digital marketing technology infrastructure helped improve underlying cost per acquisition. Beyond our underlying cost base, we incurred over GBP 30 million of additional costs, including the increase in employer NI and national minimum wage imposed by government of about GBP 11 million, an extra GBP 17 million in premiums for sustainable aviation fuel as the SAF mandate jumped to 2%. Finally, we invested to firmly establish ourselves at our 2 new bases at Bournemouth and Luton in the first summer of operation. In total, these additional costs added a further 0.7% of overall cost growth. That said, our EBIT or operating profit margins were still healthy at 13.4%, whilst our basic earnings per share were up by 8%, aided by our GBP 250 million share buyback program. Return on capital employed sat at 23.5% halfway through the year, though it will dip a bit by year-end due to second half losses, which are normal for our business. Turning the page to Slide 10. Our EBITDA was up by 2% compared to last year, with our net cash generated from operating activities still strong at approximately GBP 700 million, although down on last year due to the later customer booking curve. Our capital expenditure investments included payments for 6 owned Airbus A321neo aircraft, a spare LEAP-1A engine to support the growing Airbus fleet plus normal maintenance on our existing Boeing aircraft. In addition, our second maintenance hangar at Manchester Airport opened in August, which means we can now support 6 lines of aircraft maintenance across both of our hangars. First half free cash flow was GBP 370 million, meaning that since the pandemic we've generated approximately GBP 2.5 billion of free cash, which enables us to confidently support our strategic capital allocation. We also chose to pay off certain aircraft loans for 4 of our Boeing 737-800NG aircraft with 6 last year because they were more expensive than what we can now achieve in the JOLCO market. On top of that, we bought back and canceled GBP 231 million worth of our own shares as part of our GBP 250 million share buyback program, which completed just after the end of the reporting period. Moving to Slide 11. First thing to say is that we have one of the strongest balance sheets in the industry with access, as Steve has said, to ample liquidity, which we think is essential in what is a fast-paced, capital-intensive industry. We took delivery of 9 new A321neo planes, 6 from our long-term aircraft order; and 3, we've leased to fill short-term gaps in the delivery profile. We also used the JOLCO market to finance 4 of the 9 new aircraft raising GBP 191 million. Our total cash was down GBP 242 million compared to last year, mostly due to capital allocation decisions, which included the majority of the GBP 250 million share buyback and the repurchase of the convertible bond in the second half of last financial year. Customer cash was broadly flat year-on-year due to the late booking curve and higher mix of flight-only bookings. As you've seen in the past, when we quickly capitalized on the demise of Thomas Cook and also during COVID, when we were able to make the right decisions for our colleagues and customers, this strong financial foundation has, on this occasion, allowed us to confidently pursue our growth ambitions at London Gatwick in the full knowledge that meaningful start-up investment will be required to provide a solid operational platform, which over time will enable us to fully capitalize on the scale of that opportunity. Finally, in a further demonstration of the confidence in the group's sustainable cash-generative business model and the Board's conviction and the prospects for the business, we have today announced an on-market share buyback program of up to GBP 100 million. Shares will be canceled following purchase, providing a further positive enhancement to earnings per share. Turning to our capital allocation framework on Slide 12. Let me quickly walk you through how we think about capital allocation. It's really all about making sure we invest in our business to ensure it remains resilient and keeps evolving to the ever-changing consumer landscape. It's about keeping our balance sheet in good shape to service our debt obligations and keep the cost of debt down, and it's to make sure we're well protected if anything unexpected comes along. On the flip side, it also means we've got the flexibility to invest in exciting growth opportunities as and when, whilst providing good returns for our shareholders. As you've seen, we're continuing to deliver solid operating and free cash flow, which means we can invest in the business, recently launched in both Bournemouth and London Luton Airports. We've been encouraged by their performances and are looking forward to continuing to grow in these regions by building our brand awareness and understanding and steadily growing a loyal customer base. Looking ahead, we're now gearing up for Gatwick to get underway in March '26, which is a fantastic opportunity for us to further accelerate our growth. Bear in mind that, as Steve has said, the catchment area is over 15 million people within 60 minutes of it by road or rail. And we continue to invest in tech and infrastructure with our AI-led revenue management system pilot underway, our second maintenance hangar at Manchester operational and our groundbreaking retail operations center now fully automated. Our total and net cash position remains strong, allowing us to be flexible around our debt obligations to reduce the overall cost of debt, whilst giving the JOLCO market the confidence to continue to do plenty of business with us. And in terms of shareholder returns, we bought back GBP 250 million of shares or approximately 10% of the current market cap of the company, which helped push our EPS, earnings per share, up by 8% and by 132% since 2019. And we've also increased the interim dividend, whilst announcing another buyback of GBP 100 million today, which will take us cumulatively to over 13% of the current market cap return to shareholders. Finally, on Slide 13, how are we thinking about the medium term? We know there are many companies in this industry who have flown too close to the sun in the way they run their balance sheet and leverage position. From our perspective, we believe remaining at less than 2x net debt to EBITDA on an owned cash basis brings a pragmatic balance between protecting the business, but also manageable levels of leverage to maximize returns. As of today, we've got plenty of headroom against this target, but as we take more aircraft and finance, then this level will drift up. We've said previously that we learned a lot during COVID, where we went into that period with just over GBP 0.5 billion of our own cash and an undrawn RCF of GBP 100 million. This allowed us to treat customers with respect and returning their deposits quickly and gave us the breathing space to make the right decisions for our business, and in particular, our colleagues. As you've heard, our business has grown by over 100% since then, and we believe that an own cash balance of between GBP 600 million and GBP 700 million at our year-end, which is a low point in the cash cycle, plus an undrawn RCF of GBP 500 million, gives us the necessary breathing space should we ever encounter something similar. Just to stress, we don't expect to grow this own cash target as the business continues to get bigger, as we feel this is the right level. Average capital expenditure from FY '27 to '30 is in the region of GBP 950 million, given current visibility of our Airbus fleet pipeline, and we believe financing approximately 50% of these aircraft is very much in line with our historical business philosophy of wanting to own a good proportion of these valuable capital assets, which we intend to fly through to end of life. This would mean approximately 65% of our total aircraft fleet would be unencumbered by the end of 2030. Finally, and has been seen recently, subject to maintaining our capital allocation principles and assuming satisfactory financial performance, we would look to return excess capital to our shareholders. I'll now hand back to Steve, who will talk you through the other slides. Stephen Heapy: Thank you very much, Gary. I'm sure you'll all agree, a very impressive set of results and some very clear messages. So next slide, Jet2's investment case. Our investment case clearly demonstrates why Jet2 is an attractive prospect for investors, both today and for the future. We have a growing market. Although holidays are classed as a discretionary purchase, many, many people within the U.K. class them as an essential purchase and prioritize that above many other things, including lottery ticket sales, streaming services, nights out, social occasions, et cetera. Over the last couple of years, we've added more bases; Liverpool, Bournemouth, Luton, and laterly, our 14th U.K. base Gatwick, and this increases the reach from 58 million to 61 million people. That covers 90% of the U.K. population. Size and scope of the offer. We're the #1 tour operator in the U.K. We've got a great product range. It's over 75 destinations across the Mediterranean, Canary Islands and European leisure cities. We're adding more and more hotels every year in response to the demands of our customers. We speak to our customers. We listen to what they say, and we act on what they tell us. We've got a fully integrated operating model. We control our seat supply. We do self-handling at many bases. We have our own training facilities. And of course, we have the retail operations center, which is now fully automated. Our tour operator only uses one airline, jet2.com. Why? Because it's the best airline in the U.K. according to TripAdvisor, the best airline in Europe according to TripAdvisor and the fifth best airline in the world according to TripAdvisor. Why would we trust our customers on any other airline? We have a customer-led offering. Our Net Promoter Score is in the mid-60s. That's on a par with some of the best brands in the world. We have a 62% repeat booker rate for package holidays. On sustainability, we remain committed to our sustainability targets outlined in our strategy document, and our fleet renewal program is progressing in line with expectations. This will aid a reduction in our carbon intensity ratio. We have a clear path to growth. We've received 23 Airbus A321neo aircraft, the most fuel-efficient and quietest aircraft in its class. And we have over the next 10 years, another 132 Airbus aircraft that will provide us with the ability to replace retiring aircraft and also provide a guaranteed stream of aircraft to fuel our growth ambitions. You've heard from Gary, consistently strong financial delivery. We have a strong balance sheet with which to underpin our growth at Gatwick and other bases, and this will continue with the prudence that we have shown over the last few years. Our growth agenda. Our growth agenda consists of 2 pillars. The first one, defend and strengthen the core. We have a committed firm aircraft order. This will facilitate further growth at our recently opened bases and will position us to capitalize on potential expansion at Gatwick. This order was done during the pandemic period and provides us with a guaranteed delivery stream, and this will help us to provide very accurate plans as to our activity in the future. Our reach, we have an ATOL license for 7 million customers, and this represents a 20% share of ATOL licenses. We over-index in the over 50s and people with a higher disposable income, and this gives us protection in economically challenging times. 33% of our customers were defined as affluent achievers as compared to 22% of the U.K. population. We're leveraging technology. We have the pilot for our revenue management system underway, and this will cover 5% of our flights. As a reminder, our revenue management system uses artificial intelligence and many external data points in which to price our flights competitively within the market. The early results are encouraging, and assuming continued positive performance, we plan to progressively roll out across the majority of flights in the forthcoming financial year. The next pillar is to extend our reach and diversity. Personalization and customer diversification is key. myJet2 has helped increase share of bookings through the app to 31%. That's 5% up year-on-year. myJet2perks has recently been refreshed, giving members the chance to access new exclusive discounts as well as giveaways across a range of popular brands and retailers. Tomorrow's reach. Following the Gatwick launch, we will expand our market presence to 61 million people, attracting new customers, thanks to improved reach, but we also have strong retention rates, underlining our strong customer-first approach. Leveraging technology. The leading-edge automation equipment installed at the retail operations center, alongside data intelligence will in time support an improved onboard retail experience for all our customers. We will aim to have the right products at the right time every time, further optimizing our in-flight's revenue potential. We've also invested heavily in our marketing technology, and there'll be more details on this in a future slide. Next slide, fleet. We're committed to growing and replenishing our fleet to support our growth agenda. We will get additional ACMI aircraft for Summer '26 to enable the allocation of 6 aircraft at Gatwick. But the Airbus delivery program is unchanged and will support any further growth at Gatwick or any other bases. By Summer '32, you can see from the chart, we'll have a total fleet of 161 aircraft, of which 124 will be CFM-powered A321neo aircraft. In our opinion, this is the best narrow-body aircraft in the world today in terms of fuel efficiency and noise. The average seat gauge will increase from 197 in Summer 2025 to 223 in Summer 2032, as the proportion of 232-seat neo aircraft increases. We, therefore, expect total seat capacity to increase at a compound annual growth rate of 4.4% across the period. Investing in our fleet. Investing in our fleet is key to maintaining our competitive advantage. As we increase the mix of A321neo aircraft in our fleet, it's important to recognize the significant benefit this brings to the group. For example, a Boeing 737-800 aircraft seats 189 passengers. However, the A321neo seats 232 passengers. Quite simply, we'll be able to take more people on holiday with less emissions per passenger. The A321neo is a crucial part of our climate transition plan. Additionally, the average cost per seat saving of GBP 10 was realized over Summer '25, primarily driven by fuel and carbon savings. And these savings will increase over time with the increase in the numbers of aircraft. To summarize, 23% more seats on neo, 20% fuel and carbon usage reduction per seat, 50% less noise than our existing fleet, which makes it a very attractive aircraft for many airports and a GBP 10 average cost per seat saving. Next slide, size and scope of offer. We have a diversified flying program at Jet2, and we operate to 25 countries, over 800 resorts from 14 U.K. bases, that's 75 destinations and over 600 routes. We operate to the Mediterranean, the Canaries and European leisure cities. We've offered more destinations in Summer '25, Pula in Istria and Riviera, Agadir, Marrakech and Jerez in the South of Spain. For Summer '26, we'll be launching Samos in Greece, La Palma in the Canary Islands and Palermo in Sicily. This shows that we're continuing to diversify our offer, respond to our customers and give them the destinations they have asked for. You can expect more destinations to be announced in the coming months. Next slide, driving loyalty across our customer base. Quite simply, our goal is to guide customers from their first booking to becoming loyal advocates of the brand and move them up the loyalty ladder. First rung on the loyalty ladder, new customers. We welcome new bookers with a seamless experience and personalized follow-up. From the moment they contact us on the website or in the call center, we make our customers feel welcome. Our customer service starts there. We look after them pre-travel, on holiday and when they return from holiday through a robust and comprehensive communication program, making our customers feel special before, during and after travel. The next rung on the ladder is repeat. We nurture customer engagement through tailored messaging, relevant content and unrivaled product that encourages repeat booking. This, of course, is aided by our significant investment in marketing technology, which we'll talk about in a little while. This is a very important stage in our booking. Some people will try us once, maybe based on price, and we need to make sure that we get the customer, we nurture them, we keep them interested. We send them relevant content and make sure they don't look somewhere else. The final stage on the ladder is loyal. As customers move up, we strengthen the emotional connection with them by providing exclusive benefits and recognition, turning them into loyal bookers who choose us first and recommend them to others. The more people experience Jet2 and Jet2holidays, the more loyal they become. By successfully moving our customers from new bookings right through to loyal status, this increases their lifetime value, boost booking frequency and reduces acquisition costs. Loyal customers are more likely to engage with the brand when they get tailored offers and share their positive experiences, ultimately amplifying the brand's reputation and reach. Next slide, win new customers. First of all, reaching new audiences. We have shown at our recent base launches at Liverpool, Bournemouth, Luton and Gatwick that we are very adept in reaching new customer audiences. However, there's an opportunity to do more to grow our audience by targeting younger demographic customers, springboarding off our highly successful nothing beats meme to increase relevance with this demographic, which is key to deepening our engagement through aspirational social-first content that taps into their interests and passions. Adding Gatwick base allows us to grow our reach to over 90% of the U.K. population, that's 61 million people. The focus of the messaging will be on the breadth of offering, the value that is offered by our products, our credentials and VIP service to drive engagement. We continually strive to improve the size and scope of our offering. We are the #1 tour operator in the U.K. to destinations across the Mediterranean, the Canaries and European leisure cities. We have an unrivaled product choice in excess of 5,600 quality properties spanning over 800 fabulous resorts across more than 75 destinations. And this is increasing every month, as we add more in-demand product to our portfolio. We have a variety of brands. Our beach, cities, villas, indulgent escapes and vibe brands provide relevant experiences for different types of customers. Fantastic range of properties, from 2-star to 5-star, from self-catering to all-inclusive. We provide our customers with the choice they want. We don't try to squeeze our customers into the products we want them to book, we let them choose. We offer fully flexible durations. We allow people the ultimate choice. They can go on the day they want. They can stay for as long as they like. It's up to them. The customer is in charge. Remember, Jet2holidays is the company that pioneered flexible duration holidays. All in all, we've got an award-winning proposition. What we have is very highly rated by our customers. You've seen the awards we win, our TripAdvisor ratings, our awards from the Institute of Customer Service. This is highly valued by our customers, and we continue to strive to provide them with the best experience possible. A happy customer will tell other customers of the experience they've received with Jet2holidays. Word of mouth has proved to be very important. Building on the nothing beats meme, we had over 80 billion global video views across TikTok. The song was named TikTok's official Sound of the Summer 2025. We saw celebrity activity from Jeff Goldblum, Mariah Carey and Drake, who visited our hangar with a combined 173 million followers. An estimated 13 million earned media value through the summer. And a 12% year-on-year increase in spontaneous brand awareness amongst 18- to 34-year-olds. All in all, we are #1 for brand awareness, #1 for branding, #1 for ad recall, #1 for consideration and the Jet2 brand, Jet2holidays has an 86% awareness. We've taken a long-term, consistent approach to building brand equity with our strong visual and sonic branding. We're the only U.K. travel brand to use a triple platinum chart-topping single as our instantly recognized sonic identity. With our effective marketing strategies, we ensure we tap into cultural moments that can be top of mind amongst consumers. Next slide, retain customers through end-to-end service excellence. We at Jet2 and Jet2holidays are famed for our customer service, multi-award winning throughout the years, we aim to build on that further. We offer 4 easy ways to book. Our smooth airport experience is famous. Go to one of our airports and be welcomed by our Red Team who are there to help you through the journey. We offer a VIP service to everybody in the sky. When you get to resort, you meet our Red Team there who will welcome you, put you on your resort transfer and then look after you in resorts. They are there for you 24/7 along with our telephone line. We've spoken to our customers, and 92% of them are satisfied or very satisfied. And the customer service scores have increased. Our Net Promoter Score is 64 for jet2.com, 66 for Jet2holidays. Compare that with some of the best brands in the world, Jet2.com and Jet2holidays are firmly there building a loyal customer base. Our total marketable database stands at over 11 million customers. Over half of these customers are considered active and have previously booked or traveled with us in the last 25 months. Our database has grown at a compound average rate of 13% since financial year '22. And this enables a more targeted personalized marketing experience, along with the investments we have made. We provide holidays that are relevant to customers' needs, and this helps drive effective and efficient bookings. We have leveraged our extensive database and myJet2 loyalty scheme to deliver data-led marketing to grow bookings from our loyal customer base and new customers. This, with the aid of our technology investments, enables smarter targeting, increased retention and deeper brand affinity. Our myJet2 membership program now has over 8 million subscribers with more than 99% of mobile app bookers being members. The program complements our customer retention strategy and is designed to encourage more users to book through either web or app channels by providing tailored browsing, exclusive discounts and rewards, a streamlined booking process, enhanced pre-travel support and in-resort experiences. In the last 13 months, we can see that retention rates are 7.5% higher for myJet2 members, so we know this is working. On myJet2perks, this now includes more offers from brand partners across a range of categories as well as price draws, which will continue to be updated weekly. In addition, our twofold investment in the mobile app and myJet2 scheme should also reduce reliance on more expensive third-party marketing tools. Together, these form our strategic approach to driving bookings. On the subject of technology and personalization, adopting technology to leverage real-time personalization and automation across the customer journey is essential. We provide real-time triggered e-mails and app push notifications to a highly personalized web and app experience and targeted paid media. This is done by enabling an omnichannel customer experience using state-of-the-art Adobe products. This suite of products enables us to market to the right customer at the right time via the right channel with the right content, the right images with the right price. This will prove essential in providing a highly targeted and personalized marketing experience to all our customers. And finally, on to the outlook. For year ended 31st of March 2026, our winter capacity is up 8% to GBP 5.5 million. The latter booking profile continues with average pricing following the Summer 2025 trend, and we will have additional Gatwick short-term start-up investments. To summarize, operating profit is in line with market expectations, excluding the Gatwick investment. On to year ending 31st of March 2027, Summer 2026 seat capacity is up 8.9% to GBP 20.1 million. That includes the Gatwick capacity. Existing bases are up by 3.9%, and Gatwick is 900,000 seats, and we have a healthy proportion of cost certainty locked in. Near term, there will be operating profit margin dilution from the Gatwick investment, but of course, this is a significant long-term opportunity. Final summary, we have a clear path to deliver further profitable growth underpinned by our trusted brand, loyal customer base and proven business model, which gives us ongoing confidence in our growth prospects. That's the end of the presentation. Thank you very much for listening, and we will go on to questions and answers. Thank you. Operator: [Operator Instructions] We'll now take our first question from Damian Brewer of Canaccord Genuity. Damian Brewer: Two questions; one for Steve, one for Gary. Steve, Gatwick, undeniably, it's a huge market and except for Jet2 -- sorry, except for TUI who are still quite small there, and now seems to be covered mostly by seat-only airlines that seem to have very transactional relationships with hotels rather than deep, long-standing ones. Can you expand a little bit more about how your hotel operators and providers have reacted to Jet2 expanding into Gatwick? How they've reacted? What they're saying to you? And what the opportunity there is? And then the second question, I'll do more on go, Gary. I know the GBP 600 million to GBP 700 million minimum net liquidity within the in-year cycle and the net debt-to-EBITDA remaining below 2x for the capital allocation policy, what would cause you not to consider further share buybacks beyond the next GBP 100 million? Stephen Heapy: Good morning, Damian and everybody else. Thanks for the question. Our hotel partners have reacted extremely positively and very well. On the day of the announcement, I had several e-mails and text messages and some phone calls from hoteliers that were very pleased that we had announced the start of operations from the end of March. They already received customers from all our other 13 bases in the U.K., and they like our operation. They like that the fact that customers come on our airline, we cancel very, very few, hardly any flights, the lowest of all the airlines. We look after our customers in the airport, on the aircraft and when they get in resort with our Red Team of customer helpers, and the customers arrive at the hotels very happy. And a happy customer, of course, is someone that looks for less things to complain about. We've got our customer helpers in many of our hotels, and they help diffuse situations. So it's easier for the hotel. They don't have to deal with angry customers at the reception desk because they contact us and we sort out any issues that arrive before they get to the hotel. So it's a much easier and seamless experience for the hotel. And they are really looking forward to receiving guests that come from Gatwick Airport. I think Gatwick in the past, to your earlier point, has been quite heavily orientated to flight-only. But we are expecting to build our package holiday operation from Gatwick. And so far, the response from customers, and indeed the hotels, has been very, very positive. So I'm very encouraged and very excited, Damian, and I think, we will see our operation grow, and we'll be taking many people from the Gatwick catchment area in one of our holidays. Gary Brown: Damian, it's Gary. Thanks for your question. I think, as you know, and as you've seen over the last 12, 18 months, we're very much open to returning capital to shareholders. Why wouldn't we consider doing that in the future? I think first things first, we have talked about that return of capital to shareholders depends very much on trading. So assuming that continues in that positive vein, then we would definitely consider it. I think secondly, we've got to continue to invest in the business. It's an evolving consumer landscape out there. And inevitably, if you don't invest, you haven't got a resilient business in front of you, but strategic projects that gave us a better return than we could get in the market at the time and for a share buyback would definitely take precedence. Today, though, based on the valuation out there, we believe that returning capital to shareholders is a very good use of funds, the GBP 100 million. And just the third thing to say is that based on our best thinking at the moment, and with the CapEx profile coming down the road, it's about GBP 600 million in FY '27, over GBP 1 billion in '28-'29. We're fully expecting the own cash at the low point in the cycle to start to approach the numbers you mentioned before, GBP 600 million, GBP 700 million. So that all being said, I think there's a very good chance that in the future, there will be more buybacks. But I'm not going to pin the tail on the donkey on this call. Operator: And we'll now move on to our next question from Jarrod Castle of UBS. Jarrod Castle: Just sticking with the Gatwick theme, but broader than that. I mean, how do you see the existing competition with easyJet at Luton, Bournemouth? I mean, they are a different product, but just to get your views on that. They're also having a mini CMD next week, Friday, so I'm sure they will explain how they can compete with you. And then, Steve, you spoke a bit about AI. I just wanted to get your thoughts on AI agentic. We're seeing kind of these big deals being signed this week, I think it was Google with Booking and some of the hotels, like Marriott, IHG and others tying up with OpenAI. How do you see that developing and the ability of these providers to connect to hotels so that you can make the booking directly even if they're not the merchant of record? So just a little bit about that rather than AI in terms of revenue management and CRM. Stephen Heapy: Okay. Thank you. In terms of the first point, competition, we're very confident in our products. We have a well-established package holiday operator. Don't forget, we were the pioneers of variable duration holidays, completely flexible holidays. And we also consistently deliver best-in-class customer service, which has been demonstrated through our multi-award winning record over the last few years. So I think people will be attracted to our product. We've had many, many people within the Gatwick catchment area asking for our flights on holidays there for some time. We've finally been able to do it this year. And I think the response will be very good. As to your point, what will be the competitors' response? I don't know. We'll see. We keep our head on our own game, which is providing best-in-class customer service, looking after our customers, listening to our customers, giving them the ability to book through whichever channel they want to by looking after them on the ground, in the air and in resort. And I'm confident that will shine through and make the operation from Gatwick a success as it is in our other 13 bases. In terms of the AI question, there's been a few announcements over the last few days, as you said, as to what might happen. You have to bear in mind, these are largely trials, the things that have been released, and they're largely in the U.S. The U.S. doesn't really have a package holiday market. People tend to, what we call, self-package, that's booked individual elements separately. And the trials with some of the AI tools are relating to one of those components. I think there's a long way to go before we reach something that would provide a tool for people to book package holidays. That will come, but it will take time. I think there will be further developments in the industry. There may be consolidations. There will be new products, products that are in the market now that are relevant that become superseded and obsolete. So what we have to do is keep our eye on what's happening in the market and all the developments, keep up our regular conversations with tech companies, which we do. We spend a lot of our time talking to tech companies to see what's coming down the track. But as we saw in the early 2000s, it's very tempting to jump on whatever bandwagon is passing and put all your eggs into one basket, but we're being very careful and very considered on our choice in technology. We have signed deals with big, robust, financially sound, market-leading technology companies, and we are working our way through to see how the environment changes over the coming years. So I'm very confident that we're back to the right horses. And with our methodical approach, we will come up with the right solutions for customers. Operator: And we'll now take our next question from Alex Paterson of Peel Hunt. Alexander Paterson: You described the performance at the new bases as being encouraging. Can you just sort of give a bit more color on that, perhaps describe the load factors and package holiday mix relative to the group average and the profiles of other bases when they opened? And what sort of start-up losses you've incurred there? And secondly, as a West Sussex resident, I'm absolutely delighted that you're opening a base at Gatwick. Do you think Gatwick would make any more slots available to you before the second runway opens? Gary Brown: Alex, it's Gary. Just in terms of the new bases, yes, we -- as I say, we're very encouraged. And I'll take you back to even Liverpool, which is still a new base. We put a 5th aircraft in the -- this summer. And Liverpool had a load factor of about 85%, but a package holiday mix of 73%. So you can see that particular region is outperforming the average. And bearing in mind, you put in quite a significant increasing capacity, and a load factor of 85% is pretty good, to be honest with you. In terms of Bournemouth and Luton, remember, Luton went on sale a lot later than any of our other bases, and they've come in at about 80% load factor. But again, the package holiday mix is very encouraging, about 60% for those new bases. And what we find is that if we can get that package holiday mix into the 60s, then you get a better level of loyalty and recurring revenue and profitability. So we're more than hopeful that with a full season of selling that certainly Luton and Bournemouth will be closer to the average and the package holiday mix will continue to drift up. I think we were on record of saying that we expected Bournemouth to pretty much break even because it's a relatively small base with just 2 aircraft. We're on track to deliver that performance for the full year. And we expected Luton to be sort of late single-digits loss in its first year of operation, partly because, as I say, it's gone on sale a lot later. And again, we're on track to deliver exactly what we said there. So hopefully, that gives you a bit more transparency there. I'll pass to Steve in terms of the Gatwick slots, the extra slots. Stephen Heapy: Yes, as we said, the Gatwick slots, we got those as a result of extra capacity that was released within the airport, so we didn't pay for those slots. We've got a program on sale from the 26th of March 2026, for Summer '26, when we put in our winter program on and Summer '27 in the coming weeks. And we continue to work with the slot coordinators, and we'll see what additional capacity comes up. We very much hope to grow our operation in Gatwick over the coming years. Operator: And we'll now move on to our next question from Ruairi Cullinane of RBC Capital Markets. Ruairi Cullinane: Firstly, how should we think about the balance between flight-only and package holiday pricing this year? Why has it made sense to discount flight-only prices rather than package holiday prices more? And secondly, on the longer-term capacity growth, which Steve mentioned, should average around 4.4%, I think. Is that purely driven by the fleet plan and upgauging? Or will you aim to utilize A321neos more than older aircraft or operate more daily flights from new bases in the South of England? Gary Brown: Ruairi, just in first -- in terms of the first question, we've consistently stressed that this is a fully integrated operator model, and it's capable of adapting to consumer trends, but also our clear demonstration that we're focusing on optimizing profitability through volume, pricing and product mix. This particular summer, because it has been late in terms of the consumer booking behavior, on average, about 11% of the bookings have been in the month of departure and that's played a little bit more to flight-only. But what's been pleasing from our point of view is that we've always said that both products are extremely important. And it's great to see that customers are recognizing the clear value that our flight offering brings; friendly flight times, industry leader for not canceling flights, the added benefit of our Red Team of customer helpers providing outstanding customer service. So I think people do see that even with a more commoditized product, there's a clear difference in terms of what they expect from Jet2 and why they spend a little bit more money with Jet2. With the late booking curve and the fact that it was more price-sensitive market, yes, we did get more promotional than we have in the past. That said though, I don't see pricing and marketing as 2 separate parts. They are all one and the same, really, in terms of how you invest your money. And we were very strategic and targeted in terms of how we released money from marketing and put that into price to get to the best possible outcome for the business, which, as we said around at the outset, was a record performance again. Stephen Heapy: Thanks, Gary. And on to the second question in relation to capacity, we have given a figure for capacity growth over the coming years. And that's driven by our fleet plan at the moment, and that takes into account the new aircraft that are due to come into the fleet. We've received 23 Airbus A321neo aircraft. I'll just remind you, those are the most fuel-efficient, quietest aircraft in the class. And we've got, over the next 10 years, another 132 to come into the fleet. Those aircraft will fulfill 2 purposes: the first of all, to replace older retiring aircraft, and the second will be to fuel growth within the fleet. We do have flexibility. We've got upwards flexibility. We can retire aircraft perhaps at a slower rate or take ACMI aircraft if there are growth opportunities, and we can retire aircraft at a faster rate if the growth opportunities seem a little bit more limited. So the number we've given you can be flexed up or down in relation to market conditions. So the number we've given is our current view as to the rate of retirement of current aircraft and entry into service of the new aircraft. And there is also, as you said, an element of up-gauging. We will be replacing largely our 189-seat 737-800s with our 232-seat Airbus A321neo. So the growth is driven by, a, more aircraft into the fleet, but we've got flexibility as to what the net impact is. And secondly, upguaging of our aircraft. But I think the big message here is although we've given a number, there is a lot of flexibility about what that number can be over the coming years, both upwards and downwards. Operator: And our next question comes from Gerald Khoo of Panmure Liberum. Gerald Khoo: Two, if I can. Firstly, just thinking, I suppose maybe we do it on FY '27. But what proportion of seat capacity is going to be at relatively new bases, if you just say bases are open less than 3 years and where they're still working the way up the maturity scale? And secondly, also on bases, once you've done Gatwick, is that going to be largely in terms of new bases? Is there enough growth headroom in your existing bases? Are there any other opportunities or any other bases that are still looking interesting beyond Gatwick? Stephen Heapy: In terms of the capacity relating to new bases, well, if we class new bases as Gatwick, Luton, Bournemouth, and let's say, Liverpool, we don't have the exact figure to hand, but it's 11%, 12%% maybe of our total capacity in those bases. I wouldn't really count Liverpool as a new base now, that is maturing very quickly. In terms of, is that it? Well, Gatwick was the last big airport in the U.K. that we had aspirations to grow into. And when we've met many of you that are on the call, I think we've said that we would love to start operations into Gatwick, but the ability to do so was limited through the availability of slots. The airport managed to release some extra capacity through some work that have been done on the airport infrastructure. And we're able to grab that capacity. So I think the aspiration that we set out in our meetings with you has been achieved. Is that it? I don't know. I'd never say never. We're always looking at opportunities within the U.K., but Gatwick was certainly the best that we'd always intended to grow into. But you mustn't forget, Gerald, that there's enormous opportunity still in our 13 existing bases to grow. We've got all the bases that we think there's a very strong business case for increasing capacity. Over the last couple of years, we've prioritized our aircraft into starting a base at Liverpool, at Luton, Bournemouth, and laterly, Gatwick, but putting those aside, there are another 10 bases in the U.K. that we have a fantastic opportunity to grow in. And over the last 2 years, we have launched 4 new bases. That's quite a lot. And we can't take our eye off the ball on our existing bases. There's more work we want to do there. And I think we'll probably be entering a period of stability, where we'll be growing our new bases and maturing the ones that have been launched recently, whilst taking care and strengthening our older bases. Operator: And we'll now take our next question from Ava Costello of Davy. Ava Costello: Just 2 for me, please. And the first one is on the package and flight-only mix. So for Summer '26, where do you expect the mix to go versus Summer '25? Obviously, Luton and Bournemouth bases maturing, and hopefully, moving towards the network average, but what do you expect the impact from Gatwick to have on the mix? And then the second one is a little bit more long-term focus. So how much of the growth deliveries could you potentially go to Gatwick? And is that solely dependent on a new run rate? Or do you see more capacity coming online organically from these tech advancements? Gary Brown: Ruairi, it's Gary. In terms of the package holiday-flight-only mix, as I said before, it's one of the questions, it very much depends on the market you're in at the time. And I'll repeat that, we're constantly solving for the best bottom line outcome whether volume pricing or mix. In terms of how we're looking at it for next financial year, I think if we can be flat in terms of package holiday mix, I think we will be very pleased with that. And early indications, and I will stress, it is very early indications for Summer '26 of playing that sort of theme out at the moment. If -- and again, it remains to be seen what the capacity in the industry looks like for next year. Our initial reads are between 2.5% and 3% at the moment. If there is a rebalancing between supply and demand, which generally happens in this industry, what it means then is consumers don't leave it quite as late to book, which plays more into more of the planned holiday products more than the impulsive holiday products. So if we can achieve flat next year, I think we'll be pretty pleased. And that's still pretty much in line with what we've always said for a full year outcome between 60% and 65% on package holiday mix, and we've been pretty consistent over the years in restating that. Stephen Heapy: Thanks, Gary. And on your second question in relation to Gatwick. We have no intention of standing still with 6 aircraft operating in and out of Gatwick. It's true that we're able to launch the 6 aircraft as a subject of some infrastructure work that was done at the airport. But you must remember, there's movements of fleets in Gatwick all the time, some airlines increase their operations, some airlines decrease their operation, and there are slot opportunities that come up regularly. So I hope we will be able to take advantage of any opportunities that come our way over the next few years. What is likely is the second runway will be approved, and that should come into operation in about 2030. And whilst that sounds a long way away, we've got Summer '27 on sale already, and we started to think about Winter '27-'28. So Summer '30 will be on us before we know what the key is. First of all, to grow and mature our Gatwick operation. And we said in our release that, that will take time to mature that operation. And secondly, we keep up dialogue with the airports and the slot coordinators to see what opportunities come our way. And you've known us for quite a while, you know that we have a track record of grabbing opportunities as they come up, of which the recent announcement into Gatwick is a perfect illustration of, so we'll keep up dialogue and keep watching what's happening and make any announcements in due course if we have something to say. Operator: And we'll now take our next question from Andrew Lobbenberg of Barclays. Andrew Lobbenberg: I can't believe we've got this far in the call and no one has mentioned the B word. So how do you see consumers reacting about the looming budget? And do you see it as being a clearing event and driving more consumer confidence once we're through it? Or what are your thoughts around the budget? And then, staying on Gatwick, and got it, we still are all asking about that, if now, how do you think about the cost of operating at Gatwick? The wonderful Wizz have been saying that it's a really expensive airport and they need to get out of there. I don't know whether you would think about that. But I mean, how does it look to you for airport charges, and indeed, also for the local labor market, which I think is pretty hot? Stephen Heapy: Okay. In terms of the budget, I haven't really got anything to comment on because I don't have any detail. I look at the newspapers on a daily basis. And here, the latest scare story is to what's going to happen. I mean, if you add up all these scare stories, there's going to be an additional GBP 15 trillion raised in the budget. So I don't really take too much notice of the individual policy speculations that I discussed. What I do think, though, is that the government shouldn't be imposing any more tax on air travel and holidays. It already collects an enormous amount of tax from the airline and holiday industry. And I think, it's gone on long enough that this industry is used as a cash cow. So I would urge the government not to increase taxes any further on air travel because that will inevitably put up prices and could price some people out of the ability to take a holiday, and those people will be the lowest paid members of society, which strikes me as being patently unfair. What we do have, however, as a great defense is our customer service. In economic times like this, people tend to gravitate around the brands they know, the brands they trust and the brands they know will deliver great customer service consistently on every holiday. And that is what you tend to see that people gravitate to these brands. You've seen our commentary on our Net Promoter Scores on customer satisfaction, on our rebook rates, and we expect this to be a massive form of defense during any potential reverberations from the budget. So I'm pretty confident -- I'm very confident, in fact, that we should be able to navigate through whatever is thrown at us next year because we'll be shored up by our fantastic customer service. In terms of Gatwick costs, obviously, I can't comment on those, but again, if you offer a great customer service that enables you much more to sell the product, we've got the best reputation for customer service. I'm very encouraged by the sales so far at Gatwick. It's been less than a week, but I'm very encouraged by them. And I think people are recognizing that we are recognized as #1 for customer service and being drawn to our brand. Many companies operate just on the price level and tend to deprioritize customer service. We prioritize customer service. And we think we have an absolute duty to provide people that perhaps have worked for 50, 51 weeks of the year to go on a highly valued holiday, and we feel it's our duty to treat every one of our customers as a VIP, whether they flight-only on a 2-star holiday, a 5-star holiday, self-catering, all inclusive, it doesn't matter. We treat all our customers the same, and that's very much as a VIP. And that's been our philosophy over the last 20-odd years at Jet2, 15 years at Jet2holidays. And that will remain our philosophy and the core of our strategy. Operator: And we will now take our next question from Richard Stuber of Deutsche Bank. Richard Stuber: Two questions for me, please. And apologies, I've got cut off and may be repeating one. The first question is on Gatwick. Could you give us some guidance in terms of what the start-up cost will be for this year and the shape of the cost as you reach profitability to FY '29? And I know you're saying that after that, it will be meaningfully profitable. Is that -- do you assume that there will be more slots and more aircraft in that? Or do you think it will be meaningfully profitable even on the 6 aircraft that you have at the moment? And the second question, just really on the cost outlook for next summer, could you tell us please what you're seeing in terms of cost inflation for accommodation and fuel? And what you would expect then to be sort of the average selling prices of your packages looking forward to next summer? Gary Brown: Thanks, Richard. In terms of Gatwick, we believe that in terms of the booking costs that we'll incur in this financial year to generate the bookings for next summer, plus labor cost, plus promotional content, et cetera, between GBP 10 million and GBP 15 million we reckon in this financial year. And we want to be as resilient as possible going into Summer '26 to make sure that we can provide the best possible product and service to what essentially are all new customers. We need to show them exactly what Jet2 is about. And as Steve has just reinforced, it's all about making customers feel special. And if you want to do that, then you need to spend the right amount of money setting that base up. In terms of FY '27, if you take Luton, I guess, as a guide, we said sort of late single digits losses in its first year. That was with 2 aircraft. We've got 6 at Gatwick. We're also doing it in because it was an opportunity that was slightly ahead of our expectations. And we're also doing that with less efficient aircraft or part less efficient aircraft in the form of ACMIs. So inevitably, there's an incremental cost there. And a bit like Luton, Gatwick is going on sale even later than Luton. And, therefore, there will be some price investment. So I think you can do the math on that and come up with your own answer. But in the FY '28, those ACMI aircraft will fall away. We will be selling across the whole selling cycle, we will be better known, et cetera. And therefore, we expect whatever those losses are in your model to halve is what I would say, and then, move into profitability. In terms of cost inflation, it's still very early, to be honest with you. The accommodation market is moving around depending on what demand looks like, not just from the U.K., but from Europe as well in terms of the Nordics, the German market, et cetera. I would expect accommodation inflation to be in or around 5%, but I may be proven wrong ultimately. We've yet to even decide on what a wage increase looks like for our colleagues. And clearly, we've got one eye on CPI, et cetera. So I'm sorry, I can't help you any more than that. In terms of fuel, you asked about, we're about 70% hedged, I think, for Summer '26. At the moment, the fuel rate is about 10% better. But remember, fuel is only 10% of our overall cost base. But the other side of that equation on FX, a bit of a benefit on the dollar, but we do buy EUR 4 billion worth, and the pound has been weaker against the euro, pretty much through that whole buying cycle. So hopefully, that helps you in terms of some of your modeling. Operator: We'll now take our next question from Axel Stasse of Morgan Stanley. Axel Stasse: I have 2, if I may. And the first one is on the additional capacity for next summer, approximately 4%, excluding Gatwick. And if you include the Gatwick, it's approximately 9%, while I think your competitors are significantly lower than this. So how do you think about fares or even load factors going forward? Do you say your competitive edge is enough or at least sufficient enough to maintain the fares stable? Or -- yes, just to have your view on this. And then the second question is on the cost certainty locked in for fiscal year '27 that you mentioned in the slides. Can you maybe elaborate here where are you most comfortable with? What is already locked in, if I can put it like this? And how should we maybe even look at the airline cost, seat per seat or per capacity growth year-over-year in fiscal year '27? Stephen Heapy: On the first question in terms of the capacity growth, yes, we've said our capacity growth in existing base is 3.9% and including Gatwick about 9%. That's one of the lowest levels of growth we've announced for some years. We don't have an accurate read on what the rest of the market is doing yet, and we won't know that with total accuracy until the end of January when people make the final slot declarations. But you should bear in mind that some of that additional capacity is due to us putting A321neo in some of the bases, which, as we said earlier, is an upgauge and that's 232 seats as opposed to 189. But the cost associated, the seat cost with those 232 seats is much lower. So some of the capacity increase is offset by efficiencies on cost. But we're confident with the capacity we've got. We -- and if we need to make any more adjustments, we will do that as we did with Summer '25, and we have done with Winter '25-'26. We've got a very flexible model and a very flexible approach to capacity management. So that's the number today, 3.9% and 9%. But if we feel we need to make adjustments, we can do that. But at the moment, we're confident with those 2 numbers. Gary Brown: And the second question, I guess it's a similar answer to what I just gave to Richard really. We're about 70% hedged for U.S. dollar on fuel. Fuel, about 10% cheaper in terms of the rate at the moment. U.S. dollar is about 2% better, but 50% hedged for euro, we're probably 2% worse at the moment. So there's a lot of moving parts before we have a very clear view of how that translates into the cost base and cost per seat. Just in terms of cost per seat as well, we don't have sight yet of EUROCONTROL fees, which are obviously very important to us in terms of cost per seat. So normally, we have a better view as we get sort of into January, late January, early February. And we also have a better view of the market at that point in time as well because everyone's put their slots into the system, and we'll be able to give you a better view at that point in time. Obviously, we'll look to price anything in. But as Steve pointed out before, in terms of the budget coming up, we don't know what that looks like either. So there's a lot of moving parts is what I would say, and I'm not being evasive, but there are. Operator: And we will now take our next question from Harry Gowers of JPMorgan. Harry Gowers: First one, maybe you could just talk through the flight-only pricing, how that's behaved or changed over recent months? And do you think the kind of minus 7% level is potentially a trough or a bottom? Or should we be thinking the winter could still come in a little bit worse than that in terms of the outlook? And then, sorry if I missed this earlier, but just on Gatwick, like where could that package mix maybe come in over time? And are you expecting the Gatwick market or catchment area to be any different versus the rest of the network just in terms of attractiveness of the product, demand for package holidays, et cetera, et cetera? Gary Brown: Just in terms of the flight-only pricing, I think we guided to mid-single digits down. It's slightly worse than that. I wouldn't say it's materially worse, but it's slightly worse with the 7%. But at the end of the day, I'll repeat again, I'm sorry, we do constantly look at that volume-pricing mix dynamic to drive the best possible bottom line outcome. And I think we've done that in the first half. In addition, as I say, we look at price part, marketing part as one of the same thing. And what we've been able to do is be very targeted in terms of how we've reduced our marketing spend and where we've put that in terms of pricing across both products actually to drive the best possible outcome for the business. In terms of winter, it's similar at the moment. Holiday pricing is pretty resilient, and flight-only is in negative territory, not quite at the minus 7%. But what I would say is that there's still 50% of winter seat capacity to sell, which tends to be sold from January onwards. And depending on what the market looks like, we may need to invest a little bit more in price or we may not. So only time will tell, but we're balancing the component parts to get the right possible outcome, I think, is what is safe to say. Stephen Heapy: And in relation to the package mix, we did say when we announced the start of our operation that package mix would be lower, and we would build that over subsequent years. Just because people haven't had perhaps a great choice in the package holiday market at Gatwick previously it doesn't mean that they won't do in the future. They will be and are being attracted by, as I said earlier, our customer service ethos by our award-winning product. And they will be attracted to that. Sales have started very encouragingly. It's only a week. I would just caution that we're only a week into it, but I'm very encouraged by overall sales and package holiday sales. And I think we offer what people want, great customer service, but one price. Why would you want to book a flight, a hotel and a transfer separately, and I mean all that hassle of going on 3 websites and messing about waiting 3 lots of transactions? You can secure your holiday for GBP 60 deposit all in one transaction knowing, a, it's with a company that has by far the best customer service in the industry; and b, the company that has by far the lowest cancellation rates of flights. If there's air traffic control issues, we don't cancel flights carte blanche. We fight to get people on their holiday. So I think that's going to be a very attractive proposition. We know that because it's very attractive in all our other bases, but also people from the Gatwick area have been asking us consistently for a long period of time to start operations there. So there's a huge amount of demand pent-up for both package holidays and more specifically package holidays from Jet2holidays. Operator: There are no further questions in queue. I will now hand it back to Steve and Gary for any closing remarks. Stephen Heapy: Okay. First of all, thank you for your time this morning. It's been 1.5 hours and very much appreciated, and thank you for your questions. It's been actually a pleasure to get so many questions from you. I hope we've answered them satisfactorily. And I hope you're pleased with the results, we are. Just to reiterate, it's a record set of results. We're continuing to invest for growth. We've seen that with our aircraft order, our new hangar at Manchester, our base at Gatwick, our retail operations center. Thirdly, we're continuing to create value for shareholders through our increasing dividend and also the announcement of GBP 100 million share buyback starting on the 1st of December. And fourthly, our investment into our product and our brand, which is continuing to retain existing customers, but also attract new customers. And that's not only at Gatwick and Luton and Bournemouth and Liverpool, but we continue to attract new customers at our other 10 bases also. So that's it on the call, I think. Thank you very much. I hope you're as pleased with the results as we are, and I'm sure we'll speak to many of you over the coming days. Thank you.