加载中...
共找到 25,634 条相关资讯
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.
Operator: Good morning, ladies and gentlemen, and welcome to the Dialight plc Interim Results Investor Presentation. [Operator Instructions]. Before we begin, we would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Dialight plc, Steve, Mark, good morning. Stephen Blair: Good morning, and thank you, everybody, for joining. We're going to go through this fairly rapidly, but I thought I'd start by giving you a little bit of history of Dialight on the basis that you may not all be aware of where Dialight has come from. So Dialight has been supplying LED products at the individual product level for about 50 years. And we continue to supply those products today. And in fact, it was the fastest-growing part of our business year-on-year in the first half. But in the early 2000s, Dialight saw a first-mover opportunity to move into industrial LED lighting. And this was particularly in hazardous locations where protection of plants and people by having adequate lighting for safety purposes was really important. And so we had the first-mover advantage. And over the period sort of mid-2000s up until 2014, the business grew very rapidly, reaching a positive cash position, inventory around the $35 million mark and profitability around about the 17% return on sales. So everything was going very well for Dialight at that point. On this slide, you can see a couple of examples. Bottom right is a mine and top left is a wastewater treatment facility. But you can see the quality of the lighting is really important to make sure that people and personnel are safe on those sites. So we had a very good market position, very good brand recognition. And then the business lost its way a little bit between 2014 and 2024. So I stepped into the CEO role in February '24, at which point we had a net debt of $24 million. We had a legal case with the Sanmina Corporation hanging over our heads. We weren't growing and we weren't making any profit. Now there were many reasons for that. Largely, a lot of complexity had come into the business, really created by the rapid growth in the early days when the proliferation of SKUs, both at the finished goods level and at the subassembly level meant that we were a very high mix but very low volume manufacturer. And that is always a very, very difficult place to be. It makes demand planning very difficult. It makes understanding what the market requires very difficult. And in terms of manufacturing, it means you have very, very low efficiency in manufacturing because you're continually changing the different types of product that you're manufacturing. So when I stepped in, we set off on a program really of simplification and complexity reduction. In any business, complexity equals cost. And our first quarter call, which really galvanized all of the other changes in the business was reducing the SKU count so that we could focus on profitability and selling products that we could make money on and stop selling those products that really made no money. And just to give you an example of the progress we've made over the last 18 months, we manufacture power supplies. We manufacture light engines that drive the LEDs. We manufacture the LED circuit boards and optics, and we design and manufacture the houses. Over the last 18 months, we've reduced all of those components by 83%. So an example is the power supply. We were manufacturing 126 different power supplies 18 months ago. We're now manufacturing 12. That sort of reduction really improves our efficiency in the factory. It means we're changing lines less often. It means that we have much greater buying power. It also means that our demand planning is easier. And all of these changes have really brought benefit to the business. And I'm going to move to the next slide and just show you some of the progress we've made. So we've started delivering profit. We've started generating cash. And there's a long way to go with the annualization of the savings and the improvements that we've made as well as what we'd be doing in the future to further improve the business. So the transformation plan, which is what we put together when I first joined is all about improving the basic fundamentals of the business to deliver profit and cash to pay down debt and allow us to invest in growth in the future. Now what you'll see from the financial performance is that year-on-year, our revenue has declined. Partly that is due to the tariff impact and the global economic climate, not that we can't manage it, but because it brings uncertainty with some of our bigger clients who are contemplating large capital projects, because of the tariffs on steel, aluminum, copper and the like, their investment decisions can swing wildly depending on the tariff situation. So what we've seen on these larger projects is a bit of a slowdown, which has impacted our revenue. But that said, our approach has been to bring quality of earnings to the business in anticipation of preparing for growth when the market allows. So I think you'll see from the financial performance that we've gone from a very difficult place to a far, far better position in terms of our net debt, in terms of our profitability, in terms of our return on sales and in our ability to generate cash. We have a number of key strengths as a business. I mentioned about a fantastic customer base who recognize our brand and understand that we were the market leader, and in the hazardous space continue to be the market leader. We offer a 10-year warranty. So essentially for any customer, it's fit our product and literally forget about it. We control our own designs, particularly around the power supplies, which give us the confidence to then offer that 10-year warranty. And certainly, all of the testing we've done and all of the in-service -- the in-service application of the products have shown that our warranty claims are very low. And therefore, the quality of the products that we're supplying can actually meet and exceed that 10-year warranty. We've got good access to the customer base and a tremendous set of people. And that's really -- it's the quality of the people and their knowledge of the industry and our business that has really helped us quickly turn around the performance of the business. I talked about the transformation plan. And fundamentally, it's built around 5 key pillars. The first is all about winning hearts and minds. If you can't convince people in your organization that your strategy is the right strategy and you're moving in the right direction, it's going to be very difficult to bring around -- to bring a turnaround. And as I said, we've got tremendous people, and they have really bought into the idea that generating margin, generating cash, thus allowing us to reinvest in the business is the way forward. Historically, the emphasis has been on top line growth, and that really didn't help the business over that 10-year period. So now we're really focusing on quality of the underlying business. And as I said, when growth or when the market is more amenable to growth, we expect to be able to grow with high leverage on that additional revenue. We then turn to sales transformation. As I said, historically, we've been selling on the basis of volume and not really very much emphasis on margin. We have now changed the emphasis. Margin is as important as volume, and we're rewarding our salespeople based on a combination of both revenue and margin. And we'll be rolling that out fully at the start of the new financial year. But already, we're seeing the way that the salespeople are thinking is moving towards that balance between decent revenue, but good margin because that is what is allowing us to improve the quality in the business. The third element is the operations transformation. So how do we make the engine of the business as efficient as possible? And certainly, reducing the SKUs has really helped us with that efficiency and reducing inventory has had a dramatic effect on our cash generation and also actually the space that we have available for growth within our factories. The fourth piece is the margin improvement and cash generation. So we've improved a lot of our processes. We brought a lot of efficiency into the overhead part of our business, and that's allowed us to reduce our cost quite considerably. Those 4 pillars of the transformation were the things we set off to do to really get the business quality back, and then within the last sort of 6 or 8 months, we turned our attention to creating a platform for future growth. And here, we're looking at short, medium and long-term opportunities for growth. We have a Board-directed committee called the Strategy and Innovation Committee, where we're looking strategically at what we do in the short term. So where are some quick wins that will allow us to get new product or new services into the market quickly. Medium term, what do we need to develop for the medium-term future in terms of product? And then longer term, just as we were a first mover with silicon-based LED technology, what might be coming next that could allow us to be a future first mover with a change in technology as technology continues to advance. So in summary, we've had a good last 18 months. We've turned from loss to profit. And as we look forward into the second half, we continue to expect to deliver strong and tangible progress on the transformation plan. We want to accelerate the transformation of our sales team and put in place support and remuneration structures that incentivize them to be more successful. We do intend to improve our working capital position, although right now, we are back to where we were in the heyday of our business. We are in December, going to settle the outstanding liability on the Sanmina contract, which will be a big step forward for us. And as a Board and as a business, we remain confident that the recently upgraded expectations we put into the market, we will fulfill and deliver for the remainder of this financial year. So hopefully, that was a useful summary and a useful introduction. And I'll hand over to Mark now to take you through some of the more financially appropriate elements of our business. Mark Rupert Fryer: Thanks, Steve. So for those of you that didn't know, I was CFO at Dialight from 2010 to 2014, and I rejoined in January this year. So looking at the overall financial summary for the half. The group made $5.5 million of operating profit for the half, that's both up on the full year last year when we made $4.2 million of profit and the second half in which we made $3.3 million. What I think is slightly disappointing is the revenue performance in those very difficult markets, as Steve has said, the tariff impact on major CapEx projects with high tariffs on steel and copper, which make up a large part of the installation costs for a new facility, our lights are typically 1% to 2%. So it's not the cost of the lights, it's the cost of the other commodities. They have up to 50% tariffs on them currently. So that's delaying CapEx. That said, whilst overall volumes were down 4%, Signals and Components was actually up 10% and the components element, which has a very strong correlation with data centers and AI was actually up 20% in the half. As Steve said, we're focusing on the higher-margin products. The top 300 SKUs that we manufacture have about a 15% higher margin than the average across all our SKUs. So we're concentrating on those top 300. That has seen us add 230 basis points to the gross margin. In the half we generated 35.3% gross margin, and we see that increasing further going forward. We've reduced almost all lines of cost half-on-half. The overall level of labor has reduced significantly in our main facilities in both Ensenada and in Penang in Malaysia. Ensenada, particularly, we've reduced from about 560 heads, and we'll exit the year with near 400 heads. Overall, labor costs reduced from $7 million in the prior half to $6 million this half. The production overhead reduced from $14 million to $13 million, and the overhead reduced from $29 million to $25 million. So the combination of the increased gross margin and the reduced cost is what's seen a sixfold increase in the operating profit for the half. On top of that operating profit, we had a small $0.4 million profit on non-underlying items, but a very significant part of that was the receipt of $2.9 million from the U.S. IRS and this related to employee retention credits because we continued to work our engineering function through COVID, and we applied for credits for that, and we received those in the first half of the year. We've used those to afford the costs of the transformation plan and also costs of buying in our 2 main pension schemes, which were defined benefit pension schemes. A real financial highlight is the group in the last 10 years has significantly built up its level of working capital. It needed to do that particularly through COVID, but now we need to get back to the historic levels that we had in 2012, '13. So in this time, 6 months ago, we were talking to our shareholders about targeting a reduction of at least $5 million for the year, but we did say that we thought we could reduce inventory by up to $10 million. And actually, we've run ahead of that. We've saved $10.8 million in the first half alone. So just moving then to the income statement. You can see that small 4% reduction in sales. But despite that, an overall improvement in the working capital, the reduction in the overheads and the profit on the non-underlying items and closing for the half with an underlying EBITDA of just under $10 million. I hope you can all see this slide. It seems quite small to me. But over the last 2 years and closing off with the second half of last year, the gross margin for the group has improved by 10 percentage points from 28% to 38%. And you can see the group has gone from being loss-making to now generating a nice profit on an upwards increasing curve. The first half margin at 35% looks disappointing compared to the second half of last year. The reason for that is we have felt that the group has been capitalizing too much overhead into inventory. And so in the last 18 months, we've reduced the overall capitalization from about $11 million down to $6 million, and that had an impact of about $3 million in the first half of the year. If we hadn't taken that reduction, the operating profit would have been $8.5 million. And you'll see that later on a slide, but that was just, I think, to demonstrate we are making good progress. If we hadn't have had that inventory reduction in the capitalization, the margin would have been 39.1%. So the same as last year. But I should also add, this is the last half in which the group has been manufacturing traffic lights. We sold that business 12 months ago to LEOTEK, and we had to run off a manufacturing agreement, we only make a 7% margin on traffic lights. As I say, that activity is now finished. If you took out the impact of the stock valuation and the traffic light, we actually generated a gross margin in the first half of 42%, which is getting near to the target, which I'll share with you for what we want to be generating going forward. I've included this income statement just to show the last 12 months, which I guess has been really the first 12 months of the significant impact of the transformation hitting the group and the benefits of that. And you can see there that the underlying EBITDA at $17.3 million and an operating profit of $13.6 million. The current share price, we're valued at about 6x EBITDA. This is just a summary of the non-underlying costs. So these are very clear to everyone. I think the most important aspect of those is overall, we made a small profit, but more importantly, the ongoing benefit of the 2 major activities, the transformation plan costs, $1.3 million of costs. These have got a payback of about threefold. So we should see a reduction in operating costs going forward of $4 million on an annualized basis and only about $1.5 million will hit this year, an incremental $2.5 million will be next year. Then secondly, the defined benefit schemes, they have now both been brought in, and they will both be bought out in about May, June next year. In terms of the balance sheet, you can see there the inventory reduction from $40 million at year-end down to $30 million is the most -- the biggest generator to the debt reduction in the half. The net debt improved to $10.5 million at the end of the half. We've continued to generate cash. The net debt now is around $8.5 million. And it's that really which has enabled us to agree with Sanmina to pay them early. They've been good enough to give us a reduction in the amount. We should have paid them $6 million, and they've agreed to accept $5.65 million, and we'll make that payment in the second week of December. That removes the contingent liability and that draws a conclusion to that whole outsourcing and litigation. So that removes that uncertainty on the group. Overall, then with about $50 million of net assets, the group is generating a run rate of about 17% return on capital. I'll share with you later the targets for the group. We're looking to target 25% plus. And just to put that into context, back in 2012, the group was generating 50% return on capital. So we don't see any reason why we shouldn't get back to that level. In terms of the cash flow, the operating cash flow in the half was $13.9 million. Steve referred earlier on to the start of the year when I joined, we had $24 million of debt then. We've generated $14 million of cash. And as I've said, we've moved further on. We're now down to about $8.5 million. That isn't just about reducing inventories, it's reducing trade receivables as well. One aspect, though, we were squeezing our suppliers too much. And you'll see that we have caught up now on those payments and the overall level of creditors has reduced by almost $10 million as well, whilst the level of debt is obviously also reduced. Finally, I think the group has been running with capital expenditure at about $10 million a year, which was about $6 million of CapEx and $4 million of capitalized R&D. Going forward, I think we'll look to be reducing the level of actual CapEx by about half to about $3 million a year, but we will still continue to invest in R&D to have the best products in the sector because that's one of the differentiators that we have over our competitors. So this is my final slide. So the -- on the left-hand area here, this shows you the margins that the group was making in 2012. And on the right-hand side, we set these ambitions, I think, in about March. And frankly, it probably seemed slightly unbelievable to many people. But basically, what certainly I found was a business here, I sort of very much brought into Steve and Neil, the Chairman's ambition for where they wanted to take the group, the delivery of the transformation plan, and we really need to just get back to where we were. And back then, the group was generating an underlying gross margin of about 40% generating an EBITDA margin of 20%, a return on sales of 17%. The EBITDA was virtually 100% conversion to cash. Therefore, the group didn't have any debt. It paid high dividends and it generated in excess of 50% return on assets, and it was relatively working capital light. In terms of our ambition, we'd like to get to 3% to 5% growth. We are targeting to get to 45% gross margin. That actually is the same as -- it's hard to get your head around. It's the same as the gross margin of 39% in 2012, and that's because in 2012, sales commission was expensed in the gross margin, and now it's included in overheads and the sales commission is 6%. But 45% gross margin, 15% plus EBITDA margin and a return on sales of 11% to 13% plus. We expect to eliminate bank debt next year. We're going to target 25% plus return on assets. And we set out a target to achieve $35 million of inventory over 3 years. And actually, we've hit that now. So I think we probably need to revisit that. I think we will probably reduce inventory a little bit further. And in broad terms, whilst the delivery of the transformation plan is ahead of where we would expect to be at this point, we're still only about halfway toward achieving each and every one of these 3-year ambition. The transformation plan annualization, you won't see the full benefits probably until the 2027 financial year is when the full benefits will be felt. And we think we can do that very largely through self-help and the annualization of those benefits. The revenue growth of 3% to 5% would make the task of getting there easier and would enable it to be quicker. So I think that hopefully specs out where we expect the group to get to. And with that, I'll hand back to Steve. Stephen Blair: Thank you, Mark. I think I'll summarize very quickly by saying that Dialight has always been a quality business, and it struggled a bit in that 2014 to 2024 time period, but the quality was always there. And we are now starting to bring that quality of business back. As Mark said, we're probably halfway through to where we want to be. And we have really clear plans of how we deliver progress. And if the markets allow then we'll certainly be seeing growth. That's what we're targeting. And when you have a quality business generating growth, you deliver exceptional returns. And certainly, that is where we are trying to get to. So with that, I'll hand back to Jake, and we will take any questions that you may. Operator: Perfect. Steve, Mark, if I may just jump back in there. Thank you very much indeed for your presentations this morning. [Operator Instructions]. As we have received a number of questions, so perhaps if we dive straight into it. The first question that we have here reads as follows. What is the elasticity of customer demand with respect to pricing in your main segments? Stephen Blair: Mark, would you like to take that? Mark Rupert Fryer: Yes. So I think the answer to that is -- well, let's do this by segment. I think the OE segment, this is the segment we've been in for 50 years. The average sales price of an individual light is very low. However, we are the brand leader. We've been doing this for 50 years. We supply just in time to the contract equipment manufacturers. So I would say in that segment, the price is relatively elastic. We are always competing with others. But once we are in with that customer, we tend to stick. Lighting, on the other hand, and I think this comes to another question, I think we have market-leading products. The value of safety of not having to change out the lights and the energy saving that our products generate and the overall ESG impact of our lights means that the pricing isn't as elastic. And in fact, we've put the pricing up twice in the last 12 months, and we haven't seen a notable falloff. And indeed, when the whole discussion about tariffs, we received praise from our customers that we didn't immediately put our pricing up as some of our competitors did as a surcharge. And we don't believe that they have seen a major impact either. So hopefully, that answers your question. I think it probably comes to another question, which is Dialight has an outstanding reputation for the quality of the product and being pioneering. All our lights have been designed to be LED lights. That isn't always the same for all our competitors, that may well use an old technology, housing and power supply with the LED. But that said, and I think the question is, who do you compete with? Are they the same as 10 years ago? And the answer to that is yes. We have some very large, well-capitalized, very serious competitors, and we tend to come up against the same competitors. So whilst the products have been improved, prior management have continued to invest in the product development. We remain one of the top 4, 5 competitors in the space. And our market share, we think, is around the 15% to 20% mark. And the more hazardous the segment is like oil and gas and mining, the slightly higher our market share is. Operator: Perfect. Thanks, Mark. Just turning to the next question. What would the FY '25 gross margin have been without the adverse impact of the runoff of the traffic business, i.e., what's normalized? Mark Rupert Fryer: Yes, sure. That's a very good question. So last year, the actual traffic segment was loss-making at the gross margin level. And it was for that reason that we booked an onerous contract provision at year-end of $0.8 million. And that has been released, and that was the primary reason why it made a very small 7% gross margin this year. If traffic had not been included in the full year '25 numbers, the gross margin would have been about 39%. So quite an uplift. And I have to say we'll both be very happy to look forward to H2 without traffic in it. Operator: Perfect. The next question asks, are you continuing to invest in the Components segment? Or are you in harvest mode? Stephen Blair: So when I joined 2 years ago, we weren't investing in the Components segment. I was told that it would only ever grow up and down or grow and decline with the market and that there was no opportunity for growth. And so to be honest, a lot of our emphasis was on the solid-state lighting because it's the major part of the business. But just in August, I visited a customer in Asia who said, basically, look, we love what you do for us, and we do 2 million or 3 million with this customer a year, but I've got $25 million worth of other stuff that I'd be happy for you to provide as opposed to competitors. And so suddenly, overnight, having gone and actually spoken to the customer and listened, we saw that there is an opportunity in the Components segment. And we are now looking to invest. And so we've gone from a business we were running mainly for cash to actually, there may be some opportunity here. And as Mark said earlier, we saw a 10% year-on-year improvement in that business. So AI and data centers are a big element of that. That seems set to continue. But this is more about broadening our market share. And so if you'd ask me that question 6 months ago, I would say, no, we are not investing. It's a cash cow. But now we see real potential, and we will be turning our attention to selective investment to provide the best return we can. Mark Rupert Fryer: And I should also just add on that, that the indicator business makes the highest gross margin and the highest return on sales. So the greater the mix that, that can be will overall drive up the group's return on sales. Operator: Perfect. The next question asks, many congrats on the progress so far. Two questions, please. Has it been difficult to win staff hearts and minds whilst cutting headcount? And the second part of the question is, how has the identity of your competitors changed since 2012? Stephen Blair: So if I take the first one, it's not been that difficult, to be honest. We have -- I think you find this in any business. You have very intelligent people who are keen to be engaged in the strategy of the business and to understand what is needed from them. And we started off very, very transparently as soon as I joined, we talked about the problems in the business. We talked about the opportunities. We talked about the strategy that would get us back to where Dialight had previously been. And we said quite clearly, there are people who will be part of that journey, and there will be people who won't be part of that journey, either because they don't want to be part of that journey or because the business can't support those functions or resources. And so people have responded extremely well to that. And even people who have left the business have left feeling they made a contribution to it. And they feel proud of that. So as I said right at the beginning, that first pillar was the key to any success. And I think looking at the results, it sort of shows that everybody stepped up. Those people who remain, I would say, are even more dedicated to Dialight. And that for any leadership team is a godsend. And I think it's gone as well as I could have expected. Mark Rupert Fryer: And in terms of the competitors and whether they've changed since 2012, the simple answer is no, they haven't changed. So the 4 competitors are Appleton, which is a subsidiary of Emerson; Cooper Crouse, which is a subsidiary of Eaton; Holophane, which is a subsidiary of Acuity Lighting; and Killark, which is a subsidiary of Hubbell. I think what has changed is, in 2012, Dialight was 100% LED. And those 4 competitors were not as highly focused on LED. They are now a lot more focused than they were then. They had legacy traditional technology businesses. They will still sell those lights to you as well, but they'll be a much smaller part of the mix than they would have been back in 2012. We tend to come up against them on most major bids. I think one of the areas in which we have slightly underinvested more recently has been in selling to the engineering, procuring businesses, the EPCs. That is a long-term sell and the goal in that is getting specified, your products specified on new build and retrofit of facilities. So that is something that we are investing in now more heavily. That's an investment that hits the P&L initially, but then typically higher margins can be generated when those bigger projects go live. Our competitors have continued throughout the last decade to invest in that area. So there are areas in which we are not specified and our competitors are. We need to do better at that. But today, our business is between 60% and 70% MRO maintenance and repair work. That's higher than it used to be. It used to be more CapEx new project orientated. And a combination of, hopefully, tariff uncertainty removing and our investment in the EPC team, we'll see that level of activity build up again and the overall percentage of MRO to marginally reduce. Operator: Perfect. Is wind a significant part of the U.S. obstruction business? And if so, are there revenue risks from the likely decline in new turbine orders/builds? Or is cellular/broadcast the driver? Stephen Blair: Yes. So wind is not a driver for us at all. All of our obstruction business is tower-based, are the communication towers and the like. And so really, that is the driver for our business. I mean with 5G towers, they're not as tall. And therefore, we don't see demand for our products increasing. But as Mark said earlier, the obstruction business is a very solid, reliable business with good returns. And so we'll continue to go after that obstruction business. But no, we're absolutely not impacted by how the wind market is growing or declining. Mark Rupert Fryer: I can see where the question comes from because in 2012 Dialight was in the wind market and had a Danish lighting business, BTI, but that has been exited in the last 5, 10 years. So no [indiscernible]. Operator: Perfect. Thanks, guys. And that actually concludes all the questions that have come in this morning. So thank you very much indeed for being so generous of your time and addressing all of those questions. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation just for you to review and to then add any additional responses, of course, where it's appropriate to do so, and we'll publish those responses out on the platform. But Steve, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Stephen Blair: Thanks, Jake. I'll sort of repeat what I said at my earlier wrap-up, and that is, this is a really good quality business. We think it has much, much further to go. And we are looking for growth on top of that high-quality business, which means we expect to generate profit, cash and growth. And certainly, that is what we're targeting. And I really appreciate your time today. We're very happy to talk to as many people as possible. We think we have a really good story, and this is a really great business. So thank you for your time and attention today. Operator: That's great. Steve, Mark, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Dialight plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided with for management's prepared remarks. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Huaxia Zhao: Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, our CFO. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For important information about this call, including forward-looking statements, please refer to the company's public information or third quarter 2025 results announcement ended at September 30, 2025, issued earlier today. During today's call, management will also discuss certain non-IFRS measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to the third quarter 2025 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session, and a consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management's original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now I'll turn the call over to Yixiao. Yixiao Cheng: Hello, everyone. Welcome to Kuaishou's Third Quarter 2025 Earnings Conference Call. In Q3, we continued to advance our AI strategy, expanding scenario-based AI applications and innovative use cases across our business. These efforts created a tangible business value across all business scenarios, strengthened the quality and efficiency for our organizational infrastructure and fueled strong operational financial results. Average DAUs on the Kuaishou App surpassed 416 million in Q3, marking the third consecutive quarter of record highs. Total revenue for Q3 rose by 14.2% year-over-year to RMB 35.6 billion. Revenue from our core commercial business, online marketing services and other services, primarily e-commerce, increased by 19.2% year-over-year. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. We achieved a year-over-year growth in the group's overall profitability while continuing to invest strategically in AI, a catalyst for unlocking deeper value across our content and business ecosystems. First, our AI strategy and the progress of our large video generation model, Kling AI. We continue to refine the foundation models behind Kling AI, developing new features to meet creators' diverse needs and build a one-stop creative productivity platform that empowers everyone to tell captivating stories with AI. In Q3, we launched Kling Lab and upgraded the start-and-end-frames function and introduced digital human solution. Notably, at the end of September, we released the Kling AI 2.5 model, achieving substantial advances in prompt adherence, dynamic effects, style consistency and visual aesthetics. Just 10 days after launch, the model was simultaneously ranked as the world's #1 text-to-video and image-to-video model by Artificial Analysis.ai independent AI benchmarking platform. While maintaining its leading content generation performance, the new model also integrates continuous engineering innovations that lower video inference costs, reducing creators' per video-generation expense by almost 30% and further strengthening Kling Al's cost-efficiency advantages. Kling AI's innovations in foundational models and product features have provided creators with higher-quality video generation solutions, establishing a foundation for broader adoption across professional creative fields such as marketing, e-commerce, film and television, short plays, animation and gaming. As Kling AI continues to expand its use cases, it has made breakthroughs in monetization and revenue growth. In Q3, revenue from Kling AI exceeded RMB 300 million. Kling AI is committed to empowering global creators and building a premium ecosystem. In September, we launched the Kling AI NextGen Creative Contest, which received over 4,600 entries from 122 countries and regions worldwide, covering diverse fields such as history, science fiction and animation. Outstanding works were screened at international film festivals, including Cannes, Tokyo and Busan for the integrating AI-powered film and TV works with traditional film and TV industries. In Q3, we achieved strong results from integrating AI into diverse internal and external use cases. On business empowerment, large AI models have now been integrated across all of Kuaishou's major business scenarios, driving incremental value across our ecosystem. We iterated our end-to-end generative recommendation large model, OneRec and extended beyond short video recommendations to additional recommendation scenarios such as online marketing services and e-commerce shopping mall. This expansion has generated meaningful incremental benefits. In Q3, large AI models demonstrated notable effects, especially in online marketing services. We pioneered a generative reinforcement learning-based bidding model that integrates sequence modeling with goal optimization. This innovation transformed advertising bidding from a single-step decision-making to long-term strategic planning, significantly enhancing bidding capabilities and ROI for clients, especially for small and medium-sized, one. Meanwhile, we explored using end-to-end generative recommendation in online marketing service scenarios through OneRec. Tailored to the characteristics of online marketing services, we introduced the client marketing expression and marketing commercial value perception mechanism to achieve bidirectional matching between users' interest and clients' demands, enhancing personalization and matching efficiency. Large AI model technologies, especially OneRec drove roughly 4% to 5% growth in domestic online marketing services revenue in Q3. In terms of online marketing material generation, Kling AI's large model has significantly reduced video production costs for clients. Meanwhile, advanced digital human technology has also opened up new operational scenarios in live streaming for both online marketing clients and e-commerce merchants. Consequently, the total spending from online marketing services driven by AIGC marketing materials exceeded RMB 3 billion in Q3. For e-commerce, we launched OneSearch, an end-to-end generative retrieval architecture. It enables more precise product matching and optimizes the user experience, driving nearly 5% growth in shopping mall search order volume. The adoption of OneRec in e-commerce also contributed to high single-digit GMV growth in the shopping mall feed in Q3. For entertainment live streaming, we leveraged Kling AI to introduce the AI Universe gift customization feature, which generates highly personalized avatar-based personal gifts, increasing both user engagement and willingness to pay. Second, user growth and content ecosystem. In Q3, average DAUs on the Kuaishou App reached 416 million and MAUs reached 731 million. This is the third consecutive quarter that average DAUs reached a record high. The sustained and steady traffic growth reflects Kuaishou's community's unique appeal to users. By refining our user growth strategies, offering distinctive and diverse content, optimizing our traffic allocation mechanism and enhancing community engagement, we continued to reinforce Kuaishou's identity as a heartwarming, diversified, informative and engaging online community. In Q3, average daily time spent per DAU on the Kuaishou App was 134.1 minutes, while total user time spent rose by 3.6% year-over-year. Our refined user growth strategies leveraged smart marketing material placement to enhance acquisition efficiency, lowering the acquisition cost per new user year-over-year. In traffic allocation, by modeling users' long-term user interaction patterns, we improved both user satisfaction and retention. We also continue to upgrade users sharing experience within private messaging and iterated on social interaction features. As a result, the daily average penetration rate of private messages among users with mutual followers increased by more than 3 percentage points year-over-year. We also elevated the user product experience through a series of device-level intelligent optimizations. In content operations, we partnered with the Beijing Radio and Television Station to launch the 2025 Kuaishou Super Summer Gala, where celebrities and everyday users come together and celebrate. The live stream session attracted a peak over 5.4 million concurrent users. To cater to young audiences, we hosted an online concert hosting -- featuring TNT, which drew 980 million live streaming views. In the pan-knowledge category, we curated the Liyuan Music Festival Summer Tour series, showcasing offline tours across diverse traditional art forms such as Qinqiang and also Shanbei Storytelling. By bringing these live performances to audiences, we helped benchmark creators like An Wan achieve cumulative accretive breakthroughs and gain recognition. Third, online marketing services. In Q3, revenue from our online marketing services reached RMB 20.1 billion, up 14% year-over-year. With the growth rate accelerating quarter-over-quarter, we continuously iterated and upgraded our online marketing placement products with AI models. Drawing our unique traffic dynamics, we cater to the needs of more marketing customers through our smart placement capabilities, achieving more precise targeting and higher conversion rates. This drove strong year-over-year growth in both external and closed-loop marketing services revenue. In Q3, our UAX solutions accounted for over 70% of external marketing spending. Ongoing innovations, iterations, particularly with our generative and reinforcement learning-based bidding model and generative recommendation large model further improved marketing recommendation efficiency and enhanced management of marketing variety and value. The combination of our 3 key AIGC commercialization tools, AIGC short video, digital human and digital employee has empowered our customers with an end-to-end AI solution covering marketing material creation, live streaming operations and user engagement. In Q3, for closed-loop e-commerce marketing services, we upgraded the product and content optimization capabilities of our omni domain platform marketing solution to maintain a steady supply of premium marketing materials. By integrating multi-content reinvestment and ROI bidding recommendation tools, we helped e-commerce merchants improve traffic and at sales conversions, thereby enhancing their willingness to invest in marketing placement. In Q3, total marketing spending from omni-platform marketing solution accounted for over 65% of our closed-loop marketing spending. Additionally, we established a bidding agent based on AI capability to replace mutual -- manual adjustment decisions, enabling more consistent conversions and unlocking greater economies of scale. On the traffic side, by enhancing the synergies between e-commerce and commercial value, we released more traffic capacity to merchants with long-term operations, helping more brand e-commerce merchants achieve a scaled expansion and stable conversion improvements. From a scenario perspective, in Q3, closed-loop e-commerce marketing services in pan-shelf-based scenarios also realized a solid growth. We optimized people to goods matching in pan-shelf search, and we used large models to better meet the users' needs and improve efficiency. These efforts increased marketing placement and penetration and drove stronger merchant participation. In Q3, for the lifestyle service sector, where clients mainly operate on a lead-based model, we upgraded our private messaging products and optimized vertical-oriented products. These improvements helped clients reach users more efficiently and achieve higher user conversion rates across various conversion goals. In lifestyle services, particularly among our small and medium-sized customers, we improved private messenger response rates with AI-powered customer service. In Q3, we combined our local services with a lead-based marketing business to form our lifestyle service segment, integrating teams, product lines and traffic distribution. This unification strengthens our ability to support merchants pursuing sustainable operations and help build a more diversified collaborative ecosystem with local customers -- merchants. These 3 -- the content consumption sector led by short plays was another key revenue driver for our external marketing services in Q3. We continued to enhance content supply and product innovation across short plays, mini-games and novels, while capturing incremental growth opportunities from the rapid rise of comic-style short plays, further expanding external marketing services revenue. Comic-style short plays combine features of comics, short plays and audio dramas, typically featuring vertical-screen episodes to 1 to 3 minutes long. This new genre has recently gained widespread traction among the broader market. Kling AI has significantly lowered the barrier to creating comic-style short plays while elevating overall content quality. In addition, through a mix of marketing placement, revenue sharing, IAA and IAP models, we created multiple monetization pathways for high-quality short-play content, expanding reach on both the supply and demand side. Fourth, our e-commerce business, in Q3, our e-commerce GMV grew 15.2% year-over-year to RMB 385 billion. Through a mix of merchant incentive programs, omni-domains traffic support and intelligent tool empowerment, we helped merchants build omni-domain operations ecosystems, continuously elevating user experience and driving high-quality supply and demand growth. To support the merchants sustainable growth, we encourage them to adopt an efficient conversion path that integrates public and private domains using public domains to acquire customers and private domains to strengthen retention. In Q3, the mix of our e-commerce monthly average paying users showed healthy trends. Active e-commerce users repeat purchase frequency increased year-over-year and user stickiness continued to improve. In Q3, in e-commerce supply, building on our platform's traffic and content-based e-commerce advantages, we continued to attract new merchants organically and onboarded merchants through a diverse channels. We introduced a range of incentives to lower onboarding costs and entry barriers for new merchants. In addition, we continue to launch initiatives to empower new merchants to navigate early growth stages and ramp up operations more efficiently, driven by a growing number of small and medium-sized merchants together with our targeted support for high-quality existing merchants, our average monthly active merchant base continued to grow. We also broadened the range of products, number of Level 3 product categories per store among our average monthly active merchants increasing by nearly 30% year-over-year. To empower merchants and KOLs in Q3, we launched a series of initiatives to unlock greater value creation within their private domains supporting their ability to build a dual growth engine of exceptional content and superior products. We launched the Pop-Up Follower rewards product to accelerate follower growth and empower merchants and KOLs from traffic generation to follow conversion ultimately to sales. With a stronger control over merchandise selection and supply, we expanded our product portfolio of high-quality platform native offerings. We focused on the premium brands through our KOL blockbuster initiative, leveraging the traffic pool of gift products to spotlight, dedicated live streaming sessions for [ treasury ]brands, supported by improved KOL product matching, KOL targeted vertical outreach and platform incentives. We expanded the KOL engagement, enhanced brand performance and empowered KOLs to address product selection and assortment expansion challenges. In Q3, the average daily number of active merchandise items increased by over 30% year-over-year. We provided guaranteed resources such as traffic support and product supply to onboard small and medium-sized KOLs and established long-term growth mechanisms. These efforts strengthened the KOL content ecosystem in Q3, driving a 14.8% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers. In Q3, in terms of operating across diverse scenarios, pan-shelfed e-commerce GMV continued to outpace overall GMV growth, contributing over 32% of total e-commerce GMV. We continued to enhance our infrastructure and supply ecosystem, driving a 13% year-over-year increase in average daily active merchants for pan-shelf-based e-commerce. We built on the diverse engagement features, strategy tools from Q2, including Super Links, the official channel of platform recommended product. These tools helped merchants quickly boost product exposure and sales conversion, cultivating user mind share for our shopping mall. The marketing host tool we introduced for merchants and content-based scenarios effectively lowered their operational barriers and drove steady quarter-over-quarter growth in merchant adoption. In Q3, we maximized the synergies between short videos and live streaming. We helped merchants integrate traffic from content-based scenarios through a seamless loop from product recommendations via short videos to rapid conversion in live streaming rooms and back to user engagement via short videos. This strategy steadily expanded the merchants customer base, supported by more short videos with embedded shopping links and our customized funnels, short video e-commerce GMV maintained a healthy growth. In Q3, in terms of integrating AI into our e-commerce business, we focus on empowering merchants across our e-commerce business chain with 3 core areas: AIGC content production, merchant efficiency improvement and product matching efficiency optimization. Our AIGC capabilities for generating and optimizing materials continue to deliver strong results, helping merchants improved conversion efficiency across both image and video formats in diverse scenarios. Penetration of the smart live streaming highlights and AI live streaming scenarios also steadily increased. Concurrently, our AI product management assistant is providing comprehensive omni-scenario support, it helps merchants reduce costs, increase efficiency and strengthen their operational capabilities while also operating high -- generating high-quality data. On the matching front, our explainable recommendations powered by our e-commerce knowledge graph, predict users' potential and long-term interest. This boosts conversion rates and also strengthen the user trust and stickiness with our recommendations. We believe these AI capabilities will ultimately power growth flywheel of data infrastructure, precise matching and merchant efficiency empowerment driving the healthy and sustainable development of our e-commerce ecosystem. Next, regarding our live-streaming business. Q3 live-streaming revenue grew by 2.5% year-over-year to RMB 9.6 billion. Growth was driven by high-quality content, expanding live-streaming scenarios and AI-powered product innovations. For live-streaming supply, the healthy development of our talent agency ecosystem provided robust support pillar. By end of Q3, our partner talent agencies had increased by more than 17% and talent agency managed streamers grew by over 20% both year-over-year. We focus on categories such as group live-streaming by supporting premium benchmark groups guiding content optimizations, we achieved high-quality development and steady revenue growth. Innovative AIGC applications also injected momentum into our business growth, leveraging AI, Kling AI capabilities, in late September, we rolled out the AI Universe gift series with a customizable special effect platform-wide, effectively diversifying options for personalized interactions in live streaming rooms. On launch day alone, users paid to create and send over 100,000 personalized virtual gifts. In Q3, for entertainment live-streaming operations, we launched a Super Grand Stage 2.0 organized as 5 regional contests nationwide to further integrate online live-streaming and offline scenarios. Targeting the summer season and demand from young users, we hosted the Summer Gaming Music Festival in Chengdu, an offline event blended gaming, music and interactive experiences deepening our partnerships with game developers. The event attracted 672 million live stream views and over 50,000 participants. Moreover, our live streaming+ strategy continued to empower traditional industries, further validating its commercial value. In Q3, average daily number of users submitting resumes on Kwai Hire increased by over 20% year-over-year. In Ideal Housing, average monthly number of paying clients increased by over 90% year-over-year. Finally, our overseas business. In Q3, we continued to strengthen our foothold in overseas markets, focusing on high-quality growth. On the traffic front, we optimized customer acquisition efficiency to precisely reach high-value demographics. By prioritizing operations for core category creators, we fostered stronger connections between our high-quality characteristic content and our core user base. Brazil, our core international market maintained stable DAUs while reducing user acquisition cost year-over-year delivering consistent year-over-year growth in average daily time spent per DAU. For online marketing services, we bolstered business resilience, diversified our marketing client base across industries. Through an updated product capabilities and placement strategies, we improved overall conversion efficiency across our marketing funnel, unlocking more on monetization potential for diverse user groups and earning sustained client recommendation. Concurrently, our e-commerce business in Brazil improved both in subsidy and operating efficiency. While maintaining disciplined ROI management, we achieved a healthy year-over-year growth in GMV transaction scale and order volume in Q3. Looking ahead to Q4 and into 2026, we will continue investing in our AI strategy, exploring efficient gates that empower users, video creators, marketing clients and e-commerce merchants through Kling AI and other large AI model technology. At the same time, guided by our development philosophy and AI strategy, we will comprehensively transform and upgrade our organization structure, talent deployment, product design and features. We will persistently uphold and concentrate Kuaishou's technology innovation ethos, maintaining and deepening our long-term competitive advantages in the era of AI. That concludes my prepared remarks. Next, our CFO, Bing, will review the company's financial update for Q3 2025. Bing Jin: Thank you, Yixiao, and hello, everyone. In Q3, we continue to strengthen our core advantages, leveraging our large AI model capabilities, we further empowered our content and business ecosystems. With our rich content supply and optimized omni-domain operations ecosystem, we continuously enhanced the experience for users and creators while helping merchants and KOLs improve their operational capabilities and support sustainable growth. During the quarter, we achieved solid operational and financial results, with the total revenue increasing 14.2% year-over-year to RMB 35.6 billion. This included a 19.2% year-over-year increase in revenue from our core commercial business, which includes our online marketing services and other services, primarily e-commerce. With our steady revenue growth and improved operating efficiency, we improved our overall profitability. Operating profit increased 69.9% year-over-year to RMB 5.3 billion. Adjusted net profit grew 26.3% year-over-year to RMB 5 billion with a healthy adjusted net margin of 14%. Now let's take a closer look. Our total revenue grew 14.2% year-over-year to RMB 35.6 billion in Q3. The increase was mainly driven by growth across each of our business, including online marketing services, live streaming, e-commerce and Kling AI. In Q3, online marketing services revenue increased 14% to RMB 20.1 billion from RMB 17.6 billion in the same period last year. The growth was primarily attributable to the use of AI technology to continuously upgrade our online marketing product solutions that improved the conversion efficiency, which drove higher client spending from our marketing clients. Revenue from other services, including e-commerce and Kling AI businesses reached RMB 5.9 billion in Q3, up 41.3% from RMB 4.2 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income as well as the expansion of our Kling AI business. We have continuously refined Kling AI's foundation models and developed more innovative features. Its application coverage has expanded, driving further breakthroughs in commercialization. In Q3, our live-streaming revenue was RMB 9.6 billion, up 2.5% from RMB 9.3 billion in the same period last year. We consistently cultivating high-quality content, expanded live streaming scenarios and leveraged AI-empowered product innovations to build a diverse and healthy live-streaming ecosystem. These steps drove greater user engagement with high-quality live-streaming content. Cost of revenues increased 13.4% year-over-year in Q3 to RMB 16.1 billion, accounting for 45.3% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and right-of-use of assets and amortization of intangible assets. In Q3, our gross profit grew 14.9% year-over-year to RMB 19.4 billion. Gross profit margin was 54.7%, up 0.4 percentage points year-over-year. Moving to expenses. Selling and marketing expenses were RMB 10.4 billion, roughly flat year-over-year and accounted for 29.3% of total revenue, down from 33.3% in Q3 last year, reflecting our refined efforts and improved operating efficiency. R&D expenses were RMB 3.7 billion, up 17.7% year-over-year, accounting for 10.3% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses decreased 13.6% year-over-year to RMB 688 million or 1.9% of total revenue, mainly due to lower employee benefit expenses, including share-based compensation expenses. Group level operating profit for Q3 increased 69.9% year-over-year to RMB 5.3 billion. Net profit for Q3 was RMB 4.5 billion. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. Our balance sheet is quite robust with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB 106.6 billion as of September 30, 2025. We generated a positive operating net cash flow of RMB 7.7 billion in Q3. Additionally, we actively delivered on our commitment to shareholder returns based on marketing conditions. As of September 30, we had repurchased an aggregate of approximately HKD 2.17 billion (sic) [ HKD 2.07 billion ] or around 42.25 million shares, which accounted for about 0.98% of our total shares outstanding for 2025. In addition, we declared a special dividend of HKD 2 billion in Q3, reflecting our confidence in Kuaishou's long-term growth prospects and a solid financial position. Looking ahead, we'll continue to prioritize user needs and execute our AI strategy to empower all of our business stars while exploring more diversified growth avenues. These initiatives will reinforce our competitive edge in ever-changing market and enable us to create long-term value for our users, partners and shareholders. That concludes our prepared remarks. Now let's move into the Q&A session. Operator: [Interpreted] [Operator Instructions] The first question comes from Felix Liu of UBS. Felix Liu: [Interpreted] Congratulations on the very strong third quarter results. My question is on Kling AI. How does -- the market is very focused on the competitive landscape of video GenAI. Could management share more color on Kling's competition strategy from here? And where do you plan to develop and drive evolution in Kling from here? After the launch of Sora 2, how do we see the development of the overall video GenAI industry? And do you anticipate more opportunities on the 2C side of video GenAI. Unknown Executive: [Interpreted] Thank you for your question. The surge of entrants from tech giants to start-ups reflects just how attractive and promising the video generation market is. That said, we believe video generation is still far from maturity in both product and technology. With a growing number of market participants, we expect accelerated innovation across the industry, meeting more user needs, penetrating a wider range of use cases and pushing the market to expand even more. As for Kling AI's positioning and competitive strategy, we have zeroed in on key goal to empower everyone to craft captivating stories with AI. Our first industry focus is film and television, where we are dedicating our resources to deepening our tech and product capabilities. Video models like large language models are essentially evolving toward world models. We see video models as the key technology for world models. Applications can extend far beyond film and TV production. They can reach interactive experiences and data generation for embedded intelligence. While we will continue sharpening our model and product capabilities across diverse application scenarios, our strategic focus right now is squarely set on AI-powered film and TV production. With this goal in mind, we have been advancing our technology leadership and product creativity, and we'll continue on this path. Video models differ from language models in 2 ways. First, they are highly complex. While language models are relatively simple at the macro level, video models consist of a wide range of different modules. This complexity also gives us significant room for technological breakthroughs and innovation. Second, video generation is an open-ended domain, inputs can be text, pictures or motion trajectories and outputs can be diverse content including images, video and sound. These 2 characteristics [indiscernible] allow greater flexibility in technology and product choices, which in turn provide significant room for technology and products innovation. Kling AI aims to bring together product creativity, inside users capability to push technological boundaries. For example, in April, we [ revealed ] our concept of interaction called MVL. Building on this, we are continuously upgrading our foundation model and product capabilities, exploring more ML model products. Alongside the [Technical Difficulty] breakthrough in our product capabilities, we have also wide range of operational initiatives to foster -- creative mechanism and a thriving content creation ecosystem. For example, our Kling AI Future Partner program integrates key resources from both Kuaishou and Kling AI to precisely match creators with high-value commercialization opportunities across diverse scenarios. The program has supported well-known brands such as the NBA and [ Mochi Ice Cream and Tea ]. We also recently leveraged the Kling AI NextGen Creative Contest, helping Kling AI creators gain exposure at international film festivals in Busan, Cannes and Tokyo, further expanding Kling AI's global brand visibility and influence. As for the latest buzz around Sora 2, it has made technology breakthroughs on multiple fronts and integrated closely with social interaction features. This has really accelerated the rollout of consumer-level AI applications and strengthen our confidence in the future commercial scalability of video generation. For us, our main focus is still on professional creators, improving their experience and willingness to pay. At the same time, we are actively exploring consumer-facing use cases. When the time is right, we will advance the productization of Kling AI's technology, embedding social features to speed up consumer level applications and commercialization. Operator: [Interpreted] The next question comes from Lincoln Kong from Goldman Sachs. Lincoln Kong: [Interpreted] Congrats on a very solid result. So my question is about the AI-powered business. So on top of Kling AI and the OneRec just we've been talking about for online marketing services, could management elaborate more on AI large language model to empower our Kuaishou content ecosystem and how to improve our operational efficiency front? Unknown Executive: [Interpreted] Thank you for your question. 2025 is widely regarded as AI's first year advancing into deep applications. Throughout the year, AI technologies represented by a multi-model generation and AI agents have consistently moved toward richer and more efficient applications that are more aligned with user needs. This marks a systematic step toward unlocking AI's industrial scale value. Against this backdrop, we have progressively developed a comprehensive AI technology and application system centered on user needs and rooted in our existing business scenarios. It is designed to accelerate AI adoption to empower our content and business ecosystems as well as our organizational infrastructure. In terms of empowering our content ecosystem, AI has now been fully integrated across Kuaishou's business operations from content and user understanding to content generation and recommendations. First, in understanding content and users, our proprietary multi-model large language model, KwaiYii has demonstrated strong video comprehension capabilities. Based on this model, we upgraded our short video and live streaming content understanding system and launched [ Tag Next ], our next-generation tagging system, which enables more accurate and comprehensive content understanding. [ Tag Next ] is now being applied across key scenarios, including early-stage content management, content diversity expansion and the new interest discovery, driving higher average app usage time per user. Second, in content generation, Kling AI continues to empower mass creators. We have witnessed a significant increase in the video views volume of AIGC short video content on the platform. Third, in content recommendation, the important -- the most important area, we further expanded the boundaries of generative recommendation systems by upgrading our end-to-end generative recommendation large model, OneRec. We launched the next-generation OneRec-Think large model, integrating LLM inference capabilities and combining conversational inference, personalized recommendations and real-time feedback mechanisms into one single model system. This further enhances recommendation accuracy and strengthens user trust. Beyond business empowerment, AI technology has played a major role in improving the efficiency of our organizational infrastructure. Our proprietary AI coding tool, CodeFlicker has become a core intelligent development tool used daily by our engineers at a high frequency. It supports scenarios such as automated unit testing generation, intelligent code review and smart testing cases generation. Currently, nearly 30% of the new code at Kuaishou is generated using CodeFlicker. In terms of content review, we have applied large AI models across diverse scenarios, including user profiling, content identification and comment analysis. By leveraging COT reasoning and reinforcement learning technologies, we have enhanced our review models capabilities. Currently, over 99% of the content on our platform is reviewed by AI, greatly reducing related costs while improving the efficiency and quality of content review. In addition, our customer service team is leveraging AI technology to prescreen and route user inquiries, provide intelligent assistance and accumulate knowledge. As a result, over 70% of user inquiries are now directly handled and resolved by our AI-powered customer service system, significantly improving efficiency. Overall, a resilient self-reinforcing cycle of AI innovation, AI application monetization and revenue growth is taking shape at Kuaishou. In the long run, we believe this full spectrum AI application ecosystem will further strengthen Kuaishou's market resilience and unlock new growth momentum. Operator: [Interpreted] The next question comes from Thomas Chong of Jefferies. Thomas Chong: My question is about online marketing services. We have seen our online marketing revenue accelerating this quarter. Can management provide more details on what we have done from the perspective of traffic, industry sectors as well as product offering? Unknown Executive: [Interpreted] Thank you for your question. In Q3, online marketing services revenue grew by 14% year-over-year, accelerating from the previous quarter with domestic online marketing services revenue increasing by over 16%. From the traffic perspective, advertising revenue was driven by both increased marketing material impressions and higher CPM. The growth in impressions was supported by overall traffic growth and by more high-quality native marketing content, which helped increase ad load. The rise in CPM was driven by our use of AI technology such as generative reinforcement learning bidding and end-to-end generative recommendation models, which improved the matching between user interest and advertiser needs, enhancing the personalization and matching efficiency of online marketing material recommendations. Looking ahead at external marketing services industry-wise, lifestyle services, where clients mainly rely on lead-based operations and content consumption represented by short plays and mini games were the standout sectors this quarter. In lifestyle services, we upgraded our private messaging product and optimized the subsequent conversion passes across industry verticals, helping clients to reach users more efficiently and improve sales conversions. Since most of our lifestyle services clients are small and medium-sized businesses, they benefit more from products like our AI customer service, UAX placement solutions and AIGC marketing material generation tools. In content consumption industries, deep AI empowerment drove rapid growth in comic style short plays. We captured this opportunity and used Kling AI to play an active role in upstream content creation. In terms of our closed-loop marketing services, we continue to iterate our omni-platform marketing solution, helping e-commerce merchants achieve more incremental exposure and conversion. By leveraging intelligent bidding agents and generative large models, we enabled 24/7 stable bidding and more fully uncovered user interest, which helped expand merchants placement budgets. We also strengthened our ability to capture and interpret users' full range interest across both content-based and shelf-based scenarios, effectively increasing the number of converted users and their purchase frequency while better meeting users' e-commerce consumption needs on Kuaishou. From a product perspective, we upgraded multiple products, including our UAX placement solutions, AIGC marketing material generation tools, live streaming digital human solutions and our virtual employee. These enhancements lowered the marketing threshold and improved conversion rates, driving more online marketing services spending. Specifically in Q3, our UAX placement solutions added fixed period steady placement feature. The new feature allows clients to set their requirements for marketing materials and pricing for a specific ad placement period, while the system automatically handles intelligent infrastructure, smart dynamic fine-tuning and smart creative content production. This enhanced the stability of the ad placement period had helped our online marketing clients achieve more consistent placement performances at a more predictable cost. In Q3, our UAX placement solutions accounted for over 70% of the external marketing spending. Our AIGC marketing material generation tool enabled the clients to generate short video materials rapidly at a low cost and in batches with a 10% to 20% higher material conversion efficiency than the industry average. Live-streaming digital human solutions allowed our clients to run 24/7 live streams even without streamers or venues. Our virtual employee reached a human level customer service performance in conversational accuracy, efficiency and safety, engaging naturally across scenarios like private messaging and common, improving conversion efficiency for our clients. Looking ahead, we'll continue to expand our industry client base and further deepen AI applications, empowering clients to achieve more efficient, high-quality marketing performances and better ad placements. Operator: [Interpreted] The next question comes from Daniel Chen from JPMorgan. Qi Chen: [Interpreted] So my question is related to e-commerce. So what's the latest progress and the performance of our Double 11 promotion in December quarter? And if we look at next 1 to 2 years, what's the incremental -- what's the key growth driver for our e-commerce business, especially the live streaming e-commerce? How should we look at the future growth potential? Unknown Executive: [Interpreted] Thanks for the question. Regarding e-commerce, while consumption has shown some resilient recovery this year, overall user spending has remained cautious and rational. During the Double 11 Sales Promotion, we delivered results in line with our expectations with standout performances in categories such as jewelry and gemstones, tea, wine and wellness, apparel, including men's and women's apparel, sportswear and family matching outfits and fresh food. For this year's Double 11 Sales Promotion, we invested over RMB 18 billion in platform traffic incentives, combined with RMB 2 billion in user subsidies and RMB 1 billion in merchandise subsidies. Together, these effectively enhanced the merchant sales conversions and buyer engagement, increasing the number of merchants achieving GMV of over RMB 10 million by double digits year-over-year. We implemented a tiered support programs tailored to business type and merchant and KOL size, fostering a thriving e-commerce ecosystem and motivating them to achieve better growth across omni-domain scenarios. For shelf-based e-commerce scenarios, we focus on supporting core products where we launched a range of initiatives, including the Big Brand, Big Subsidy and Super Links. During this year's Double 11 Sales Promotion, the number of single products achieving over RMB 1 million GMV via the Big Brand, Big Subsidy initiative surged by over 77% year-over-year. Our users' mind share for shopping on Kuaishou improved during the sales promotion with search-generated e-commerce GMV growing by over 33% year-over-year. For our future e-commerce growth drivers, in the short to medium term, we will prioritize boosting user purchase frequency followed by increasing ARPPU. Our key initiatives to raise purchase frequency are: first, we will continue to empower streamers to strengthen their private domains and operational efficiency, broadening the variety of streamers and product categories that users pay for. Second, we will maximize cross-scenario synergy. Lower purchase barriers in short video scenarios will allow us to expand our [Technical Difficulty]. More as we progressively reinforce users' shopping mindset on Kuaishou, our pan-shelf-based e-commerce will better capture users' repeat purchases needs with greater certainty. We will further enhance the operations of our key product categories and more precisely identify our core user AI [Technical Difficulty] users' trust in the platform having steady ARPPU growth. There is still significant room to grow our e-commerce monthly average paying users, but we view this as a long-term outcome metric rather than a short-term performance metric. In the near to medium term, we will mainly focus on the healthy structure of our e-commerce monthly average paying users. Regarding the growth potential of live streaming e-commerce, as a common platform, live streaming e-commerce and trust-based e-commerce have always been the backbone of our e-commerce business and most critical operational scenarios. We believe that live streaming e-commerce with its built-in conversion advantages will continue to gain ground in the online retail market and it stills hold substantial room for structural growth in the future. The long-term growth potential lies in creating a healthy ecosystem where merchants can operate sustainably with private domain follower retention, acting as a key moat given their high user stickiness and repeat purchase behavior. Accordingly, we helped merchants better integrate their public and private domain strategies through a range of initiatives acquiring traffic in the public domain while retaining followers and converting them into customers and driving repeat purchases in private domains. That said, exceptional content and superior products remain the essential foundation of our ecosystem. Therefore, we'll continue to onboard merchants and creators, expanding the pipeline for high-quality supply while continuously broadening the range of merchandise. In parallel, we will strengthen long-term collaboration with both merchants and KOLs by offering them extensive products through our distribution pool and providing traffic support for standout content. We will also equip the merchant and KOLs with our intelligent operational tools, empowering them with AI to improve efficiency and performance. A robust business ecosystem in turn, will incentivize the continuous creation of exceptional content. Finally, while live streaming e-commerce is the backbone of Kuaishou's e-commerce, we will also encourage merchants to operate across diverse scenarios and strengthen the efficiency of omni-domain synergies. This will facilitate a closer alignment with the user needs and enhance the resilience and stability of Kuaishou's e-commerce ecosystem. Thank you. Operator: [Interpreted] The next question comes from Xueqing Zhang of CICC. Xueqing Zhang: [Interpreted] My question is regarding CapEx and profit margins. With the progress of Kling and other AI drive initiatives, does the company have any updated guidance on the CapEx and AI-related spending plans? Has the full year 2025 profit margin target being adjusted? And given that the industry is significantly increasing CapEx, how is Kuaishou planning the CapEx over the next 1 to 2 years? And what impact will AI investments have on profit margins? Bing Jin: [Interpreted] Thanks for your question. As Yixiao said, this quarter, we achieved strong results by integrating AI technology across a wide range of internal and external application scenarios. AI empowered our business operations and improved the quality and efficiency of our organizational infrastructure. AI technology continues to unlock increasing value across our content and business ecosystems. At the same time, Kling AI made more solid breakthroughs in commercialization. We now expect Kling AI's full year 2025 revenue to reach USD 140 million, more than double the target we set at the beginning of the year of USD 60 million. Given Kling AI's users' growing demand for video generation models, we have continued to ramp up our investment in computing power for Kling AI. Beyond the incremental investment in inference capacity alongside continuous model iterations, we have recently started to scaling up Kling AI's training computer power to keep Kling AI at the forefront of technology advancement. Including this and CapEx from other AI initiatives, we expect the group's total 2025 CapEx to increase in the mid- to high double digits year-over-year. Regarding expenses, we have recently stepped up our investments in hiring and retaining AI talent. This portion of expenses remains relatively manageable. And despite the higher AI-related investments, we're confident that our full year adjusted operating margin will continue to improve year-over-year. Our overall improvement in profitability further underscores that AI continues to unlock increasing value across Kuaishou's content and business ecosystems. Thanks to the better-than-expected progress of Kling and integration AI technology in our businesses, so we [Technical Difficulty] growth plan with a focus on upgrading computing power and technology. This goes beyond supervising costs and expenses builded in our strategy of leveraging leaps in AI to drive greater value. As AI applications continue to expand across scenarios, their potential value will be unlocked. We are confident that we can continue to steadily grow our profits, improving profitability over the next 2 years, and we look forward to sharing our progress along the way. Thank you. Huaxia Zhao: Thank you, operator. That's the end of the Q&A session. Operator: [Foreign Language] Huaxia Zhao: [Interpreted] Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Stephen Hare: Good morning, and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO. I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY '25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit margin and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment and enabling strong shareholder returns. Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intacct Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes. And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, we have around GBP 1 billion of cloud-native ARR growing over 20%. We've enhanced go-to-market with new systems and processes to drive efficient growth, and we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term. I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review. Jonathan A. Howell: Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we delivered strong financial results, and we enter FY '26 well positioned for further success. Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY '22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%. Moving on to the highlights for FY '25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good levels of growth from new customer acquisition. As a result, ARR increased by GBP 245 million to GBP 2.6 billion. That's up 11% compared to last year. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P&L. Total revenue growth of 10% was underpinned by recurring revenue, which also grew by 10%. Sage has a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to GBP 600 million, reflecting continued top line growth and strong margin expansion. Profit after tax increased by 14% to GBP 423 million, leading to strong growth in underlying EPS of 18% to 43.2p. And we've increased the final dividend to 14.4p, taking the full year dividend to 21.85p which is up 7%. Cloud products continue to be a significant driver of growth with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 23% driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance. Starting with North America, which represents just under half of group revenue. Here, we delivered revenue growth of 12%, driven mainly by the medium segment. Sage Intacct continued to perform well with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region. The UKIA region represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 10% as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50 and this was supported by a good performance in SAGE 200. In Africa and APAC, growth of 7% was driven by strength in Sage Accounting and Payroll together with Sage Intacct. And finally, in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of ForceManager in October last year. And in Central Europe, growth of 6% was driven mainly by Cloud HR and Payroll. As we've said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage together with disciplined cost control means we can invest more and expand the margin. This, in turn, leads to sustainable growth. In FY '25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. An investment in R&D at 15% remains a key priority for the group. Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance, while the effective tax rate remain constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2p. Moving on to cash generation, which remains a core strength of Sage. During the year, the group generated GBP 660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%. And free cash flow was GBP 517 million net of interest and tax. The group has a strong balance sheet with GBP 1 billion of cash and available liquidity. Our leverage ratio of 1.7 remains within our midterm target range of 1 to 2x. In line with our disciplined approach to capital, this morning, we announced a share buyback program of up to GBP 300 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth. So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY '26 to be 9% or above, and we expect operating margins to continue trending upwards in FY '26 and beyond as we focus on efficiently scaling the group. Thank you, and now back over to Steve. Stephen Hare: Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose, to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas: Connect, Grow and Deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and midsized businesses. SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Our small business tracker analyzes data from 140,000 SMBs. And it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments with the challenge of remaining competitive and compliant. They want effective integrated solutions from a trusted vendor and Sage provides these solutions helping SMBs to knock down barriers, automating processes, speeding up cash flows and delivering business insights. LA Opera, shown here on the slide, told us that Sage Intacct has completely transformed their finance function with its AI capabilities, helping to save 10 to 15 hours a week. And as we roll out Sage CoPilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits. The way we're doing this is through the Sage Platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI factory, the infrastructure that drives Sage CoPilot powered by our LLM backed proprietary intelligence engine, and it's supported by our data hub and core experience and network services that enhance security and automate workflows. The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage CoPilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in Agentic AI, both by launching our own agents, and by integrated trusted third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust. We've been building AI into our products for years through successive technologies, first predictive then generative and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition, combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage CoPilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich, proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses. This specialism makes them more accurate and efficient than off-the-shelf models while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage Platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs. So let's now turn to a look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect, where every connection and every transaction that flows across the platform makes the system smarter for everyone. During the year, we scaled services, such as accounts payable automation with monthly transaction value tripling over the past 12 months to GBP 2.3 billion, thanks to continued adoption by customers such as Greenidge in the U.S. shown here on the slide. They told us that Sage AP automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service, and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of Fyle and Criterion, we expanded in expense management and HCM, enabling us to streamline and automate these critical processes for SMBs. We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms, such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for Carbon Accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate. Looking ahead, our aim in this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting our existing ones. And the biggest contributor to growth is Sage Intacct, our flagship mid-market solution. In the U.S., Sage Intacct grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the U.S., ARR increased by around 50%, with standout momentum in the U.K. where Sage Intacct now serves over 1,600 customers. During the year, we replatformed Sage X3 to deliver a full cloud native experience where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business. Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services. Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage CoPilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers including Adam Williams of Tyne Chease shown here on the slide. I met with Adam earlier this year, and he told me that Sage CoPilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier. Other customers have told us it's doubled productivity in accounts payable, while reducing manual data entry by up to 90%. We've also expanded Sage CoPilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far access features such as search help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant. These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now we expect that this, over time, will create monetizable opportunities for Sage through features, pricing and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating cogeneration saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify and convert sales leads. We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. And with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage CoPilot, embedding it into the core user experience across our portfolio while further developing our agentic capabilities, accelerating benefits and unlocking ROI for customers and for Sage. Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence with Sage ranked by G2 as the #1 software company in the U.K. for 2025 and in the Top 25 globally based on user reviews. And we continue to champion policies that our customers care about from partnering with the U.K. government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage. For colleagues, we foster a high-performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers. Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY '25, we launched our entrepreneurship program to support purpose-driven start-ups around the world. And Sage Foundation celebrated a decade of impact during which time we've raised over $5 million and enabled 1.4 million volunteering hours. And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus, which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders. We're differentiated from competitors by our AI-powered platform, global products and geographic reach with deep domain expertise across financials, payroll and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin. So in conclusion, Sage delivered a strong performance in FY '25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY '26 with confidence and momentum. Now before we move to Q&A, I'd like to say a big thank you to Jonathan, who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jacqui Cartin in great shape and I'm looking forward to welcoming Jacqui to the CFO role from the first of January. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be very happy to take your questions. Operator: [Operator Instructions] We will now take the first question from the line of Adam Wood from Morgan Stanley. Adam Wood: First of all, congratulations on the results and also best wishes from me, Jonathan. I know you've got a few weeks left, but best wishes from my side when that time comes up. I've got two questions, please. Just first of all, we saw a nice tick up in the ARR growth in the fourth quarter. Could you just talk a little bit about what the drivers of that improvement in ARR were at the end of the year, please? And maybe just secondly, when in the commentary around North America, you talked about the introduction of multiyear customer contracts as a driver of growth. I guess from Intacct side, that's a pure SaaS business, so multiyear contracts wouldn't bring any revenue forward, but I'm just curious if you could maybe expand a bit on how that was a driver for North American revenue, please. Jonathan A. Howell: Adam, yes, thank you. Thank you for your questions, and thank you for your comments. First of all, if we just stand back and look at ARR for the full year, we exited with growth of around 11%, and that was in line with the first half ARR exit rate. Looking at sequential growth, Q1, Q2, Q3, we saw between 2% and 2.5%. And then to your question, in Q4, that picked up to around 4%. And that was a very strong result and particularly [Technical Difficulty]. Operator: One moment please, your conference will resume shortly. Jonathan A. Howell: Hello, sorry, we lost the line for a moment then. Just to recap to make sure everybody gets it. Q4, we saw a sequential growth of 4%. And that was a strong result and significantly above the 3.5% that we saw in Q4 of the prior year and that's been driven by North America and UKIA, particularly across the medium segment and primarily Intacct, where we saw a very strong performance in Q4 in both new customer acquisition and upsell and cross-sell. I think it's probably just worth noting that we are now beginning to see the benefit from the ongoing investment that we've made in products, people and go-to-market in those regions in the medium segment. And that underpins our guidance for FY '26 as we exit with -- this year with good momentum. Suites multiyear contracts, Adam, you mentioned that. They simplify our proposition for customers and improve the sales motion. We expect over those multiyear contracts to be able to increase customer lifetime value over that extended period. And that provided a bit of an impact in Q4, but really, the whole performance was underpinned by strong execution in new customer acquisition. Operator: We will now take the next question from the line of Frederic Boulan from Bank of America. Frederic Boulan: Two, if I may. Firstly, around AI. I mean you kind of discussed your pipeline and the kind of innovation you've been pushing. Can you spend a minute around the impact on the business from a revenue standpoint? What you've been doing from a pricing standpoint and any early insights on what you've seen in your U.K. portfolio in particular? And then secondly, it would be good to have an update on the competitive dynamics, especially versus Intuit in the U.S.? Are you seeing any of the QuickBooks graduate funnel starting to dry out? On the contrary, I mean, U.S. performance seems to remain very, very healthy. So any comment there would be great. Stephen Hare: Yes. Thanks, Frederic. And so to start with the AI. And we have, as we've said before, been deploying AI for many years. What we're doing now is, both with Sage CoPilot and now increasingly with AI agents, starting to create more stand-alone capability that takes advantage of generative AI. So with Sage CoPilot, we've now deployed that to around 150,000 customers. And in terms of how we're monetizing, we're doing it in a number of different ways. With CoPilot, we're tending to bundle it into the existing plans and then use that to increase the price. So in the U.K., for example, with Sage Accounting, we put Sage CoPilot into the plus tier, and then we increased the price of that tier by around 25%, 30% and made it available to all those customers. With some of the agents, so for example, with accountants, we've launched a VAT agent, which does what it kind of says on the tin, which is it helps to prepare VAT returns. For those sorts of agents, we may well charge for those because they are -- separately because they're doing a particular task but I think my kind of overriding message here would be that the commercial models have not really been completely written. So I think if you ask us or you ask anyone else, we're all looking for different ways to monetize what is considerable value for our customers. We are saving our customers a tremendous amount of time. We've had feedback from small customers that Sage CoPilot is saving them 10, 12 hours a week. So I think it's kind of it will build over time, and we will -- these sorts of calls will give you transparency in terms of how it's being monetized. But it may not be an entirely kind of linear journey. It will -- there'll be different ways that we do things for different parts. As far as the competitive situation is concerned, look, I mean, I think it's very similar to how it's been in the past. I think our differentiation is that whether it be in the U.S. or elsewhere, we're being very clear that what we're doing with AI is we are driving a platform strategy where we're using our proprietary data sets to train our models to ensure that we get the accuracy that's required in a finance payroll environment. So if we're automating workflows in the case of midsize businesses with Intacct, we're seeking to automate the close, save time by deploying AI in the close process. All of these things have to be accurate. And the way we make them accurate is because we have domains or developing domain-specific LLMs. We've said in the press release, we have over 40,000 training models currently learning from our 40-plus years of experience in our proprietary data. And we think that is the way forward. Jonathan? Jonathan A. Howell: Yes, just to add a little bit more color on the pricing impact. As Steve said, we've seen price increases put through for Sage Accounting and Sage 50 in the U.K. only in relation to the introduction of CoPilot. And if you look back over the last 4 years, across our portfolio on a weighted average, our price increases have been between 4% and 5%. For this year in FY '25, that ticked up to 5.5%. And a significant component of that does come from this impact from pricing in response to the introduction of CoPilot. That's just the start. As Steve said, it's not going to be linear necessarily, but we are optimistic given that Sage CoPilot and other AI enablement will begin to be rolled out across other products and other territories outside of the U.K. Operator: We will now take the next question from the line of Toby Ogg from JPMorgan. Toby Ogg: Jonathan, best wishes from me as well. Just on the 9% or above growth guidance for '26, could you just help us with the framing around the sort of recurring revenue growth versus the other revenue? I think for 2025, you saw about a 30 basis point or so headwind between that organic recurring revenue growth and the total organic revenue growth. How should we think about that dynamic for 2026? And then also, you obviously mentioned 5.5% contribution from pricing in '25. How are you thinking about the pricing contribution embedded in the 2026 guide? Jonathan A. Howell: Yes. So in terms of the guidance for the year, if we just step back, for FY '26, we are using the same form of guidance that we've used for the last year, which is 9%, organic total revenue growth of 9% or above. We are confident in that guidance given the momentum that we take with us as we exit the year. We've invested in key products, particularly Sage Intacct and CoPilot. And we've also seen really in Q4 and continuing this year, good sales execution. We've got a solid sales pipeline and robust closure rates. So we see overall the guidance is realistic, but cautious. And needless to say, we will continue to update you as we move through FY '26. In terms of the various components of revenue, I think the most important thing to note is that other revenue, which we have seen as part of our strategy, a significant runoff over the last 5 years, as we exit the license business, that part is done. But we still have an element of maintenance and support and an element of professional services, which has now stabilized. And the professional services, in particular, is an important contributor because that provides us with flexibility for implementation and new customer acquisition in the direct channel. So in those two lines, that quite strong strategic runoff that we've seen in recent years has stabilized, and there will be some variability there going forward. Now it's important to note that the other revenue line is very small, that's only 3%, but it does have an impact. And the maintenance support is a larger line and has a little bit more of an impact in supporting those numbers. I think that's answered your question. Toby Ogg: Yes. Just on the pricing contribution for '26, anything you could say on that? Jonathan A. Howell: Sorry, Toby, yes. At this stage, no. We are always testing and seeking to optimize the fair value exchange that we have with our customers with existing products and new products. And therefore, we're constantly assessing the take up and adoption of these new products versus the additional pricing that we're asking for it. So at this stage, we have it baked into our plans, but we're not sort of giving forward guidance on what to expect. But clearly, you'll see the impact of any additional pricing as we get through Q1 and H1. Operator: We will now take the next question from the line of Charles Brennan from Jefferies. Charles Brennan: Just a couple from my side. Firstly, on Intacct, it sounds like that was the biggest driver of momentum at the end of the year. I'm under the understanding that where you provide some customer incentives to onboard new customers, that's typically in Intacct. And those discounts don't necessarily get reflected in ARR. Can you just talk about the volume of discounting at the end of the year relative to the previous year? And then when we think about the gap between ARR growth and recurring revenue growth, last year, I think, you exited ARR of 10.5%, and we saw just over a percentage point of dilution to get to recurring revenue growth. What do you think that delta looks like this year? And then just as a small follow-up. I didn't quite catch the point on the multiyear contracts. I know you said it was immaterial, but is there any pull forward of revenue recognition under a multiyear contract? Jonathan A. Howell: Yes. So first of all, in terms of your opening remark around Intacct, yes, that is the very significant driver that we've seen, obviously, over the last 2 to 3 years, but particularly in Q4. And just to deconstruct that a bit, we have seen total revenue growth for Intacct in the U.S., which is about a $650 million base now, of 23%. And in H2, that was 25%. And so that underpins the overall performance that we've seen. And ex-U.S., that total revenue base is about GBP 50 million, and that's growing up between 50% and 60%. Your reference on discounting, the level of discounting provided on a customer basis in Q4 of this year was not too dissimilar to what we were providing towards the back end of FY '24 and is part of the normal sort of sales cycle of both direct and partner channels, particularly in North America. Multiyear contracts, you sort of referenced that. What -- first of all, multiyear contracts are important because that enables us to acquire a new customer, onboard that customer with a good assessment of the capability and functionality that they need but then gives us a 3-year period in which to assess and upsell and cross-sell into their needs rather than necessarily the other way around, where there's a big sale upfront and then an assessment in subsequent years of whether all of that capability is needed. So that is the important thing about multiyear contract. It makes it both easier for the buyer of our products and for us for a provider of capabilities to our customers. In terms of revenue recognition, the impact is that any upfront discount is, therefore, spread over a 3-year period as opposed to a 1-year period. So there is an element of revenue improvement as a result of that. But I do stress, it's the performance of the underlying sales motion and our customer approval of our products, which is driving what we're seeing at the moment. And to give you an example, in North America, I think we have just had our highest volume month ever for Sage Intacct. So this is underpinned by real volume coming through. And then in terms of ARR to that sort of difference, we always expect them to be close, as you referenced in your question, but not necessarily the same. And this is consistent with other corporates and companies that use this measure. The reason is, as you know, an ARR is a point-in-time metric, while revenue is booked over an extended period. And any divergence that we see is mainly caused by the timing of revenue growth. That sort of compressed slightly in recent quarters. It will vary and fluctuate. We're not giving -- we're not giving forward-looking guidance on that gap because it depends upon the cadence of growth rate and when acceleration occurs. Stephen Hare: And Charlie, just to add, just to be helpful, I think with the dynamics around Sage Intacct, just to emphasize what Jonathan said, in Q4 and in September particularly, we did see very, very strong volume growth in U.S. with Intacct. And we saw that consistently both in the -- both direct and also through the channel. So it was a kind of -- it was a pretty consistent theme in terms of that volume growth. Operator: We have time for one final question from the line of Balajee Tirupati from Citi. Balajee Tirupati: Congratulations on your results and Jonathan, best wishes, and thank you from my side as well. Two questions from my side, if I may. Firstly, on the topic of AI, one of your key peers announced a deal with OpenAI yesterday. Do you see merit for Sage to also target similar integration of its portfolio with Frontier models to allow customers access to more customized services? And second question on margins, with puts and takes around AI, in particular, productivity gains internally and need for investment as well, do you see the view of 50 to 100 basis points per year margin expansion staying intact in 2026 and beyond? Stephen Hare: Thanks. So yes, on AI, I mean, I'll start with how do people access the capability. So I think people will increasingly want to access capability, do their kind of daily tasks, approving invoices, doing all the workflow type stuff in a number of different environments, right? So today, if you want to approve an invoice, for example, typically, you have to go into the application, log on to the application, do it in the application. And in the future, you might do that in Teams. You might do that in Outlook, you'll do that on an app on your phone, whatever it might be. And therefore, to sign up or to partner with some of the larger players like a ChatGPT, if the intention is to create that flexibility to access makes a lot of sense. The one warning I would give is we're very clear that the way that we produce accuracy is we have data on our platform, proprietary data on our platform which our learning models are using to create accurate automated workflows. We're also very protective of that data because that's customer data. So we would not, for example, want to share that data with others. Now I don't -- I can't comment on the detail of what other competitors are doing because there isn't enough information in the public domain to make an assessment. But what I can say is we're very clear that our AI is learning in a secure environment where we are -- it's effectively a private network with a gateway so that developers can come in and develop their own agents on our platform, but it has to be curated and controlled by Sage because that ensures the integrity of the data and the integrity of the outcome. I'll let Jonathan talk a little bit about margin, but let me just start by saying that I think in the same way that we're selling AI and productivity to our customers, we're obviously seeking to get productivity internally. And we've seen a number of areas which have already contributed to the expansion in margin this year, for example. So for example, in the area of -- areas like customer services, we are already deploying significant AI to get higher first-time resolution through AI rather than human-to-human conversations. And if you look at it at a very high level, we've grown Sage this year revenue 10% and our headcount is broadly the same as it was 12 months ago. So we're starting to see the benefits, the early benefits of some of that investment, but Jonathan, do you want to... Jonathan A. Howell: Yes. And I think the important point is that Steve just raised is that with the internal adoption of AI, there are significant savings that can be achieved. And we've seen those in customer support and also in R&D and engineering. So just to stand back to your question, this is now the third consecutive year of margin expansion. We've guided for FY '26 for margin to continue to be trending upward. So that will be the fourth consecutive year and this is driven by growth and established patterns of achieving operating efficiencies. So at this stage, we expect to be at the lower end of the usual 50 to 100 basis points range as we continue to invest in growth. And so as I always say on these earnings calls, we will, though, as we move through the year, continue to dynamically reallocate spend during the course of the year to maximize that trade-off between top line growth and margin expansion, depending upon the circumstances and the opportunities that present themselves to us as we move through the year. Thank you very much. And also thank you for your kind comments. Operator: I would now like to turn the conference back to Steve Hare for closing remarks. Stephen Hare: Thank you very much, and thank you, as always, everyone, for listening. And as I said in the presentation, but again, just to add my thanks to Jonathan for the huge contribution that he's made to Sage, and we look forward to welcoming Jacqui to the next call in January. But thank you very much, and have a good day, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Simon Carter: [Audio Gap] results. You will have noticed quite a few changes on the Campus over the last year since we were last here. And if you do get a little bit of time after the presentation, do check out the Retail underneath for 1 Broadgate. It launched last week, and it's already 90% let and under offer, which is a pretty good place to be. So, in terms of today's agenda, I'll start with an overview. David will take you through the first half performance and also our earnings levers. And then Kelly will look at our strong leasing and accretive asset management over the period. But before I hand over to David, I'd like to take a step back and look at what's driving the future performance of the business. At the heart of this is the decision we took nearly 5 years ago to build a market-leading position in Campuses and Retail Parks. Together, these now represent 90% of our business. These are sectors with strong occupational fundamentals. Demand is healthy, supply is constrained, and rents are very affordable. The investment market is waking up to this. Investors are increasing their allocations to both Retail and Offices. And we are very well placed to capitalize on this. That's down to the quality of the assets, the experience of our team and our value-add mindset. The result, a very attractive total return profile, underpinned by sustainable earnings growth. So, let's unpack this. Starting with prime London offices, where a classic supply crunch is driving strong rental growth. The return to the office has exceeded expectations. Mid-week utilization across our Campuses is now above pre-pandemic levels. Businesses are short on space. Last year, they expanded by 3.3 million square feet, the highest since 2019. And active demand is now 50% above the long-term average. But supply remains tight. Initial concerns about working from home have been compounded by rising construction costs and higher interest rates. You can see on this slide, vacancy for new and refurbished space in the city is predicted to fall below 2% and stay there for the next 4 years. Historically, when this has happened, it has driven double-digit rental growth. We've positioned our portfolio to benefit from this supply squeeze. Office occupiers are focused on four key areas: quality, location, amenity and flexibility. Our Campuses tick all the boxes. We currently account for 7 out of the top 20 leasing deals that are under offer in London. So, we're capturing a disproportionate share of a very strong market. That's down to high-quality sustainable buildings, prime locations near transport hubs, excellent amenities and public realm and flexible offerings, ranging from story to fully fitted work-ready space to headquarter space. This flexibility is key for customers in the innovation sectors. This is a fast-growing market, especially in the Knowledge Quarter. The number of innovation customers in our portfolio has more than doubled since 2022. There's been strong growth from a new generation of AI and tech businesses with high levels of venture capital investment. This is a key source of new demand. We're tracking 1.5 million square feet of new requirements. Kelly will explain in a moment how we're benefiting from this at Regent's Place. Our on-site developments are achieving record rents, which is driving development yields above 7% and mid-teens IRRs. These record rents also provide valuable evidence for upcoming reviews across our Campuses. We're derisking our schemes with pre-lets and fixed price contracts and increasingly bringing in partners such as Modon to reduce capital outlay, accelerate delivery and earn valuable fees. Let's move on now to Retail Parks. These continue to be the preferred format for retailers. They're efficient and adaptable, offer easy access, free parking, and they're ideal for a range of retailers, including value, grocery and multichannel. Retailers like M&S, Lidl, Aldi and Home Bargains are expanding into this format. Yet there's been virtually no new supply in the past decade, and we don't see this situation changing. Development economics are unattractive and planning is restrictive. As you know, we're the largest owner and operator of multi-let Retail Parks in the U.K. We have a portfolio stretching from the Isle of Wight to Inverness. Half the U.K. population lives within a 30-minute drive of one of our assets. And we have deep reach with the retailers, given our scale, the experience of our team and our in-house property management. Of course, we use demographic and competition data, but nothing beats picking up the phone to a retailer to understand trading. Our focus on strong trading locations is reflected in our footfall. This has grown 13.5% above the U.K. Retail benchmark over the last 5 years. Despite a more competitive investment market, we're still acquiring assets that yields above 7%. And we're comfortable taking occupational risk, due to the market strength, our asset management expertise and those retailer relationships. In real estate, affordability is just as important as supply and demand. For Prime Offices and Retail Parks, the picture is very positive. London office rents relative to wages are lower than at the turn of the century and Retail occupancy cost ratios are very healthy. This leaves plenty of room for rental growth. That's why we're guiding to 3% to 5% growth in both sectors. Investors are taking note of the occupational strength I've just described, and they're increasing their allocation to both Offices and Retail. This, together with strong credit markets means we expect investment volumes to grow. London office transactions have been subdued in recent years, as we know, but they've really picked up this year with over GBP 6 billion year-to-date and GBP 3 billion under offer. So far, the number of deals over GBP 100 million this year is already double the whole of last year. Strong occupational fundamentals, improving investment markets and our high-quality platform provide for an attractive total return profile. The essential building blocks are set out here. Their earnings yield, valuation uplift and development upside. Earnings yield is currently 5% and growing. Assuming stable property yields, valuations will primarily be driven by ERV growth, where we're guiding to 3% to 5%. You need to adjust for a bit of depreciation, the impact of leverage and the fact that ERV growth doesn't feed through 1:1. But you can see how these first two building blocks get you to around 8% to 9%. Developments add further upside with mid-teens returns forecast on the committed schemes and the pipeline. So, we're confident in delivering total accounting returns of 8% to 10% through the cycle. The total return outlook is underpinned by attractive earnings growth. We're expecting at least 6% next year, and we have the levers to deliver 3% to 6% over the medium term. This is an ideal point to hand over to David, who will take you through these levers as well as our numbers. David, over to you. David Walker: Thanks, Simon. Good morning, everybody. Three things from me today. First, I'll cover our financial performance for the half year. Second, the balance sheet and our approach to capital allocation. And finally, I'll provide an update, as Simon said, on the five levers of earnings growth I outlined in May and then how we see them translating into medium-term growth of 3% to 6%, including our guidance for FY '26 and then into FY '27. As you know, we released many of the key metrics in October. That's something you should expect from us going forward. One benefit we see is that it allows us to spend more time today on strategy and outlook, but starting with the numbers. Underlying profit was up 8% to GBP 155 million, and underlying EPS was 15.4p, 1% ahead of last year. meaning the dividend is also up 1%, in line with our policy of paying out 80% of underlying EPS. Looking at the EPS bridge, you can clearly see the benefit of our progress against the earnings levers, in particular, driving like-for-like, which was 4% and contributed GBP 6 million or 0.6p with a positive performance across both Offices and Retail, higher rents from developments from completed schemes like 1 Broadgate and The Optic, partially offset by void costs and lowering admin costs. This has been a key focus for me since I became CFO this time last year. I spoke in May about the savings we had already identified, and I'm pleased to see the benefit come through in H1 with admin costs down GBP 5 million or 12% versus last year, adding 0.5p to EPS. One-off items had only a limited impact on earnings year-on-year as the positive effect of surrender premia offset bad debt provision releases last year. Taken together then, these positives more than offset the GBP 13 million increase in finance costs, which reduced EPS by 1.3p. This is in line with expectations, mainly reflecting the fact that we're no longer capitalizing interest on completed developments and a 10 basis point increase in our weighted average interest rate to 3.7%. Here's the summary P&L account. I've covered most things here already, but just to touch on two further metrics. First, our NRI margin. This was lower due to the increase in PropEx, mainly because of the movement in provisions I just touched on, which slightly flattered the margin last year and void costs as we lease up developments. Once this is done, I expect our margin to stabilize at around 90%. The other thing to draw out here is the EPRA cost ratio, which was 17.4% at September as this higher PropEx more than offset the reduction in admin costs. Though I do expect the ratio to come down to the mid-teens in future years as we lease up developments and further leverage the operating platform we have in place, adding income while controlling costs. Now turning to the balance sheet. NTA has again increased since March, reflecting a 1.2% rise in property values, which added 10p and underlying profit, which added a further 15p, although this was partially offset by the dividend paid in July and other movements, resulting in NTA per share of 579p, up 2%. This, combined with the dividend paid, equated to a total accounting return of 4% for the half, meaning we're on track to deliver our full year target of 8% to 10%. Credit markets remain very strong, and we've capitalized through a broad range of activity focused on maintaining our overall maturity and enhancing diversity in our sources of finance. We raised a GBP 450 million green loan secured against 1 Broadgate, extended GBP 930 million of RCFs and renewed GBP 500 million of term loans at improved pricing. Looking ahead, we have just over GBP 300 million of debt maturities at British Land over the next 12 months. So, we remain well financed with flexibility on when and how we raise new debt. And with good access to the bank debt and capital markets, we expect to remain active in a strong market. I was pleased to have our Fitch rating reaffirmed in July at A with a stable outlook, reflecting the fact that our balance sheet remains strong. We ended September with GBP 1.7 billion of undrawn facilities in cash. Net debt was GBP 3.8 billion. Our LTV was 39.1% with net debt-to-EBITDA on a group basis at 7.2x. This balance sheet stability underpins all of our capital allocation decisions. We focus on recycling capital from mature, lower-returning assets into higher returning opportunities. Currently, that means investing further into Retail Parks, where, as Simon has described, the investment case remains compelling, and we continue to see opportunities to buy at attractive pricing. Alongside that, we progress best-in-class office developments at our Campuses on a derisked capital-light basis, securing pre-lets, certainty over build costs and bringing in partners to accelerate returns and reduce risk, just as we did over at 2 Finsbury Avenue. Our London urban logistics portfolio has embedded development optionality, and we remain positive about the long-term supply-demand dynamics here. So, we can progress those schemes when the time is right, but the sector is weaker today. So, we prioritize better uses of capital in Retail Parks and Campus development. It's important to note that we always make capital allocation decisions in the context of shareholder distributions, including the relative returns and EPS accretion available from share buybacks, for example, when we have the proceeds to invest following significant disposals. And as ever, all of our capital allocation decisions are based on our assessment of relative returns at any point in time. In May, I set out the five levers we focus on to drive consistent cash-generative earnings growth. So 6 months on, let's update against each. First, like-for-like rental growth. We've made a strong start to the year. Portfolio like-for-like growth was 4%, bang in the middle of our guidance of 3% to 5%. Campuses were up 7% as we drove occupancy and secured rental uplifts on space which have been surrendered. Our Retail business also continued to grow, albeit at a lower rate, reflecting the fact that we're at near full occupancy. Going forward, though, ERV growth should more directly translate into like-for-like growth as we're largely rack rented now on our parks. And overall, for the full year, I expect 5% like-for-like growth across the portfolio. Kelly will give you more detail on our portfolio performance in a minute. Fee income is our second earnings growth lever. We continue to work with a broad range of JV partners, generating fee income for both asset and development management. Although fee income was flat in the first half at GBP 13 million, we do expect to achieve 10% growth for the full year as we continue to earn fees on development mandates, and we're actively pursuing opportunities to leverage our platform in order to drive incremental fees from new and existing partners. Third, cost control. I'm pleased with the progress we've made over the last 12 months, but this remains a focus. And so for the full year, I expect admin costs to be GBP 75 million to GBP 76 million, ahead of the guidance I gave in May and versus GBP 82 million for last year. Development leasing is our fourth earnings lever. As I mentioned earlier, we're now benefiting from schemes such as 1 Broadgate and The Optic, while leasing on previously delivered schemes, Norton Folgate and Aldgate Place is well on track. 1 Triton Square launched in October, and we're delighted to have our first deals under offer there. Finally, capital recycling. The fuel in this machine is our ability to dispose of lower returning assets, freeing up capital to rapidly redeploy into higher-returning opportunities. As Simon laid out, the office investment market has been quieter than in previous years, but we are seeing signs of improvement. And against that backdrop, we've remained active, executing deals where it makes sense, disposing of Retail Parks where pricing has moved in or development sites in London, which were not income-producing, then rapidly redeploying the proceeds. Given the improving investment market, we do, however, expect activity to increase over the next 12 to 18 months. Bringing this together, we expect to deliver sustainable EPS growth of between 3% and 6% over the medium term. This slide shows how each of these earnings levers contribute to that. Now this is purposefully illustrative. And of course, it will not be linear in any particular year. But to me, this is the best way to think about the earnings growth potential of our business. So, let's go through each of them. In terms of like-for-like, we're confident we can consistently deliver 3% to 5% on our standing portfolio given the strong occupational fundamentals of our core sectors. At the midpoint, this top line of 4% growth drops 3% to 5% annual EPS growth. 10% fee income growth adds another 1% per year. And on costs, I do expect further reductions over the next 12 to 18 months, which will, of course, continue to benefit earnings. Although over the medium term, there is likely to be continued inflationary pressures. So, modeling broadly flat costs is not unreasonable over, say, 5 years. Likewise, our weighted average interest rate will gradually increase over time, reflecting prevailing market rates. Based on today's rates, we anticipate a 10 to 20 basis point increase per year, which would reduce EPS by around 2% per annum. So overall, we see a clear route to core EPS growth of 4% per year, and that's before further capital activity, which really is the kicker on top of this core growth. There are two components to consider: development completions and asset recycling. And while the timing and phasing of capital activity is, of course, hard to predict and it's by its nature, lumpy, I've assumed around GBP 500 million per year with GBP 200 million for developments and GBP 300 million for asset recycling. Then to model the earnings impact for developments, we assume a spread of around 200 basis points between the yield on cost and our funding costs. And for asset recycling, 100 basis points between what we buy versus what we sell. Taken together then, this capital activity would contribute a further 2% to EPS growth per year, increasing the annual growth rate to 6%, the top end of the range I described in May. So, bringing this back to immediate outlook. Moving into the second half, we expect to deliver at least 28.5p of EPS for FY '26 and from there, at least 6% EPS growth for FY '27 as we benefit from the continued lease-up of our developments, capitalize on the compelling fundamentals of our core business and so move forward with confidence in delivering against our five earnings growth levers. With that, over to Kelly. Kelly Cleveland: Good morning, everyone. You've heard from Simon on the strength of our markets. So, I'll now take you through how that's translated into performance and outline how we're adding value across the portfolio. I'll start with valuations, which have increased by 1.2%. This is the third period I've been able to report positive valuation growth, and it's a good sign that the inflection point is behind us. Valuations have been driven by strong rental growth of 2.4%. On an annualized basis, this is again at the top end of our guided range of 3% to 5%, and we're confident this rental growth will continue. Turning to the operational performance, starting with Campuses. We have leased 486,000 square feet at 3% ahead of ERV. And at the end of the period, we were under offer on 629,000 square feet, 6% ahead of ERVs. And we have been particularly busy since 30 September with a further 308,000 square feet put under offer, and that's a very busy 6 weeks. It's worth pointing out, we're seeing particularly strong momentum in leasing up vacancy. Since March, we've let or put under offer 751,000 square feet on vacant or newly delivered space. Our EPRA occupancy now stands at 88%, up 5% this half, up 10% for the year. As we said in the trading update, Broadgate is practically full. There's just one completed floor to lease across the entire Campus, and it's an exceptional floor, the top floor of our newest scheme at 1 Broadgate. We're in negotiations on that floor, and we'll set record new rents for the Campus. This is good news for our on-site developments, which will deliver into a market with very limited supply. Broadgate Tower is the first to be delivered late next year. This is a 390,000 square foot building with 240 square foot development floors. Since 30 September, we've gone under offer on 59,000 square feet across five deals, taking the building to 49% let. This is a very strong position to be in at this stage. The next to deliver is 2 Finsbury Avenue in 2027, where Citadel are taking up to 50% of the space. Here, we are in negotiations with a number of larger occupiers, 2 years ahead of delivery, and this is a fantastic tower building delivering in a year with very little competition. We've also been proactively identifying where we can take back space and re-let it at higher rents to drive value when there's such little supply. For example, at Exchange House, we proactively took back some floors. We're reinvesting the surrender receipt into much needed on floor upgrades after 35 years of occupation and have already re-let to MSCI, driving rents on by GBP 35 per square foot. This added GBP 10 million to the valuation of the building and sets strong rental evidence for the wider Campus. This is accretive asset management, and we will look to do more of this. Norton Folgate is a slightly different proposition for us at British Land as the product is smaller floor plates, often fitted and therefore, more suited to let post PC. We've made good progress and are now 89% let, under offer or in negotiations. And we're on track to be fully let by the end of the financial year. Simon covered the growing demand coming from innovation occupiers, which is driving momentum across the portfolio. To capitalize on that, we launched 1 Triton Square last month. This is an incredible building. It's a Campus within a Campus and offers real flexibility to tenants. It includes a floor of storey space, a floor of fitted labs, three lab-enabled floors, which look like a traditional office floor, but can easily be converted to lab use as demand evolves and three traditional office floors. You may have picked this up in David's piece, but I'm pleased to confirm that just 6 weeks after PC-ing, we have put 56,000 square feet under offer to two globally recognized science and tech occupiers due to complete later this month. And we have another 211,000 square feet in negotiations. We are very excited about this and look forward to continuing to update you on our progress. Turning to Retail Parks. You'll know it's a very competitive occupational landscape and retailers are keen to secure space. Leasing volumes remain strong at 681,000 square feet, 6% ahead of ERVs and under offers are 554,000 square feet, also 6% ahead of ERVs. Deals this half have been in line with previous passing rent. And thanks to recent strong rental growth, our portfolio is now largely rack rented. And as a reminder, it was over 20% over-rented just 2.5 years ago. So, we're in a great position to generate strong like-for-like rental growth from the portfolio. Retail Parks provide strong cash yields and good opportunities to increase value through asset management. I'll cover just a few of the many examples of asset management on our acquisitions, where we've looked to improve the tenant mix and drive footfall, sales and ultimately, rents. I'll start with the first one we bought when we took the contrarian call to start buying Retail Parks. When we bought Biggleswade Retail Park in 2021, it had 6 high-risk retailers. These are the ones in red. We've re-let all of these to strong category leaders, which has helped drive a 12% IRR since acquisition. Rolling forward to one of last year's buys, Queen Drive Retail Park. When we purchased it, there were two vacant units, both are now let, including to an M&S anchor, which is a major win for the park. The park is full and leasing well ahead of ERV and has delivered a 14% IRR since acquisition. And our most recent buy is Turbary Retail Park in Bournemouth, which we purchased earlier this month for a prospective double-digit IRR and a day 1 yield of 7.4%, which with asset management, we've already increased to 7.7%. And we have a strong pipeline of similar deals. As Simon covered, we're unlikely to see many new Retail Parks built, but we're actively looking for opportunities across the portfolio where we can add space efficiently. Projects like these ones at Glasgow and Rugby are smaller in scale, shorter in duration and lower risk than traditional developments, but they generate meaningful returns with a yield on cost of at least 8%, often double digits. And on top of that, they provide strong wash over to the rest of the park by improving lineup and rental tone. So, I'll leave you with three things. Values continue to rise, driven by strong ERV growth at the top end of our guidance. Our standing Campus assets are virtually full following a strong 6 months of lettings, and we've made good progress on our newly delivered space. And finally, as the market leader in Retail Parks, our active asset management is pushing on rents and values, and we'll look to buy more in the space as we continue to recycle capital. Now, over to Simon to wrap up. Simon Carter: Thanks, Kelly. So to wrap up, let's circle back to where we began. We're a market leader in the right sectors, Campuses and Retail Parks, where demand is healthy, supply is constrained and rents are affordable. Investors are increasing their allocations to these sectors, and we're very well positioned to capitalize on this and to deliver attractive total returns going forward. Thanks for listening. Simon Carter: We're now going to take your questions. Kelly and David are going to join on stage. And I think we'll start with questions in the room. Who's going to be first? We've got a microphone over there. Any questions in the room? Rob? Robert Jones: Someone's going to start. It's Rob Jones, BNP Paribas. I think two. The first one, I don't know if we can go back to a slide on the screen, but if you wanted to, it's Slide 4, which, Simon, was the one where you had the stars looking at times in the past where we've had less than 2% vacancy. Yes, I'm sorry about that. One could read into this that, if we're forecasting less than 2% vacancy '26 onwards, and I guess the '27 to '29, I don't know if that's even right, maybe it's just, I'm not sure, but even if it was, it implies that one could assume a 10% ERV growth going forward. Now obviously, at the moment your levels that you need to achieve -- and David has helped us probably by break down the levers of earnings growth going forward. You don't need anywhere near that to hit your target. So, do you think that, that kind of level of ERV growth, if we have such low vacancy and acceptable levels of credit demand still coming through can actually be a 2%? I assume in '27 to '29 based on the forecast. Surely that must be wrong, because even when you look at your own Slide 36, you got [indiscernible] Bank, Appold Street, likely getting committed with a '28 delivery, I think, which is in that period. Either the brokers are assuming you own 100% net on completion or they're a bit too bullish in terms of that. Simon Carter: Yes. It's a great question. This is directional. It's what the brokers are forecasting. Inevitably, you'll have a little bit of vacancy. But what you're seeing at the moment, the amount of supply that's coming through. So, we think there's something like 5 million square foot of new -- so this is new and refurbished. This isn't the whole city. This is new and refurbished stock coming through. 5 million square feet over this period of time. A lot of that's pre-let. And if you have normal levels of demand of about 2 million square foot a year, you can see how you eat into that supply very, very quickly. And I do think that the schemes that are on site, not everyone, but the schemes that are on site, particularly the BL projects will be delivered with a very, very high level of pre-let. I mean you're already seeing that. Look, we've only just started 2 FA, and we've got 33% let, up to 50% of Citadel exercised their options. We'll probably move to 1 Appold in the future, but that will be on a pre-let derisked basis. So, the market is very, very tight at the moment. Of course, there will always be a bit of vacancy, but that is what is being forecast at the moment. I think by Knight Frank, I think Cushman's have the vacancy rate a little bit higher than that. But what we're saying is sub 2%, you get very strong rental growth. But that is on the new and refurbished space. So look, I think you will have that. And we've seen that on our own new and refurbished space. That is what the rental growth is doing at the moment. Sorry, you had a second question. I just thought answer that one first, and then we'll move on to the second. Robert Jones: I'll pass on to someone else. Simon Carter: Okay. Very generous. Next will be Max. Maxwell Nimmo: I'll try my best. Max Nimmo, at Deutsche Numis. Yes, I guess perhaps a slightly higher-level question just around office development. There's obviously quite a bit of debate about the buy-to-sell model or the develop to sell and the sort of develop to hold. You talked about kind of mid-teens IRRs, but also mentioned the fact that depreciation could be 1%, maybe it's higher, the ERV growth perhaps doesn't always flow through one for one. Just in terms of your thinking about how you get comfortable with that and is it the JV angle? Is it the kind of derisking it? Just kind of some of your thoughts on that, if that's okay. Simon Carter: Sure. It's a really good question. As you saw on the slide on the schemes that are on site and the pipeline, we're projecting yields on cost north of 7%, mid-teens IRRs, so compelling returns. And those are derisked returns by the point we commit, because we place a fixed price contract, normally with an element of pre-let. And then also, as you say, we've brought in partners. So that's very compelling returns. The MO of British Land as it has been for the last 5 years is create this great product, lease it up, deliver compelling returns. And then yes, in time, we look to recycle. I think David referred to it as the fuel in the machine. The investment market has been quieter as we know. That's now catching up because everyone can see the rental growth we've just been speaking about. And so, we think we'll see increasing activity that then allows that engine of growth to go for us. We're not necessarily the best long-term owner of a stabilized office asset, because there is depreciation, and that will be a lower return. And we've got other uses of our capital. Today, we have more opportunity than we have capital. So we would like to do more of that development, more of that buying of Retail Parks that we've spoken about. Thomas Musson: Tom Musson at Berenberg. Just a question on the fee income growth that you hope to grow 10% a year, which obviously becomes more material to earnings growth as that compounds. Just wonder how you balance the decision between growing an income stream that's based around development mandates with the fact that future income that is aligned to development work inherently comes with a higher cost of equity, at least in the eyes of the listed market. Simon Carter: Yes. Good question. I'll give you an initial thought and then hand over to David on this one. It's the kicker on top. So, we're getting those type of returns. And then, we bring in partners, we're using their capital. We're normally selling ahead of where we would have been before we derisked the scheme. So, we're locking in some profits. And then those fees -- the fees on development mandates are good. It's a relatively high margin business. So, I think, it's a nice add-on. I don't know, David, if you would add anything to that. David Walker: Yes, not really other than to say we clearly we wouldn't commit to a development simply to drive fee income. Often, it's a result of the fact that we've already derisked that scheme by bringing in a partner. There are two principal -- or three principal chunks to it. The first is development fees. That's where we earn the highest margin. There's asset management fees, which is also an increasingly important part of the business, and then there's property management fees on top of that. So, 10% a year on average. Some years, it will be higher, some years, it will be lower, subject principally to, as you described, the developments we commit to. Zachary Gauge: It's Zachary Gauge from UBS. A few questions around development. Just looking at the updated guidance on Page 47, you've dropped your NRI margin by a couple of percentage points from the end of last year. And the reason given is additional void costs reflecting timing of development completions and lease-up. And obviously, you would have known the timing of development completions at the end of last year. So, can I back out of that, that the lease-up is going slightly slower than you had anticipated at the end of last year. And then following on from that, on the individual assets and where we are on ERV, sounding quite encouraging on Triton Square, so potentially getting to 50% by the end of the year, but nothing at Canada Water and nothing at Southwark. So, if you could just touch on the prospect for those individual schemes by the end of FY '26, that would be great. And the other one is on the under offers at 1 Triton Square. I think it breaks out to GBP 115 per square foot. Could you just touch on where that sits in relation to underwrite on the floor space they are taking, whether it's labs, fitted labs or offices? Simon Carter: No, happy to go through all of those. On leasing activity, we were probably slower throughout the period in terms of where we thought we would be. But actually, we saw an acceleration at the end of the period. Kelly, I don't know if you want to talk to some of the activity we've had on the development leasing front. Kelly Cleveland: Yes, sure. I covered in the prepared notes, but we've having completed 1 Triton and being able to show people around the building, we've had really good progress there in the last 6 weeks. We've also had good traction at Broadgate Tower. And again, just in the matter of about 5 or 6 weeks, we've put a huge amount under offer there, another one just recently as well. So with those schemes, we're tracking well in line and ahead of where we would want to be at this stage. Simon Carter: I think it's one of the themes of these results that momentum has built as we've gone through the period and particularly strong post period end in the market, which I think is pretty encouraging. And then I think you had a question on Canada Water and Mandela Way, office lease-up. Kelly, do you want to take those ones? Kelly Cleveland: Yes. I mean -- so Canada Water, we're having some encouraging conversations there. We're also encouraged by the spillover effect that Simon spoke about at the last set of results, where the lack of supply in the core is meaning affordable locations are getting a bit more business. So we'll keep you updated on Canada Water. What I would say is that the Canada Water leasing is not included in our guidance. So, any leasing that we do in pre-FY '27 is upside. Simon Carter: And maybe on Mandela Way. Kelly Cleveland: Yes, Mandela Way. So Mandela Way, that's -- it's a great asset in a very, very central location, which we have, again, only recently PC-ed on as we have always said and as our underwrite set out, that is a product that will lease post PC, because it's multi-let, smaller floor plates and it needs to be seen. But it's a great product. We've been getting people around, and we're in negotiations, and we'll again continue to keep you updated on that one. Simon Carter: And then, I think there was a question, which was sort of unpicking the rental deals under offer. We're probably not going to comment on deals under offer and where the rents are, but we're really happy with where demand is for 1 Triton, I'll say as much as that. Zachary Gauge: Just clarify one of those points. If you're 0% Canada Water at the end of the year, you're still confident on the guidance outlined for GRI? Simon Carter: Yes. David Walker: The leasing risk on 28.5p from here is de minimis. Adam Shapton: Adam Shapton from Green Street. I had two. One on office, one on Retail Parks. We'll do both, one off the other. Yes. So, office back to the indicative broker forecast, and maybe this is one with your BPF hat as well, Simon. Is the city of London concerned about the effectiveness or the attractiveness of the city as a business district if there's no space available? I mean, we've had high-profile comments from Larry Fink and so on about that. So do you think the city of London is concerned that the sort of supply barriers balance is not quite in the right place? And then on Retail Parks, just interested in your commentary on sort of QSR and casual dining. There's some evidence that profitability is being squeezed in that sector. It's been a success story for a lot of Retail Parks. What are you seeing in your portfolio from the drive-throughs and the QSRs in that sector? Simon Carter: Sure. Interesting question around city and lack of space. Just to flag that new and substantially refurbished space there. I think what you will see and what we are seeing today is because there isn't enough of that, customers are making compromises and taking good secondhand space. We have definitely benefited at Broadgate and the standing investments, as you saw from Kelly's slide. I think that's the fullest we've been. This is a 4.5 million square foot estate. And we've got one floor at the top of 1 Broadgate, which we're obviously being a little bit demanding on given that supply picture out there. So there is space. But I think it will -- you'll continue to see this ripple effect. There's some parts of the city that are not -- haven't done as well as Broadgate. It's right above Liverpool Street. It's got the Elizabeth line. That will ripple out. So, there is space for people to take. But they might not get that brand-new headquarters space. Because if you look today, just to sort of cement this point, we think if you want 150,000 square feet of new space, you've only got three buildings to choose from and one of those is 2 FA, if you want new. So look, something to happen. The city supply comes on stream. We know it's a cyclical market. At some point, supply will come back on stream. But obviously, you can't deliver in the next 2, 3, 4 years unless you've got planning, you've -- you started on site. And then, I think, on QSR has been a softer market, and we have seen some insolvencies. You don't tend to have a huge amount on Retail Parks. We've done fairly well when we've seen those insolvencies at reletting those units. But Kelly, I don't know if you want to touch on what we're seeing. You had it on your slide on the drive-thrus. And that's been a fantastically strong market. Kelly Cleveland: Yes. I mean, exactly that. Drive-thrus is just increasing demand for them. And as Simon said, we have limited casual dining when there have been failures and I won't name names, but when that does happen, it's not been an issue for us. We've always been able to just get out and get new formats in there. Jonathan Kownator: Jonathan Kownator, Goldman Sachs. To follow up on 1 Triton, please. Obviously, you repositioned the building with labs, office. Where do you see the take-up in that space? Is it for regular office space? Or is it for the lab type space? And more broadly, perhaps on occupier demand, how wide is it? Because obviously, tech is driving a lot of that demand right now. Do you see any demand from other sectors, please? Simon Carter: Kelly, do you want to take that one? Kelly Cleveland: Yes, sure. I mean, the beauty of that building is that three of the floors that are lab-enabled, we're able to convert them to office use depending on where the strongest demand and where the best returns are. Exactly as you identify, we are seeing really strong demand from science and tech that is -- that's definitely not letting up. It seems to be getting more and more on a week-by-week basis. So, we expect that to continue. Jonathan Kownator: So just to clarify, we're talking about office space, not lab space. Kelly Cleveland: For office space. Correct. Simon Carter: But we have seen demand for the lab space as well at Regent's Place. The incubator space has done well. We did an incubator at Drummond Street, where there was some existing lab space we were able to use, and that filled up very, very quickly. And we're now seeing those businesses graduate into our Crick space at 20 Triton. So that's quite an interesting theme. But I think today, the AI tech demand is definitely stronger than the sort of Life Science demand in London. But both feel like they've got pretty good prospects at this point. That's probably questions in the room, unless anyone's got a last-minute burning question. So should we go to the calls and see if anyone's on the line? Unknown Executive: Yes, it's all on the webcast today. Simon Carter: It's all on the webcast. Okay. Unknown Executive: Exactly. So we have one question from Nikita May at HSBC Asset Management. She says, you mentioned that AI-driven businesses are driving new demand for office space. Is this at the expense of other sectors like financial services? Do you have a limit of how much AI tenant exposure you would want to have? Simon Carter: Great question from Nikita. We haven't got enough data points, I think, to determine whether that's at the expense of other parts of demand in the sector. Today, it feels very much like new demand. These are businesses that weren't there 2 years ago. They've grown very, very rapidly in the portfolio. I think, I spoke to a number of you this morning. We've seen people take space at Regent's Place, very well-known names in the AI market. They've taken 7,000 square feet, they've then 14,000, then 21,000, and then they want more space after that. That feels like it's not today cannibalizing demand elsewhere. But obviously, we'll have to keep an eye on it. If Fintech grows at the expense of traditional banking, you'd look at that. But I think that will take sort of many years to feed through. And then on covenant exposure, we don't tend to set limits, but what we do look is at the covenant strength of every occupier we sign a lease with. Sometimes if it's start-up space, we're more relaxed to look at weaker covenants. But generally, if it's HQ space like 1 Triton, these are strong covenants taking the space in our portfolio. And the bulk of that 1.5 million square feet of additional demand that we're seeing is strong covenants. Unknown Executive: Yes. I've got one more question here. I've got two more questions. One is from Eleanor Frew at Barclays. She's asked, do you have a possible timeframe for larger asset disposals, noting you're seeing the market pick up? Simon Carter: The market is picking up. I think you should think next 6 to 12 months, but it will be dependent on when that strong core money comes back to the market, and we're seeing it come back now, but we'd want to see it there in depth. And I think you'll get that given the conversations we've been having. Clearly, we've got a budget around the corner. People will keep an eye on what's happening on the budget. But I think with these occupational fundamentals, that investment demand will be there, and that will be the market we'll look to take advantage of. So 6 to 12 months on that. Unknown Executive: And I have -- finally, I've got three questions from Mike Prew at Jefferies. The first part, I'll give you all three at once, but you exclude recently completed developments in the last 12 months from your 95% occupancy number. Are Norton Folgate and Canada Water schemes backed out of this? The second part of the question is Retail warehouse price performance seems to have slowed markedly from 2025. Is the repricing maturing/mature? And the final part of the question is, was the Southern multi-let logistics scheme profitable? And what is the progress at Thurrock, please? Simon Carter: Okay. So on -- David, I might need you to help on this on the occupancy numbers. I think -- am I right in saying that Norton Folgate, Kelly, it looks like you've got the answer to this one. David Walker: Yes. Yes, you are. Simon Carter: So Norton Folgate isn't excluded. That is in our... David Walker: That's correct. So, one of the things that's driven that delta over the last 6 months, Mike, would be the move from Norton Folgate into that kind of standing portfolio mix, if you like, from an occupancy perspective. We exclude developments that completed in the last 12 months. Simon Carter: And Canada Water hasn't -- didn't complete 12 months ago, so it is excluded. Is that right? David Walker: Correct. Correct. Simon Carter: Okay. Retail warehouse market slowing performance. What you're seeing now is the key driver is ERV growth. I think we've said that for a while. But we are seeing more and more people want to buy Retail warehousing. That's tending to focus on the very core long-let Southeast product, some of the product we create. I think Kelly alluded to it in the presentation. We tend to buy schemes with a bit of vacancy. We then lease them up, get to a really nice yield on them and then institutional capital, I think, will increasingly come in and drive performance there. But at this point, we're not assuming yield shift. I think you will see further yield shift, but what will be good is the ERV growth, and that will drive performance there. So, that would be the view there. And then Kelly, I don't know if you wanted to pick up on Southwark and Thurrock. Kelly Cleveland: Yes. I mean, Mandela Way, it's probably a bit early to be asking that question, where we've just PC-ed. And we're looking to get that leased up. So we'll keep you updated on that one. And on Thurrock, we are at 90% EPRA occupancy. Simon Carter: And that's as a Retail Park. So we decided to keep that as a Retail Park given the depth of demand in that market. That was the best thing to do there. And I think actually on Southwark, there was a profit release in the period, because we've delivered the scheme, and so there was an element of profit that came through in the period. So any more questions? One more? Unknown Executive: Yes. There's one more question. It's from Marcus Phayre-Mudge, Columbia Threadneedle. Congratulations on the cost efficiency improvements. I presume this has been driven by headcount restructuring. Is there more streamlining of decision-making to help bring overheads down in the future? Simon Carter: David, one for you, I think. David Walker: Yes. Thank you. Obviously, really delighted with the progress that we've made over the last 12 months, costs down 12% year-on-year for the first half. It's been quite a holistic view of the cost base, Marcus. So some headcount cost is included in that. But more generally, I'd just point to a sharper mindset on what we're spending and how and making sure that all of our teams are as efficient and effective as possible at what they're doing. More to go, it will remain a focus, but really pleased with the progress so far. Simon Carter: Any more questions? Great. Well, thank you very much for coming over to Broadgate. It's great to see you here today, and we'll see a number of you on the road over the next couple of weeks. And thank you very much for your time.
Operator: Good day, and thank you for standing by. Welcome to Agora, Inc. Third Quarter 2025 Financial Results Conference Call. You need to press star 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. The company's earnings results press release, earnings presentation, SEC filings, and the replay of today's call can be found on its IR website at investor.agora.io. Joining me today are Tony Zhao, founder, chairman, and CEO and Jim Burwand, the company's CFO. During this time, the company will make forward-looking statements about its future financial performance and future events and trends. These statements are only predictions that are based on what the company believes today, and the actual results may differ materially. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that could affect the company's financial results and the performance of its business, which the company has discussed in detail in its filing with the SEC, including today's earnings press release and risk factors and other information contained in the final prospectus relating to its initial public offering. Agora, Inc. remains under no obligation to update any forward-looking statements the company may make on today's call. With that, let me turn the call over to Tony Zhao. Please go ahead. Tony Zhao: Thanks, operator, and welcome everyone to our earnings call. I'll first review our operating results from the past quarter. We are pleased to report our fourth consecutive quarter of GAAP profitability in Q3, supported by double-digit revenue growth and expanding margins. Total revenue in Q3 reached $35.4 million, up 12% year-over-year. Our GAAP net profit for the quarter was $2.7 million, with a GAAP net margin of 7.8%. We expect our revenue and net profit to continue growing on a quarter-over-quarter basis. As you can see, our core real-time engagement business is rebounding strongly and is on track to deliver its first full-year revenue growth since the pandemic, providing a stable, profitable foundation for us. At the same time, we are significantly increasing our investment in conversational AI. Voice-based human-machine interaction is not new, yet most conversational AI solutions today still disappoint users. Why? Because building voice agents that can converse naturally with a human is just hard. Just a few months ago, Greylock Partners, a leading venture capital firm, published a blog post titled 'Voice Agents: Easy to Use, Hard to Build.' They know that the core challenge behind the simplicity users expect lies in immense complexity—system abstraction, real-time audio processing, latency management, and compliance requirements. Consider the issue of background noise and multiple speakers. Just two of the many technical challenges. In real-world settings, like a busy home, office, or car, clean audio is the exception, not the norm. A voice agent must accurately isolate a user's voice from overlapping speech and ambient sound. Without this, transcription becomes unreliable. Intent is misunderstood, and the agent's reasoning falters, undermining the whole interaction. Furthermore, as Andrew Kaposi has pointed out, there is often a significant gap between a working demo and a production-ready product. Conversational AI is no exception. For instance, in our discussion with customers and prospects, many have expressed frustration with the reliability and scalability of current solutions, especially when users are distributed across geographies or when concurrent usage is high. Our investment in conversational AI is specifically aimed at addressing these challenges. Recently, we launched our conversational AI engine 2.0. It integrates over a decade of advanced audio research and development, including AI-powered noise suppression, acoustic echo cancellation, proprietary audio codecs, and adaptation across thousands of device types to ensure that AI hears and speaks with consistent clarity. In addition, the engine also tackles core interaction challenges: selective attention, turn-taking, interruption handling, emotion detection, and natural conversational flow. In short, we're not just providing the transmission pipeline for voice and video; we're building the behavioral intelligence that powers truly responsive human-like conversational AI agents. To help developers build voice agents more easily, we announced our conversational AI studio at our recent Conva AI and RTE conference in late October, which allows developers to create, configure, and deploy voice agents through a zero-code interface. Complementing this, our conversational AI benchmark and orchestration platform allow developers to evaluate, mix, match, and optimize both our proprietary and third-party modules, so they can identify the best-performing combination for their specific use case. Our open-source time framework, designed for building voice agents, continues to gain traction in the developer community. Recognized for its high-concurrency architecture and deep cross-platform integration, it has been adopted by multiple cloud providers and major enterprises for their agent orchestration platforms. All these products are backed by our global distributed real-time assurance cloud. Over the past several months, we've expanded this infrastructure to cover key regions across North America, South America, Europe, and Asia, ensuring consistent latency, reliability, and performance, even under high concurrency and varying network conditions. Early adoption from customers around the world has been encouraging, and our pipeline of use cases and prospects continues to grow as we head into the next quarter. Our recent Convert AI and RTE conference attracted more than 3,000 on-site attendees, a record for us, and made it the largest gathering focused on conversational AI technology globally. Our customers and developers are deploying our conversational AI solutions to build voice agents for outbound marketing, inbound customer service, tutoring, and among many other applications. Smart toy manufacturers are also integrating our technology, enabling AI-powered companionship and learning experiences. In conclusion, the convergence of advanced AI models and robust real-time infrastructure is unlocking a new era of possibilities. Backed by proven scalability, deep technology expertise, and a forward-looking product suite, we're well-positioned to empower this next chapter, enabling truly human-like, reliable, and scalable voice agents. With that, let me turn things over to Jingbo Wang, who will review our financial results. Jingbo Wang: Thank you, Tony. Hello, everyone. Let me start by first reviewing the financial results for 2025 and then I will discuss the outlook for the fourth quarter. Total revenues for the third quarter reached $35.4 million, up 12% year over year, representing our third consecutive quarter of double-digit organic growth. If we look at the two business divisions, our core revenues reached $18.2 million in Q3, 15.9% year-over-year growth and flat quarter over quarter. The strong year-over-year growth reflects our successful market penetration and a growing adoption in verticals such as live shopping. Shunghwa revenues, reached RMB 122,400,000 in Q3, up 8.4% year over year and 6% sequentially, driven by continuous business expansion and adoption in key verticals such as social, entertainment, and IoT. Dollar-based network retention rate is 108% for Agora and 90% for Shunghu, marking the fourth consecutive quarter of improvement for both businesses. Gross margin for the third quarter was 66%, slightly decreased 0.7% year over year and 0.8% sequentially. Moving on to expenses, R&D expenses were $13.8 million in Q3, decreased 52.8% year over year. R&D expenses represented 39.1% of total revenues in the quarter, compared to 92.7% in Q3 last year. Sales and marketing expenses were $6.5 million in Q3, decreased 5.6% year over year. Sales and marketing expenses represented 18.3% of total revenues in the quarter compared to 21.7% in Q3 last year. G&A expenses were $5 million in Q3, decreased 48.4% year over year. G&A expenses represented 14.1% of total revenues in the quarter compared to 30.8% in Q3 last year. Moving on to the bottom line, we delivered net income of $2.7 million in Q3, representing a 7.8% net income margin. This result represents a significant improvement from last year and marks our fourth consecutive quarter of GAAP profitability. Based on our current business momentum and visibility into the fourth quarter, we expect net income to grow sequentially compared to Q3. Now turning to cash flow, operating cash flow was $700,000 in Q3, compared to negative $4.6 million last year. Moving on to the balance sheet, we ended Q3 with $374.3 million in cash, cash equivalents, deposits, and financial products issued by banks. Net cash outflow in the quarter was mainly due to a share repurchase of $4.8 million. In the third quarter, we repurchased 5.2 million ordinary shares, or 1.3 million ADS, representing 1.4% of our outstanding shares at the beginning of the quarter. Since our board approved the share repurchase program in February 2022, we have repurchased $132.1 million worth of shares through September 30, 2025. The share repurchase program demonstrates our dedication to returning value to our shareholders balanced with our ability to continue investing in strategic growth opportunities. Now turning to guidance for 2025, we currently expect total revenues to be between $37 million and $38 million, compared to $34.5 million in the fourth quarter last year, representing year-over-year growth rate of 77.2% to 10.1%. This outlook reflects our current and preliminary views on the market and operational conditions, which are subject to change. In closing, I would like to express my gratitude to our outstanding team in Agora and Shiwa. Our sustained double-digit revenue growth and profit expansion are a direct reflection of your hard work and strategic focus. For our shareholders, thank you for your continued trust. We remain focused on executing our roadmap to build a durable, market-leading company at the forefront of AI innovation. Thank you all for joining today's call. Let's open it up for questions. Operator: Thank you very much. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. The first question comes from the line of Harry Zwing from Bank of America. Please go ahead. Harry Zwing: Thanks management for taking my question. Congratulations on another quarter of double-digit growth and solid guidance for the full quarter this year. I have three questions. First, regarding the demand outlook, could management elaborate on the key trends in both domestic and international markets for the coming quarters, and what are the key downstream sectors that are driving the demand growth? Second question is regarding the AI application. Can management share the latest update on the drive for meaningful revenue contribution development of AI? And lastly, on the profitability outlook, can management share the profitability outlook for both the fourth quarter this year and also FY '26, at the operating profit level and the net profit level? Thanks. Tony Zhao: Alright. I'll take the first two questions, and Jim will take the last one. So for the demand in China, the overall demand recovery trend continues. With a stabilized regulatory environment, demand from social entertainment and education customers rebounded and gradually goes up. Demand from IoT and digital transformation customers is experiencing rapid growth. In the US and international markets, live commerce demand continued its rapid growth and other verticals generally show growth as well. The overall growth rate is slightly faster than in China. As to the AI demand and the trend, before I answer the question, I want to first clarify the difference between voice AI and conversational AI. We are actually focused on conversational AI, which is very related to our real-time engagement business, and it means real-time human-AI voice interaction. On the other hand, voice AI is a much broader concept. It includes both real-time conversation and non-real-time functionalities such as audio recognition and generation. Non-real-time use cases are actually much broader, and non-real-time audio recognition and generation are much easier to achieve usability and find practical use cases. In the past two years, audio generation or text-to-speech has been widely used in non-real-time content production. For example, most of the short video clips people watch today use AI-generated voiceover. These have been growing in the last two years in social media and a lot of other markets. However, when we move to real-time conversation, the complexity of the technology makes the whole experience much more challenging, as I stated in the opening remark, and it takes longer to mature and gain adoption. In conversational AI applications, currently, there are three use cases that have progressed to a more advanced stage, namely call centers, education, and companionship toys. For these use cases, we already see some customers have moved from proof of concept phase to real-world production. Given the vast scale and potential usage of these verticals, we expect the success of these customers will drive further adoption. We already have customers in production today, but usage is still ramping up. We expect to see some sizable conversational AI revenue in the first half of next year, and ConvaAI will become a meaningful revenue contributor towards the end of next year. Jingbo Wang: Okay. For the third question, for Q4 this year, given that Q4 is normally a strong season for us, we expect to achieve GAAP operating profit breakeven in Q4. Therefore, the GAAP net profit will further grow on top of the Q3 level. For next year, our target is to achieve GAAP operating profit for the full year of 2026. GAAP net profit is expected to show a big improvement over 2025. In terms of the GAAP net profit, there will be some level of uncertainty due to the potential interest rate cut, but under the current forecast, we expect year-over-year net income improvement over 2025 as well. Operator: Thank you. Just a moment for our next question, please. The next question comes from Rachel Hahn from CICC. Please go ahead. Rachel Hahn: Thank you for taking my questions. Can you hear me? Tony Zhao: Yes. Rachel Hahn: Hi, this is Rachel Hahn from CICC. First of all, congrats on the solid growth this quarter, and especially the continued improvement in profitability. I have two questions. First, I noticed that our third-quarter revenue came in slightly above the midpoint of the guidance range. Could you give us more color on what drove this solid performance? And my second question is on the AI side, which downstream applications are showing the strongest momentum so far? In particular, how is the adoption trend for AI companionship toys, and when should we expect these use cases to start contributing to your financial results? Thank you. Jingbo Wang: Okay, I'll take the first question. As Tony mentioned in the earlier question, for Q3, we saw pretty strong demand from US and international markets as well as the China market. In the US international market, live commerce continued to grow very strongly, especially in more developed markets. Other verticals, such as social and fintech, are also growing pretty well. In China, in Q3, first of all, we had the summer vacation in Q3, which is generally a strong season for social apps and education apps. In addition, the IoT sector, including smart cameras, smart wearable devices like watches, and smart toys, is experiencing very rapid growth. Tony Zhao: For the AI use cases side, there is quite a strong pipeline of customers and prospects for call centers, including outbound marketing and inbound customer services. For AI companionship toys, we see strong momentum from our customer RoboPong. Their sales and usage numbers are quite impressive. They also started to charge end-user monthly subscription fees, which we believe is a more healthy and sustainable business model and also a breakthrough in similar kinds of toys. A couple of other toy manufacturers are also in the process of integrating our solutions. We expect to see them coming to the market in the next few months. Rachel Hahn: Thank you. Okay, thank you for your detailed answers. I wish our company continued growth and success. Jingbo Wang: Thank you. Operator: Our next question comes from Yu Xing from China Security. Please go ahead. Yu Xing: Hi, management, thanks for taking my question, and congrats on the strong execution this quarter. My first question is related to AI usage. Could you share the sequential growth trend for AI-related usage? Looking at our current customer pipeline, when could we see signs of a meaningful scale for these AI applications? My second question relates to potential strategy extension. We could see some CDN vendors expanding into edge GPU inference and security. Given our R&D infrastructure, could we foresee a similar path to maybe offer or cross-sell edge-side inference or security features? Tony Zhao: Conversational AI usage increased by more than 150% quarter over quarter, so it's quite fast. Although, as I mentioned, voice AI has matured for years already, conversational AI is still at an early stage. We do see a strong pipeline of customers and prospects and believe we are not far from broader adoption and proliferation of voice agents. For your second question, we are not a CDN company, but we do have a global distributed network and a large number of data centers distributed across every major region. It's a good question. In fact, we have opportunities that are similar but from a different perspective. Specifically, we are targeting real-time inference services for conversational AI. This is what we build for our product. This inference service needs to connect with multiple distributed ASR, TTS, large language model services, as well as our self-developed and deployed modules in different locations. This kind of capability is a must to support the core process in a way that it has to be wire-load latency, so that the real-time nature of the interaction could be enabled. Such an infrastructure service is of great value to any agent that requires ultra-low latency or real-time inference. This is also an opportunity we could expand in the future. Yu Xing: Okay, thank you. That's very helpful. Operator: Thank you. Just a reminder, to ask a question, please press 11 on your telephone keypad. Jingbo Wang: Thank you. Operator: There are no further questions. That concludes today's Q&A session. Thank you, everybody, for attending the company's call today. As a reminder, the recording and the earnings release will be available on the company's website at investor.agora.io. If there are any other questions, please feel free to email the company. Thank you.
Sarah: Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to NVIDIA Corporation's third quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. Toshiya Hari, you may begin your conference. Thank you. Toshiya Hari: Good afternoon, everyone, and welcome to NVIDIA Corporation's conference call for the 2026. With me today from NVIDIA Corporation are Jensen Huang, president and chief executive officer, and Colette Kress, executive vice president and chief financial officer. I'd like to remind you that our call is being webcast live on NVIDIA Corporation's 2026. The content of today's call is NVIDIA Corporation's property. It cannot be reproduced or transcribed without our prior written consent. During this call, we may make forward-looking statements based on current expectations. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release, our most recent forms 10-K and 10-Q, and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, 11/19/2025, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our CFO commentary, which is posted on our website. With that, let me turn the call over to Colette. Colette Kress: Thank you, Toshiya. We delivered another outstanding quarter with revenue of $57 billion, up 62% year over year and a record sequential revenue growth of $10 billion or 22%. Our customers continue to lean into three platform shifts fueling exponential growth for accelerated computing, powerful AI models, and agentic applications. Yet we are still in the early innings of these transitions that will impact our work across every industry. Currently, we have visibility to a half a trillion dollars in Blackwell and Rubin revenue from the start of this year through the end of calendar year 2026. By executing our annual product cadence and extending our performance leadership through full stack design, we believe NVIDIA Corporation will be the superior choice for the $3 to $4 trillion in annual AI infrastructure build we estimate by the end of the decade. Demand for AI infrastructure continues to exceed our expectations. The clouds are sold out, and our GPU installed base, both new and previous generations, including Blackwell, Hopper, and Ampere, is fully utilized. Record Q3 data center revenue of $51 billion increased 66% year over year, a significant feat at our scale. Compute grew 56% year over year driven primarily by the GB 300 ramp while networking more than doubled given the onset of NVLink scale up and robust double-digit growth across Spectrum X Ethernet and Quantum X InfiniBand. The world hyperscalers, a trillion-dollar industry, are transforming search recommendations, and content understanding from classical machine learning to generative AI. NVIDIA CUDA excels at both and is the ideal platform for this transition, driving infrastructure investment measured in hundreds of billions of dollars. At Meta, AI recommendation systems are delivering higher quality and more relevant content, leading to more time spent on apps such as Facebook and Threads. Analyst expectations for the top CSPs and hyperscalers in 2026 aggregate CapEx have continued to increase and now sit roughly at $600 billion, more than $200 billion higher relative to the start of the year. We see the transition to accelerated computing and generative AI across current hyperscale workloads contributing toward roughly half of our long-term opportunity. Another growth pillar is the ongoing increase in compute spend driven by foundation model builders such as Anthropic, Mastral, OpenAI, Reflection, Safe Superintelligence, Thinking Machines Lab, and xAI. All scaling, compute aggressively to scale intelligence. The three scaling laws pretraining, post-training, and inference remain intact. In fact, we see a positive virtuous cycle emerging whereby the three scaling laws and access to compute are generating better intelligence and in turn increasing adoption and profits. OpenAI recently shared that their weekly user base has grown to 800 million. Enterprise customers have increased to 1 million, and their gross margins were healthy. Well, Anthropic recently reported that its annualized run rate revenue has reached $7 billion as of last month, up from $1 billion at the start of the year. We are also witnessing a proliferation of agentic AI across various industries and tasks. Companies such as Cursor Anthropic, Open Evidence, Epic, and Abridge are experiencing a surge in user growth as they supercharge the existing workforce, delivering unquestionable ROI for coders and healthcare professionals. The world's most important enterprise software platforms like ServiceNow, CrowdStrike, and SAP are integrating NVIDIA Corporation's accelerated computing and AI stack. Our new partner, Palantir, is supercharging the incredibly popular ontology platform with NVIDIA CUDA X libraries and AI models for the first time. Previously, like most enterprise software platforms, Ontology runs only on CPUs. Lowe's is leveraging the platform to build supply chain agility, reducing costs, and improving customer satisfaction. Enterprises broadly are leveraging AI to boost productivity, increase efficiency, and reduce cost. RBC is leveraging agentic AI to drive significant analysts' productivity, slashing report generation time from hours to minutes. AI and digital twins are helping Unilever accelerate content creation by 2x and cut costs by 550%. And Salesforce's engineering team has seen at least 30% productivity increase in new codevelopment after adopting Cursor. This past quarter, we announced AI factory and infrastructure projects amounting to an aggregate of 5 million GPUs. This demand spans every market CSPs, sovereigns, modern builders, enterprises, and supercomputing centers includes multiple landmark build outs. XAI's Colossus two, the world's first gigawatt scale data center. Lilly's AI factory for drug discovery, the pharmaceutical industry's most powerful data center. And just today, AWS and Humane expanded their including the deployment of up to 150,000 AI accelerators, including our GB 300, x AI and Humane also announced a partnership in which the two will jointly develop a network of world-class GPU data centers anchored by the flagship 500 megawatt facility. Blackwell gained further momentum in Q3. As GB 300 crossed over GB 200 and contributed roughly two-thirds of the total Blackwell revenue. The transition to GB 300 has been seamless. With production shipments to the majority to the major, cloud service providers, hyperscalers, and GP clouds and is already driving their growth. The Hopper platform in its thirteenth quarter since exception recorded approximately $2 billion in revenue in Q3. H '20 sales were approximately $50 million. Sizable purchase orders never materialized in the quarter due to geopolitical issues and the increasingly competitive market in China. While we were disappointed in the current state, that prevents us from shipping more competitive data center compute products to China, we are committed to continued engagement with the US and China governments. And will continue to advocate for America's ability to compete around the world. To establish a sustainable leadership and position in AI computing, America must win. The support of every developer, and be the platform of choice for every commercial business including those in China. The Rubin platform is on track to ramp in the 2026. Powered by seven chips, the Vera Rubin platform will once again deliver an x factor improvement in performance relative to Blackwell. We have received silicon back from our supply chain partners and are happy to report that NVIDIA Corporation teams across the world are executing the bring up beautifully. Rubin is our third generation rack scale system substantially redefined the manufacturability while remaining compatible with Grace Blackwell our supply chain data center ecosystem, and cloud partners have now mastered the build to installation process of NVIDIA Corporation's RAC architecture. Our ecosystem will be ready for a fast Rubin ramp. Our annual x factor performance lead increases performance per dollar while driving down computing cost for our customers. The long useful life of NVIDIA Corporation's CUDA GPUs is a significant TCO advantage over accelerators. CUDA's compatibility and our massive installed base extend the life NVIDIA Corporation systems well beyond their original estimated useful life. For more than two decades, we have optimized the CUDA ecosystem, improving existing workloads, accelerating new ones, and increasing throughput with every software release. Most accelerators without CUDA and NVIDIA Corporation's time-tested and versatile app architecture became obsolete within a few years as model technologies evolve. Thanks to CUDA, the a 100 GPUs we shipped six years ago are still running at full utilization today. Powered by vastly improved software stack. We have evolved over the past twenty-five years from a gaming GPU company to now an AI data center infrastructure company. Our ability to innovate across the CPU, the GPU, networking, and software, and ultimately drive down cost per token is unmatched across the industry. Our networking business purpose built for AI, and now the largest in the world. Generated revenue of $8.2 billion, up 162% year over year. With NVLink, InfiniBond, and Spectrum X Ethernet, all contributing to growth. We are winning in data center networking as the majority of AI deployments now include our switches with Ethernet GPU attach rates roughly on par with InfiniBand. Meta, Microsoft, Oracle, and xAI are building gigawatt AI factories with Spectrum X Ethernet switches. And each will run its operating system of choice highlighting the flexibility and openness of our platform. We recently introduced SPECTUM Spectrum XGS, a scale across technology that enables gigascale AI factories. NVIDIA Corporation is the only company with AI scale up scale out, and scale across platforms, reinforcing our unique position in the market as the AI infrastructure provider. Customer interest in NVLink Fusion continues to grow. We announced a strategic collaboration with Suzuki in October where we will integrate Fuzitsu's CPUs and NVIDIA Corporation GPUs via NVLink Fusion. Connecting our large ecosystems. We also announced a collaboration with Intel to develop multiple generations of custom data center and PC products connecting NVIDIA Corporation and Intel's ecosystems using NVLink. This week at supercomputing 25, Arm announced that it will be integrating NVLink IP for customers to build CPU SoCs that connect with NVIDIA Corporation. Currently on its fifth generation, NVLink is the only proven scale up technology available on the market today. In the latest MLPerf training results, Blackwell Ultra delivered 5x faster time to train than hopper. NVIDIA Corporation swept every benchmark. Notably, NVIDIA Corporation is the only training platform to ledge bridge f p four while meeting the MLPerf's strict accuracy standards. In semianalysis, inference max benchmark, Blackwell achieved the highest performance and lowest total cost of ownership across every model and use case. Particularly important is Blackwell's NVLink's performance on a mixture of experts. The architecture for the world's most popular reasoning models. On DeepSeek, r one, Blackwell delivered 10x higher performance per watt and 10x lower cost per token versus h 200. A huge generational leap fueled by our extreme codesign approach NVIDIA Corporation Dynamo, an open source, low latency, modular inference framework has now been adopted by every major cloud service provider leveraging Dynamos enablement and disaggregated inference the resulting such as MOE models, increase in performance of complex AI models AWS, Google Cloud, Microsoft Azure, and OCI have boosted AI inference performance for enterprise cloud customers. We are working on a strategic partnership with OpenAI focused on helping them build and deploy at least 10 gigawatts of AI data centers. In addition, we have the opportunity to invest in the company. We serve OpenAI, through their cloud partners. Microsoft Azure, OCI, and CoreWeave. We will continue to do so for the foreseeable future. As they continue to scale, we are delighted to support the company to add self build infrastructure, and we are working toward a definitive agreement and are excited to support OpenAI's growth. Yesterday, celebrated an announcement with Anthropic. For the first time, Anthropic is adopting NVIDIA Corporation and we are establishing a deep technology partnership to support Anthropics fast growth. We will collaborate to optimize anthropic models for CUDA, and deliver the best possible performance, efficiency, and TCO. We will also optimize future NVIDIA Corporation architectures for anthropic workloads. Anthropics compute commitment is initially including up to one gigawatt of compute capacity, with Grace Blackwell and Vera Rubin systems. Our strategic investments in anthropic menstrual, opening eye, reflection, thinking machines, and other represent partnerships. That grow the NVIDIA Corporation CUDA AI ecosystem and enable every model to run optimally on NVIDIA Corporation's everywhere. We will continue to invest strategically while preserving our disciplined approach to cash flow management. Physical AI is already a multibillion dollar business addressing a multitrillion dollar opportunity, and the next leg of growth for NVIDIA Corporation. Leading US manufacturers and robotics innovators are leveraging NVIDIA Corporation's three computer architecture to train on NVIDIA Corporation. Test on Omniverse computer, and deploy real world AI on Justin robotic computers. PTC and Siemens introduced new services that bring Omniverse powered digital twin workflows to their extensive installed base of customers. Companies including Belden, Caterpillar, Foxconn, Lucid Motors, Toyota, TSMC, and Wistron are building Omniverse Digital Twin factories to accelerate AI driven manufacturing and automation. Agility robotics, Amazon robotics, Figure, and skilled at AI are building our platform, tapping offerings such as NVIDIA Corporation Cosmos World Foundation Models for development, Omniverse for simulation and validation, and Jetson two power next generation intelligent robots. We remain focused on building resiliency and redundancy in our global supply chain. Last month, in partnership with TSMC, we celebrated the first Blackwell wafer produced on US soil. We'll continue to work with Fox conn, Vistron, Amcor, Spill, and others to grow our presence in The US over the next four years. Gaming revenue was $4.3 billion, up 30% year on year driven by strong demand as 42 million gamers, while thousands of fans packed the GeForce Gamer Festival in South Korea. To celebrate twenty-five years of GeForce. NVIDIA Corporation Pro Visualization has evolved into computers for engineers and developers. Whether for graphics, or for AI. Professional visualization revenue was $760 million, up 56% year over year. Was another record. Growth was driven by DGX Spark. The world's smallest AI supercomputer. Built on a small configuration of Grace Blackwell. Automotive revenue was $592 million, up 32% year over year primarily driven by self-driving solutions. We are partnering with Uber to scale the world's largest level four ready autonomous fleet built on the new NVIDIA Corporation Hyperion l four robotaxi reference architecture. Moving to the rest of the p and l. GAAP gross margins were 73.4% and non GAAP gross margins was 73.6%. Exceeding our outlook. Gross margins increased sequentially due to our data center mix, improved cycle time, and cost structure. GAAP operating expenses were up 8% sequentially and up 11% on non GAAP basis. The growth was driven by infrastructure compute, as well as higher compensation and benefits in engineering development costs. Non GAAP effective tax rate for the third quarter was just over 17%. Higher than our guidance of 16.5% due to the strong US revenue. On our balance sheet, inventory grew 32% quarter over quarter while supply commitments increased 63% sequentially. We are preparing for significant growth ahead and feel good about our ability to execute against our opportunity set. Okay. Let me turn to the outlook for the fourth quarter. Total revenue is expected to be $65 billion plus or minus 2%. At the midpoint, our outlook implies 14% sequential growth driven by continued momentum in the Blackwell architecture. Consistent with last quarter, we are not assuming any data center compute revenue from China. GAAP and non GAAP gross margins are expected to be 74.875% respectively. Plus or minus 50 basis points. Looking ahead, to fiscal year twenty twenty-seven, input costs are on the rise but we are working to hold gross margins in the mid-seventies. Gap and non GAAP operating expenses are expected to be approximately $6.7 billion and $5 billion respectively. GAAP and non GAAP other income and expenses are expected to be an income of approximately $500 million, excluding gains and losses from non-marketable and publicly held equity securities. GAAP and non GAAP tax phase are expected to be 17%. Plus or minus 1% excluding any discrete items. At this time, let me turn the call over to Jensen. For him to say a few words. Jensen Huang: Thanks, Colette. There's been a lot of talk about an AI bubble. From our vantage point, we see something very different. As a reminder, NVIDIA Corporation is unlike any other accelerator. We excel at every phase of AI. From pre-training and post-training to inference. And with our two-decade in CUDA x acceleration libraries, we are also exceptional. At science and engineering simulations, computer graphics, structured data processing, to classical machine learning. The world is undergoing three massive platform shifts at once. The first time since the dawn of Moore's Law. NVIDIA Corporation is uniquely addressing each of the three transformations. The first transition is from CPU general-purpose computing to GPU accelerated computing. As Moore's Law slows. The world has a massive investment in non-AI software. From data processing to science and engineering simulations. Representing hundreds of billions of dollars in cloud computing spend each year. Many of these applications, which ran once exclusively on CPUs, are now rapidly shifting to CUDA GPUs. Accelerated computing has reached a tipping point. Secondly, AI has also reached a tipping point. And is transforming existing applications while enabling entirely new ones. For existing applications, generative AI, is replacing classical machine learning in search ranking, recommender systems, ad targeting, click-through prediction, to content moderation, The very foundations of hyperscale infrastructure. Meta's gem a foundation model for ad recommendations trained on large-scale GPU clusters exemplifies this shift. In Q2, Meta reported over a 5% increase in ad conversions on Instagram and 3% gain on Facebook feed. Driven by generative AI based JEM. Transitioning to generative AI. Represents substantial revenue gains for hyperscalers. Now a new wave is rising. Agentic AI systems. Capable of reasoning, planning, and using tools. From coding assistants like Cursor and QuadCode to radiology tools like iDoc, legal assistants like Harvey, and AI chauffeurs like Tesla FSD and Waymo, These systems mark the next frontier of computing. The fastest growing companies in the world today OpenAI, Anthropic, xAI, Google, Cursor, Lovable, Replit, Cognition AI, Open Evidence, a bridge Tesla, are pioneering agentic AI. So there are three massive platform shifts. The transition to accelerated computing is foundational and necessary. Essential in a post-Moore's law era. The transition to generative AI is transformational, and necessary supercharging existing applications and business models. And the transition to agentic and physical AI will be revolutionary, giving rise to new applications, companies, products, services. As you consider infrastructure investments, consider these three fundamental dynamics. Each will contribute to infrastructure growth in the coming years. NVIDIA Corporation is chosen because our singular architecture enables all three transitions. And thus so for any form and modality of AI across all industries, across every phase of AI, across all of the diverse computing needs, in a cloud, and also from cloud to enterprise to robots. One architecture. Toshiya, back to you. Toshiya Hari: We will now open the call for questions. Operator, would you please poll for questions? Sarah: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Thank you. Your first question comes from Joseph Moore with Morgan Stanley. Your line is open. Great. Thank you. I wonder if you could update us. Joseph Moore: You talked about the $500 billion of revenue for Blackwell plus Rubin. 'twenty five and 'twenty six at GTC. At that time, you talked about $150 billion of that already having been shipped. So as the quarter's wrapped up, are those still kind of the general parameters that there's $350 billion in the next kind of, you know, fourteen months or so. And, you know, I would assume over that time, you haven't seen all the demand that there is. There's possibility of upside to those numbers as we move forward? Colette Kress: Yeah. Thanks, Joe. I'll start first with a response here on that. Yes. That's correct. We are working into our $500 billion forecast. And we are on track for that as we have finished some of the quarters. And now we have several quarters now in front of us to take us through the end of calendar year '26. The number will grow. And we will achieve, I'm sure, additional needs for compute that will be shippable by fiscal year '26. So we shipped $50 billion this quarter. But we would be not finished if we didn't say that we'll probably be taking more orders. For example, just even today, our announcements with KSA and that agreement in itself is four to 600,000 more GPUs over three years. Anthropic is also not new. So there's definitely an opportunity for us to have more on top of the $500 billion that we announced. Sarah: The next question comes from C.J. Muse with Cantor Fitzgerald. Your line is open. C.J. Muse: Yes. Good afternoon. Thank you for taking the question. There's clearly a great deal of consternation around the magnitude of AI infrastructure build outs and the ability to fund such plans in the ROI. Yet, you know, at the same time, you're talking about being sold out every stood up GP is taken. The AI world hasn't seen the enormous benefit yet know, from d 300, never mind Rubin. And Gemini three just announced Grok five coming soon. And so the question is this, when you look at that as the backdrop, do you see a realistic path for supply to catch up with demand over the next twelve to eighteen months, or or do you think it can extend beyond that time frame? Jensen Huang: Well, as you know, we've done a really good job planning our supply chain. NVIDIA Corporation's supply chain basically includes every technology company in the world. And TSMC and their packaging and our memory vendors and memory partners and all of our system ODMs have done a really good job planning with us. And we were planning for a big year. You know, we've seen for some time the three transitions that I spoke about just a second ago, accelerated computing, from general-purpose computing and it's really important to recognize that AI is not just agentic AI, but generative AI is transforming the way that hyperscalers did the work that they used to do on CPUs. Generative AI made it possible for them to move search and recommender systems and, you know, add recommendations and targeting. All of that has been generated has been moved to generative AI. And it's still transitioning. And so whether you install NVIDIA Corporation GPUs for data processing, or you did it for generative AI for your recommender system, or you're building it for agentic chatbots and the type of AIs that most people see when they think about AI, all of those applications are accelerated by NVIDIA Corporation. And so when you look at the totality of the spend, it's really important to think about each one of those layers. They're all growing. They're related, but not the same. But the wonderful thing is that they all run on NVIDIA Corporation GPUs. Simultaneously, because the quality of the AI models are improving so incredibly. The adoption of it in the different use cases, whether it's in code assistance, which NVIDIA Corporation uses fairly exhaustively, and we're not the only one. I mean, the fastest growing application in history combination of cursor and CliveCode and code OpenAI's codex and and GitHub Copilot. These applications are the fastest growing in history. And it's not just used for software engineers. It's used by because of vibe coding, it's used by engineers and marketeers all over companies. Supply chain planners, all over companies, And so I think that that's just one example, the list goes on. You know, whether it's open evidence and work that they do in health care or the work that's being done in digital video editing runway. I mean, number of it really, really exciting start ups that are taking advantage of generative AI and agentic AI is growing quite rapidly, and not to mention all using it a lot more. And so all of these exponentials not to mention, you know, just today, I was reading a text from Dennis, and he was saying that that pre-training and post-training are fully intact. You know? And Gemini three takes advantage of the scaling laws, and got it received a huge jump in quality performance model performance. And so we're seeing all of these exponentials kind of running at the same time. And just always go back to first principles and think about what's happening from each one of the dynamics that I mentioned before. General-purpose computing to accelerated computing, generative AI replacing classical machine learning, and, of course, agentic AI, which is a brand new category. Sarah: The next question comes from Vivek Arya with Bank of America Securities. Your line is open. Vivek Arya: Thanks for taking my question. I'm curious what are you making on NVIDIA Corporation content per gigawatt? In that $500 billion number? Because we have heard, you know, numbers as low as $25 billion per gigawatt of content to as high as $30 or $40 billion per gigawatt. So I'm curious what power and what dollar per gigawatt assumptions you are making as part of that $500 billion number, And then longer term, Jensen, the three to $4 trillion in data center by 2030 was mentioned. How much of that do you think will require vendor financing, and how much of that can be supported by cash flows of your large customers or governments or enterprises. Thank you. Jensen Huang: In each generation, from Ampere to Hopper, from Hopper to Blackwell, Blackwell to Rubin, we are our a part of the data center increases. And and hock regeneration was probably something along the lines of twenty some odd, twenty to twenty-five. I Blackwell generation, Grace Blackwell particularly, is probably 30 to 30, you know, say 30 plus or minus. And then Rubin is probably higher than that. And and in each one of these generations, the speed up is x factors, And therefore their TCO, the customer TCO, improves by x factors, and the most important thing is in the end, you still only have one gigawatt of power. You know, one gigawatt data center is one gig gigawatt power, and, therefore, performance per watt, the efficiency of your architecture is incredibly important. And the efficiency of your architecture can't be brute forced. There is no brute forcing about it. That one gigawatt translates directly. Your performance per watt translates directly absolutely directly to your revenues. Which is the reason why choosing the right architecture matters so much now. You know, the world doesn't have an excess of anything to squander. And so we have to be really, really you know, we we use this this concept called co-design. Across our entire stack across the frameworks and models, across the entire data center, even power and cooling, optimized across the entire supply chain in our ecosystem. And so each generation our economic contribution will be greater Our value delivered will be greater. But the most important thing is our energy efficiency per per watt is going to be extraordinary every single generation. With respect to growing into into continuing to grow our customers financing is up to them. We are we we see the opportunity to grow. For quite some time, and remember, today most of the focus has been on the hyperscalers. And one of the areas that is really misunderstood about the hyperscalers is that the investment on NVIDIA Corporation GPUs not only improves their scale, speed, and cost, for from general-purpose computing. That's number one, because Moore's Law has Moore's law scaling has really slowed. Moore's law is about driving cost down. It's about it's about deflationary cost, the incredible deflationary cost of of computing over time. But that has slowed. Therefore, a new approach is necessary for them to keep driving the cost down. Going to NVIDIA Corporation GPU computing is really the the best way to do so. The second is revenue boosting in their current business models. You know, recommender systems drive the world's hyperscalers. Every single whether it's you know, watching watching short form videos or recommending books or recommending the next item in your basket to recommending ads to recommending news to rep it's all about recommenders. The world has the Internet has trillions of pieces of content How could they possibly figure out what to put in front of you in your little tiny screen unless they have really sophisticated recommender systems to do so. Well, that has gone generative AI. So the first two things that I just said hundreds of billions of dollars of CapEx is gonna have to be invested, is fully cash flow funded. What is above it, therefore, is AgenTik AI. This is revenue is net new net new consumption, but it's also net new applications. And some of the applications I've mentioned before, but these are these new applications are also the fastest growing applications in history. Okay? So I think that I you're gonna see that once people start to appreciate what is actually happening under, you know, under the water, if you will, you know, from from the simplistic view of what's happening to CapEx investment recognizing there's these three dynamics. And then lastly, remember we were just talking about the American CSPs. Each country will fund their own infrastructure. And you have multiple countries, You have multiple industries. Most of the world's industries haven't really engaged AgenTic AI yet. And they're about to. You know? All the names of companies that that you know we're working with know, whether whether it's autonomous vehicle companies or digital twins for for physical AI for for factories and the number of factories and warehouses being built around the world. Just the number of digital biology startups that are being funded so that we could accelerate drug discovery. All of those different industries are now getting engaged, they're gonna do their own fundraising. And so don't just look at the hyperscalers, as a way to build out for the future. You gotta look at the world, you gotta look at all the different industries, and, you know, enterprise computing is gonna fund their own industry. Sarah: The next question comes from Ben Reitzes with Melius. Your line is open. Ben Reitzes: Hey, thanks a lot. Jensen, wanted to ask you about cash. Speaking of $05 trillion you may generate about $500 billion in free cash flow over the next couple of years. What are your plans for that cash? How much goes to buyback versus in the ecosystem? And how do you look at investing in the ecosystem? I think there's there's just a lot of confusion out there about how these how these deals work and your criteria for doing those, like the Anthropic, the OpenAI's, etcetera. Thanks a lot. Jensen Huang: Yeah. Appreciate the question. Of course, using cash to fund our growth No company has ever grown at the scale that we're talking about and have the connection and the depth and the breath of supply chain that NVIDIA Corporation has. The reason why our our entire customer base can rely on us is because we've secured a really you know, really resilient supply chain and we have the balance sheet to support them. When we make purchases, our suppliers can take it to the bank. When we make when we make forecasts and we plan with them, they take us seriously. Because of our balance sheet. We're not we're not making up the offtake. We know what our offtake is. And because they've been planning with us for so many years, our reputation and our credibility is incredible. And so so it takes really strong balance sheet to do that. To support the level of growth and the the rate of growth and the magnitude associated with that. So that's number one. The second thing, of course, we're gonna continue to do stock buyback. Buybacks. We're gonna continue to do that. But with respect to the investments, this is really, really important work that we do. All of the investments that we've done so far. Well all the week period is associated with expanding the reach of CUDA, expanding the ecosystem. If you look at the work, investments that we did with OpenAI, of course, that relationship we've had since 2016. Delivered the first AI supercomputer ever made. To OpenAI. So we've had a close and wonderful relationship with OpenAI since then. And everything that OpenAI does runs on NVIDIA Corporation today. So all the clouds that they they deploy in, whether it's training and inference, runs NVIDIA Corporation, and we we love working with them. The partnership that that we have with them is one so that we could work even deeper from a technical perspective so that we could support their accelerated growth This is a company that's growing incredibly fast. And don't just look at don't just look at no. What is in the press. Look at all the ecosystem partners and all the developers that are connected to OpenAI. And they're all driving consumption of it. And the quality of the AI that's being produced huge step up since a year ago. So the quality of response is extraordinary. So we we invest in OpenAI for a deep deep partnership and co-development to expand our ecosystem and to support their growth. And, of course, rather than giving up a share of our company, we get a share of their company. And we invested in them in one of the most consequential once in a generation companies once in a generation company that we have a share And so I fully expect that investment to translate to extraordinary returns. Now in the case of Anthropic, this is the first time that Anthropic will be on NVIDIA Corporation's architecture. The first time NVIDIA Corporation will be Anthropic will be on NVIDIA Corporation's architecture is the the second most successful AI in the world, in terms of total number of users But in enterprise, they're doing incredibly well. ClotCode is doing incredibly well. Clot is doing incredibly well, all of the world's enterprise. And now we have the opportunity to have a deep partnership with them and bringing Claude onto the NVIDIA Corporation platform. And so what what do we have now? NVIDIA Corporation's architecture, taking a step back, NVIDIA Corporation's architecture NVIDIA Corporation's platform, is the singular platform in the world that runs every AI model. We run OpenAI, We run Anthropic. We run XAI. Because of our deep partnership with Elon and x AI, we were able to bring that opportunity to Saudi Arabia to the KSA so that humane could also be hosting opportunity for x AI. We run x AI. We run we run Gemini. We run thinking machines. Let's see. What else do we run? We run them all. And so not to mention, we run the science models, the biology models, DNA models, gene models, chemical models, and all the different fields around the world. It's not just cognitive AI that the world uses. AI is impacting every single industry. And so we have the ability through the ecosystem investments that we make to partner with deeply partner on a technical basis with some of the best companies, most brilliant companies in the world, We are expanding the reach of our ecosystem and we're getting a share and investment in what will what will be a very successful company, oftentimes once in a generation company. And so that basic that's our that's our investment thesis. Sarah: The next question comes from Jim Schneider with Goldman Sachs. Your line is open. Jim Schneider: Afternoon. Thanks for taking my question. In the past, you've talked about roughly 40% of your shipments tied to AI inference I'm wondering as you look forward into next year, where do you expect that percentage could go in say a year's time? And can you maybe address the Rubin CPX product you expect to introduce next year and contextualize that? How big of the overall TAM you expect that can take and maybe talk about some of the target customer applications for that specific product? Thank you. Jensen Huang: CPX is designed for long context type of workload generation. And so long context, basically, before you start generating answers, you have to read a lot. Basically, you know, long context. And it could be a bunch of PDFs, it could be watching a bunch of videos, studying three d images, so on and so forth. You have to you have to absorb the context. And so CPX is designed for long context type of workloads. And it's perf per dollars it's perf per dollar is excellent. It's perf for what is excellent. And which made me forget the first part of the question. Colette Kress: Inprinting. Jensen Huang: Oh, inference. Yeah. There are three scaling laws that are that are scaling at the same time. The first scaling law called pre-training, continues to be. Very effective. And the second is post-training. Post-training basically has found incredible algorithms for improving an AI's ability to break a problem down, and solve a problem step by step. And post-training is scaling exponentially. Basically, the more compute, you apply to a model, the smarter it is. The more intelligent it is. And then the third is inference. Inference because of chain of thought, because of reasoning capabilities, AIs are essentially reading, thinking, before it answers. And the amount of computation necessary as a result of those three things has gone completely exponential. I I think that that it's hard to to know exactly what the percentage will be at any given point in time and who. But, of course, our hope our hope is that inference is a very large part of the market. Because if inference is large, then what it suggests is that people are using using it in more applications, and they're using it more frequently. And that's you know, we should all hope for inference to be very large. And this is where Grace Blackwell is just an order of magnitude better more advanced than anything in the world. The second best platform is h 200, and it's very clear now that g b 300, g b 200, and g b 300, because of MP Link 72, the scale up network that we have, achieved. And you saw and Colette talked about in the seminar analysis benchmark it's the largest single inference benchmark ever done, And GB g b 200 m b link 72 is 10 times 10 to 15 times higher performance. And so that's a big step up. It's gonna take a long time before somebody is able to take that on. And and our leadership there is is surely multiyear. Yep. And so so I think I'm hoping that inference becomes a very big deal. Our leadership in inference is extraordinary. Sarah: The next question comes from Timothy Arcuri with UBS. Your line is open. Timothy Arcuri: Thanks a lot. Jensen, many of your customers are pursuing behind the meter power, but like what's the single biggest bottleneck that worries you that could constrain your growth? Is it power or maybe it's financing, or maybe it's, you know, something else like memory or even foundry? Thanks a lot. Jensen Huang: Well, these are all issues and they're all constraints. And the reason for that, when you're growing at the rate that we are and the scale that we are, how could anything be easy? What NVIDIA Corporation is doing obviously has never been done before. And we've created a whole new industry. On the one hand, we are transitioning computing from general-purpose and classical or traditional computing accelerated computing and AI. That's on one hand. On the other hand, we created a whole new industry called AI factories. The idea that in order for software to run, you need these factories to generate it generate every single token instead of retrieving information that was pre pre created. And so so I think this whole transition requires extraordinary scale. And all the way from the supply chain of course, the supply chain, we have we have much better visibility and control over because obviously, we're incredibly good at managing our supply chain. We have great partners that we've worked with for thirty-three years. And so so the supply chain part of it, we're quite confident. Now looking down our supply chain, we've now established partnerships with so many players in land and power and shell and and, of course, financing. These things none of these things are easy. But they're all attractable, and they're all solvable things. And the most important thing that we have to do is do a good job planning We plan up the supply chain, down the supply chain, We've established a whole lot of partners and so we have a lot of routes to market. And very, you know, very importantly, our architecture has to deliver the best value to the customers that we have. And so at this point, you know, I'm I'm very confident that NVIDIA Corporation's architecture is the best performance per TCL It is the best performance per watt and therefore, for any amount of energy that is delivered our architecture will drive the most revenues. And I think the increasing rate of our success I think that we're more successful this year at this point than we were last year at this point. You know, the the number of customers coming to us and the number of platforms coming to us after they've explored others is increasing, not decreasing. And so think the the I think all of that is just, you know, all the things that I've been telling you over the years are really coming are coming true and or becoming becoming evident. Sarah: The next question comes from Stacy Rasgon with Bernstein Research. Your line is open. Stacy Rasgon: Questions. Colette, I had some questions on margins. You said for next year, you're working to hold them in the mid-seventies. So I I guess, first of all, what are the biggest cost increases? Is is it just memory, or is it something else? What are you doing to work toward that? Is it how much is, like, you know, cost optimizations versus pre buys versus pricing And then also, how should we think about OpEx growth next year given the revenues seem likely to to grow materially? From from where we're running right now? Colette Kress: Stacy. Let me see if I can start with remembering where we were with the current fiscal year that we're in. Remember earlier this year, we indicated that through cost improvements and mix that we would exit the year in our gross margins in the mid-seventies. We achieved that. So now it's time for us to communicate where are we And getting ready to also execute that in Q4. working right now in terms of next year. Next year, there are input prices. That are well known in the industries that we need to work through. And our systems are by no means very easy to work with. There are are tremendous amount of components, many different parts of it as we think about that. So we're taking all of that into account, but we do believe if we look at working again on cost improvements, cycle time, and mix, that we will work to try and hold at our gross margins in the mid-seventies. So that's our overall plan for gross margin. Your second question is around OpEx. And right now, our goal in terms of OpEx is to really make sure that we are innovating with our engineering teams, with all of our business teams, to create more and more systems for this market. As you know, right now, have a new architecture coming out, and that means they are quite busy in order to meet that goal. And so we're gonna continue to see our investments on innovating more and more both our software, both our systems, and our hardware to do so. I'll leave it turn it to Jensen if he wants to add any couple more comments. Yeah. Jensen Huang: I think that's spot on. I think the only thing that would add is is remember that we plan, we forecast, we plan, and we negotiate with our supply chain well in advance. Our supply chain have known for quite a long time our requirements and they've known for quite a long time our demand, and we've been working with them and negotiating with them for quite a long time. And so so I think the the recent surge obviously quite significant, But remember, our supply chain has been working with us for a very long time. It's a And so in many cases, we've secured a lot a lot of supply for ourselves, because, you know, obviously, they're working with the largest company in the world. In doing so. And and and we've also we've also been been working closely with them on the financial aspects of it and and securing forecasts and plans and so on and so forth. So I I think all of that has worked out well for us. Sarah: Your final question comes from the line of Aaron Rakers with Wells Fargo. Your line is open. Aaron Rakers: Jensen, the question is for you. As you think about the entropic deal that was announced and just the overall breadth of your customers, I'm curious if your thoughts around the role that AI ASICs or dedicated play in these architecture build outs that has changed at all? Have you seen you know, I think you've been fairly adamant in the past that that some of these some of these programs never really see deployments. But I'm I'm curious if if we're at a point where maybe maybe that's even changed more in favor of of just GPU architecture. Thank you. Jensen Huang: Yeah. Thank you very much. And I re I really appreciate the question. So first of all, you're competing against teams. You're you're excuse me, against a company. You're get competing against teams. And there are there just aren't that many teams in the world who are built who are extraordinary at building these incredibly complicated things. You know, back in the hopper day, and the ampere days, we would build one GPU. That's the definition of an accelerated AI system. But today, we've gotta build entire racks, entire, you know, three different types of switches. A scale up, a scale out, and a scale across switch. And it takes a lot more than one chip to build a compute node anymore. Everything about that computing system because AI needs to have memory, AI didn't used to have memory at all, Now it has to remember things. The amount of memory and context it has is gigantic. The memory the memory architecture implication is incredible. The diversity of models from mixture of experts to dense models to diffusion models to autoregressive, not to mention you know, biological models that obeys the laws of physics, the list of the list of different types of models have exploded in the last last several years. And so so the challenge is the complexity of the problem is much higher, the diversity of AI models, is incredibly, incredibly large. And so this is where you know, if I will say the five things that makes us special, if you will. You know, the first thing I would say that makes us special is that we accelerate every phase of that transition. That's the first phase. That CUDA allows us to have CUDA x for transitioning from general-purpose of accelerated computing We are incredibly good at generative AI. We're incredibly good at agentic AI. So every single phase of that, every single layer of that transition, we are excellent at. You can invest in one architecture, use it across the board, You can use what one architecture, and, not worry about the changes in the workload across those three phases. That's number one. Number two, we're excellent at every phase of AI. Everybody's always known that we're incredibly good pre-training. We're obviously very good at post-training. We're incredibly good as it turns out, at inference, because inference is really, really hard. How could thinking be easy? You know, people think that inference is one shot and therefore, it's easy. Anybody could approach the market that way. But it turns out to be the hardest of all because thinking, as it turns out, is quite hard. We're great at every phase of AI, the second thing, The third thing is we're now the only architecture in the world that runs every AI model. Every frontier AI model we run open source AI models incredibly well. We run science models, biology models, robotics models, run every single model. We're the only architecture in the world that can claim that. It doesn't matter whether you're autoregressive or diffusion based. We run everything. And we run it for every major platform as I just mentioned. So we run every model. And then the the fourth thing I would say is that in every cloud. The reason why developers love us is because we're literally everywhere. We're in every cloud. We're in every we could even make you a little tiny cloud called DGX Spark. And so we're in every computer. We're everywhere from cloud to on-prem. To robotic systems. Edge devices, PCs, you name it. One architecture things just work. It's incredible. And then the the last thing, this is probably the most important thing, the fifth thing, is if you are a cloud service provider, if you're a new company like Humane, if you're a new company like CoreWeaver, Enscaler, Nebius, or OCI for that matter, The reason why NVIDIA Corporation is the best platform for you is because our off take is so diverse. We can help you with off take. It's not about just putting a random ASIC into a data center. Where's the offtake coming from? Where's the diversity coming from? Where's the resilience coming from? The, you know, the versatility of the architecture coming from, the diversity of capability coming from. NVIDIA Corporation has such incredibly good offtake our ecosystem is so large. So these five things every phase of acceleration and transition, every phase of AI, every model, every cloud to on-prem, and, of course, finally, it all leads to offtake. Sarah: Thank you. I will now turn the call to Toshiya Hari for closing remarks. Toshiya Hari: In closing, please note we will be at the UBS Global and AI Conference on December 2. And our earnings call to discuss the results of our 2026 is scheduled for February 25. Thank you for joining us today. Operator, please go ahead and close the call. Thank you. Sarah: This concludes today's conference call. May now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to JOYY Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] I'd now like to hand the conference over to your host today, Jane Xie, the company's Senior Manager of Investor Relations. Please go ahead, Jane. Tingzhen Xie: Thank you, operator. Hello, everyone. Welcome to JOYY's Third Quarter 2025 Earnings Conference Call. Joining us today are Ms. Ting Li, Chairperson and CEO of JOYY; and Mr. Alex Liu, the Vice President of Finance. For today's call, management will first provide a review of the quarter, and then we will conduct a Q&A session. The financial results and webcast of this conference call are available at ir.joyy.com. A replay of this call will also be available on our website in a few hours. Before we continue, I'd like to remind you that we may make forward-looking statements, including, but not limited to, the future development of our products and businesses, expected financial performance, our share repurchases and other future events, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the SEC. We will also discuss certain non-GAAP financial measures that are included as additional clarifying items to aid investors in further understanding the company's performance and the impact that these items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. You may find a reconciliation of the differences between GAAP and non-GAAP financial measures in our earnings release. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars. I will now turn the call over to our Chairperson and CEO, Ms. Ting Li. Please go ahead, Ms. Li. Ting Li: Hello, everyone. I'm Li Ting. Thank you for joining us today. This quarter, we have taken another firm step towards becoming a global technology company powered by multiple growth engines and a strong synergistic ecosystem. Starting with our Q3 results. Livestreaming revenues sustained steady sequential recovery, while our ad tech platform, BIGO Ads accelerated top line growth with its total ad revenue growing over 19.7% quarter-over-quarter. Meanwhile, we maintained a robust cash flow generation and continued to actively return value to shareholders. Last quarter, I expressed our long-term commitment to building a meaningful and lasting presence in the ad tech industry. This quarter, we made concrete progress towards that goal. BIGO Ads daily growth revenue grew aggressively and reached new heights. As we further accumulate in scale and continuously iterate our AI algorithm, we are confident we will soon reach new milestones. We achieved total revenue of $540 million in the third quarter, up 6.4% quarter-over-quarter. Our livestreaming revenue was $388 million, up 3.5% Q-o-Q, making 2 consecutive quarters of sequential growth. Meanwhile, BIGO Ads recorded $104 million in revenue, with a year-over-year growth of 33.1%, bringing total non-livestreaming revenues, including ad revenues and others to 28.1% of group revenues. Non-GAAP operating income reached $41 million, up 16.6% year-on-year. Non-GAAP EBITDA reached $51 million, up 16.8% year-on-year and 4.9% Q-o-Q. Operating cash flow for the quarter reached $73 million. As of September 30, we had $3.3 billion in net cash. This provides strong support for our ongoing competitive shareholders' returns. We will continue actively executing our share repurchase program. As we advance our strategic priorities alongside strong acquisitional momentum, we are positioned to deliver long-term value for our shareholders. As we approach year-end, I would like to outline our overall strategic direction for year 2026. In short, we will focus on 3 key priorities, strengthening ecosystem synergies, reinforcing organization vision, vitality and reigniting growth. Beginning in 2022, we accelerated the diversification of our revenue stream, cultivating our 2B initiatives in ad tech and SaaS. We have made steady progress advancing towards our strategic positioning as a global tech company powered by multiple growth engines in the past several years. Today, our livestreaming business serves as a reliable cash call, providing a solid foundation for profitable growth. In the meantime, our advertising platform and the e-commerce SaaS businesses have completed initial validation of their business models and are rapidly emerging as our net growth curve. In Q3, our total non-livestreaming revenues exceeded 28.1% of group revenues. We have created a highly synergistic system where our global traffic, advertising and e-commerce SaaS businesses reinforce each other. The R&D capabilities, network infrastructure, local operations expertise and first-party data access, we accumulated through global social livestreaming are now powering our rapid 2B expansion. In turn, our 2B progress strengthens our competitive moat in both data and technology. We are just beginning to unlock the full strategic value of this integrated business ecosystem. We are transforming our high-growth ad tech business by establishing BIGO Ads as an AI-powered global platform for performance-driven, multichannel advertising across different verticals. In 2026, we expect to substantially extend our traffic coverage. On mobile traffic, we are exploring partnerships with meditation platform and developers like Google AdMob to accelerate traffic expansion. On web traffic, we are extending traffic coverage through partnerships with channels like Microsoft Xandr and Google AdX. On the demand side, as we establish web-to-web advertising capabilities and integrate our web models, we expect to capture continued growth from web-based advertise. For mobile-based advertising, we are enhancing our IAA D7 ROAS product to improve advertiser ROI for IAA, while advancing the optimization of our Target CPE and other products for IAP to expand into area. Finally, on platform technology, we expect to establish and strengthen our iOS ecosystem in 2026, which will enable us to unlock substantial incremental growth potential from iOS high-quality traffic. We will also continue investing in AI, building our team and resources to accelerate model development and optimization. These enhanced models will leverage deep user behavior and conversion data across channels and verticals, enabling more precise targeting and a better performance for our advertisers. We have clear strategies in place to drive continued growth in 2026 across all dimensions, including multichannels, traffic expansion, vertical-specific demand development and enhanced AI modeling capabilities. These initiatives will create powerful flywheel effects, which will compound enabling us to deliver increasing value to advertisers, while accelerating our own growth. We believe 2026 will be a milestone year for JOYY's ad tech business, and we are excited about the possibilities ahead. Turning to Shopline. We remain bullish on the long-term prospects of the SaaS-based e-commerce sector. Unlike walled garden marketplace platform, Shopline provides an open and extensible solution to merchants, through which merchants have full data ownership for advanced operations. For the past several years, Shopline's core mission has been product excellence. We have made a substantial investment in R&D to involve from storefront builder into a full stake e-commerce system seamlessly, combining SaaS infrastructure payments and integrated making tools into 1 powerful closed loop. With this rise of AI, we are now embedding advanced AI capabilities deeply into every part of merchant's journey, continuously sharpening our product edge to drive real business success for our customers. Since last year, we have seen accelerated growth in certain key regions with steady expansion in gross margins. This is an important strategic milestone for Shopline. Our long-standing commitment to R&D, excellence and talent recruitment has built the deep technological foundation that supports our success across all business segments. Through our modular organizational structure, we enhanced synergies by sharing resources and capabilities across business lines. Our approach enables us to remain agile and the execution focus while giving new ventures competitive advantages from day 1 and creating significant operating leverage as we scale. As we expand and diversify into new initiatives, our results-driven incentive merchanting provide our top talent with equitable opportunities and broader career development takeaways. By fostering an entrepreneurial spirit, embracing innovation and leveraging competitive incentives to attract and retain excellent talent, while ensuring high strategic goal adjustment between management and the core team members, we drive more efficient corporate development. From management strategic priority standpoint, we have a balanced framework incorporating both operating metrics and long-term shareholders' value accretion, which promotes strong argument with shareholders' interest. After several quarters of adjustment, our livestreaming business has returned to a sequential recovery trajectory. We believe it is positioned for steady year-over-year growth in 2026. Meanwhile, we expect our ad tech and SaaS business will sustain robust double-digit revenue growth year-on-year in the coming year. This sets the stage for year-over-year group revenue growth starting in Q4 2025 as reflected in our newly announced guidance and continue into 2026 and beyond. This is not just a return to growth, but rather the launchpad for unlocking vastly large addressable market. Next, let me share with you our latest operational update and our outlook for the future. In the third quarter, our global average mobile MAUs reached 266 million, up 1.4% quarter-over-quarter. Our organic users growth continued to be strong, driven by our instant messages. In Q3, IMO product MAUs grew by 600 million Q-o-Q, with average time spent per user up 10.8% year-over-year. Product retention rate continued to improve year-on-year, driven by our ongoing enhancements to core IMO features. On user acquisition, we maintained a disciplined ROI forecast, targeting users with strong monetization potential, BIGO LIVE's 30-day ROI from new devices improved 6.7% quarter-over-quarter as a result. In Q3, group livestreaming revenues reached $388 million. BIGO LIVE streaming revenue was $368 million, up 3.5% Q-o-Q, maintaining their sequential growth trend. BIGO's total paying users grew 0.8% Q-o-Q, while ARPPU increased 3.4% Q-o-Q. BIGO LIVE delivered positive sequential growth for the second consecutive quarter. This recovery reflects our comprehensive integrated approach, where we have leveraged effective streamer inclusive program, a healthy and diverse high-quality content ecosystem, AI-powered user touch point enhancements, which improve content discovery and payment experiences and strong local operational campaigns. These initiatives together drove renewed growth. Since the second half of last year, we have restructured our streamer incentive mechanism across regions, shifting support towards middle-tier streamers. We are now seeing significantly improved streamer engagement and content quality across the platform. In Q3, average streaming hours for newly signed steamers on BIGO LIVE rose 3.5% Q-o-Q and the average viewer numbers increased 3.9% Q-o-Q. We continue advancing AI-powered improvement across content, distribution and payment experiences, by incorporating future user signals through AI and optimizing strategies for cross-regional and in-app scenarios in BIGO LIVE. We enhanced viewing experiences and drove users' average viewing time up 3.4% Q-o-Q. Meanwhile, our real-time transition, the title now supports 15 languages, significantly improving user interaction across different regions. We are also using AIGC technology to efficiently generate localized virtual gifts. In October, AI-powered interactive gifts represented 25% of total virtual gift consumption, demonstrating strong user adoption of AI-enhanced futures. We have used packages, strategy to further optimize BIGO LIVE tiered paying users' benefit system. In Q3, mid-tier user ARPPU increased 2% Q-o-Q, while the total number of premium paying users achieved double-digit Q-o-Q growth. Looking ahead to 2026, we are confident that our streamer incentives, content cultivation and AI-driven optimization will position BIGO LIVE to regain momentum for growth. We are also advancing payment infrastructure improvements to deliver more diverse, localized payment options for global users. We believe this will be a tailwind to drive payment rate improvements across all products over time. Overall, we are confident that livestreaming will return to steady growth in 2026 and continue contributing sustainable cash flow for the group. Turning to BIGO Ads. In Q3, BIGO Ads achieved $104 million in advertising revenue, up 33.1% year-on-year and 19.7% in Q-o-Q, while first-party ad revenue and profit remained stable with single-digit Q-o-Q growth. Our third-party BIGO audience network was particularly strong, recording mid-double-digit year-on-year and 25% sequential growth. On the traffic side, BIGO audience network traffic continued to grow this quarter. SDK ad requests were up 228% year-on-year and 29% Q-o-Q, representing significant growth. On the technology front, we upgraded our IAA D7 ROAS optimization with AI-driven real-time prediction and smart building capabilities. By leveraging across channel and cross-vertical user behavior and attrition data, the enhanced model delivered significantly improved prediction accuracy and the generalization that enable advertisers to scale budgets with greater confidence, acquiring higher-quality users while sustaining strong return efficiency. We saw strong growth across the board, driven the algorithm integration, elevated traffic, new market expansion and strong advertiser demand across multiple verticals. BIGO Ads daily gross revenue reached new heights and continued on its upward trajectory with strong momentum. Web-based demand primarily for lead generation, maintained teens growth Q-o-Q, and we are optimistic on its Q4 growth prospects as we enter into the peak season. Meanwhile, improved IAA delivery and efficientiveness substantially drove IAA advertisers spending up by mid-double-digit Q-o-Q. During the third quarter, total spending from key cohorts increased by 30% Q-o-Q. At the same time, performance gains attracted a steady influx of new advertisers, with the numbers of key cohorts up by 17% Q-o-Q. From regional perspective, we continued to deepen our penetration in the developed countries, with BIGO Audience network revenue from North America growing 22% Q-o-Q, while Western Europe growing 41% Q-o-Q. We delivered exceptional results in Q3, driven by rapid network traffic expansion, continuous algorithm, optimization and the delivery efficiency improvements and rapid growth flow in net verticals. As we outlined in last quarter's earnings call, BIGO Ads represent our record second growth engine and the core long-term strategic initiative. We are committed to building a meaningful and lasting presence in this space and to see significant opportunities ahead. Turning to capital return. As of November 14, we have repurchased USD 88.6 million under our share buyback program. Given our strong financial position and operating momentum, we believe our shares remain undervalued, and we will continue actively executing share repurchases as part of our commitment to returning value to shareholders. Looking forward, with our livestreaming business stabilizing and driving revenue and profit from advertising and other emerging businesses, we expect the company's consolidated operating profit to continue to improve and our shareholders to benefit from long-term profitable growth. In summary, we are optimistic about the positive trends we are driving across our business units. Our core livestreaming business is a trajectory and the continued sequential growth, and we expect livestreaming to gradually remain momentum for growth. BIGO Ads is scaling rapidly as our second growth engine, driven by traffic readiness and vertical expansion and algorithm optimization. And we are strengthening Shopline's product capability and strategic advanced stages as a fully integrated SaaS platform with anticipated synergies with our ad tech platform on the horizon. As I mentioned earlier, we are just beginning to unlock the full strategic value of our integrated business ecosystem. We anticipate that 2026 will be renewed progress and serve as a jumping off plot into our next phase of growth. I will now turn the call over to Ms. Alex Liu, the Vice President of Finance, to provide our financial update. Fuyong Liu: Thanks, Ms. Li. Hello, everyone. In the third quarter of 2025, we recorded total net revenues of $540.2 million, securing a quarter-over-quarter growth of 6.4%. Our livestreaming business delivered its second sequential recovery with its livestreaming revenues increasing by 3.5% quarter-over-quarter. Our advertising business, in particular, BIGO Ads has demonstrated accelerating growth. BIGO Ads revenues was up by 33.1% year-over-year and 19.7% quarter-over-quarter to $103.9 million. Our non-GAAP EBITDA for the quarter was $50.6 million, up by 16.8% year-over-year and 4.9% quarter-over-quarter. Operating cash flow remained strong at $73.4 million in quarter 3, and we ended the quarter with $3.3 billion in net cash. We accelerated share buyback during the quarter. In quarter 3, we bought back $30.8 million worth of our shares. Between January 1 and November 14, we had bought back 1.7 million of our ADS for $88.6 million in 2025. I will now dive deeper into our detailed financial performance. Looking at our livestreaming business, our total livestreaming revenue were $388.5 million for the third quarter. $367.7 million of which was from BIGO segment, both up quarter-over-quarter. Global MAU was $266.2 million during the quarter, up by 1.4% quarter-over-quarter, driven by a healthy growth of the user pool of our instant messenger. Our ROI-oriented user acquisition, continued AI-driven optimization of our content quality and paying user experience have contributed to improved paying sentiment, with BIGO's total paying user and app increasing by 0.8% and 3.4% quarter-over-quarter. By region, group's total livestreaming revenues from developed countries increased by 7.6% quarter-over-quarter, while livestreaming revenues from Southeast Asia increased by 4.4% quarter-over-quarter. Our total non-livestreaming revenues were $151.7 million during the third quarter, up by 27.3% year-over-year. Non-livestreaming now contributes 28.1% of our total group revenues, up from only 21.3% contribution in the same period last year. We are presenting advertising revenues as a separate line item in the financial statements in this quarter to help investors better understand the performance of our emerging business. BIGO's advertising revenues increased by 33.1% year-over-year and 19.7% quarter-over-quarter to $103.9 million. In particular, our third-party BIGO Audience network delivered exceptional results, recording mid-double-digit year-over-year and 25% sequential growth. We are making substantial progress on all fronts. On the traffic front, SDK network ad request was up by 228% year-over-year and 29% quarter-on-quarter in quarter 3, leveraging multichannel and cross-industry user behavior and attrition data. We continued to train and optimize our algorithms to further improve our campaign performance, which drove advertiser spending. In Q3, the number of key cohorts was up by 17% quarter-over-quarter, with total spending from key cohorts up by 30% quarter-on-quarter. BIGO Ads has certainly emerged as our second major growth engine, and it continued to make a positive contribution to our bottom line. Group's gross profit was $193.1 million in the quarter, with a gross margin of 35.8%, up by 4.3% quarter-over-quarter. BIGO's gross margin was slightly down quarter-over-quarter due to the shift in our revenue mix, which saw an increased contribution from our low-margin network ad revenues. All other segment's gross margin was up by 3 percentage points year-over-year to 42.6% due to growth in higher margin SaaS revenues. Our group's operating expenses for the quarter were $174.2 million compared with $192 million in the same period of 2024. For our sales and marketing expenses, we are consistently optimizing our user acquisition expenses to enhance ROI. For our R&D and G&A expenses, we maintained prudent and disciplined in our total spending through enhanced resources sharing and operational synergy across different business units, while strategically allocating incremental share of our R&D resources towards BIGO Ads. Our group's non-GAAP operating income for the quarter was $40.7 million, up by 16.6% year-over-year. Non-GAAP net income attributable to controlling interest of JOYY in the quarter was $72.4 million, up by 18.4% year-over-year. The group's non-GAAP net income margin was 13.4% in the quarter. For the third quarter of 2025, we booked net cash inflows from operating activities of $73.4 million. Our benefit remains healthy with a strong net cash position of $3.3 billion as of September 30, 2025. Shareholder return continued to be an important component of our capital allocation strategy. We have retained $147.9 million to our shareholders through dividends and repurchased $88.6 million worth of our shares during the year as of November 14, 2025. We believe we are still substantially undervalued, and we will remain firmly committed to actively utilize our outstanding share repurchase program. Turning now to our business outlook. At the group level, we expect our net revenues for the fourth quarter of 2025 to be between $563 million and $578 million. This implies a 2.5% to 5.2% year-over-year growth for the group's revenue in quarter 4. As Ms. Li highlighted in her prepared remarks, we are now repositioned for growth, in particular, with advertising entering into the peak season of the year, we are expecting continued accelerating growth from BIGO Ads, with its total advertising revenue particularly delivering mid-double-digit year-over-year growth in the fourth quarter. Based on the trends we are seeing across our business, we have clear visibility for the group to year-over-year revenue growth in year 2026, and we are extremely excited about the tremendous synergy potential and powerful flywheel momentum that our business segments will deliver in the medium to long term. That concludes our prepared remarks. Operator, we'd now like to open up the call to questions. Thanks. Operator: [Operator Instructions] Your first question comes from Xueqing Zhang from CICC. Xueqing Zhang: [Foreign Language] Congratulations on the strong quarter. My question is about the livestreaming business. We have noticed the livestreaming growth slightly quarter-on-quarter for 2 consecutive quarters. How should we think about the long-term trend of the livestreaming business? Ting Li: [Interpreted] Thank you for your question. This is Li Ting. I will take your question. In the third quarter, our livestreaming business continued its steady sequential recovery, supported by growth in both our paying users and ARPPU. Across regions, developed countries and Southeast Asia maintained resilient and continue the improving trend we've seen in the recent quarters. Over the past several quarters, we've been focusing and executing a series of structural enhancements across our ecosystem, including refining streamer incentive programs, strengthening a more diversified content supply and distribution and expanding the use of AI for content distribution and also paying experience optimization. And those have reinforced one another and also help livestreaming back to healthier growth. Looking ahead to 2026, we expect livestreaming to return to year-over-year growth. First of all, the one-off operational adjustments that we made earlier this year are now largely behind us, and then we expect -- are now largely behind us. And going forward, we will continue to focus our resources on high-value paying users and developed countries while further enhancing refined operations globally through expanding higher-quality content supply, improving user segmentation and incentive existence while strengthening our global payment infrastructure. We expect these to improve our paying conversion and also ARPPU. Additionally, we will also expect some incremental revenue contribution from our new product initiatives in the Middle East region in year 2026. With these drivers, we remain confident that livestreaming is well positioned to resume steady year-over-year growth in the new year. Thank you. Operator: Your next question comes from Yuan Liao from Citic. Yuan Liao: [Foreign Language] I'll translate myself. Congrats for the strong quarter results. My question is regarding your advertising business. Could management please share the long-term strategic goals for your advertising business and also your operation plans for 2026? Ting Li: [Interpreted] Thank you, Liao Yuan. This is Li Ting. I will take your question. We are transforming our high-growth ad tech business by establishing BIGO Ads as a global platform for performance-driven multichannel advertising across different verticals. In terms of our channels, we expect to establish a multi-channel layout, enabling monetization for a wide range of suppliers, including web open networks, mobile app developers and others, thereby significantly expand our supply base. And in terms of industry vertical coverage, we expect our advertiser base to become much, much more diversified and cover a much broader range of advertiser types. For example, for in-app advertising segment, we will continue to deepen penetration into casual games and tool and utility apps. And for the in-app purchase segment, we expect to explore penetration into core vertical such as mid- to hardcore games, content and social as well as e-commerce marketplace. And on web-based advertising, we will also expect to penetrate into verticals such as finance, direct-to-customer, e-commerce, et cetera. So building on this foundation, as our advertising verticals become much, much more diversified and much more expanded advertiser coverage, together with rising traffic and diversifying traffic channels, we will accumulate an increasing volume of data. And this will empower our full domain user profiling and consequently enable us to further optimize the performance and efficiency of our model. And geographically speaking, BIGO Ads will continue to have a global footprint, while our core regions will still be concentrated in developed countries such as North America and Europe, globalization remains a clear path as we continue to expand our platform. And as for our specific plan for BIGO Ads for year 2026, we expect our growth drivers to come from the below 4 areas. First of all, continued expansion of our traffic; second, a strong growth in the number of IAA and web-based advertisers together with their advertiser spending and together with our expansion into new verticals; and thirdly, improvement of our advertising data infrastructure, including continuously enhancing data feedback, strengthening our iOS ecosystem, which we believe will accelerate our model optimization and efficiency; and fourth, geographic market expansion, building on our solid results and foundation that we have achieved regarding these 4 aspects, that has already been achieved in the year 2025. We have a very, very strong confidence in the development, and we really look forward to what we can achieve in the year '26. Operator: Your next question comes from Thomas Chong from Jefferies. Thomas Chong: [Foreign Language] I will translate myself. My question is about the 2026 outlook. Can management comment about the user and the revenue trend? And on the cost side, can management comment about the expenses trend and profitability outlook? Ting Li: [Interpreted] Thank you, Thomas. This is Li Ting. I will take your first question. Looking ahead to the year 2026, we're still in the process of finalizing detailed operational plan, and therefore, we will not provide a quantitative guidance at this stage. That said, based on the trends we are already observing across our major businesses, we have very clear visibility into the '26 for the group's return to positive year-over-year revenue growth, and we have very strong confidence in that. First of all, on livestreaming, as I mentioned earlier, the business has returned to relatively stable sequential growth trajectory following the adjustments that we made in the previous quarters. And we expect livestreaming to resume steady year-over-year growth in the year '26. And for -- secondly, for advertising and e-commerce SaaS, they have shown very strong momentum this year. BIGO Ads delivered approximately 30% year-over-year growth in the first 3 quarters of '25, and our e-commerce SaaS business also achieved double-digit growth. Looking into 2026, we expect both businesses to deliver very strong double-digit growth. And for advertising, we continue to see high visibility across traffic expansion, model, our model capabilities and our advertiser coverage and regional penetration. For SaaS, enhanced product capabilities and rapid growth in key markets, we will continue to contribute to top line expansion. Taken together, as livestreaming returns to year-over-year growth, while both advertising and SaaS maintaining strong performance, we believe that the group is entering into a new growth cycle, with our top line returning to positive stable year-over-year growth trajectory and broader long-term opportunities ahead. While on the user front, we will continue to focus on traffic quality. In Q3, our overall MAU base is still around 78% coming from our Instant Messenger product, which is highly sticky and purely organically acquired. And our IM product has delivered sequential growth for the past 3 quarters when it comes to MAU, and we expect this steady momentum to continue. For our broader social entertainment portfolio -- product portfolio, we expect to remain ROI-oriented and focus on acquiring high-quality global users. Overall speaking, at group level, we expect our group MAU to remain broadly stable in the year 2026 with continued improvement in our user community, which we believe will provide a solid foundation for livestreaming monetization and other monetization opportunities, particularly our first-party ads. Fuyong Liu: [Interpreted] Thank you, Thomas. This is Alex. I will take your second question. First of all, let us recap our performance in the third quarter. We delivered on better-than-expected profits in this quarter with our non-GAAP operating profit reached $40.7 million, up by 16.6% year-over-year. With our non-GAAP EBITDA increased by 16.8% year-over-year and 4.9% Q-o-Q to $50.6 million. For BIGO segment, our non-GAAP gross profit margin was 35% in Q3, down slightly Q-o-Q, mainly due to the change in our revenue mix as our rising third-party BIGO Audio network has a dilution impact on our segment gross margin. This was partially offset by our ongoing content cost optimization and better efficiency in the livestreaming -- in BIGO's livestreaming. As a result, BIGO's non-GAAP operating margin remained stable at 14% in Q3. Looking at all other segments, non-GAAP gross margin improved -- was improved from 40% to 42.9% year-over-year, driven by revenue growth and higher contribution from our higher-margin SaaS business. Its operating -- its non-GAAP operating loss continue to narrow further to $25.5 million, down from $38 million in Q3 last year, reflecting disciplined spending in our operating expenses. Looking into Q4, we expect the group's non-GAAP operating profit continues to improve Q-o-Q, and this implies that for the full year of '25, our group's total non-GAAP operating profit will achieve a nearly double-digit year-over-year increase compared to the year '24. And turning to the year 2026, looking at the 3 driving components with livestreaming returning to year-over-year growth -- top line year-over-year growth and maintaining stable profitability and BIGO Ads continue to go up, contributing incremental profit. And with e-commerce SaaS further narrowing its operating losses, we expect the group's total non-GAAP operating profit amount and non-GAAP EBITDA to continue the improving trend that we achieved this year and grow steadily in the year '26. Operator: Your next question comes from Raphael Chen from BOCI Research. Yiqun Chen: [Foreign Language] Let me translate myself. Congrats on the third quarter. Just wondering could management share the latest thoughts and the strategies of our shareholder return initiatives? Fuyong Liu: [Interpreted] Thank you, Raphael. This is Alex. I will take your question. Regarding capital return at the beginning of the year, we announced a 3-year shareholder return program totaling $900 million for the year '25 to '27, and we are currently executing this plan steadily, and we are well on track to deliver the plan. As of November 14, we have already paid out a total of $148 million in dividends and repurchased $88.6 million worth of our shares with share buyback execution accelerating in the third quarter. As Ms. Li just shared, we are entering into a new growth stage and the group's revenue will return to a growth trajectory, and we expect to open up much broader market opportunities. While our share price is still at a relatively low level, we expect to actively accelerate our share buyback going forward. Looking ahead, as our operating profit continues to grow, we expect that shareholders can look forward to enhance returns over time. So that was our last question. Thank you so much for joining our call, and we look forward to speaking with everyone next quarter. Thank you. Operator: Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: And gentlemen, thank you for standing by. Today's conference call is scheduled to begin momentarily. Thank you for your patience. Hello, 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 Xcel Brands Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. To withdraw your question, simply press star one again. Please be advised that reproduction of this call in whole or in part is not permitted without prior written authorization of Xcel Brands. And as a reminder, this conference call is being recorded. I would now like to turn the call over to Seth Burroughs from the company. Seth, you may begin. Good afternoon, everyone, and thank you for joining us. Seth Burroughs: Welcome to the Xcel Brands Third Quarter 2025 Earnings Call. We greatly appreciate your participation and interest. With us on the call today are Chairman and Chief Executive Officer, Robert W. D'Loren, and Chief Financial Officer, James F. Haran. By now, everyone should have had access to the earnings release for the quarter ended 09/30/2025, which went out this afternoon. In addition, the company will file with the Securities and Exchange Commission its quarterly report on Form 10-Q for the quarter ended 09/30/2025. The release and the quarterly report will be available on the company's website at www.xcelbrands.com. This call is being webcast, and a replay will be available on the company's relations website. Before we begin, please keep in mind that this call will contain forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from certain expectations discussed here today. These risk factors are explained in detail in the company's most recent annual report filed with the SEC. Xcel Brands does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. The dynamic nature of the current macroeconomic environment means that what is said on this call could change materially at any time. Finally, please note that on today's call, management will refer to certain non-GAAP financial measures, including non-GAAP net income, non-GAAP diluted EPS, and adjusted EBITDA. Our management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends related to the company's results of operations. Our management believes these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are not representative of our core business operating results. Thus, they provide supplemental information to assist investors in evaluating the company's financial results. These non-GAAP measures should not be considered in isolation or as alternatives to net income, earnings per share, or any other measure of financial performance calculated and presented in accordance with GAAP. You may refer to the attachment to the company's earnings release or to the 10-Q for a reconciliation of non-GAAP measures. And now I'm pleased to introduce Robert W. D'Loren, Chairman and Chief Executive Officer. Bob? Please go ahead. Robert W. D'Loren: Thank you, Seth. Good afternoon, everyone, and thank you for joining us today. I would like to start today's call with a brief update on recent developments from the most recent quarter and our outlook moving forward. After that, our CFO, James F. Haran, will discuss our financial results in more detail. As you know, we closed a $2,000,000 net equity offering in Q3, of which one of our directors, UTG, and I together invested $935,000. This brings the total investment and financing in the past eighteen months by management and other insiders to approximately $2,000,000. $250,000 of the cash proceeds of the aforementioned equity were used to pay down our loan with First Eagle, with the balance being used for general working capital purposes. We have been working with UTG on new business opportunities, which include leveraging UCG's sourcing platform to supply products to our retail partners, leveraging their retail distribution in China, and conducting continued due diligence on potential acquisitions. We believe some of these transactions have the potential to be transformative for Xcel Brands. Change is coming fast in our core business of video content. There's distribution over linear TV as it moves to digital streaming and social commerce. In fact, just last week, TikTok shops announced that their quarterly volume now exceeds that of eBay. We believe that we are positioned well to capitalize on this change given our investments in social commerce technology and our portfolio of influencer-led brands. We continue to work hard with our production partners to drive our business. Earlier in the year, we announced our new influencer brands with Cesar Millan, Gemma Stafford, Jenny Martinez, Coco Rocha, and expect to announce a new influencer transaction for our Longaberger brand shortly. These new influencer-led brands have diversified our product categories into food, kitchen, home, and pet products and transitioned our supply chains to be more reliant on domestic production in the human food and pet food and supplements categories. Also, we have identified key category license opportunities for all of these new influencer brands. Our social media reach across our brand portfolio is now 46,000,000 people with a strong pipeline of new influencer-led brands. We are on track to reach 100,000,000 followers across our brand portfolio in 2026. C Wonder and Christie Brinkley remain amongst the fastest-growing brands on HSN. We expect category and distribution expansion in both of these brands in 2026. Our pipeline of licensing activities is strong for all of our brands, especially the influencer-led brands. All that said, we are approaching Q4 of this year with caution given the impacts of the tariffs on QVC, HSN, and our licensees, including G-III for our Halston brand. I should note that HSN's move to QVC's Pennsylvania studios did disrupt our sales in both Tower Hill by Christie Brinkley and C. Wonder. Judith Ripka continues to operate on plan and is up 6% over last year in retail sales on JTV. Our Longaberger brand launches on QVC this fall and will be guested and promoted by a strong, very talented influencer in the home and crafting space with over 3,000,000 highly engaged followers. We believe she's perfect for our Longaberger brand. We generated an adjusted EBITDA loss of $653,000 in Q3, which is $400,000 or approximately a 38% improvement over Q3 2024. While we forecasted a range of $1,000,000 to $2.5 million of adjusted EBITDA for 2025, much of it was weighted in the second half. Results of this year were driven by the Halston business, which has not materialized as we had hoped. G-III remains committed to the Halston brand and is adjusting merchandising and design to get the brand back on plan. We believe that this is a timing issue, and that we'll see further growth in 2026. Finally, given the softness in the Halston business, we have entered into an amendment to our credit facility with our lender that provides, amongst other things, certain modifications to our loan covenant, elimination of certain early payment fees, a release of a $1,000,000 loan liquidity reserve as partial payment on the gross $3,200,000 First Eagle term A loan balance, and in exchange for repayment, the net First Eagle term A balance of $2,200,000 on or before February 2026. It is our intent to refinance this net First Eagle term A $2,200,000 portion of the loan as a standalone financing or in connection with another transaction we are considering. With that, I would like to turn the call over to our CFO, James F. Haran, to cover our financial results for the third quarter. Jim? James F. Haran: Thanks, Bob. Good afternoon, everyone. I will now briefly discuss our financial results for the quarter and nine months ended 09/30/2025. Net licensing revenues were $1,100,000 for the current quarter compared with $1,500,000 in 2024. This decline was primarily attributable to the more cautious consumer spending in the current economic environment and the lower than expected performance in a Halston license as well as lower revenue recognized from a service agreement with IONTAPCO as intended. On a year-to-date basis, net licensing revenues were $3,800,000 for the current nine-month period compared with $6,500,000 for the comparable period in the prior year. The decrease in licensing revenue was primarily attributable to the 2024 divestiture of the Lori Goldstein brand. Direct operating cost expenses were $2,200,000 for the current quarter, down 23% from the prior year quarter. For the current nine-month period, direct operating costs were $6,300,000, a decrease of 36% from the prior year comparable period. For both the quarter and year-to-date periods, the decrease in direct operating costs was primarily attributable to the business transformation and cost reduction actions taken by the company over the past two years, as well as expenses related to the Lori Goldstein brand in 2024. As a result of the restructuring of our business model, we have reduced our payroll operating no-med cost to a run rate of under $8,000,000 on a per annum basis. Looking at our other operating costs and expenses, which are predominantly non-cash in nature, our depreciation and amortization expense was relatively flat from the prior year quarter. On a year-to-date basis, depreciation and amortization expense declined from $4,000,000 in the prior year to $2,700,000 in the current nine-month period, a result of the sale of the Lori Goldstein brand. We recognized non-cash losses related to equity method investment the past two years. These amounts are related to a non-controlling interest in the Isaac Mizrahi brand and were based upon a combination of our proportionate share of operating losses recognizing payment charges to write down the value of our investment and recorded similar non-cash charges as we reduced our interest in the brand over time. As a result, we have fully written down our investment in the Isaac Mizrahi brand, and going forward, we will not have to incur these charges and losses anymore. During the prior year nine-month period, we also recognized a $3,800,000 gain on the divestiture of the Lori Goldstein brand, and slightly offsetting that were impairment charges of $3,500,000 related to the exit from that and the sublease from our prior office location. I'd like to reiterate, however, that all these charges are described within the other operating costs and expenses are predominantly non-cash in nature and are not recurring and are excluded from our non-GAAP measures of performance. Turning to our interest and finance expense, our interest and finance expense was $500,000 for the current quarter compared with $100,000 for the third quarter of last year. On a year-to-date basis, interest and finance expense was $3,400,000 for the current nine months, versus $400,000 in the prior year comparable period. These year-over-year increases primarily reflect higher interest expense as a result of higher interest rates and higher average debt balance. In addition, during the current nine-month period, we recognized a $1,900,000 loss on the early extinguishment of debt from the April 2025 refinancing of our term loan. And keep in mind, under our term loan agreement, a majority of the interest due under our current debt will be paid in kind, meaning that it will accrue and not require cash payments until starting in 2027. Overall, we had a net loss for the current quarter of approximately $7,900,000 or minus $2.02 per share compared with a net loss of $9,200,000 or minus $3.92 per share in the prior year quarter. After adjusting for certain cash and non-cash items, results on a non-GAAP basis were a net loss of approximately $1,300,000 or minus $0.34 per share for the current quarter and a net loss of approximately $1,300,000 or minus $0.57 per share for the prior year quarter. Adjusted EBITDA for the current quarter was approximately negative $650,000 compared to negative $1,000,000 in 2024. This represents a 38% year-over-year improvement in EBITDA, which is roughly comparable to the year-over-year EBITDA improvements we have been showing over the past few quarters. For the current nine months, we had a net loss of approximately $14,700,000 or minus $5.06 per share on a GAAP basis compared with a net loss of $15,300,000 or minus $6.82 per share in the prior year nine months. On a non-GAAP basis, we have a net loss of $3,600,000 or minus $1.24 per share, roughly comparable to a non-GAAP net loss in the prior year period of $3,400,000 or minus $1.53 per share. Our year-to-date EBITDA for the current quarter was negative $1,650,000, a 38% improvement from EBITDA of negative $2.7 million for the prior year comparable period. Once again, as a reminder, our earnings press release and Form 10-Q present a full reconciliation of our non-GAAP measures with the most directly comparable GAAP measures. Now, turning to our balance sheet and our liquidity. During the current quarter, August 2025, the company closed on a public equity offering and concurrent management-led private placement equity transaction for a combined net proceeds of approximately $2,000,000. And as of 09/30/2025, the company's balance sheet reflected stockholders' equity of approximately $17,000,000 and unrestricted cash of approximately $1,500,000 and also reflected $12,500,000 of long-term debt. And with that, I would like to turn the call back over to Bob. Bob? Robert W. D'Loren: Thank you, Jim. This concludes our prepared remarks. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to withdraw your question, simply press 1 again. We will pause for a moment to compile the Q and A roster. You will be on music hold until then. Please stay on the line. Thank you. Thank you for patiently waiting. We will now begin the question and answer session. Our first question comes from the line of Thomas Forte with the Maxim Group. Please go ahead. Thomas Forte: Great. So Bob and Jim, congrats on the quarter. I have one question and one follow-up. I'll go one at a time. Bob, in September, you announced what we thought was a pretty significant hire. Robert W. D'Loren: In addition to the company. With the addition of Olin Lancaster as Chief Revenue Officer, can you talk about the importance of that move and how you're able to attract him to Xcel Brands? Robert W. D'Loren: Sure. Olin and I have a long-standing relationship that took over two years for the stars to line up for him to come to Xcel. I'm very happy that he has joined us. He brings over twenty-five years of experience to Xcel, having run very big divisions within Ralph Lauren and other companies. And we have been working closely together, traveling a great deal over the last couple of months to various different trade shows to get all of these new influencer brands launched with good licensing partners. And I look forward to working hard in '26 with Olin. Thomas Forte: Great. And then for my follow-up, Bob, last quarter, you talked about having influencer brand products focused on domestic items such as food. Can you talk about things you've done in that area as a way to mitigate some of the tariff impact? Robert W. D'Loren: Yes. It's interesting that our timing was perfect, and signing Cesar, Gemma, and Jenny, particularly Gemma and Jenny, because QVC and other retailers are eager to make room for products that are sourced domestically, which the majority of food is. So we're very excited about the prospects with Jenny and Gemma. We have begun signing licenses with various different licensees, and the same is true with Cesar for dog food. And a majority of pet supplements are made here domestically. So timing was good with those. And just to some extent, it mitigates tariff risk with a lot of the concentrations that we have in apparel and goods that are in other countries. That said, most of our licensees have been shifting out of China to other places that are a little more tariff-friendly. QVC is still working on that transition in some of their categories, but we're excited for Gemma and for Jenny and Cesar. They're all launching on QVC coming up in Q1. So timing was good for us. Thomas Forte: Great. Thanks for taking my questions, Bob, and best of luck in the fourth quarter. Robert W. D'Loren: Thank you. Operator: Your next question comes from the line of Michael Kupinski with Noble Capital Markets. Please go ahead. Michael Kupinski: Thank you for taking the questions. I'm sorry for the background noise. Just a couple of quick questions. In terms of the disruption with the C Wonder and Christie in the fourth quarter, I was just wondering have those issues been resolved? Are they still lingering? I was just wondering if it's a temporary situation, or is it something that still needs to be resolved? Robert W. D'Loren: No. It has been resolved, Mike. It was really related to the vendor that was supplying QVC. They just couldn't get the costing to work with the tariffs. And we have since then replaced that vendor, and they're sourcing from different countries where the economics work for QVC. So that was part of it. And the other part of it was there was disruption when HSN, which Christie and C Wonder are HSN brands, moved from Tampa to Westchester, PA. It just caused delays and shows, but all of that has been resolved. It was actually remarkably good in terms of how QVC did the transition, but there were some programming challenges. Michael Kupinski: Great. And then in terms of G-III, you mentioned that they're tweaking some merchandising. Is that tweak going to be able to be done for the spring line, or is that going to be more of a fall line? Robert W. D'Loren: I think it will I think there will be some adjustments for spring because they've been making them all along. But I think it's really more a fall adjustment for them. And Olin and Joe Falco have been working very closely with the G-III team. Michael Kupinski: Gotcha. And then obviously, you have a lot of new brands that are coming out. I was just wondering if you have any updates on the product roadmap and, like, maybe when the rollouts for these brands you know, any updates on when they are gonna start hitting the market? Robert W. D'Loren: All of them will start hitting the market that start beginning Q1 of 2026. So it'll start with all the food products, some small electronics, devices that were that were vendor was able to source competitively despite the tariff situation, and then they'll continue to roll out into categories. At Cesar, we had a big pet accessories program that we signed last year, and there were delays we thought that could get out for this holiday season. But because of tariffs, they had to move to different factories and we shifted. But that all should really be in the market by fall next year. Michael Kupinski: Gotcha. Bob, I don't want you to say anything you can't, you know, obviously can't say, but did allude to an acquisition that you're contemplating. It might be kind of good to, right, remind investors what types of acquisitions you've been kinda contemplating in the past and what what what were you what they those acquisitions might bring to the table that we might be more most excited about. Robert W. D'Loren: So over the last three years or so, we've been looking for brand acquisitions and transformative transactions. And, you know, we continue to look at opportunities, I would say, in the general course of our business where we're looking at opportunities. There are a few that we are very interested in, and we're working very hard to try to make them happen. Michael Kupinski: Gotcha. Thank you very much. Good luck to you guys. Operator: Thank you. Your next question comes from the line of Walter Schenker with MAZ Partners. Walter Schenker: Hi, Bob. It is admirable to cut costs. However, you can cut costs to profitability if you don't have revenues. The questions that were asked sort of address some of the issue, which is you need to get your revenues meaningfully higher than they are now to break even. Even on a cash flow basis, can you sort of lay out how you look at the next twelve months and the revenue ramp without specific can be as specific as you feel comfortable. Robert W. D'Loren: So the roadmap is we're launching five new influencer-led brands that we think will drive the revenue going into '26. And, also, we now believe that some of the difficulties we experienced with both Christie Brinkley and our C Wonder brand because of tariffs and the move are behind us, and we think we have great upside. We also plan this going into '26 to expand new categories, particularly with the Christie brand into home and garden and beverage. And with C Wonder, we believe that '26 will be the year that we can also diversify into new sales channels. So that's the roadmap. And that's what Olin and I are working on on a day-to-day basis to maximize the opportunity with all of the brands in the portfolio. And then, of course, we do have a pipeline of additional brands that we are working on with influencers to bring to the market, hopefully, as soon as, you know, fall next year. So that's the roadmap. Walter Schenker: And, therefore and, again, you addressed some of this already. As we get into next year, each quarter should sequentially show higher revenues I realize there's some seasonality. But each quarter should given the ramp in the five new influences, additional people, and straightening out some of the issues you've had with your existing lines. Would pretty much sequentially show growth Correct. Robert W. D'Loren: Correct. Because they're all coming online. And, hopefully, you know, we can work with the team that is running the Halston brand. And we can help them to really accelerate growth in that brand as well. Walter Schenker: Okay. Thanks a lot. Robert W. D'Loren: Oh, thank you. Operator: Once again, if you would like to ask a question, that is to press star 1 on your telephone keypad. Thank you. Your next question comes from the line of Howard Brous with Wellington Shields. Please go ahead. Howard Brous: Just a Walter's question. Can you give us a sense of how we can look at 2026 in terms of potential revenue? Robert W. D'Loren: So Howard, there's you know, we haven't given guidance, but there are two analyst reports out there. One, that I think is a conservative view, and the other that is consistent I believe, with our internal goals for what we think we can do with the brands. And I would look to those two reports to get a sense of where we think you know, that can be for us. The important metric for us is top-line royalty revenue. Royalties, in the marketplace, Howard, they've been trading at higher values recently, particularly in the PE world. They're trading today for between seven and eight times royalty. Top-line royalty, 15 times EBITDA. And, you know, with royalties trading at that level, there's a massive disconnect even with where we are today with the market cap of the company. Because if you take the worst-case base at $6,000,000, times seven or eight times, that would imply we have $45 to $50,000,000 of asset value in the IP. And I've been saying this for years. There's always this disconnect, and that was certainly proved with the sale of our Isaac Mizrahi brand in 2022. So if you look at, you know, where the analysts have us, if we are successful in achieving our goal in getting all these categories for the new brands launched, it would imply a $100,000,000 of value on the royalty flows. And that's an important metric for us to look at. Howard Brous: That's all I have. Thank you. Operator: Another question from Walter Schenker with MAZ Partners. Please go ahead. Walter Schenker: Probably to end on a high note. Bob, you have previously, in talking to investors, indicated over a multiyear timeframe that the opportunities that you have lined up now could potentially get $50,000,000 of royalty income, half of I get my numbers. Half of that to you so that you could have $25,000,000. We're looking at your share count. You know, and earn a lot of money. That is still a potential target out a few years. Yes. Robert W. D'Loren: Yes. Then these brands are very powerful. Particularly Cesar Millan. Cesar is the biggest voice in the pet world. There is a lot of interest in him with 20,000,000 followers and syndicated TV shows in 80 countries. There's a global opportunity with him. So we're very excited about that, and Jenny Martinez, she could be the Latin Martha Stewart. And Gemma, when you think about the magnitude of 500,000,000 people having downloaded her recipes, the potential with them is enormous. Walter Schenker: Okay. Just again, I want to reaffirm that, you know, a few years out, you're still looking for especially relative to where we're now, very big numbers. At least on a per-share basis. That's the goal. Robert W. D'Loren: Good. Walter Schenker: Well, hopefully, we'll all achieve it. Thank you, Bob. Operator: At this time, there are no further questions. I would now like to turn the call back over to Mr. D'Loren for closing remarks. Robert W. D'Loren: Okay. Guys, before I give you my closing remarks, I do want to extend a special thanks to Seth Burroughs for joining us on this call at midnight his time. And with that, ladies and gentlemen, thank you all for your time this evening. We greatly appreciate your continued interest and support in Xcel Brands. As always, please stay fit, eat well, and be healthy. Operator: Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect your lines, and we would like to thank you for participating.
Operator: Greetings And welcome to the American Strategic Investment Company's Third Quarter Earnings Call. At this time, all participants are in a listen only mode. Please note this conference is being recorded. I would now like to turn the conference over to Curtis Parker, Senior Vice President. Thank you, Curtis. Over to you. Curtis Parker: Thank you. Hello, everyone, and thank you for joining us for our third quarter 2025 earnings call. This event is also being webcast in the Investor Relations section of our website. Joining me today on the call to discuss the quarter's results are Nick Schorsch Jr., American Strategic Investment Co's Chief Executive Officer; and Michael LeSanto, the Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. Please review the forward-looking and cautionary statements section at end of the third quarter 2025 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. We refer all of you to our SEC filings, including the Form 10-K filed for the year ended December 31, 2024, filed on March 19, 2025, and all subsequent SEC filings for a more detailed discussion of the risks that could cause these differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. As stated in our SEC filings, the company disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be used in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release, which is posted on our website at www.americanstrategicinvestment.com. Please also refer to our earnings release for more detailed information about what we consider to be implied investment-grade tenants, a term we will use throughout today's call. I will now turn the call over to Nick Schorsch Jr., Chief Executive Officer. Please go ahead. Nick. Nicholas Schorsch: Thanks, Curtis. Good morning, and thank you all for joining us, and thank you for accommodating the updated timing of today's call. The additional timing ensured our newly appointed auditors, as Mike will describe in greater detail, to complete their review of our results. Our third quarter was focused on continuous proactive management of the company, with particular attention to the reduction of reoccurring expenses and management of our balance sheet. We remain committed to operating and unlocking value at our current assets with a focus on tenant retention, property improvements and cost efficiency. During the quarter, we executed a meaningful lease renewal at 196 Orchard, which extended the weighted average remaining lease term of the portfolio to 6.2 years at quarter end, up from 5.9 years at the end of the second quarter of this year. Near-term lease expirations are 8% of annualized straight-line rent and 56% of our leases now extend beyond 2030, up from 54% last quarter. We believe that this term, coupled with a high-quality tenant base featuring top 10 tenants who are 69% investment grade or implied investment grade, provides significant portfolio stability. We own 6 properties with 1 property, 1140 Avenue of the Americas, expected to be disposed of during the current quarter. Excluding this property, our $390 million approximately 743,000-square-foot New York City real estate portfolio is located primarily in Manhattan. Our office and retail properties benefit from a strong tenant base that includes large investment-grade firms. By focusing on resilient industries near transit-oriented locations, we believe the portfolio is well positioned for occupancy growth and tenant retention. As a key part of our strategy to unlock value, diversify our holdings and strengthen our balance sheet, we are also continuing to market 123 William Street and 196 Orchard for sale. Assuming we can sell these properties on favorable terms, upon closing, we expect to use the net proceeds to retire debt and reinvest in higher-yielding assets to enhance our long-term portfolio value. In September, we entered into an agreement for the strategic disposition of 1140 Avenue of the Americas via a cooperative consensual foreclosure with the lender, which is anticipated to close in the fourth quarter of 2025. Upon completion, this transaction is expected to eliminate a $99 million liability that matures in July 2026. This transaction is consistent with our strategy to proactively manage our balance sheet and allocate capital toward what we believe are the highest returns. In making this decision, we consider the significant ongoing and upfront expenses needed to operate the property and to retain and attract new tenants compared to the capital being invested towards other assets in the portfolio. With that, I'll turn it over to Michael LeSanto to go over the third quarter results. Michael? Michael LeSanto: Thank you, Nick. Third quarter 2025 revenue was $12.3 million compared to $15.4 million in the third quarter of 2024, principally due to the sale of 9 Times Square in the fourth quarter of 2024. The company's GAAP net gain attributable to common stockholders was $35.8 million in the third quarter of 2025, impacted by a $44.3 million noncash gain related to the foreclosure at 1140 Avenue of the Americas. This is compared to a net loss of $34.5 million in the third quarter of 2024 which was impacted by an impairment recorded in the quarter related to the sale of 9 Times Square. For the third quarter of 2025, adjusted EBITDA was $1.9 million compared to $4.1 million in the third quarter of 2024. Cash net operating income was $5.3 million compared to $7 million in the third quarter of 2024. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release and quarterly supplemental on our website. We also proactively and significantly reduced our professional fees by looking to change our audit partners via the engagement of CBIZ CPAs as our new independent registered public accounting firm for the fiscal year ending December 31, 2025, beginning with the review of our unaudited results for the third quarter of 2025. The decision to change the company's independent registered accountants was the result of a competitive bid process as well as the company's focus on streamlining its cost structure and reducing its general and administrative expenses, and there was no dispute or conflict with the prior firm. We look forward to a long and productive relationship with CBIZ CPAs in the future. I'll now turn the call back to Nick for some closing remarks. Nicholas Schorsch: Thank you, Michael. As we prepare to close out this year, we continue to focus on enhancing operational flexibility through the consensual foreclosure of 1140 Avenue of the Americas and our ongoing efforts to sell 123 William Street and 196 Orchard. We believe these sales will generate cash on the balance sheet that can be deployed into higher-yielding assets, creating future value for the portfolio. Simultaneously, our team is focused on leasing up available space, renewing leases in tenants and maintaining tight controls on expenses across the board. Thank you for joining us today, and we look forward to presenting our full year 2025 results for you in a few months. Operator: Thank you. And with that, ladies and gentlemen, we thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful evening.
Operator: Good day, and thank you for standing by. Welcome to the Cerence Inc. fourth quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Kate Hickman. Please go ahead. Hello, everyone, and welcome to Cerence's Fourth Quarter 2025 Conference Call. Kate Hickman: I'm Kate Hickman, VP of Corporate Communications and Investor Relations. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact including statements related to our expectations, anticipations, intentions, estimates, assumptions, beliefs, outlook, strategies, goals, objectives, targets, and plans, are forward-looking statements. Cerence Inc. makes no representations to update those statements after today. These statements are subject to risks and uncertainties, which may cause actual results to differ materially from such statements and expectations. As described in our SEC filings including the Form 8-Ks with the press release preceding today's call, our most recent Form 10-Q, and our Form 10-K filed on 11/25/2024. In addition, the company may refer to certain non-GAAP measures, key performance indicators, and pro forma financial information during this call. Please refer to today's press release for further details of the definitions, limitations, and uses of those measures and reconciliations of non-GAAP measures to the closest GAAP equivalent. The press release is available in the Investors section of our website. Joining me on today's call are Brian Krzanich, CEO, and Tony Rodriguez, CFO. Please note that slides with further context are available in the Investor section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the Raymond James TMT and Consumer Conference on December 8 and the Needham Growth Conference on January 13. In addition, Cerence Inc. will also be exhibiting at CES in Las Vegas from January. Now on to the call. Brian? Brian Krzanich: Thank you, Kate. Good afternoon, and welcome, everyone. I'm excited to speak with you today and reflect on my first full year as Cerence's CEO. It's been a great year for the Cerence team and our customers. And I couldn't be happier with the performance. Over the past year, we strengthened the financial and operational foundation of the company and significantly increased positive cash flow generation. Beating nearly every metric and putting us on solid ground for executing on our future growth plans. We've made significant progress with our XUI platform, including meeting all our technology milestones while driving strong customer interest and adoption. We paid down $87.5 million of our debt using cash on hand while maintaining our cash position for the future. And we secured our first successful outcome in our efforts to protect and monetize our intellectual property. As a result, we believe that Cerence Inc. has the right foundation for long-term sustainable growth in fiscal 2026 and beyond. All of this has led us to posting strong results for this quarter. Again, delivering above the high end of our guidance range. With revenue of $60.6 million and adjusted EBITDA of $8.3 million. And importantly, we generated strong free cash flow of $9.7 million. For the full fiscal year, revenue was $251.8 million. Adjusted EBITDA was $48.1 million, and free cash flow grew almost threefold year over year to $46.8 million. And PPU increased to $5.05 for the trailing twelve-month period, up 12% from the same period last year. Tony will provide further details on our results later in the call. As you've heard us discuss in recent quarters, we are deeply committed to monetizing our intellectual property and protecting it against infringers. Last month, we resolved our suit with Samsung, which, among other things, resulted in Samsung agreeing to pay Cerence Inc. a one-time lump sum payment of $49.5 million. This payment is pursuant to a confidential cross-license agreement with Samsung, which limits our ability to provide specifics. Nevertheless, we believe that it's an important milestone in our strategy and a proof point for the broad applicability of our technology across different industries and verticals. I'd also like to share a bit more about our approach to IP monetization and how it fits into our long-term strategy. While we always prefer to enter licensing deals without resorting to litigation, we expect to take all necessary steps, including litigation, to ensure that we receive fair value for our foundational IP. And this is why we currently have actions against Apple, TCL, and Sony, among others. And we have a multiyear roadmap of potential future and are consistently evaluating if new lawsuits are warranted. We believe IP monetization will be a continuing ongoing revenue stream in the future that will help to support our nonautomotive business growth. The payment under the Samsung licensing agreement, as well as the expected cost related to our other active suits, are incorporated into our fiscal year 2026 guidance, which Tony will discuss. It's important to note that the process for these lawsuits is long, so as we move through fiscal 2026, we will keep you apprised of any important updates. Now taking a moment to look back at Q4. We continued to make progress on our three key deliverables: advancing our AI roadmap, growing our business with new and existing customers, and continuing our transformation and cost management initiatives. First, in terms of advancing our roadmap, we continued our development of Cerence's XUI with the addition of several new languages and ongoing advancements of our core tech and audio AI solutions, which are the basis for the XUI experience. We also hosted another successful demo at IAA in Munich in September, where we showcased our flexible, agnostic approach partnering with CEMA.ai as well as MediaTek to bring advanced low-power conversational AI to vehicles. We also furthered the advancement of our Agentic AI strategy, partnering closely with Microsoft to roll out a mobile work agent that enables people who choose to work in the car to do so more safely and securely through voice-first access to Microsoft 365 Copilot, Teams, Outlook, and OneNote. With XUI's automotive-grade agentic architecture, the mobile work agent can seamlessly and proactively orchestrate between Copilot and other domains like navigation to enable a cohesive and context-aware user experience. Through our partnership with Microsoft, we're turning the car into a trusted device, something that we believe our competitors cannot deliver. Looking forward to 2026, we're gearing up for our next big milestone, CES in Las Vegas, where we'll continue to showcase the latest innovations in Cerence's XUI and our core tech. We'll also demonstrate new AI agents focused on vehicle service and dealerships, part of our strategy to expand to other areas of the automotive ecosystem to drive additional revenue opportunities. In terms of customer adoption, we continued development of our two previously mentioned XUI customer programs, JLR and a brand within the Volkswagen Group. Both programs are on track and are expected to hit the road in 2026. We also continue to build the XUI pipeline with additional POCs with large global automakers, including some North American OEMs, where we are working to regain market share. Thus far, we're seeing positive momentum in converting POC programs to deals. Our second key deliverable is continuing to grow our business with new and existing customers. We signed several important deals in Q4, including with Toyota to bring our Gen AI-powered solutions into their vehicles, with Ford to expand the presence of our audio AI across their lineup, and with an autonomous trucking company for our emergency vehicle detection solution. Other key wins in the quarter included BMW, Honda, and Great Wall Motor. We also saw nine programs start production in Q4, including BYD, Subaru, and Geely. Outside of automotive, we continue to operationalize our new strategy and distributor model with a focus on three key areas. First, expand our work with partners like Microsoft and NVIDIA. Second, continue to double down on our work with distributors to grow in areas like voice-powered kiosks and logistics. And lastly, as mentioned, continue our IP monetization efforts. As a reminder, we believe the impact of our work to expand beyond automotive will be seen in our revenue and profitability in late fiscal year 2026 and beyond. And this is reflected in the fiscal 2026 guidance. Our third key deliverable is continuing our transformation and cost management initiatives. As you can see from our continued strong cash performance, we have driven real benefits from our work and are delivering it to the bottom line for our shareholders. Continuing our attention to cost, we initiated a restructuring plan in Q4 with respect to certain foreign operations intended to further reduce operating comp expenses and position Cerence Inc. for profitable sustainable future growth. We expect to incur the majority of the restructuring expenses related to this plan to complete its implementation in Q1. For the remainder of fiscal 2026, we will remain diligent and maintain our attention to cost management. In conclusion, we are incredibly proud of what our team has accomplished this quarter and in fiscal year 2025 as a whole. As we look to fiscal year 2026 and beyond, there are several key vectors for our ongoing growth. First, increasing adoption of Cerence's XUI and driving greater penetration of our stack and existing programs, delivering increased PPU. Second, increasing the number of connected vehicles shipped, resulting in expansion of our connected services business. And third, growth in our nonautomotive business towards the end of the year. This includes our IP monetization efforts, which we believe will continue to yield benefits and provide an ongoing revenue stream. And as a reminder, with most cases taking multiple years to reach resolution, this is a long-term strategy. We look forward to building on the strong foundation set in fiscal 2025 for long-term, sustainable growth in fiscal 2026 and beyond. While Tony will walk you through the details, we expect fiscal year 2026 revenue to be in the range of $300 to $320 million, marking a 23% year-over-year increase at the midpoint. And this reflects the patent license payment from our Samsung cross-license as well as anticipated 8% growth in our core technology business, which excludes professional services. And we expect professional services to shrink as our newer technology requires less time and engineering to deliver, and OEMs and tier ones continue to grow their internal capabilities. And we expect adjusted EBITDA of $50 to $70 million and free cash flow of $56 to $66 million. We're motivated by all we've achieved in the last year, and believe we have an exciting path ahead of us as we transition into a new phase of growth for Cerence AI. I'll now turn it over to Tony to take you through the details. Tony Rodriguez: Thank you, Brian. Afternoon, everyone, and thank you for joining us today. Appreciate your time and continued interest in our company. Today, I will walk you through our Q4 and full year results, highlight the key drivers behind our performance, and provide guidance for the upcoming quarter and full fiscal year 2026. We ended fiscal 2025 on a strong note, delivering results that exceeded expectations and reinforcing the momentum we've been building all year. As Brian mentioned, Q4 total revenue was $60.6 million, surpassing our projected range of $53 million to $58 million. For the full fiscal year, revenue reached $251.8 million, exceeding our earlier expectations. This performance reflects broad-based strength across our business, disciplined execution, and continued progress in driving growth during the year. Variable license revenue for the quarter was $31.6 million, up 25% year over year, fueled by strong customer utilization, solid in-period shipments, and a tailwind from favorable euro exchange rates. We had no material fixed license deals in the quarter or Q4 of last year. Importantly, we believe this continued shift toward recurring scalable usage-based models strengthens our revenue quality and visibility. For the full year, total license revenue grew 13%, a healthy expansion considering that we had lower fixed license contracts in the current year by about $8 million. Q4 connected service revenue came in at $14.2 million, up 17% year over year, reflecting a continued expansion of our connected installed base. For the year, connected services revenue was $53.4 million, which compares to $133.4 million in fiscal 2024. Though that prior year figure was an anomaly as it included a one-time $86.6 million noncash benefit from a decommissioned legacy contract. Excluding that, connected services actually grew 14% year over year, which we believe shows a steady demand and growing recurring scale. Professional services revenue for Q4 was $14.2 million, down 18% year over year as we continue to standardize our product offerings, streamline custom projects, and gain efficiency in implementations. Also, under applicable accounting rules, certain professional service revenue is deferred when it is included as a component of life licensing pricing. For the full year, professional services declined 21% year over year but was directionally consistent with our focus on higher gross margins. Gross profit for the quarter was $44 million, yielding a 73% gross margin, up from 4% in Q4 of last year, which we believe provides a clear demonstration of the improved mix towards technology revenue. Operating discipline remains a major focus. Q4 non-GAAP operating expenses were $38.3 million, down 3% year over year, reflecting strong cost control while continuing to invest in innovation and growth. For the full year, non-GAAP operating expenses were $146.1 million, down $28.5 million or 16% from last year, highlighting the expected sustained benefit of our cost realignment initiatives. These efficiencies translated into robust bottom-line performance. Q4 adjusted EBITDA was $8.3 million, well above our $2 million to $6 million guidance range. For the full year, adjusted EBITDA reached $48.1 million, doubling our initial expectations when the year began. That is a powerful statement of execution, discipline, and scalability. Our GAAP net loss for Q4 narrowed to $13.4 million from $20.4 million for the same quarter last year. For the full fiscal year, GAAP net loss was $18.7 million. We also made significant progress on our balance sheet during fiscal 2025, we reduced total debt by $87.5 million using cash on hand, and we ended the year with $87 million in total cash and marketable securities. We generated $9.7 million in positive free cash flow in Q4, our sixth consecutive quarter of positive free cash flow, and $46.8 million for the full fiscal year. We are confident in our liquidity position and believe that we will be able to continue funding strategic initiatives from operating cash generation. From a metric standpoint, we shipped approximately 11.7 million units for the quarter, an increase from 10.6 million in the prior year fourth quarter. We also grew the number of our connected cars shipped by 14% on a trailing twelve-month basis, underscoring the continued momentum in vehicle connectivity. Also on a trailing twelve-month basis, 52% of worldwide auto production included Cerence technology, remaining in line with our historical penetration. Adjusted total billings were $230 million, an increase of 8.4% year over year. Our five-year backlog metric is currently approximately $1 billion, up slightly from where it was two quarters ago. As a reminder, our five-year backlog may not be indicative of future actual revenue. As previously discussed, when we look at total licenses shipped, pro forma royalties, and the operating measure we use representing the total value of variable licenses shipped in a quarter, including shipments from prior fixed licenses where revenue was previously recognized upon contract signing. We refer to shipments where revenue was recognized in a prior period as fixed license consumption. Our pro forma royalties were $39.6 million, which were down slightly as compared to $41.9 million in Q4 of last year. Consumption of our previous fixed license contract totaled $8.5 million this quarter, better than the same quarter last year by about 49% and in line with expectations given the lower level of fixed contracts than in historical periods. This drops more of the pro forma royalties into revenue in the current period as compared to a year ago. Our PPU metric increased to $5.05 for the trailing twelve-month period, up 12% from $4.50 for the same period last year, reflecting continued implementation of our improving pricing strategy and an increase in the adoption of connected solutions. Looking ahead, we believe 2026 is shaping up to be an exciting year of growth and profitability. Again, as Brian mentioned, we expect total revenue in the range of $300 to $320 million. At the midpoint, this represents a 23% year-over-year increase. This includes a $49.5 million patent license payment, which we expect to account for as revenue finalized in Q1. A year-over-year comparable $22 million in expected new fixed license contracts, while absorbing modest headwinds from the anticipated continuing reduction of professional services revenue. At the midpoint, we anticipate high single-digit growth in our technology run rates, across both variable license and connected services, underscoring durable demand and expanding recurring contribution. Operating expenses are expected to remain largely stable with an increase primarily related to legal costs tied to IP licensing. For the full year 2026, we expect adjusted EBITDA of $50 million to $70 million, free cash flow of $56 million to $66 million, and gross margins between 79-80%. For Q1 FY 2026, we expect revenue between $110 million and $120 million, again including the $49.5 million patent license payment which we expect to account for as revenue, and roughly $8 million in expected fixed license contracts. Adjusted EBITDA is expected to be between $30 and $40 million. To summarize, fiscal year 2025 was a year of strong execution, improving profitability, and sustained momentum. We exceeded our targets, strengthened our balance sheet, and positioned the company for a year of accelerating growth in fiscal 2026. Our 2026 outlook reflects not just higher revenue and margin expansion, but also the realization of the value of our strong foundational IP portfolio and continued growth from our recurring technology lines. We're confident in the resilience of our business built to drive ongoing innovation, customer success, and long-term shareholder value. Thank you again for your confidence and continued support. With that, I will now turn it back to Brian to close our remarks. Brian Krzanich: Thanks, Tony. In closing, we are pleased with our results this quarter and incredibly proud of what our team accomplished in fiscal year 2025. For fiscal year 2026, we are focused on three key priorities: driving top-line growth, advancing XUI, and maintaining cost diligence. We believe we have an exciting path ahead and we look forward to sharing more on our Q1 progress in next quarter's call. We'll now open it up for questions. Operator: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. If you would like to remove yourself from the queue, press star 11 again. We also ask that you please wait for your name and company to be announced before proceeding with your question. The first question that we have today is coming from the line of Jeff Van Rhee of Craig-Hallum Capital Group. Your line is open. Jeff Van Rhee: Great. Thanks. A couple. Maybe you start with the IP side. Congrats on the win there. Just to be clear, was that flowing through at a pure profit? And then I'd probably get back into it, but I want to avoid any mistake. What is the assumption for '26 in terms of legal expense? Tony Rodriguez: Hey. It's Tony. Hey, Tony. Thanks for the question. Yeah. A couple things on that IP side. So, yes, you know, we expect that to flow through revenue so that yeah, at a gross the gross amount of $49.5 million. This first one that really we closed in our ongoing process to monetize, you know, our IP outside of automotive, we did this on a contingent basis with the attorneys, so those costs will be recorded in Q1 as well. And I'll give you some numbers in there. It was actually, I think, in our 8-K as well. But so and, you know, it was the international customer. So there was also some withholding tax within Korea. So at the end of the day, that payment will flow through down to the bottom line. And the net amount would be minus roughly again, anticipating that that would be in revenue in Q1. 24, called $24 million of legal cost and a bit of withholding tax as well. Jeff Van Rhee: Okay. Yep. And then your second question Yeah. And I was the ongoing legal. Yep. Yeah. Yeah. And so the way we're looking at this now is that you know, we have an option of how we pursue these. Right? And we believe that we will utilize our external legal costs to do it more of an hourly basis to get a higher return kind of on these type of events. And, accordingly, we're looking at the kind of midrange of guidance of about you know, 7 to 8 million of additional legal costs this year. Tony Rodriguez: Okay. Jeff Van Rhee: And that's in our guidance. Yes. Brian Krzanich: Yep. Very helpful. Jeff Van Rhee: And then, you talked about the ramp in interest in XUI and some ramping in the proof of concepts, the POCs. Can you just put a little finer point on that? Any quantification, any scope you can put around the degree of increase in interest for that? Brian Krzanich: We have about this is Brian Jeff We have about half dozen POCs going on with different OEMs. In various levels of the XUI platform, whether it's kind of a continuum XUI that has a variety of options and capabilities. And so that's kind of the number of companies that we're working with or partners that are looking at XUI right now. And you saw we also announced several more ChatPro and certain subscriptions add-ons this quarter and implementations. Jeff Van Rhee: Mhmm. Great. Just two last, if I could sneak them in. One on the, connect Connected, nice sequential pickup there. Any if I recall, there are several ways you can take that revenue. I could be mistaken there, is there anything in there that is pull forward, true up, or what I would call sort of an unusual way of taking connected, or is that a clean number? Brian Krzanich: No. There's really only one way that I know of. And maybe Tony has more But it is always over the life of the contract. And so there's no pull forwards or unique accounting that's being done here. We take a look at the total value of the contract. We look at the lifetime, they're anywhere from one to ten years. There's some that are as long as ten years. The average we've said in the past has been about three. Stays that way still. And so we would break that revenue then out over that three-year period. Tony Rodriguez: Yeah. And so, yeah, definitely, it's clean. I think you're right. You follow us enough to know that, you know, in the case of where we get a billing where we, you know, we continue to monitor activity within the connected side. And if we believe that we work with our OEM and there was any potential underreporting, if we get catch-up billings within connected, we will you know, the relate to past services, we will recognize some of that. But, this quarter was, was rolling out of that. Brian Krzanich: Okay. Great. Congrats on that. That's not unique about connected. Those true-ups are just it's volume related. Right? And sometimes, takes a while for us to get all of the volumes correct. Between the OEMs and ourselves. Correct. Tony Rodriguez: Yeah. No. Totally understood. And maybe last then, just on the, you talked about sort of the non-automotive opportunities. Ramping in the out year. Maybe spend a second there and sort help us rank order top one, two, three, in the nonautomotive bucket. Brian Krzanich: Sure. You know, I again, I put our IP monetization in that bucket as well. Right? We set in here. We have other suits going on. And you know, we have a multiyear large list of opportunities in that space. And you really have to take a look at that Those are mostly us getting paid for our technology in nonautomotive space. And in fact, it's all of that. Right? Including the Samsung one. It's nonautomotive revenue. So I do want to clarify that. That is using our technology in a nonautomotive space that we are getting paid for and should have been paid for. We'd always prefer to just do a standard license. But we'll defend it in other words. The other spaces for the nonautomotive I tell you, the first one is the kiosk space. We actually did an implementation this last quarter in South America with a bank. Implementing voice into the kiosks. We have several other POCs going on with kiosks and various types of applications moving forward. So I'd say that's the first priority. Or the first opportunity that's coming due. Then we have we've talked about it in the past. What we call Vinnie. Which is our phone answering chat service. That can be implemented. We're targeting again, spaces that we know. So we're looking at dealerships and automotive space. Basically, you can answer phones, make appointments, do things for the, like, just for your CRM or your service space. There's also other applications in with OEMs in that space as well. Answering a lot of their calls since we already ingest all of the owner's manual. So those would be the first, like, two that I'd tell you that are near term and the products are ready. In fact, those will be at CES in demonstration mode. You'll be able to come see those at our booth in CES. Jeff Van Rhee: Mhmm. Thanks so much. Appreciate it. Brian Krzanich: Bye. Operator: Thank you. One moment for the next question. Our next question will come from the line of Mark Delaney of Goldman Sachs. Your line is open. Will (for Mark Delaney): Good afternoon, everyone. This is Will on for Mark Delaney, and thank you for taking our questions. So my first one is for the 8% growth in the core business fiscal 2026 that you expect, how does that break out between unit and content step up? Tony Rodriguez: Hey, Will. Thanks for the questions. So, you know, again, a couple of things to think about as, know, in that percent. When we think about that 8% core technology, we're thinking that that core license revenue and core connected. Right? And as we think about the latter, they're connected. You know, we think about, you know, the additional billing Billings for connected has been growing over the last, you know, year and a half, two years. And then that gets amortized over the subscription period. Right? So we're seeing those increased billings continue to amortize and grow that number, and we expect that growth related to increased billings in 2026. And then the amortization of the previous billings that are in deferred revenue. So we've been growing deferred revenue and then amortizing that. So that's you know, you know, roughly the eight or 9% in the connected side. And similarly, a similar percentage in, license. So it's a little bit different. As we've discussed in the past, you know, we've continued to decrease the fixed license revenue over the last two years or so. And what that means is more of the variable licenses actually drop down into revenue in periods. So because of those decreased fixed life over the last couple of years, what we're seeing is that overall, pro forma revenue will likely be fairly flat, but more of it will be in period revenue for those shipments. That's about half of that growth. And then the other half would be coming from, you know, additional price and volume out of the licenses. Will (for Mark Delaney): Alright. Thank you for the color there. Just no. That was helpful. Thank you. And just one follow-up question, but so can company share an update on the competitive landscape, especially with new AI systems coming to vehicles as illustrated that, that you saw with GM and Gemini. So if you just give us an update on what you're seeing across the competitive landscape. Thank you. Brian Krzanich: Yeah. I say, you know, the competitive landscape hasn't necessarily changed dramatically. From the standpoint of who our competitors are Right? You know, there aren't we're not seeing anything new or unique What we would say is that you know, more and more of the technology is becoming large language model based. And you're seeing more and more agentic AI in the products. And that's driving you know, the competition more than, I'd say, new players or new additions. So it's the same ones, and I tell you, you know, it's we've talked about them in the past. Google is there. Amazon's there. Those are the big two that we're usually competing against. Thank you. Operator: Thank you. At this time, if you would like to ask a question, please press 11 on your telephone. And I'm not showing any more questions in the queue. So I'd like to turn the call back over to Brian for closing remarks. Please go ahead. Brian Krzanich: Yes. Thank you. So, again, I would just like to thank everybody. Those were great questions, and I appreciate everybody's time. We're really excited about the results we had for both Q4 2025, but full year 2025. And we're feeling like we really have set the foundation for growth as we go into 2026. And we look forward to talking with you guys at the end of the first quarter here and, you know, showing you great results again and laying out more and more of our strategy for 2026 as we move forward. Thank you very much for the call today. And we look forward to talking to you again later on. Operator: Thank you all for participating in today's conference call. You may now disconnect.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jack in the Box Fourth Quarter Fiscal Year earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To withdraw your question, it is now my pleasure to turn the call over to Rachel Webb, Vice President of Investor Relations. Please go ahead. Rachel Webb: Thanks, operator, and good afternoon, everyone. We appreciate you joining today's conference call, highlighting results from our fourth quarter and fiscal year 2025. With me today are Chief Executive Officer, Lance Tucker, our Chief Financial Officer, Dawn Hooper, and our Chief Customer and Digital Officer, Ryan Ostrom. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release which is available on our Investor Relations website at jackinthebox.com. We will also be making forward-looking statements based on current information and judgments that reflect management's outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-Ks to be part of our discussion. Material risk factors as well as information relating to company operations are detailed in our most recent 10-K, 10-Q, and other public documents filed with the SEC and are available on our Investor Relations website. Additionally, the company intends to file a proxy statement and related materials with the SEC in connection with the 2026 Annual Meeting of Stockholders. Our directors and certain officers will be participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials when they become available as they will contain important information, including the identity of the participants and their direct or indirect interests by security holdings or otherwise. And with that, I would like to turn the call over to our Chief Executive Officer, Lance Tucker. Lance Tucker: Thanks, Rachel, and I appreciate everyone joining us today. I want to begin by thanking our teams, our franchisees, and our shareholders. Fiscal 2025 was an eventful year for Jack in the Box. And I continue to be inspired by our stakeholders' passion and support for the efforts we are making to unlock the company's long-term potential. As we approach our seventy-fifth anniversary, we are committed to improving performance today while laying the foundation for sustained shareholder value over the next seventy-five years. Throughout today's prepared remarks, I will provide an update on our Jack on Track plan, the current state of the business, and the actions we are taking to restore momentum at Jack in the Box and position the company for sustainable growth. I will then turn it over to Dawn for a deeper dive into fourth quarter results, 2026 outlook, along with how to think about the standalone Jack in the Box model going forward. When we announced Jack on Track back in April, one of our key goals was to simplify the business and sharpen our investment thesis. I am pleased with the progress we have made so far. As you saw in October, we announced the pending divestiture of Del Taco. This is a meaningful step that, when complete, will allow us to fully recenter our attention on strengthening the Jack in the Box brand and executing the remaining elements of our Jack on Track plan. I want to thank the Del Taco team for their partnership throughout this transition. We have also made good progress on our closure program and have numerous real estate transactions in process, so these key components of the Jack on Track program are also progressing as expected. While we are pleased with our progress on our Jack on Track initiatives, we are clearly not satisfied with our 2025 operating performance, and we are rebuilding our operational discipline to drive growth and shareholder value in 2026 and well beyond. I will speak more to this shortly. Now turning to our fourth quarter results. Our fourth quarter was really a story of two halves. The first few weeks of the quarter started off rocky, as I alluded to on our last conference call. Our value equation was not resonating, lacked enough price point of value, and we moved swiftly to address that with more demonstrable value later in the quarter. Coming out of August, we adapted quickly and implemented a true barbell promotional strategy. We pivoted media and marketing to feature our $4.99 bonus jack combo, a compelling offer that resonates well with our value-seeking guests. We also featured our $5 smashed Jack in a culturally relevant sporting event. That included pulsing digital offers, all of which drove incremental trial for the best burger in QSR. The overall result transactions improved throughout the quarter as guests opted into our value strategy, though check remained pressured, particularly as we continue to lap significant price increases from last year taken to combat big wage increases. All told, sales trends improved roughly 300 basis points throughout the course of the fourth quarter. As we have moved into the first quarter, our barbell strategy continues, and we largely maintained similar performance to what we saw at the end of Q4. Though like many brands, we have recently seen a few weeks of downward pressure tied to the effects of the government shutdown as well as lapping several weeks of our own stronger results from last year. We have made several changes to our menu to improve everyday value. Beyond the promotions we ran in Q4, in early October, we right-sized pricing on three of our signature combos, making them more affordable for our guests. We have also increased our cup sizes on small combos. While we know these changes will not improve results overnight, we are taking necessary steps to enhance how we improve our value perception, and we will continue refining our menu strategy. Over the past few months, we pulled several levers to drive improvement, but there is still significant progress to be made. Our category is more competitive than ever, and consumers are very careful about where they spend. We are committed to a strategy grounded in driving value for guests while protecting profitability for ourselves and our franchisees. Whether through boosting check or driving cost efficiency. We also know the entire guest experience plays into the value perception, not just promotion or price. As we build the foundation for Jack's Way, we are focused on consistency. Consistency across our operations, our food quality, and an elevated overall experience for the guest. First, we are making strides in operational excellence. We identified a critical gap in our field support and restructured our field teams to spend more than twice as much time in restaurants. This helps provide more real-time coaching to our team members and holds restaurants more accountable, also rewarding top performers. In the near term, we are retraining the entire system with a disciplined focus on getting back to basics. It is not glamorous, but it is essential. We have already received great feedback from our franchisees and employees on these efforts. Second, doing things Jack's way means serving high-quality food, leading the way with innovation. Our priority is clear. We need to serve hotter, juicier burgers with greater consistency across the system. So we have challenged ourselves to rethink how we deliver, starting with the fundamentals: cooking procedures, ingredients, and training. Shannon McKitty is doing a great job driving rapid improvement in our ops fundamentals. We have also reinvested in culinary innovation and welcomed our new executive chef, Kieran Duffy, to lead the effort. He has already shared concepts that we believe will elevate both quality and craveability for our guests. As we celebrate Jack's seventy-fifth anniversary and bring back some of our customer fan favorites for a limited time, we will be ramping up our innovation and quality improvements that position us to exit 2026 in a much stronger place than we entered. The final component of Jack's Way is modernizing our restaurants. We continue to work through the tenants of a comprehensive reimage program, and we will keep you updated on our progress. Meanwhile, we are currently testing a proof of concept on a handful of restaurants with a mini refresh that can be quickly implemented while generating modest uplift for the brand so we can get some immediate learnings. We know all of these things must work in tandem. The right menu, the right level of service, and a welcoming environment, and an overall experience that meets the customer's expectations. As you can probably tell, but to put a little finer point on it, 2026 will very much be a rebuilding year. Looking ahead to the next twelve months, here is what I expect Jack in the Box to achieve. First and foremost, I expect same-store sales for the Jack in the Box brand to return to positive as we utilize our barbell promotional approach throughout the year, enhance our operations, and improve the overall guest experience. Second, I expect the Del Taco divestiture and associated TSA to be fully completed, and we will be well on our way to rightsizing the organization as a standalone Jack in the Box brand. Third, our restaurant base will be substantially cleaned up with the closure of many of our underperforming restaurants behind us. Sales transferred from closed restaurants will benefit our remaining restaurants, and profitability will be improved. Fourth, later in the year, I expect us to begin actively executing a reimage program that will ultimately impact the majority of our restaurants, driving even stronger volumes and generating more guest excitement around the brand. And finally, we will have made significant progress in paying down our debt with a marked improvement in reducing our overall debt levels. As you can tell, there is real work ahead, but we have the right plan in place and the right leadership focus to execute our plans in the coming months. While 2025 was a challenging year, Jack in the Box remains in a position of strength with AUVs approaching $2,000,000, a resilient and dedicated franchise base, and core brand equities to leverage as we work to restore momentum. You can continue to expect transparency from us on progress as we are building towards long-term sustainable growth. We expect to exit 2026 as a stronger, more disciplined, more valuable Jack in the Box, positioned to drive sustained profitability and create long-term shareholder value. I will now turn the call over to Dawn to dive deeper into fourth quarter results and specifics around 2026 guidance. Dawn Hooper: Thanks, Lance, and good afternoon, everyone. I will start by reviewing the results of the two brands individually and then provide details on our fourth quarter 2025 consolidated performance and 2026 guidance. Beginning with Jack in the Box, our fourth quarter system same-store sales declined 7.4%, franchise same-store sales decreased 7.6%, and company-owned same-store sales were down 5.3%. This result included a decrease in transactions and negative mix, partially offset by a 2.4% increase in price. As Lance mentioned, we did see improvement throughout the quarter, ending Q4 roughly 300 basis points stronger than we started the quarter. Turning to restaurant count. For the fourth quarter, there were 15 Jack restaurant openings and 47 closures, and we ended the year with 2,136 restaurants. Jack restaurant level margin for the quarter decreased year over year by 240 basis points to 16.1%. The margin decrease was driven by sales deleverage, commodity inflation of 6.9%, elevated labor costs as a result of opening eight new restaurants in Chicago. Food and packaging costs as a percentage of company-owned sales remained flat at 30.3% as a result of favorable funding from our new beverage contract as well as price increases, offset by commodity inflation and negative mix as consumers shifted into price-pointed promotions as Lance mentioned. From a commodity standpoint, our largest inflationary category was beef, consistent with industry trends. Labor costs as a percentage of company-owned sales increased 100 basis points to 33.7% primarily due to the elevated labor at our new restaurant openings in Chicago, partially offset by a reversal of additional fee-to-taxes in California. Jack in the Box opened eight restaurants within twelve weeks in Chicago, which was one of the fastest new market openings we have completed in recent history. We are seeing excitement from customers around these openings, but there was a significant impact on our P&L for the quarter. The Chicago market had a negative 130 basis point drag on our overall company restaurant level margin. We are taking swift actions to improve the margin compression driven by this market. While volumes remain strong with annual unit volumes to exceed $2,000,000, labor costs were elevated this quarter as we staffed up the market to ensure first-time guests received the best possible experience. Occupancy and other operating costs as a percentage of company-owned sales increased 130 basis points to 19.9% primarily due to higher costs for rent, security, and third-party delivery fees. Franchise level margin was $62,600,000 or 38.9% of franchise revenues compared to $70,900,000 or 40.4% a year ago. The decrease was driven by lower franchise same-store sales and lapping $2,600,000 of nonrecurring lease termination revenue from franchisees, partially offset by higher early termination fees collected in connection with our closure program. For a quick update on Jack on Track, I will start with the restaurant block closure program. In Q4, we closed 38 restaurants under this initiative, all of which were franchise locations. Turning to real estate activity. We sold three real estate properties during the quarter, generating $4,800,000 in proceeds, which will be used to pay down debt. We also continue to reduce capital expenditures sequentially as we remain focused on disciplined capital allocation. And lastly, as announced in October, we entered into a material agreement to sell Del Taco. Overall, we are making progress on our Jack on Track plan every quarter. Now taking a look at Del Taco results. For Del Taco, system same-store sales declined 3.9% consisting of company-owned same-store sales down 3.1% and franchise same-store sales down 4.2%. This decline was driven by a decrease in transactions and an unfavorable mix, partially offset by a 2.8% increase in price. For the fourth quarter, there were four restaurant openings and 13 restaurant closures. Del Taco ended the year with a restaurant count of 576 locations. Del Taco restaurant level margin was 6.8%, as compared to 9.3% in the prior year. This decrease was primarily driven by the impact of opening locations in Colorado, transaction declines, inflationary increases in commodities, slightly offset by menu price increases. Food and packaging costs increased 260 basis points to 27.8% due to unfavorable mix and commodity inflation of 5.1%. Labor costs remained flat at 39% as elevated labor costs from the reopening of 17 locations in Colorado were offset by a reversal of additional fee-to-taxes in California. Occupancy and other costs decreased 10 basis points to 26.4% driven primarily by favorable utilities. Franchise level margin was $6,800,000 or 30% of franchise revenues compared to $6,000,000 or 26.5% in the prior year. The increase was driven by a lease buyout transaction and early termination penalties partially offset by lower sales and higher bad debt expense. Moving to our consolidated results. SG&A for the fourth quarter was $36,600,000 or 11.2% of revenues as compared to $30,000,000 or 8.6% a year ago. The increase was primarily driven by the $5,500,000 incremental advertising contribution we made during the quarter, higher information technology costs, the rollover of favorable insurance claim development factors from the prior year, and a decrease in COLI gains. These impacts were partially offset by lower share-based compensation and reduced incentive compensation tied to performance. Excluding the net COLI gains, along with company-owned marketing expenses, G&A was $27,000,000 or 2.4% of total system-wide sales. For the quarter, we spent approximately $3,900,000 in preopening costs. The majority of this investment supported new restaurant openings in Chicago for the Jack in the Box brand, with the remainder related to reopening the Colorado market for the Del Taco brand. Consolidated adjusted EBITDA was $45,600,000, down from $65,500,000 in the prior year due primarily to lower same-store sales at both brands. For the full year, adjusted EBITDA was $270,900,000, inside of our revised guidance range. GAAP diluted earnings per share was $0.30 for the quarter, compared to $1.12 in the prior year. Operating earnings per share, which includes certain adjustments, was $0.30 for the quarter versus $1.16 in the prior year. Our effective tax rate for the fourth quarter was negative 30.4% compared to 29.2% in the prior year quarter. The negative rate this quarter was primarily driven by incremental nontaxable gains from the market performance of insurance products used to fund certain nonqualified retirement plans along with favorable state audit accruals recorded during the period. The non-GAAP operating EPS tax rate for 2025 was 11.9% and was 25.4% for the full fiscal year. The lower non-GAAP operating EPS tax rate for the fourth quarter was primarily due to favorable state audit accruals recorded in the quarter. Capital expenditures were $17,900,000 for the quarter. Cash flows from operations for the quarter were $33,700,000, and cash flows from operations for the full fiscal year were $162,300,000. We did not repurchase any shares in the fourth quarter. For the full year, we repurchased 100,000 shares for $5,000,000. As of year-end, we had $175,000,000 remaining under our board-authorized share repurchase program. We ended the year with an unrestricted cash balance of $51,500,000. We also had available borrowing capacity of $96,800,000. Our total debt at year-end was $1,700,000,000, with our net debt to adjusted EBITDA leverage ratio at six times. As we look to 2026, we want to share the standalone Jack business model. Del Taco results will be reflected in discontinued operations in our Q1 2026 financial statements, pending successful close of the sale, which we expect to occur within Q1. Upon close, we will be required to file pro forma financials presenting a three-year look back of what our results would have been without Del Taco. After this, we plan to host a call with our analyst community to walk through the standalone model and assumptions in more detail. Before getting into specifics, I do want to reiterate the primary source of uncertainty in our 2026 outlook: the timing of our Jack on Track initiatives. Restaurant closures may shift based on factors such as franchisee readiness, lease dynamics, and market conditions. Similarly, while we do expect real estate proceeds during 2026, the exact timing of those transactions will depend on market conditions and our pace alongside our debt pay-down plans. Both of these add a level of variability to our sales, restaurant counts, and franchise level margin estimates for the year, and thus impact our overall adjusted EBITDA expectations. Please know our guidance reflects our current best assumptions. We will provide more color on this throughout the year as our assumptions update. Now to specific guidance. We expect to end fiscal 2026 between 2,050 restaurants to 2,100 restaurants. We expect same-store sales of negative 1% to positive 1% versus the prior year. Please keep in mind as you model company sales that you factor in our new market of Chicago, which will not be included in same-store sales but is expected to have AUVs above $2,000,000. We expect company restaurant level margin of 17% to 18%. This includes mid-single-digit commodity inflation largely driven by beef. Keep in mind, we are also rolling over a favorable beverage contract benefit from 2025. Restaurant level margin guidance also includes low single-digit wage inflation and our expectation for continued margin compression in the first quarter driven by our Chicago market. We expect franchise level margin of $275,000,000 to $290,000,000. Franchise level margin is the most impacted area on the P&L from Jack on Track through both closures and real estate sales. Like we mentioned on our last call, we expect a negative impact to franchise level margin of approximately $80,000 per closure. With a closure range of 60 to 100, this equates to roughly $4.8 to $8,000,000 on an annualized basis. As a reminder, franchise level margin also had a benefit in fiscal 2025 of $5,200,000 tied to rent spread monetization transactions with franchisees related to right of first refusal. We expect SG&A expenses of $125,000,000 to $135,000,000, accounting for roughly $31,000,000 in Del Taco specific G&A and advertising, as well as impacts of incremental Jack in the Box marketing spend, COLI gains, favorable share-based compensation, and lower incentive compensation in 2025. A comparable SG&A figure for fiscal 2025 is $134,000,000. For fiscal 2026, G&A, excluding selling and advertising, is expected to be approximately 2.5% of system-wide sales. We expect this to remain elevated for the first half of the year and then improve into the back half as we restructure following the sale of Del Taco. Similar to prior divestitures, we will enter into a transition services agreement or TSA, and we expect income to offset some of our G&A as part of that agreement. This guidance does not reflect that benefit, and we will share more as we learn the total TSA amount and timing. We expect preopening costs of less than half a million dollars and depreciation and amortization of $45 to $50,000,000. Adjusted EBITDA for the full year is expected to be $225,000,000 to $240,000,000. And finally, as part of the Jack on Track plan, we expect to pay down $263,000,000 in debt by retiring the August 2026 tranche of our securitization proceeds from the Del Taco divestiture, cash on hand, proceeds from real estate sales, and potentially borrowings on our VFN to preserve flexibility. We recognize that rebuilding takes time, and 2026 is about executing against Jack on Track and restoring momentum for the Jack in the Box brand. You have our commitment to transparency and to maintaining financial rigor as we make decisions that impact our guests, employees, franchisees, and shareholders. We look forward to speaking with you again in February as we release first quarter results. And with that, operator, please feel free to open the line for Q&A. We respectfully request that you limit questions to one and one follow-up. Our first question comes from the line of Brian Bittner with Oppenheimer. Your line is open. Brian Bittner: Hey, thanks for taking the question. Just as it relates to your '26 guidance for same-store sales down one to up one, you talked about how you anticipate comps to remain pressured in 1Q and then sequentially improve. Can you first talk about what are the main drivers of this improvement throughout the year? Is it comparison-driven or something else? And maybe you could help us understand how you are thinking about the shape of the recovery in 2026, maybe first half or second half so we can all get on the same page with that. Thanks. Lance Tucker: Hi, Brian. It's Lance. So first of all, we do expect the first quarter to be soft as we have mentioned. And you guys see credit card data probably just like we do, so you are already aware of that. As we get into the second quarter, though, which for us begins in mid-January, we will be entering our seventy-fifth anniversary, where we have a number of pretty exciting things going on relative to ads and innovation and bringing back some old customer favorites. We will also have some softer compares, particularly as you get into the second half of the year, that will contribute as well. And then there are a number of other things that we are doing. We will be obviously working on the value equation and continuing to ensure that we have the barbell strategy correct. We expect to continue to see sales benefit as we continue to improve on the tech side. Tech modernization, as you guys know, we have put a lot of time in the tech modernization. It is ongoing, and I think it will build throughout the year and help us a little bit. And then we do have, again, some interesting innovation coming. We have a new chef, a restructured innovation team, and structure that we think is going to draft some interesting things. So we have a lot of things that we are excited about as we go into 2026. But it's more of a calendar '26 comment than it is necessarily here in the first quarter. Brian Bittner: Okay. Thanks. And just a quick follow-up is on the EBITDA guidance. I think you guys said the biggest wildcard there is just as it relates to the Jack on Track plan and as you execute against that, what's the assumption in the current EBITDA guidance? Is it for no real estate sales and no block closures as of now? And then as those happen, that impacts the EBITDA relative to this initial guidance or how would you frame that dynamic up for us? Lance Tucker: No. We have lot closures built in. First of all, to start with that piece, I'll let Dawn give you the exact number, but I believe it looks like we've said 60 to 100 in total 26 closures. So that does include, you know, the closure program as you would expect when you see that number. You know, the real estate sale side, we do have real estate sales. I think they, you know, we're a little bit limited in how fast we can go on the real estate sales because of the dynamics of how we're able to pay the debt back within the securitization. But there is between $50 and $70,000,000 of real estate sales built into that guidance number. Dawn Hooper: That's right. Brian Bittner: Super helpful. Thanks, guys. Lance Tucker: Of course. Operator: Your next question comes from the line of Alex Slagle with Jefferies. Your line is open. Alex Slagle: Hey, thanks and thanks for all the color. First, I wanted to clarify on Brian's question and commentary around the first quarter same-store sales trends. It sounds like a modest improvement versus the reported fiscal 4Q just given the cadence you talked about. But then, I guess, some degree of slowdown recently. Is that so net-net for the first quarter, quarter to date, is it similar to the 4Q? Or has it improved a little bit even after a few weeks of softer trends? Lance Tucker: Yeah. I'd say we kind of as we got into the back half of Q4, we were seeing some improvements. As we entered '26, we maintained the last few weeks as we've not only gone over our own kind of stronger compares, but also had some impact from the government shutdown. Things have slowed down a little bit. Now they're normalizing again or beginning to normalize. I don't want to go into a lot more depth than that. But, again, when we kind of made the change to make sure we had some price point value and we've got things kind of at both sides of the barbell, the consumer has reacted better to that than what we were doing before, and I think you'll continue to see us run that playbook. Alex Slagle: Got it. In the $5,500,000 incremental marketing spend in the fourth quarter, you could kind of talk to if you're happy with the return you saw there and things you maybe do the same or different or if there's an opportunity to do more of that in 2026. Lance Tucker: Yeah. That's a good question. I can tell you first, let me kind of tell you where the spend went, actually. So we did obviously spend behind our value in digital offers and primarily was the bonus jack that we brought in kind of at the low end of the barbell. And then we also pretty heavily spent against the $5 smash jack for about a week within our app. That was actually tied to a sponsorship we had also invested in with part of that money which was for a culturally relevant sporting event. That was the Crawford Canelo fight where we got really a lot of benefit. So and then some of the spend also went to shortfalls. Obviously, our sales fell a little bit shorter where they would in the beginning part of the or where we thought they would. In the beginning part of the year. And so, you know, when you think about that five and a half, think, you know, a portion kind of half or a little less was really going to make sure that we that we shored up our marketing fund and the remainder was incremental. That's the way I think about that. As far as the benefits we got, we did see improved transactions. We also kind of got the opportunity to introduce a bunch of consumers to the Best Burger in QSR at a really good price point at $5. And then we made very significant impressions with one of our big demographic groups. So overall, you know, would we consider doing that again? I mean, our goal would be that we wouldn't need to do another significant contribution into the marketing fund because we would certainly expect that results are going to be better than what we saw in 2025. With that said, I am happy with the results. I think Ryan would echo that. And if we needed to do something again, you know, we'll always keep our options open. Alex Slagle: Certainly. Lance Tucker: Thanks. Operator: Your next question is from the line of Sarah Senatore with Bank of America. Your line is open. Sarah Senatore: Okay. Thank you. I guess a follow-up question on the top line outlook and then a question on G&A. So the top line, I know that your same-store sales guide is predicated on company-specific initiatives. And it sounds like you're very confident in those. Do you have any kind of underlying macro assumptions that you're making? I mean, we've seen I know you've talked about sort of exposure to different income cohorts. Anything that might signal, I guess, sort of expectation that things improve in sort of the macro backdrop? And then the G&A guide, I guess it's flat on an adjusted basis. I just want to make sure I understand that the second half is that more that will be lower. So is that the right run rate that the sort of lower G&A in the second half is actually the right run rate and so perhaps a little bit below that 2.5% of system-wide sales. It's just the first half is more, you might still have some stranded costs or still be working on restructuring. So, you know, as a go-forward basis. Thanks. Lance Tucker: Sarah, I'll take the first one, and then I'll ask Dawn to pitch in on the G&A question. But relative to kind of the macro conditions, really, the assumptions we've made are certainly that it's not going to get any worse, but that it's going to remain pretty flat throughout the year. We didn't build in a significant tailwind from anything going on in the environment that would necessarily be a benefit. So the numbers you kind of see are largely a status quo is what I would say. You know, we've seen just the slightest bit of consequential improvement kind of both in the low-income cohorts and in the Hispanic cohorts, but still a lot of work to do on both. And so not enough that we felt comfortable building any tailwind into that guidance. Dawn, on the G&A, I'll let you run with that piece. Dawn Hooper: Yeah. And on the G&A, you're exactly right. You know, as we rightsize the business and we exit the TSA and eliminate those stranded costs, you're going to see Q2 the second half of the year come in in, like, the 2.3, 2.4% range. Would be more realistic going forward. Sarah Senatore: Thank you so much. Very helpful. Operator: Your next question is from the line of Jeffrey Bernstein with Barclays. Please go ahead. Jeffrey Bernstein: Great. Thank you very much. My first question is just on franchisee sentiment. Lance, you mentioned the category is more competitive than ever. And currently, I know you're running somewhat appears, but large negative traffic wondering how those conversations are going as you focus on kind of more singular brand asset-light model. Maybe what are they asking for? Are they still showing willingness to invest in the Jack on Track plan? Any broader sentiment you can share since you are again, a primarily franchise business model and there's lots going on there, but profitability is likely under pressure. And then I had one follow-up. Lance Tucker: Sure. And you're right. I mean, when you have a difficult year like we had in 2025, that does in fact put pressure on franchisee P&Ls. You know, what I would tell you is to kind of sentiment what we're hearing from them, first of all, they want the same things we want. Right? They want sales to be positive just like we do. We want them to be positive tomorrow. And, and so, yes, of course, we hear that, and it's understandable. You know, when the sales are difficult and the bottom line results are difficult, the conversations are going to get more pointed. But, again, that's kind of what you expect. And while they're pointed, they're also respectful. And they also are willing and able to support the team and support the brand, and they're doing everything they can on their side as the primary operators of the restaurants to drive our results. And so look, we spend a lot of time talking to franchisees. We listen to them. We don't always agree, and I suspect that's the same across most systems. But with that said, we assume their positive intent, and they assume our positive intent. And so we are working together to try to drive the business forward. You know, as far as investing, you know, I do think as we get towards the end of the year, and I said this in prepared remarks, I do want to be rolling out some sort of some kind of reimage program. I think, you know, we're going to need to do a comprehensive reimage program, and that needs to start sooner rather than later. But as we also mentioned, we are testing kind of a mini reimage that would be much more affordable, get out there very quickly. And bring some, you know, instant kind of modest benefit to the brand until we get to a point where we can do a broader reimage. Because franchisees with the financials where they have been for the last year, will need a little more time before they're going to be in a position probably to reinvest in the brand the way we all want to. So a long answer to your question, but, you know, I guess I want to kind of end with two things. We do still have nearly a $2,000,000 overall AUV within our franchise community. And so, yes, you know, when you get to some of the smaller franchisees and some of the less well-capitalized franchisees, there are some pressures, and there's pressures across everyone. But it still overall is a pretty reasonable picture. And then we're actually going to be out. The executive team is in December doing kind of road shows in several markets to talk to franchisees and hear what they have to say. And ensure we're being as transparent with them as we are with you along this call. So a lot of conversation. Jeffrey Bernstein: Understood. And then just the follow-up as we look past the transition to a single brand asset-light model, presumably, maybe we're thinking more like fiscal 27. But just as you look out, like, what are the reasonable assumptions that you think about for top and bottom line even if it's directional only? I know unit growth gets the most attention because there's often talk about an acceleration in that growth and having a national footprint one day, but do you think about that directional trend over the next number of quarters or years or however you think about it in terms of top and or bottom line growth for the Jack story. Thank you. Lance Tucker: Sure. Yeah. You know, well, first of all, we'll give long-term guidance once we're a little further into the Jack on Track program. I'm not going to put an exact time frame on that, but I would tell you we realize the need to go out and update that long-term guidance sooner rather than later. Obviously, in the meantime, and you kind of referenced this, you know, a unit guidance number that's out there, given the closure program that's going on, is a number I wouldn't pay a lot of attention to. I think as you think about the long-term algorithm, I mean, I think it's not going to be too far off, I don't believe, from what you would expect. Is to say asset-light model, primarily franchise openings, reduced CapEx. Moderate G&A, probably low single-digit comps. You know, we are going to want to get into a growth story on the unit side. That's probably a couple, three years away. We'll give better guidance on that when that happens. And then kind of responsible unit openings, you know, with units that have really good overall unit economics. We are driving cost out of the building right now, and we need to continue to do that before it makes sense to be outbuilding just a whole lot. So we'll give more firm long-term guidance, as I said, here when we're a little better positioned to do so. But with that said, it's not probably an atypical algorithm than what you would have expected. Jeffrey Bernstein: Understood. Thank you. Operator: Of course. Next question is from the line of Gregory Francfort with Guggenheim. Your line is open. Gregory Francfort: Hey, Lance. Thanks for the question. I had, I guess, two. The first is you made a comment a couple questions ago about maybe holding off on bigger remodels and doing smaller remodels. In the near term, I guess if the stores need larger remodels, why would you do that? And would you consider maybe instead raising equity capital if these are the right things to do from either reimage or your struggling franchisee to buy in? Is that something that's on the table here? And I have a second question. Lance Tucker: No. I would not expect we would be doing an equity raise. So I'll largely put that one to bed. You know, I think we're going to have plenty of franchisees that are able to go full speed ahead with a more comprehensive reimage. But I think we are going to need to have an alternative for those that are not. So, you know, I'll reframe my answer just a little bit and say, I do expect at the end of the year to be moving forward with a full-on reimage program. But I think we do need to make sure that we've got programs that are attainable for everyone. And as I said, when we were talking about kind of franchise health, I think, you know, by and large, we're going to have a large number that would be able to move ahead and plow ahead, but we are going to need to make sure we have some options that give some relatively modest immediate impact while giving the franchisees time to plan for those expenditures going forward. Gregory Francfort: Got it. Okay. That's helpful context. And then just the other question I have was on the value scores. There's, I guess, a debate in the industry that some of the softness might be just the consumers balking at higher prices for a lot of brands just because labor costs were up a lot. Have you seen your value scores more recently change either for the better or for the worse? Just any thoughts on the direction of where that stands and where you want it to be. Thanks. Lance Tucker: Yes. We actually have seen our value scores increase a little bit. And, by the way, you're hearing the same thing, I believe, we think, and that we all think. I mean, there is just an overall feeling that prices are too high out there. Though with some of the pivots that Ryan and team made on the marketing side and you'll continue to see some improvements in our scores as we move forward given what we have planned for the calendar is to make sure that we do have kind of at that more value end of the barbell that we make sure we do have some good choice out there while also having some things at the more premium or abundant value side as well. Gregory Francfort: Awesome. Thank you very much. Appreciate it. Operator: Your next question is from the line of Dennis Geiger with UBS. Your line is open. Dennis Geiger: Great. Thank you, guys. I wanted to come back to that value topic again. And maybe, Lance, just if anything else, great to see the value scores are improving some. Could you share sort of where maybe value incidents was in the quarter? Or if it had been improving through the quarter, as you mentioned, sort of value was driving some improvement in the trend. Then I'm sure you don't want to give too much away, but as it relates to next year, maybe where are some of the biggest gaps? Clearly, the barbell approach, but some of the biggest opportunities from a value perspective in '26, if there's anything to share high level there. Lance Tucker: Yeah. So we don't typically share the absolute kind of value scores. I can tell you, particularly as you got into the second half of Q4, though, it was sloped upwards. I don't want to get into a whole lot more than that. And then as for next year, you know, I think from my perspective, and I'll ask Ryan to jump in here when I'm finished if he has anything to add. But I think the biggest thing we need to do is be consistent with value and make sure that we have something at both sides of the barbell that we try to play in so that the consumer always knows, hey. I can go get some price point of value if I need to. That is not the place where we want to build all our sales. It's not the place where we want to drive the business. But we do recognize that we've got to consistently be there with some fresh innovation and some, frankly, some good value, you know, literally every window every week. Ryan, am I missing anything? Ryan Ostrom: That's correct. It's making sure we have that consistent bottom part of the barbell strategy on value, and that is something we've kind of missed in a few windows before. So as we're looking at our 2026 calendar, we are making sure that consistently shows up in our messaging and marketing. Dennis Geiger: Terrific. One more then, if I could, maybe just another on remodels or the reimage program. Is there currently a prototype? I know over the years, there have been various prototypes, Lance. It seems like you're still kind of working through what the more comprehensive reimage prototype will be. So just wanted to confirm that. And then maybe if there's any context that you provide looking back historically on we've seen, I believe, some fits and starts as it related to a remodel program. And just looking back relative to the go forward, on why going forward, there's going to be strong demand to get done and, you know, what'll be different over the coming years maybe than looking back as it relates to getting the reimage done. Thank you. Lance Tucker: Sure. So first of all, yes. We do, in fact, have an image. I mean, we still are tinkering a little bit around the edges, but we have reimages frankly, in process. Right now. It's not as big a full-scale program. But the kind of the craves package and the reimage packages that we have, we're actually very happy with. You know, the real change from my perspective is making sure that we've got the right contribution coming from the company for those. Making sure if there's an aspect or two, we want to make sure that we're really focused in on that that we're getting those done in these reimages. So there are certain things that if the company's going to put in significant dollars, we want to make sure are present in these reimage packages, and you can imagine what those things would be. They'd look like the drive-through. They'd look like signage. You know, they'd look like some form in all likelihood of a digital menu board. Whether a habit or a full. So there's things that, you know, we want to make sure are focused on the guest and focus on driving sales. Going to be more important. So we're still tinkering with a little bit around that with that around the edges, but generally speaking, yes, we do actually have the image, and we're happy with it. As far as you know, there have been fits and starts, and that's actually a good way of saying that. The reality is we haven't done a full-on reimage in a number of years. And I think, you know, there's probably the biggest singular difference that I'm going to tell you that I see going forward is going to be leadership focus. And this is something that we're going to have to focus on and do. It's just been too many years. And all the data we get, it shows up strikingly that we're losing on the appearance of our buildings. And we've kind of gotten to the point where, you know, we just almost have to do this. So that is why it's an initiative for me. I just frankly have to make sure from a company standpoint, that we're a little further along in Jack on Track and have the cash, you know, to pay down the debt first, and then we can start with some pretty significant contributions on the company side. But we're going to drive this as one of our very top priorities, if not our top priority. Once we kind of get beyond Jack on Track. And so, you know, that is, I think, going to be the primary difference you see versus what you've seen in the past. Dennis Geiger: Very helpful. Thank you. Operator: Next question is from Brian Harbour with Morgan Stanley. Your line is open. Brian Harbour: Yes. Good afternoon. I had just sort of a bigger picture question. What in the work you've done, I mean, what do you think customers want out of Jack right now? I mean, you made the comment yourself that, you know, people are very selective. And so I think there's relatively few brands that are kind of taking share in that environment. So, you know, what is it that you think would really move the needle with your customers over the next year? Lance Tucker: I think when you think about Jack in the Box, one of the things you think about is we've always delivered a solid value, and we've always delivered a lot of innovation and variety. And so I think, you know, we're in a unique position to make sure that we can deliver kind of satisfying meals at a good value and some innovative things that you can't find just everywhere, and that's everything from breakfast twenty-four hours to a lot of our side items like your, you know, curly fries or your egg rolls or churros or certainly two tacos, which we're most famous for. So I think the consumer is looking for that, and I think the consumer is also looking for a little bit better experience from us. And that's where I think from an ops improvement standpoint, we can really make inroads quickly. And as I mentioned in my prepared remarks, Shannon and team on the ops side, we've done some restructuring. We're going to have people out there training much more than they have been. We're going to have a lot more field presence to make sure that we're delivering on that better ops experience. So a little bit of a long answer to your question, but that's what I think we can deliver. Brian Harbour: Yeah. That makes sense. I guess I was going to ask about that too. I think what did you pick up, like, is there, like, a quality perception gap that you think has emerged maybe as a result of some of those inconsistent or what do you think needs to be done better there? Lance Tucker: I think there are kind of two or three things. So to answer your question directly, I don't think our quality perception is as high as we think it should be, and there are steps that we need to take to fix that. So one of them is ops improvement. And, again, it's just making sure that we're given a good, consistent, friendly, what we call joyful, experience to the consumer every day. We need to make sure the accuracy is there. We need to make sure that as they're coming through the drive path, that the restaurant is clean, that the drive-through looks good. We need to make sure we have the right innovation, and all those things kind of wrap into quality perception. And so, yeah, we have kind of picked up that we don't think we're getting the credit we think we should. Some of that's self-inflicted. Some of that is just a lot of things that we need to do better. And so that's why you see us focused on our innovation. That's why you see us focusing on wanting to clean these drive paths up and do some work on the buildings themselves. And certainly, why you see us focus on, let's make sure we've got the right ops experience because that's better than any marketing you can do. You give people the right experience to get a hot burger. Prepared the way they want it. In a reasonable amount of time, they're going to come back and make Ryan's team's marketing job much easier. Brian Harbour: Thank you. Operator: Your next question is from the line of Andrew Charles with TD Cowen. Your line is open. Andrew Charles: Great. Thank you. Dawn, just one housekeeping and then my real question. First, can you comment on what your franchisee store level cash flow was in 2025 in the change versus 2024? The quick math, just looking at company stores, is about a 15% decline year over year, but hoping you can confirm that's aligned with the system. And my real question for Lance or Dawn is what cash on cash return are you going to target from the smaller scope remodel? And really, how can franchisees fund these just given the challenged state of industry cash flows? Dawn Hooper: Yeah. So, I'll take the franchise profitability first. We don't disclose that, but it should be in line with what you're seeing on the company side. I wouldn't expect it to be different. Lance Tucker: And then on the cash on cash returns, I mean, we're talking very modest investments here of, you know, under $25,000 depending on if you depending on what you're doing. So those certainly in the, you know, even in the context of a difficult year, whether it's for us or anybody in the industry, you know, we're talking very modest kind of investment here, more of a spruce up if you want to think about it that way. And that's the kind of thing if you put you do it the right way. You put just a little bit of marketing behind it. You would expect low single digits. You're not expecting, you know, huge returns on that, but you are expecting, you know, kind of a pretty modest return. Andrew Charles: Thank you. Operator: Your next question comes from Logan Wright with RBC Capital Markets. Please go ahead. Logan Wright: Hey, good afternoon. Thanks for taking my question. One was just on the Jack in the Box company-owned store. Same-store sales relative to the franchisee. Looks like company stores are outperforming the franchisee base. Is there anything behind that? It looks like compares got a little bit easier on the company stores, but I'm just wondering if that's a result of some of the operational changes you guys are making and not showing up in the company-owned restaurants first or if there's something else you would attribute the outperformance to. Thank you. Lance Tucker: You know, I'll start, and I'll let others jump in if there's more to add. But, you know, certainly, there was a little bit on the compares. I also think over time that the company's pricing probably has looked a little more favorable in franchisees in a lot of ways. Meaning, franchise franchisees are generally speaking taking more taking more price. So our absolute pricing at company restaurants right now is a little bit below many franchisees, not all. But we think, you know, given the markets where we have company restaurants head to head with the franchisees, that's what we're attributing most of the difference to. Logan Wright: Great. Thank you very much. Operator: The next question is from Jim Sanderson with Northcoast Research. Your line is open. Jim Sanderson: Hey, thanks for the question. Just trying to look more closely at your current performance and the outlook into fiscal '26. Maybe you can provide some learnings on what worked best that generated that sequential 300 basis point improvement in comp, if that was a consumer reaction among any specific income levels, regions, day parts, any texture on what really worked well relative to the promotions you offered. Lance Tucker: Yeah. Jim, I think more than anything else, we really came out of the third quarter and started the fourth quarter with not quite enough price point of value. I mean, it's the biggest singular driver of that move by far was when we pivoted and put dollars behind the bonus jack and more price-pointed value. When you think about geographies, there weren't differences in geographies. There weren't great differences in the various income or other demographic cohorts for that matter. I think it really was just a matter of, you know, we had a lot of abundant value, and we thought what we had was good value, and I still believe it was. But it wasn't price-pointed. It wasn't bringing people in as much. So when we made that switch, that's what drove that 300 basis point change. Jim Sanderson: Okay. And then just to follow-up on the discussion of kind of long-term outlook and cash on cash returns. How do you see the store margins at Jack in the Box evolving? They're quite a bit lower than they were pre-pandemic. Is there a new normal out there related to store labor and new stores, things like that that might adjust what we should expect out of the store going forward? Lance Tucker: I would expect certainly improvement from what we saw here in the fourth quarter. We opened the Chicago market. We opened eight restaurants in the span of eight or nine weeks. And frankly, really kind of overstaffed those, particularly with it being a brand new market to us. We wanted to make sure we were providing really good service. So and we overstaffed them to a degree. It actually did kind of move the overall consolidated labor number and restaurant labor margin. So, restaurant margin rather. I do think as we move forward, we're working on our supply chain. We are working on labor initiatives. So I would expect it to improve. I don't have the 2019 or 2020 numbers in front of me to tell you it is or isn't a new normal. What I can tell you is I would expect improvement in restaurant level margin both for us and our franchisees. Jim Sanderson: Alright. I'll pass it on. Thank you very much. Operator: Your final question comes from Jake Bartlett with Truist Securities. Your line is open. Jake Bartlett: Great. Thanks for taking the question. My first was on Jack in the Box's performance versus peers. I think clearly you're underperforming, but I'm wondering whether in your core California market, there might just be general pressure and you're not underperforming as much as it might just seem by looking at the national numbers. So if you can frame out how you're performing versus peers, and then I have a follow-up. Lance Tucker: Yeah. I think versus peers, we certainly as we started the fourth quarter, I think we were lagging more. And then we closed that gap as we got towards the end of the fourth quarter. Again, I hate to keep beating a dead horse, but as we adjusted what we were doing a little bit, so I think that, you know, we're certainly closing that gap. When I think about California versus the rest of the nation, California itself is, I think, a struggle among many, many brands. And so I'd, you know, I'd have a feeling that we would be certainly no worse off in California and probably a little better off than when you compare national to national. Just given the concentration we have. Jake Bartlett: Got it. And then my follow-up was on, you mentioned some of the moves you're making to increase affordability and you mentioned lowering or tweaking some of the combo pricing, increasing the size of the drink in the small combo. The question is about the franchisee's willingness to make those moves. You know, other brands that have done similar things have had to kind of really make some deals with the franchisees and incentivize them to do so. So, encouraging that it sounds like they're agreeable to doing something like that. So that's one part of it. And then the next part is just whether that should continue. Are there other opportunities here? You see within 26 to meaningfully increase the affordability with maybe even the core offering. Lance Tucker: And so I would say on the franchisee side, they have, in fact, been willing to make the moves that we've talked about. They were very on board with the cup change. They were onboard with making sure that we had some price point of combos that were in the area they need to be in in order to make sure that we're staying competitive. So we really did not have to, not that we didn't have discussions. And every franchisee is a little bit different. But with that said, by and large, we really didn't have much pushback on that front. So, you know, I think I can confidently say they were if not 100% on board, they were largely on board. Most certainly with making those changes. And then what was the second part of your question, Jake? I'm sorry. Jake Bartlett: Yeah. Just whether you're going to do more of that sort of thing, in '26, whether increasing affordability of the core menu is something that you're going to still try to build upon. Lance Tucker: You know, I believe that first of all, it's something you're always evaluating your making sure that you think you're in a relevant price point for the consumer you're trying to reach. I think there's probably some places where we could reduce prices. There's probably a few places we could take price too. So as we look into '26 come from menu pricing strategy, I think, from my perspective anyway, we'll be looking are there a few more price points we need to have out there that are eye-catching, so to speak? But then again, for every one of those, I would expect there's going to be a couple of places that we can smartly take price to where you shouldn't wouldn't see a huge impact on the P&L. Jake Bartlett: Alright. Thank you so much. Operator: I will now hand the call back over to CEO, Lance Tucker, for closing remarks. Lance Tucker: Alright. Well, thanks, everybody, for your time. We look forward to being in touch with all of you soon, and those of you we don't speak to, have a wonderful holiday season. Thank you. Operator: Thank you for joining us today. This does conclude today's conference call. You may now disconnect.
Elon Musk predicted AI and robotics will make work optional within 10 to 20 years, and compared future employment to playing sports or growing vegetables as a hobby.
The Bureau of Labor Statistics on Thursday at 8:30 a.m. will release the September nonfarm payrolls number, ending a shutdown-induced blackout on official jobs numbers.
Jan Kniffen, J Rogers Kniffen Worldwide CEO, joins 'Power Lunch' to discuss Kniffen's thoughts on the holiday season, if most companies will perform well and much more.
Wells Fargo economists expect US growth to firm up in 2026 as fiscal policy becomes more stimulative, monetary policy eases, and the tariff environment stabilizes compared with the volatility seen this year. The bank projects real GDP growth of 2.3% on an annual-average basis.
The parent company of Square and Cash App offers an upbeat long-term earnings forecast as it hosts its first investor day since 2022.
“Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year,” the minutes of the Federal Open Market Committee's October 28-29 meeting said. Michael McKee reports on Bloomberg Television.
The S&P 500 has been on a very strong bull run in recent years. However, Howard Marks recently explained why the S&P 500 is at risk of delivering 0% returns over the next decade.
26700 can still be reached, as long as 24000 holds. Below, it increases the odds of a protracted, significant multi-month correction to 20500-22800.