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Operator: Thank you for standing by, and welcome to the Elders Limited FY '25 Results Investor Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Mark Allison CEO and Managing Director. Please go ahead. Mark Allison: Thank you very much, and welcome to all for the Elders' full year results presentation for the FY '25 financial year. And thank you for joining Paul and myself for the session today. As an overview, the full year results today are solid on a year-to-year basis with EBIT up 12%, transformational projects on track, positive progress on leverage and strong cash generation. Throughout the year, Elders has demonstrated solid operational and financial resilience in the face of mixed seasonal conditions. Our diversified portfolio through its national geographic footprint and multiproduct and service offering played a key role in mitigating the dry conditions across key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result. On the transformational project front, we've also made good progress on Wave 2 of our SysMod project with all states rolled out and bedded down by the end of this calendar year. We are also well progressed in the final components of this project with Wave 3, and the completion phase, Wave 4, advancing in full on time. Focusing now on the areas out of our control. The FY '25 season has been a problematic year from a seasonal viewpoint, with a drier than average and late start to the winter crop across Southern Australia, with credit to our highly diversified business model, this is offset by our agency business, our real estate services business, our financial services and our feed and processing services businesses. Rural products has seen some limitation with very dry conditions in Southern Australia and Western Australia. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, hard-working and committed team and enduring customer anchor as the most trusted brand in Australian agriculture on an unprompted basis has remained resilient. This result is strong in safety, sustainability and cash flow with the full year outcome approaching the midpoint of the EBIT guidance range provided earlier this year. Moving now to the Delta Agribusiness acquisition, which completed on November 3. This acquisition is fully aligned with the Elders acquisition rationale that delivered Titan Ag, AIRR and many other bolt-on acquisitions to Elders, with pre-synergies EPS accretion, enhancement of our technical and AgTech expertise and offerings, strengthening of our geographical diversification, particularly in New South Wales and Northwest Victoria, South Australia and Western Australia, building on our crop protection and animal health regulatory package portfolio to drive our backward integration strategy, providing an additional platform for retail segmentation, allowing greater customer centricity and providing further coverage for our real estate and financial service offerings. Moving on to the FY '26 outlook. We are very optimistic on the broad outlook for Australian agriculture at a seasonal and commodity level with the return to average conditions. In addition, we welcome Delta Agribusiness to our portfolio as a platform for significant growth. The outlook and fundamentals for livestock remains sound, with prices for sheep and cattle forecast to be supported by strong international demand against the backdrop of tightening supply. The combination of a positive seasonal and commodity outlook also provides a great backdrop for continued growth of our -- in our real estate and financial services businesses. It's worth noting at this point that our first 6 weeks of trading for FY '26 is tracking some 30% up on last year for the same time on an apples-to-apples basis. So this is without the inclusion of Delta that's come in on November 3. Our approach for today is that I'll provide an overview of the results. Paul will go to the detail of our financial performance, and I'll then provide an update of our outlook and growth and transformational initiatives as we deliver the final year of our Fourth Eight Point Plan. With this overview, I will now commence with the FY '25 full results presentation. So if we can move along to the next slide. The approach, as you see with the -- it's worth noting in the appendix that there's further detail and transparency on sensitivities, business model, et cetera. So why it's worth looking at. So kicking off on the executive overview on the slide committed to improving our safety performance. So from a safety viewpoint, at the core backward-looking metric of lost time injuries, there have been 6 lost time injuries this year, which is an increase from last year. Quite a disappointing result, predominantly in the livestock area. And so we have been able to significant reduce -- significantly reduce injuries across our manual handling and our rural products area. But a disappointing result. We continue to aim for zero injuries to anyone. I think it is worth noting that at the start of the Eight Point Plan process, there were 34 lost time injuries. So we've made significant progress over the Fourth Eight Point Plans, and the lost time injury frequency and the total recordable injury frequency, and you can see the trend on the second slide, are significantly below equivalent industry benchmark. Moving to the next slide, just a quick snapshot of the financial performance. You can see the underlying EBIT, some 12% up on last year. Our return on capital of 11.3%, holding stable and maintained strong cash conversion and the dividend per share payout. And moving to the next slide. So Paul will clearly go into the detail on the financials. Moving to the next slide, and this is over the Eight Point Plan years. And you can see significant return as committed in Eight Point Plan 1, 2 and 3. At the beginning of -- prior to Eight Point Plan -- the Fourth Eight Point Plan, we took the decision to invest heavily in our transformational projects. And there's some $100 million of cost and capital being spent through this period in order to drive our systems modernization project, our automated wool project and also our Crop Protection formulation project. So we knew that, that would drag on our cost of capital and resources and focus through that period, but critical transformational projects that we're at the process of completing, with the formulation process complete, the automated wool project complete and with SysMod running into Wave 3 and 4, which are the final 2 waves through next year. Moving to the next slide. And some of the work we're doing across -- with our people and communities. It's worth noting, again, 186 years of Elders in Australian -- regional rural Australia and agriculture. Unprompted remain the most trusted brands throughout all of these areas and with significant activity across -- with multiple activities across the business. From a safety viewpoint, very clear focus on safety from an engagement enablement viewpoint, as you can see, quite high engagement enablement, as have been for many years, and also a very high focus on safety throughout our people. Moving to the next slide. And just a quick look at the work we do from a sustainable responsible future viewpoint. Many of you are aware of our alignment across many environment, people and community projects and the work we've done with our sustainability report. And you'll note the very strong and aligned partnership with the Royal Flying Doctors. So from our viewpoint, this is who we are. This is core to our DNA, and we'll continue to invest and be highly engaged with our communities around Australia. Moving to sustainability. And our progress against the emissions targets with the next slide. And you can see the trend towards the emission targets we've set. We'll continue to work through these. As many of you will also be aware, there's been a reviewed methodology on emissions calculations from livestock. So we're working through that. But I think the point to note is that we're well on track. And if you take the time to read the sustainability report, I think you'll be very impressed with the progress we're making right across the board in this area. Moving to the next slide. And this is really to emphasize one of the changes that we've made this year. Historically, we've been diversified by product and service, and we've talked about that in our business model, and it's in the business model that appears in the appendix of this pack. But you'll see right through the supply chain from crop protection, through the wholesale with the Elders Rural Service, Delta Agribusiness and then real estate and feed and processing, there's a very solid diversification component that comes out of the business. And if you look through all the key investment drivers, and I think Paul will comment on many of these, very strong EPS growth, diversification. The industry fundamentals are looking very good. And I think it's one of the points that you'll hear us make a few times that we're at the stage now where we've moved through our transformational projects and the big cost of capital resource investment, and we've got an outlook of positive commodity conditions and also seasonal conditions. So we feel very, very optimistic about the next 3 to 5 years as we run through all of these. And finally, just as a quick recap before we jump into the deep dive into the financials. The next slide, just to recap on Delta Agribusiness that joined the group on the 3rd of November, a great business, well run, very complementary from a geographical viewpoint, and it fills many gaps that we did have, very strong in its technical expertise, which also complements Elders significantly. We're looking at $12 million of synergies at EBIT level over a 3-year period in the original business case. Now given that the ACCC have put on a 12-month delay, we're discussing around the Delta Board on how we can fast track this with regard to backward integration given the strong foundation of Four Seasons' brands or products at the moment. So that's a very positive opportunity to fast track those synergies, targeting greater than 15% post synergies from an ROC viewpoint and very much aligned to Elders -- across our approach to the business. And as we've said a number of times, as divisions, all the divisions are stand-alone. So with that, I'll pass over to Paul to go through the financials, and then I'll come back towards the end on strategy and outlook. Paul Rossiter: Yes. Thanks, Mark, and welcome, everybody. I'll commence on Slide 14 of the pack, which summarizes progress against key financial objectives. Highlights include: double-digit growth in our agency real estate and feed and processing businesses; below inflation cost growth when adjusted for acquisition and transformation; strong momentum in SysMod, as Mark referenced, with all states now live on Wave 2 retail, and Wave 3 livestock to commence rollout in early 2026; product and geographic diversification, mitigating the impact of dry conditions in Southern states; Delta Ag acquisition to further enhance our geographic diversification from FY '26 and strengthen our technical capability in ag tech and precision agriculture; leverage to return to target in FY '26 through a renewed focus on capital allocation and client profitability. I'll now turn to Slide 15, which displays Elders' 5-year financial performance. I note the following progress from FY '24. Sales revenue increased $70.4 million, or 2.2% despite mixed seasonal conditions supported both by acquisition and organic growth. Gross margin increased 7.4%, up $47 million compared to the prior corresponding period or PCP. Comparatively, costs increased 6.2%, noting this includes the impact from acquisition and is therefore not comparable to inflation. Costs will be further discussed later in the presentation. Underlying EBIT increased $15.5 million compared to PCP, but has declined over the 5-year period, with FY '25 impacted by dry conditions. Moving to Slide 16 now, which contrasts FY '25 against PCP. In addition, this slide details the impact on key financial metrics from capital held on September 30 in preparation for the completion of the Delta Ag acquisition, which occurred on November 3. Elders has delivered a resilient result with the following highlights evident. Sales revenue, up $70.4 million despite dry conditions in some key cropping regions, which thankfully ended in June. Gross margin increased $47 million, to $684.6 million, up 7% year-on-year, with growth achieved across most products. Underlying EBIT increased $15.5 million, to $143.5 million, supported by a strong turnaround in agency services and continued growth in real estate. Return on capital was steady at 11.3%, notwithstanding the mixed seasonal conditions and systems modernization CapEx weighing on this metric as the capital outlay proceeds benefits. Improving this metric in FY '26 is a key priority. Cash conversion was broadly in line with expectations with a favorable outlook for FY '26. Net debt increased $20.5 million, to $457.3 million, excluding capital held for the Delta completion, broadly in line with sales growth and the impact of higher cattle prices. I'll discuss these key metrics further as we move through the pack. Moving to Slide 17, which displays Elders' gross margin diversification, a key defense against seasonal variability. As noted, gross margin increased $47 million, to $684.6 million, with growth across most products more than offsetting the impact on crop protection from dry conditions. The key drivers of this result include agency gross margin up $27.1 million, or 22%, following a strong recovery in livestock prices and increased cattle volumes. The outlook for agency services remains positive, driven by strong international demand for protein as well as some destocking in drier regions, limiting supply and supporting prices. Real estate services gross margin increased $22.5 million, or 27.2% with property management, residential, broadacre and commercial all improved on PCP, supported by both acquisition and organic growth. Feed and processing was another highlight with gross margin up $4.1 million or 23.8% due to productivity and efficiency benefits from the new feed mill commissioned in August 2024. Financial services gross margin increased $2.3 million, or 4.2%, supported by continued growth in our new broker model alongside improvement in the livestock warranty product. An increase in on-balance sheet lending was also achieved, partially because of the increased cattle prices. Collectively, the increase in gross margin across these products more than offset the reduced earnings from the exit of the Rural Bank exclusivity agreement in FY '24. Wholesale products delivered a steady result, notwithstanding lower crop protection sales from those dry regions. Growth in the above products significantly outweighed the negative impact from crop protection, which will be discussed further on the following slide. Moving to Slide 18, which analyzes product performance. This slide demonstrates the importance of our product and geographic diversification. The waterfall forward efficiency chart shows the extent of dry conditions, especially in South Australia and Western Victoria, which negatively impacted Elders' retail business with sales, gross margin percent and client confidence, all impacted. Fortunately, seasonal conditions improved from late June which caused for optimism for a recovery in these regions in FY '26. Turning now to Slide 19 to discuss costs, which increased $11.4 million, or 2.2% when adjusted for acquisitions and the impact of transformation. Part of this increase resulted from the inclusion of Elders Wool in base costs from transformation in FY '24, which added an additional $3 million, or 0.6% to base costs. Given this change in categorization, holding base costs below inflation was a pleasing outcome. Turning now to Slide 20 to discuss return on capital, which was steady in FY '24 despite mixed seasonal conditions. When adjusted for the impact of acquisitions and transformational projects, return on capital is 12.7%. Lifting return on capital is a priority for FY '26 through a renewed focus on capital allocation, client profitability and delivery of SysMod benefits. In terms of capital allocation, Mark will speak to the potential divestment of the Killara Feedlot in the strategy and outlook section. Moving now to Slide 21. And working capital, where we see an increase of $68 million from FY '24, mostly driven by higher cattle prices, which increased working capital in feed and processing and financial services. Resale inventory increased $12 million from FY '24, a pleasing result given the late start to winter crop in key cropping regions, which caused an uplift in carryover inventory. This carryover inventory is forecast to clear in the first half of FY '26. On to Slide 22. And cash flow, where we see an operating cash inflow of $117.9 million, a pleasing result considering the late start to winter crop, which pushed some receivables to the fourth quarter. The outlook for operating cash flow and cash conversion in FY '26 is positive with a focus on client profitability to result in some receivables being transitioned to third-party lenders away from Elders' balance sheet. I note that the physical payment of company tax for Elders Limited will recommence in 2026. We'll now move to Slide 23 to provide a detailed update on net debt and leverage. The waterfall charts display a normalized net debt and leverage position, adjusting for the benefit of capital held at balance date in preparation for the completion of Delta Ag. Breaking down the movement in net debt, we see an increase from $436.8 million at the end of FY '24, to $457.3 million at balance date, acknowledging this includes the benefit of $50 million of equity retained for flexibility in acquisitions, approximately 40% of which was deployed in FY '25. I note that the majority of net debt pertains to client receivables, which is self-liquidating in nature. Excluding receivables funded through debtor securitization, Elders' core debt is $161.9 million. Turning to leverage. We see a reduction from 3.1x at the end of FY '24, to 2.9x, normalized for Delta funds held. A return to our target range of 1.5 to 2x is forecast in FY '26 from a renewed focus on capital allocation and client profitability and increased referral of client loans to third-party lenders given trade receivables comprise almost 2/3 of net debt. I note that the return to target leverage is underpinned by but not dependent on the potential sale of Killara Feedlot. I'll now move to Slide 24, where we see significant headroom across banking covenants, noting that these calculations do not require adjustment for the capital held for the completion of Delta Ag. I also note that our bank leverage covenant excludes receivables funded through debtor securitization given their self-liquidating nature. I'll now move to Slide 25, which provides a macro overview of key growth pillars over the coming years. This slide has been included to demonstrate significant growth opportunities and focus areas over the coming years and is not meant to be exhaustive. Regarding systems modernization, Elders has now commenced the final wave of its SysMod program, which once completed, will provide Elders Rural Services with a modern technology platform in Microsoft Dynamics, which itself is evolving at pace. Delivering a return of at least 15% on the program spend is both a high priority and significant growth pillar in the coming years. The acquisition of Delta Ag represents a significant milestone for Elders, increasing points of presence and geographic diversification while enhancing Elders' technical expertise in ag tech and precision agriculture. Accelerating synergies from backward integration in crop protection and animal health are key priorities for FY '26, as Mark noted. The divisional structure is aimed at improving focus and accountability within significant business units. By way of example, real estate services gross margin has grown $45.6 million, or 77% since FY '23, but market share remains less than 5% nationally. We believe the divisional model will help accelerate growth in this and other business units. Acquisition will remain a growth pillar alongside organic growth, provided acquisition prospects meet our financial and values criteria. Finally, the new Elders' brokerage business is noted as a growth pillar, given success to date with our brokered loan book exceeding $1.3 billion from a near standing start in FY '24. Gross margin from loan brokerage has increased from $0.9 million in FY '23, to $6.1 million in FY '25 at a CAGR of 160% with our network of brokers expanded further in recent months. This concludes the financial section of the presentation. I'll pass back to Mark now, who will provide an update on strategy and outlook. Mark Allison: Thanks, Paul. And really leading off from Paul's comments on the divisional structure, just going to Slide 27 as we look at the Fourth Eight Point Plan. And historically, we've expressed the Eight Point Plan in terms of the diversification of our products and services. And we're now looking at the Eight Point Plan in terms of the 6 divisions of Elders and how that diversification across the matrix of products and services adds further to our ability to work through difficult seasonal conditions. So when you look at the -- this is the final year of the Fourth Eight Point Plan, we've had the ambition of 5% to 10% growth in EBIT and EPS through the cycles over an Eight Point Plan. Clearly, as we -- at above 15% return on capital. Clearly, as we come into a taxpaying state in the next financial year, the EPS growth ambition will need to be adjusted accordingly. But -- and we've emphasized the impact that the transformational part of our agenda over these 3 years has had from a cost of capital and resource on the business. But we're setting us up now for a very solid platform with all the transformational projects coming to a close as we go forward for the next 3 to 5 years. Going on to the next slide. And we -- our view and our move to go to a divisional structure, effective the beginning of FY '26, was really around the fact that each of these areas of the businesses had largely been run as either stand-alone or with a particular focus and emphasis through the governing Board or management team. So as we've laid them out, we've laid them out in order of supply chain, starting with Elders Crop Protection. very experienced managers right across all of the divisions. So Elders Crop Protection with Nick Fazekas. This includes our Titan Crop Protection business and our formulation businesses in Eastern Australia and Western Australia with AgriToll and Eureka. And it's a specialist crop protection business as per Nufarm, Adama, et cetera, et cetera. Then we move the next step along the supply chain to our wholesale business, with Peter Lourey. And this has -- I think you're all aware of AIRR, with multiple touch points and membership base throughout Australia for the AIRR business, and its highly efficient and effective warehouse network throughout Australia. Next, as we go to retail, we have Elders Rural Services, which has a complete offering of retail products, agency products, real estate, financial, et cetera, right across the board. And that business at the moment, since the split of divisions, I've been acting as the divisional CEO for ERS. And very shortly, we'll have an upgrade to that appointment, and we'll announce that in the next few weeks. The next business, again, Gerard Hines running Delta Agri business, very experienced and competent manager and co-founder of the business and with an excellent executive team. So the Delta Agri business doesn't have -- sorry, has a much greater focus on cropping technical service with some additional services -- products and services, but very well run, and looking forward to a period of strong growth and profitability across the board. Elders Real Estate. So Tom Russo had previously run the product of real estate before he ran the Elders network. And so we thought it was appropriate for him to take control of the separate dedicated division. The idea here is that Elders Real Estate has grown significantly, and we'll talk about the growth profile, some slides coming up. Tom is a highly experienced professional in this area, across a number of areas as well, has been the guardian of the expansion of the property management component of Elders Real Estate and also our entry into commercial real estate, which we kicked off a big time in Tasmania. So lots of growth opportunity there, highly dedicated manager and executive team and pretty exciting. And then feed and processing, that, we talked about with Andrew Talbot, another highly experienced manager with a great team. He's grown the profitability of feed and processing fivefold since the First Eight Point Plan, have done an excellent job. The record profitability of this division this year is based on a number of the investments we've made historically with feed mill, center-pivot irrigation, shading, a bunch of investments that have enhanced well [indiscernible] productivity. And it's a very, very well-run business in the portfolio. The consideration we've had with feed and processing is actually if you look across that supply chain, feed and processing is a different business to the others. And our thinking is that it's been highly successful. It's grown significantly. We've invested significant capital and got good returns as we saw with record profitability this year. But we've reflected on whether feed and processing would do much better and go to the next level with under natural ownership. And so that's the reason we're considering a divestment of the feed and processing division. And if the moons align and there's an appropriate shareholder value-creating proposition put in front of us, we'll consider it strongly. And I'll just reiterate Paul's earlier comment that our pathway to back on leverage and to a lesser extent -- well, actually, on leverage is the key metric we're thinking about, is not dependent on the divestment of feed and processing. So if the exercise comes up with options that are not to enhance the shareholder value, then obviously, we're very happy, and it's a great business and a great team to be in the Elders Group. So moving to the next slide. And if we look at the modernizing of the platform, we've talked about SysMod. We gave a commitment from a transparency viewpoint to disclose each of the cost of capital components of each of the waves as the Board approved business cases, so when it was formally approved. And we've done that. But you can see -- and if we include Wave 1, there's some $100 million to $110 million investment over this period. And this is the period in that slide that we talked about upfront, where from '22 -- FY '22, where we have had considerable transformational investment. Now with all of these investments, as we've seen with Killara on the capital investment there, there is a lag. And so the benefits of these investments are coming through now, in FY '26. And as we close off SysMod at the end of FY -- calendar FY '26, we look forward to those investments coming through into the future. And I think it's worth noting that this does really set Elders up with a contemporary platform where we can take advantage of multiple AI opportunities that historically we haven't been able to. So just looking to the next slide and running through each of the waves and the different components of the waves. That's really for information. But as I mentioned, the plan is that we'll complete these. We're still running in full on time, which I know sounds amazing for an IT project, but we're still running in full on time, and it's -- we're looking for the finish line as we run out next year. Okay. Now moving to the next couple of slides. In the next 2 slides, we've wanted to showcase a couple of products and services just to put more of a spotlight on them. And for this presentation, we picked financial services and real estate, which we had covered in the half year. But really to emphasize, in terms of the balance of our portfolio, products and services, we've now -- clearly, we've strengthened our position across the whole supply chain and real products, from Elders Crop Protection, to wholesale, to retail, all the way through and technical service. And in our portfolio, we're looking at really strengthening and rebalancing our financial services, all capital and real estate. So the characteristics of both of these services, as we look at them, and it fits nicely in our portfolio management, a high return on capital. We have a relatively low market share in both, financial services and in real estate. The brand is important. So unprompted most trusted brand in Australian -- regional, rural Australian agriculture. So the Elders brand is critical. There's excellent market outlook in both areas. And obviously, there are links to livestock outlook and general commodity outlook, but a strong outlook, and it really does help us balance the portfolio. So just a quick a quick look at financial services. And you can see, in line with Paul's comments, solid growth, replacing the Rural Bank exclusivity agreement and growing in a capital-light manner. So -- and we can go to questions on that in detail. The next slide on real estate. Very, very similar profile. And I think the gems that are probably not as obvious for everyone. One is the product -- sorry, the property management business. We have some 20,000 properties that we're managing now across Australia, which is a very solid and reliable flow for us and also our entry into the commercial real estate only in regional, rural Australia. So very, very positive platforms. And in terms of portfolio balance, a bit -- quite nuanced, and this is how we run Elders as you -- many of you are very aware. So then going to the forecast and outlook across all of the areas on the next slide with -- without going through each one of them, and [indiscernible] each one of them on the next slide. You can see our thinking is that we've had a period of difficult market conditions and significant transformational investment. We've come through that period. We've lagged benefits from the transformational investment. Right now, we're confronted with the next 3 to 5 years, we're looking at completion of the transformational projects, the commodity outlook and the seasonal outlook being average to positive and our ability to really hone in division by division to grow, to drive the capital out, as Paul mentioned, from a leverage viewpoint and to enhance the business for strong growth against the backdrop of average to good seasons. So it feels very positive. For the first 6 weeks, as I mentioned, of this trading year, FY '26, apples-with-apples. So with that, Delta included, we're up some 30% on the previous year. So very early days. But I think it does fall into the -- our thinking and how we've been talking about our outlook for FY '26 going forward. So with that, I think I'll open up for questions. So we'll just leave that slide on the screen, and we'll open up for questions. Operator: [Operator Instructions] Your first question comes from James Ferrier from Canaccord Genuity. James Ferrier: First question I wanted to ask you about was just on your view on livestock volumes in the year ahead, just in the context of the volumes that were achieved in FY '25 as a baseline, herd sizes as they stand right now. I mean everyone can see the livestock prices, but what's your view on volumes in the year ahead? Paul Rossiter: Yes. Thanks for the question, James. And it is one where there is a little bit of uncertainty going forward, I think particularly in sheep volumes. And just for those who don't know, we saw certainly higher cattle volumes in FY '25, up about 13%. Sheep volumes were down about 8.1%. So we do see that rebuild coming through SA and Western Vic, and that's likely to drag on sheep volumes into FY '26. Cattle is a little bit different just because of the geographical footprint. But it is one to watch. But what we do expect is that if volumes do taper off in sheep, we expect prices to offset because the international thematic for Australian protein remains very strong. And so we just see that price being flowing through the supply chain. James Ferrier: Yes. That makes sense. Second question, on Slide 17. We can see there that crop protection gross profit declined 9% on PCP. What was the volume of product associated with that $129 million of gross profit? Paul Rossiter: Yes, I don't have a volume number to hand, James. So I'll see if I can cover that post. But I will speak to the impact of dry conditions. So we did note a roughly $12 million impact from SA and Vic, [ Riv ] at the half. We saw that continue into the second half, mostly in Q3. We think the impact was roughly $19 million volumes. Yes, we're certainly up in Northern New South Wales, obviously down in SA and Vic, but I don't have the net numbers here. Mark Allison: I think, James, the story is on margin compression as you've seen with other businesses and the sales that we experienced particularly in the dryer areas. James Ferrier: Yes. Okay. Understood. And last one from me and probably one for Paul again. Just some thoughts on D&A, CapEx, interest and tax for the year ahead. Paul Rossiter: Yes. Look, depreciation, well, will increase given the completion of Wave 2 and the commencement of the continued amortization of SysMod CapEx. In terms of CapEx outlook, once again, in FY '26, it is dominated by SysMod. Some of Wave 4 will fall into FY '27, as you can see on the SysMod slide. So it's a bit uncertain, but we think -- I'd say, sort of $20 million to $25 million will fall from SysMod into FY '26 and perhaps another $5 million to $10 million outside of that. In terms of tax, so we will pay a small amount of tax, about $1 million following the submission of the FY '25 tax return. So it will be in February 2026, and then we'll pay effectively pay-as-you-go company tax thereafter. I think your question may be referring to the statutory tax rate, which fell in FY '25. That was pertaining to a tax credit related to prior period for R&D. So that's likely to be nonrecurring. Operator: Your next question comes from Richard Barwick from CLSA. Richard Barwick: Can I just double check, when you're talking SysMod -- and obviously, it looks like some benefits from an EBIT perspective are expected in FY '26. Are you able to put some numbers around that? And then equally, what you would see as the non-underlying OpEx impact from SysMod in '26? Paul Rossiter: Okay. So yes, thanks for the question, Richard. So in terms of benefits, the major tranche of benefits is through an uplift in retail margins. And we see that coming from better control of discounting and better categorization of clients. And just for context, a 1% uplift in retail gross margin percent is about $22 million. So 0.5% uplift there gets us fairly close to the benefits required. The other benefits we see coming from uplift in sales, and that comes from better client data over time, but probably longer dated than the retail margin benefits. In terms of non-underlying OpEx for FY '26, so if we work on roughly 60% CapEx, 40% non-underlying OpEx, over that sort of $20 million to $25 million in FY '25. Richard Barwick: Okay. And my other question is to do with the -- there's quite a sizable impairment of goodwill obviously captured within this FY '25 result. Can you just give us a little bit more background exactly what that related to, please? Paul Rossiter: Yes. So there's a couple of businesses that we impaired, both which were reported on during FY '25. So one was Currin Co, where we lost a number of agents in Victoria. The other was Esperance Rural. Yes, we had, I suppose, an unsuccessful transition post earnout. Mark Allison: I think, Richard, it's -- one of the learnings is that, as you know, we've been highly successful with our acquisition -- bolt-on acquisition template in keeping the vendors in the business. And when we do our post-implementation reviews post earnout, it's been 95% plus positive. And we've identified in the last 12 months, whether it's through tougher conditions or whatever the driver is, that the 2 years post earnout is now an area that we need to really focus on in terms of potential loss of staff as we saw with -- actually, it was longer than 2 years with Currin Co, where the vendor leaves the business, the earnout is completed. Historically, we've seen that in business as usual within ERS. And we've now established a project a couple of months ago to identify how we ensure that we don't get a repetition of that situation because it had been a very high success rate of post earnout of keeping the people. Richard Barwick: And well, I guess it's -- the obvious question is, what are the risks? I mean, obviously, you've got something in place here to try and to mitigate it, which would suggest you are a bit concerned that this could repeat with some -- because I mean you made a lot of acquisitions in the last few years. Yes, how do we think about that risk? Mark Allison: Yes. Well, I think the -- a couple of points, is that if there is -- like something in the order of 100 bolt-on acquisitions, and we've had 2 or 3 like this. Clearly, the Currin Co was a larger one. If you like a sense of Shakespearean irony, the Esperance rural supply defection was to Delta. I'm sure you enjoy that. But the -- I think the materiality of it has dropped off because we aren't pursuing the same sort of strategy on bolt-on acquisitions that we had, as you're aware, given that the rural product supply chain is pretty complete and also given that the ACCC regime is hard to unscramble to do business. The -- our sense is that, that won't be where we'll be getting our growth from. It will be more organic. But I think the issue is that post earnout, the -- and we have time. We have 2 or 3 years each time. We have to have the business as usual hooks and retentions in place for these people. Because as you know, in regional, rural Australia, the personal relationship goes a long way. Operator: Your next question comes from Ben Wedd from Macquarie. Ben Wedd: Maybe just turning to your question -- your comments around capital allocation there and particularly with the potentially moving some of the receivables into third-party lenders there. I'd just be interested in sort of, I guess, any timeframes you can give around that and how that sort of looks from an operational standpoint. Paul Rossiter: Yes. Thanks, Ben. Look, it is something -- and I think the way that I'd explain it firstly is that we are taking a return on capital approach. So where we're not seeing, I suppose, a deep relationship with clients that warrants the use of Elders' balance sheet, then we'll look to obviously do that business with the client that use third-party financiers. So we do see this as certainly something that has commenced already. It's a process that's commenced. And that will roll through FY '26 and beyond. But it won't be something that we seek to do hurriedly either. So it will be an incremental thing over a number of years with a significant start in FY '26, particularly in the fin services and seasonal finance areas. Ben Wedd: Yes. Got it. And then maybe just any comments you can sort of give us around Delta's sort of performance over the last 12 months as it might compare to Elders as well in some of those key categories like ag chem and other cropping areas. Paul Rossiter: Yes. Thanks, Ben. So I mean, just a couple of comments. I think the first thing to note is that Delta's financial year is June 30, and their footprint was very exposed to dry conditions that occurred in FY '25. So I think there are a couple of key distinctions between Delta and Elders. The other being, Elders obviously had an offset in livestock agency that doesn't exist to the same extent in Delta. Yes, so the Delta result was impacted certainly more than Elders by the dry conditions. Trading, since it started raining in July in Delta has been above -- certainly above PCP. So yes, that business is operating very well. Operator: Your next question comes from Evan Karatzas from UBS. Evan Karatzas: Maybe just to follow up on that one then, so sort of the ASIC accounts for Delta. So the EBITDA went from sort of the $53 million to $40 million. Can you sort of just give a bit more information around if you expect that original FY '24 earnings to be realized assuming, I guess, normal conditions? And then anything you can say around the synergy benefit we should expect in '26 for Delta as well? Mark Allison: Yes. I think the key point for us is that what we experienced as the turnaround from these dry conditions was outside the Delta financial year. And so that's what we've experienced ourselves. Just as a note, prior to going to the next phase on the acquisition a few months ago, we -- so Paul, myself and the Chair of the time, Ian Wilton, sat down with the Delta management team to go through their FY '25 results, just to give ourselves comfort that our proposition and thesis on the acquisition remained on track. And after the presentations, discussions, I think, Paul, it's fair to say that we felt very, very comfortable. In terms of your question on the synergies, I think it's a key point for us. We've already had meetings with the team, with [ Jarred ] and Matt and Chris and the team around the synergies. We had planned for 12-month -- sorry, a 3-year development of the -- or extraction of the $12 million synergies. Our belief is that given the timing, given the November 3 timing and the proximity to the FY '26 winter crop that we do have time to do a lot of the work that we wouldn't have been able to do if it had been in the same period the previous year. So our sense is that we can fast track those synergies and bring them through. And as you know, they're largely crop protection. They're largely providing different crop protection supply chains out of Titan into the Four Seasons brand. And with Steve Hines, the person who runs that business within Delta, there's great alignment with Nick Fazekas, who runs the overall crop protection business. So we've established the governance structure, the Board structure, et cetera, around Delta and all the divisions. And again, I feel pretty comfortable and optimistic that we will get -- we will optimize the synergies in FY '26. Evan Karatzas: Okay. And just final question. Just with the debt position, can you provide a number of -- to sort of normalize it if you remove the reduction in carryover inventory in SA, Vic and removing or transitioning some of the select client loans from Elders' balance sheet to third parties, just so we can sort of look for an adjusted or a like-for-like debt position, please? Paul Rossiter: Yes. Look, just very high level and back of envelope, I would say the carryover inventory, I've put a number of around $30 million on that, which we expect to be resolved in the first half. In terms of -- I'll put another bucket in there, Evan, in terms of overdue debtors, we think there's a $20 million to $25 million opportunity there. You may have noted that we have had a $10 million increase in 90-day plus receivables. That is 2 clients -- 2 large clients, that we expect to be resolved in FY '26. So we feel that we're at a peak in terms of overdue receivables as well. And then you've got -- in terms of client receivables or client loans, seasonal finance and loans, I've put a number of sort of around -- a target of around $50 million across financial services and seasonal finance. Evan Karatzas: Okay. That's super helpful. Maybe just a quick one, I'll just sneak it in. The 1Q comments you made, do we assume you're up 30%? Do we assume we're sort of back close to that? I think you previously mentioned, like, a through cycle 1Q average EBIT was around $37 million. Is that sort of where we're, I don't know, trending towards or run rating towards? Paul Rossiter: Yes. And I think the -- in terms of tailwinds in the business, Evan -- so I think the -- certainly, livestock prices are up relative to year-on-year. I'd say that tailwind will moderate the further we get through the financial year. Obviously, livestock prices increased throughout FY '25. But I think in terms of the Q1, it goes back a couple of years, when we gave that number, obviously noting that's not audited. But yes, it's a fair comment. Operator: Your next question comes from Paul Jensz from PAC Partners. Paul Jensz: Just one at the top, Mark, if I can. You talk about the 5% market share you have in the wider farm input space. Can you see some additions to your business or the Elders business? Or is it a case of organic growth from where you are to get a larger part of that pie? Mark Allison: Yes. Thanks, Paul. So when you say the larger rural products, are you referring to finance? Paul Jensz: Right across the board. You had a chart there with the Delta acquisition where you're a small part of a very big pie in farm inputs. and you've got the new structure that you have. I'm just wondering where to from here if you're just such a small part of the pie? Mark Allison: Okay. Yes. So that broader pie includes fuel, like all the finance, et cetera, et cetera. So a whole heap of services that we're not in. So I think our focus with -- well, I think it's -- the focus that Delta has had for a long time, will continue on, where it's a service-based customer-centric approach across the board. Delta is very small in Queensland and -- but ERS is also not that strong in Queensland. So there are geographical gaps, but it will largely be sticking to the knitting of what each of the divisions does best. And in that -- in the case of Delta, although it's got some broader offers, the focus is around that very technical rural products-based customer centricity. Paul Jensz: And that's across the broader Elders business as well, if I look at the new structure that you have? It's really just sticking to the core business? You don't see another bolt-on there? Mark Allison: No, I don't think so. I think our view is that the -- any deviations, slight deviations from where we are now, we've talked about in the Elders Real Estate business, it's around strengthening our commercial real estate in regional rural Australia area, continuing to build on our property management business, which is a really solid good business. I think in ERS, there's a lot of -- in the traditional pink-shirted DRS front end, there's a lot of efficiency. Because we've just put SysMod through ERS, they've got the front-end point of sale across all the branches across Australia. So it's really around all the efficiencies that we promised and controls. And again, customer understanding that Paul talked to in terms of data, that ERS hasn't been doing in the past. In terms of Elders Crop Protection, I think the focus will be some -- a little more on integration because the formulation businesses run stand-alone to the traditional Titan business. So we'll slowly move around integration there on systems. And then feed and processing, really, we're looking at ways of expanding efficiency with acquiring extra land with some increased backgrounding, many of the efficiency programs that we've had previously. So across each division -- and I guess it goes to the point of why having focused divisions makes so much sense. Because each of them have their own nuance, their own focus, and it allows the management teams to really drive the efficiency and profitability. Paul Jensz: Okay. And then if I -- just a second question, if I can, if I build the building blocks towards, let's say, 2027, '28 numbers that consensus have, it doesn't seem to be a lot of, I suppose, underlying organic growth if you do the SysMod 250 staff that came across with the bolt-ons, Delta and the small free kit you get from '25, some of the earnings come into '26. So I'm interested in that organic growth number because I don't think consensus has got a big number in there for it and neither do I at the moment. Mark Allison: Yes. Well, I'm not sure how the -- what the assumptions are on the models. But I do know from a -- I mean, if backward integration is organic growth, and we certainly see it that way, the backward integration opportunity for ERS still has 10-or-so percent to go of the available generic portfolio and the -- just in crop protection and in Delta, there's probably 40% to go. So I think from us doing things that we control, not relying on market conditions, there's a lot of -- and then you've got also the benefits, the lag benefits of the transformational projects. But yes, your observation is probably right, Paul. Paul Jensz: And the final one, I thought others would ask this question, Mark, but I'll do it. The press -- I love talking about management transition, Mark, and your term comes up at the end of next year. I'm interested in whether you could return fire with what the press, like, talking with management change. Mark Allison: Yes. No, I thought the comment in the Australian was relatively accurate. I said when we refreshed the Board and I stayed -- I decided to stay, I said the earliest that I'd leave would be at the end of this Eight Point Plan, so that's September next year. And that's still the case. And it's not a term in the contract. It's an ongoing contract. So basically, my position has been that as a minimum, I'll stay to the end of the Eight Point Plan. Operator: Your next question comes from John Campbell from Jefferies. John Campbell: Firstly, just for clarity, what's the dollar value of adjustments that you've made to arrive at adjusted EBIT? Paul Rossiter: So you're -- in the investor presentation, John? John Campbell: Yes. Yes, it just said $143 million, just for clarity. So I know what we're adjusting. Paul Rossiter: Okay. I might just come back offline on that. So we do have -- we've got a list in the annual report, but yes, I'll come back on that offline. John Campbell: Yes. I can see where you've got that in the accounts. I just wasn't 100% sure which is included in your adjustment calculations. But I think we've got a call on this afternoon, Paul, so we can maybe touch base then. And just Mark, around -- and you sort of touched on it, but I presume with the improving seasonal conditions in the Southern regions that impacted in FY '25, in terms of that competitive intensity in crop protection that you've been talking about, I presume you see FY '26, so that sort of level of intensity and price competition and the like abating over the course of '26? Mark Allison: Yes. I think there are probably 2 components that leads us to think that way. One of them is around the seasonal conditions, as you just mentioned. And the second one is the stabilization of COGS out of Chinese factories. So the idea of lower priced cost of goods coming into Australia and then driving market price down, that doesn't seem to be where it was. Earlier, I think 6 months ago, we were concerned that tariffs on Chinese crop protection into North America may drive dumping of product in Australia and therefore, further drive prices down. If you're caught with high-cost inventory, you're obviously going to be screwed from a margin viewpoint. But our sense is that it's stabilized. And regardless, even a stabilized normal season environment, Australia has the lowest crop protection prices for all around the world. And it's not uncommon for multinational companies to divert product from Australia to Europe because they can make so much more money out of the same active ingredient. John Campbell: Okay. So that all augurs pretty well for crop protection for '26? Mark Allison: It looks like -- yes, as I said, I think we're pretty optimistic, both commodity season and the back of the transformational projects. Operator: Your next question comes from Mark Topy from Select Equities. Mark Topy: I just wanted to ask a question around the property side, the retail, the growth and both in the gross margin and the sort of volumes and some expectation around that and maybe some breakdown between what's organic and what's been achieved by acquisition because you clearly got a very strong growth rate. Can you give us some sense of how that looks going forward now? Paul Rossiter: Yes. Thanks, Mark. So just for clarity, so that was for real estate services. Mark Topy: Yes. Paul Rossiter: Yes, yes. So look, we -- in terms of growth, we see roughly the split between acquisition and organic, about 60% acquisition in F '25, 40% organic. I do note that one of the significant benefits from the acquisition of Knight Frank was to substantially grow our commercial real estate business. It also introduced a valuations business to the group as well. So when we think about real estate growth, it is across residential properties under management, broadacre, commercial and now valuations. So there's a few strings to the bow there. I'd also just make a comment in regards to broadacre. It did grow, but very fractionally in F '25, that part of the book was held back by the dry conditions in South Australia and Victoria. We do expect sort of pent-up vendor demand as those regions improve. Mark Topy: Right. Just thinking about the Tasmania market, kind of, say, how much growth opportunity do you see in that market going forward? Mark Allison: Yes. I think with Tasmania per se, I think it's -- it would be incremental growth. But I think the big benefit of that acquisition, which is the old Knight Frank business, is the commercial real estate knowledge, networks, et cetera, in the Mainland. And we're already seeing that is very, very important. So there are many contacts and insights that we didn't have on commercial real estate that we've gained from that business that is really helpful in our approach to Mainland expansion in commercial real estate. Mark Topy: Great. And just on the Delta side then, can you just talk to the systems and system harmonization in terms of what's being done in the Elders and whether any CapEx might be required if you like to harmonize Delta in line with Elders? Mark Allison: Yes. So the SysMod project is predominantly Elders'. And our approach at the end of Wave 4 when we switched off the AS400, and we're completely on Microsoft Dynamics 360 -- 365, sorry, we might have got a discount. Definitely not. So from that point forward, each of the acquisitions or each of the other divisions, whether that be AIRR, Elders Crop Protection or Delta, will be business case-based. So if there's a business case from the Delta Board around aligning, enhancing systems, then it will be treated on a return on capital business case basis. And we want to take it to business as usual because it's not just an ideological, everything has to be on the same system. This is all around return to shareholders. And all the systems that they're all operating on are fine. Mark Topy: They're all fine. Okay. I was going to say. And then in terms of -- I know you want to accelerate the Delta, but in terms of any risk areas, in terms of that integration, I noticed, for instance, they've got -- they're using different property managers. Do you perceive any sort of issues in migrating Delta across to Elders in that regard? Mark Allison: No. Well, I mean, it's all going to stay the same. So there's -- in terms of backup and stuff, which I think you're talking about. So we've got a mandatory integration. We've got a [ might ], and then there's a light touch component of it. Each of those are being developed with project teams between the businesses. So the -- our view is that it's a well-run business. It's got good management. It's got a strong Board governance to set the direction, and we'll be making the right decisions for the right reasons rather than any kind of ideological control-based decision. Of course, the mandatories around safety, financial transparency, regulatory compliance and so they're mandatories, as you'd expect. Operator: Unfortunately, that does conclude our time for questions. I'll now hand back to Mr. Allison for closing remarks. Mark Allison: Okay. Well, thank you very much to everyone. I did note that we have a couple more in the queue. So apologies to those. Paul and I have a back-to-back with all Elders staff. So 2,000 or 3,000 people will be waiting on the line for 5 minutes. So we've had to call it there. So for those that we haven't been able to talk to, we look forward to talking to you in our one-to-one sessions. But I appreciate everyone coming in, and thank you very much. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Elders Limited FY '25 Results Investor Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Mark Allison CEO and Managing Director. Please go ahead. Mark Allison: Thank you very much, and welcome to all for the Elders' full year results presentation for the FY '25 financial year. And thank you for joining Paul and myself for the session today. As an overview, the full year results today are solid on a year-to-year basis with EBIT up 12%, transformational projects on track, positive progress on leverage and strong cash generation. Throughout the year, Elders has demonstrated solid operational and financial resilience in the face of mixed seasonal conditions. Our diversified portfolio through its national geographic footprint and multiproduct and service offering played a key role in mitigating the dry conditions across key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result. On the transformational project front, we've also made good progress on Wave 2 of our SysMod project with all states rolled out and bedded down by the end of this calendar year. We are also well progressed in the final components of this project with Wave 3, and the completion phase, Wave 4, advancing in full on time. Focusing now on the areas out of our control. The FY '25 season has been a problematic year from a seasonal viewpoint, with a drier than average and late start to the winter crop across Southern Australia, with credit to our highly diversified business model, this is offset by our agency business, our real estate services business, our financial services and our feed and processing services businesses. Rural products has seen some limitation with very dry conditions in Southern Australia and Western Australia. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, hard-working and committed team and enduring customer anchor as the most trusted brand in Australian agriculture on an unprompted basis has remained resilient. This result is strong in safety, sustainability and cash flow with the full year outcome approaching the midpoint of the EBIT guidance range provided earlier this year. Moving now to the Delta Agribusiness acquisition, which completed on November 3. This acquisition is fully aligned with the Elders acquisition rationale that delivered Titan Ag, AIRR and many other bolt-on acquisitions to Elders, with pre-synergies EPS accretion, enhancement of our technical and AgTech expertise and offerings, strengthening of our geographical diversification, particularly in New South Wales and Northwest Victoria, South Australia and Western Australia, building on our crop protection and animal health regulatory package portfolio to drive our backward integration strategy, providing an additional platform for retail segmentation, allowing greater customer centricity and providing further coverage for our real estate and financial service offerings. Moving on to the FY '26 outlook. We are very optimistic on the broad outlook for Australian agriculture at a seasonal and commodity level with the return to average conditions. In addition, we welcome Delta Agribusiness to our portfolio as a platform for significant growth. The outlook and fundamentals for livestock remains sound, with prices for sheep and cattle forecast to be supported by strong international demand against the backdrop of tightening supply. The combination of a positive seasonal and commodity outlook also provides a great backdrop for continued growth of our -- in our real estate and financial services businesses. It's worth noting at this point that our first 6 weeks of trading for FY '26 is tracking some 30% up on last year for the same time on an apples-to-apples basis. So this is without the inclusion of Delta that's come in on November 3. Our approach for today is that I'll provide an overview of the results. Paul will go to the detail of our financial performance, and I'll then provide an update of our outlook and growth and transformational initiatives as we deliver the final year of our Fourth Eight Point Plan. With this overview, I will now commence with the FY '25 full results presentation. So if we can move along to the next slide. The approach, as you see with the -- it's worth noting in the appendix that there's further detail and transparency on sensitivities, business model, et cetera. So why it's worth looking at. So kicking off on the executive overview on the slide committed to improving our safety performance. So from a safety viewpoint, at the core backward-looking metric of lost time injuries, there have been 6 lost time injuries this year, which is an increase from last year. Quite a disappointing result, predominantly in the livestock area. And so we have been able to significant reduce -- significantly reduce injuries across our manual handling and our rural products area. But a disappointing result. We continue to aim for zero injuries to anyone. I think it is worth noting that at the start of the Eight Point Plan process, there were 34 lost time injuries. So we've made significant progress over the Fourth Eight Point Plans, and the lost time injury frequency and the total recordable injury frequency, and you can see the trend on the second slide, are significantly below equivalent industry benchmark. Moving to the next slide, just a quick snapshot of the financial performance. You can see the underlying EBIT, some 12% up on last year. Our return on capital of 11.3%, holding stable and maintained strong cash conversion and the dividend per share payout. And moving to the next slide. So Paul will clearly go into the detail on the financials. Moving to the next slide, and this is over the Eight Point Plan years. And you can see significant return as committed in Eight Point Plan 1, 2 and 3. At the beginning of -- prior to Eight Point Plan -- the Fourth Eight Point Plan, we took the decision to invest heavily in our transformational projects. And there's some $100 million of cost and capital being spent through this period in order to drive our systems modernization project, our automated wool project and also our Crop Protection formulation project. So we knew that, that would drag on our cost of capital and resources and focus through that period, but critical transformational projects that we're at the process of completing, with the formulation process complete, the automated wool project complete and with SysMod running into Wave 3 and 4, which are the final 2 waves through next year. Moving to the next slide. And some of the work we're doing across -- with our people and communities. It's worth noting, again, 186 years of Elders in Australian -- regional rural Australia and agriculture. Unprompted remain the most trusted brands throughout all of these areas and with significant activity across -- with multiple activities across the business. From a safety viewpoint, very clear focus on safety from an engagement enablement viewpoint, as you can see, quite high engagement enablement, as have been for many years, and also a very high focus on safety throughout our people. Moving to the next slide. And just a quick look at the work we do from a sustainable responsible future viewpoint. Many of you are aware of our alignment across many environment, people and community projects and the work we've done with our sustainability report. And you'll note the very strong and aligned partnership with the Royal Flying Doctors. So from our viewpoint, this is who we are. This is core to our DNA, and we'll continue to invest and be highly engaged with our communities around Australia. Moving to sustainability. And our progress against the emissions targets with the next slide. And you can see the trend towards the emission targets we've set. We'll continue to work through these. As many of you will also be aware, there's been a reviewed methodology on emissions calculations from livestock. So we're working through that. But I think the point to note is that we're well on track. And if you take the time to read the sustainability report, I think you'll be very impressed with the progress we're making right across the board in this area. Moving to the next slide. And this is really to emphasize one of the changes that we've made this year. Historically, we've been diversified by product and service, and we've talked about that in our business model, and it's in the business model that appears in the appendix of this pack. But you'll see right through the supply chain from crop protection, through the wholesale with the Elders Rural Service, Delta Agribusiness and then real estate and feed and processing, there's a very solid diversification component that comes out of the business. And if you look through all the key investment drivers, and I think Paul will comment on many of these, very strong EPS growth, diversification. The industry fundamentals are looking very good. And I think it's one of the points that you'll hear us make a few times that we're at the stage now where we've moved through our transformational projects and the big cost of capital resource investment, and we've got an outlook of positive commodity conditions and also seasonal conditions. So we feel very, very optimistic about the next 3 to 5 years as we run through all of these. And finally, just as a quick recap before we jump into the deep dive into the financials. The next slide, just to recap on Delta Agribusiness that joined the group on the 3rd of November, a great business, well run, very complementary from a geographical viewpoint, and it fills many gaps that we did have, very strong in its technical expertise, which also complements Elders significantly. We're looking at $12 million of synergies at EBIT level over a 3-year period in the original business case. Now given that the ACCC have put on a 12-month delay, we're discussing around the Delta Board on how we can fast track this with regard to backward integration given the strong foundation of Four Seasons' brands or products at the moment. So that's a very positive opportunity to fast track those synergies, targeting greater than 15% post synergies from an ROC viewpoint and very much aligned to Elders -- across our approach to the business. And as we've said a number of times, as divisions, all the divisions are stand-alone. So with that, I'll pass over to Paul to go through the financials, and then I'll come back towards the end on strategy and outlook. Paul Rossiter: Yes. Thanks, Mark, and welcome, everybody. I'll commence on Slide 14 of the pack, which summarizes progress against key financial objectives. Highlights include: double-digit growth in our agency real estate and feed and processing businesses; below inflation cost growth when adjusted for acquisition and transformation; strong momentum in SysMod, as Mark referenced, with all states now live on Wave 2 retail, and Wave 3 livestock to commence rollout in early 2026; product and geographic diversification, mitigating the impact of dry conditions in Southern states; Delta Ag acquisition to further enhance our geographic diversification from FY '26 and strengthen our technical capability in ag tech and precision agriculture; leverage to return to target in FY '26 through a renewed focus on capital allocation and client profitability. I'll now turn to Slide 15, which displays Elders' 5-year financial performance. I note the following progress from FY '24. Sales revenue increased $70.4 million, or 2.2% despite mixed seasonal conditions supported both by acquisition and organic growth. Gross margin increased 7.4%, up $47 million compared to the prior corresponding period or PCP. Comparatively, costs increased 6.2%, noting this includes the impact from acquisition and is therefore not comparable to inflation. Costs will be further discussed later in the presentation. Underlying EBIT increased $15.5 million compared to PCP, but has declined over the 5-year period, with FY '25 impacted by dry conditions. Moving to Slide 16 now, which contrasts FY '25 against PCP. In addition, this slide details the impact on key financial metrics from capital held on September 30 in preparation for the completion of the Delta Ag acquisition, which occurred on November 3. Elders has delivered a resilient result with the following highlights evident. Sales revenue, up $70.4 million despite dry conditions in some key cropping regions, which thankfully ended in June. Gross margin increased $47 million, to $684.6 million, up 7% year-on-year, with growth achieved across most products. Underlying EBIT increased $15.5 million, to $143.5 million, supported by a strong turnaround in agency services and continued growth in real estate. Return on capital was steady at 11.3%, notwithstanding the mixed seasonal conditions and systems modernization CapEx weighing on this metric as the capital outlay proceeds benefits. Improving this metric in FY '26 is a key priority. Cash conversion was broadly in line with expectations with a favorable outlook for FY '26. Net debt increased $20.5 million, to $457.3 million, excluding capital held for the Delta completion, broadly in line with sales growth and the impact of higher cattle prices. I'll discuss these key metrics further as we move through the pack. Moving to Slide 17, which displays Elders' gross margin diversification, a key defense against seasonal variability. As noted, gross margin increased $47 million, to $684.6 million, with growth across most products more than offsetting the impact on crop protection from dry conditions. The key drivers of this result include agency gross margin up $27.1 million, or 22%, following a strong recovery in livestock prices and increased cattle volumes. The outlook for agency services remains positive, driven by strong international demand for protein as well as some destocking in drier regions, limiting supply and supporting prices. Real estate services gross margin increased $22.5 million, or 27.2% with property management, residential, broadacre and commercial all improved on PCP, supported by both acquisition and organic growth. Feed and processing was another highlight with gross margin up $4.1 million or 23.8% due to productivity and efficiency benefits from the new feed mill commissioned in August 2024. Financial services gross margin increased $2.3 million, or 4.2%, supported by continued growth in our new broker model alongside improvement in the livestock warranty product. An increase in on-balance sheet lending was also achieved, partially because of the increased cattle prices. Collectively, the increase in gross margin across these products more than offset the reduced earnings from the exit of the Rural Bank exclusivity agreement in FY '24. Wholesale products delivered a steady result, notwithstanding lower crop protection sales from those dry regions. Growth in the above products significantly outweighed the negative impact from crop protection, which will be discussed further on the following slide. Moving to Slide 18, which analyzes product performance. This slide demonstrates the importance of our product and geographic diversification. The waterfall forward efficiency chart shows the extent of dry conditions, especially in South Australia and Western Victoria, which negatively impacted Elders' retail business with sales, gross margin percent and client confidence, all impacted. Fortunately, seasonal conditions improved from late June which caused for optimism for a recovery in these regions in FY '26. Turning now to Slide 19 to discuss costs, which increased $11.4 million, or 2.2% when adjusted for acquisitions and the impact of transformation. Part of this increase resulted from the inclusion of Elders Wool in base costs from transformation in FY '24, which added an additional $3 million, or 0.6% to base costs. Given this change in categorization, holding base costs below inflation was a pleasing outcome. Turning now to Slide 20 to discuss return on capital, which was steady in FY '24 despite mixed seasonal conditions. When adjusted for the impact of acquisitions and transformational projects, return on capital is 12.7%. Lifting return on capital is a priority for FY '26 through a renewed focus on capital allocation, client profitability and delivery of SysMod benefits. In terms of capital allocation, Mark will speak to the potential divestment of the Killara Feedlot in the strategy and outlook section. Moving now to Slide 21. And working capital, where we see an increase of $68 million from FY '24, mostly driven by higher cattle prices, which increased working capital in feed and processing and financial services. Resale inventory increased $12 million from FY '24, a pleasing result given the late start to winter crop in key cropping regions, which caused an uplift in carryover inventory. This carryover inventory is forecast to clear in the first half of FY '26. On to Slide 22. And cash flow, where we see an operating cash inflow of $117.9 million, a pleasing result considering the late start to winter crop, which pushed some receivables to the fourth quarter. The outlook for operating cash flow and cash conversion in FY '26 is positive with a focus on client profitability to result in some receivables being transitioned to third-party lenders away from Elders' balance sheet. I note that the physical payment of company tax for Elders Limited will recommence in 2026. We'll now move to Slide 23 to provide a detailed update on net debt and leverage. The waterfall charts display a normalized net debt and leverage position, adjusting for the benefit of capital held at balance date in preparation for the completion of Delta Ag. Breaking down the movement in net debt, we see an increase from $436.8 million at the end of FY '24, to $457.3 million at balance date, acknowledging this includes the benefit of $50 million of equity retained for flexibility in acquisitions, approximately 40% of which was deployed in FY '25. I note that the majority of net debt pertains to client receivables, which is self-liquidating in nature. Excluding receivables funded through debtor securitization, Elders' core debt is $161.9 million. Turning to leverage. We see a reduction from 3.1x at the end of FY '24, to 2.9x, normalized for Delta funds held. A return to our target range of 1.5 to 2x is forecast in FY '26 from a renewed focus on capital allocation and client profitability and increased referral of client loans to third-party lenders given trade receivables comprise almost 2/3 of net debt. I note that the return to target leverage is underpinned by but not dependent on the potential sale of Killara Feedlot. I'll now move to Slide 24, where we see significant headroom across banking covenants, noting that these calculations do not require adjustment for the capital held for the completion of Delta Ag. I also note that our bank leverage covenant excludes receivables funded through debtor securitization given their self-liquidating nature. I'll now move to Slide 25, which provides a macro overview of key growth pillars over the coming years. This slide has been included to demonstrate significant growth opportunities and focus areas over the coming years and is not meant to be exhaustive. Regarding systems modernization, Elders has now commenced the final wave of its SysMod program, which once completed, will provide Elders Rural Services with a modern technology platform in Microsoft Dynamics, which itself is evolving at pace. Delivering a return of at least 15% on the program spend is both a high priority and significant growth pillar in the coming years. The acquisition of Delta Ag represents a significant milestone for Elders, increasing points of presence and geographic diversification while enhancing Elders' technical expertise in ag tech and precision agriculture. Accelerating synergies from backward integration in crop protection and animal health are key priorities for FY '26, as Mark noted. The divisional structure is aimed at improving focus and accountability within significant business units. By way of example, real estate services gross margin has grown $45.6 million, or 77% since FY '23, but market share remains less than 5% nationally. We believe the divisional model will help accelerate growth in this and other business units. Acquisition will remain a growth pillar alongside organic growth, provided acquisition prospects meet our financial and values criteria. Finally, the new Elders' brokerage business is noted as a growth pillar, given success to date with our brokered loan book exceeding $1.3 billion from a near standing start in FY '24. Gross margin from loan brokerage has increased from $0.9 million in FY '23, to $6.1 million in FY '25 at a CAGR of 160% with our network of brokers expanded further in recent months. This concludes the financial section of the presentation. I'll pass back to Mark now, who will provide an update on strategy and outlook. Mark Allison: Thanks, Paul. And really leading off from Paul's comments on the divisional structure, just going to Slide 27 as we look at the Fourth Eight Point Plan. And historically, we've expressed the Eight Point Plan in terms of the diversification of our products and services. And we're now looking at the Eight Point Plan in terms of the 6 divisions of Elders and how that diversification across the matrix of products and services adds further to our ability to work through difficult seasonal conditions. So when you look at the -- this is the final year of the Fourth Eight Point Plan, we've had the ambition of 5% to 10% growth in EBIT and EPS through the cycles over an Eight Point Plan. Clearly, as we -- at above 15% return on capital. Clearly, as we come into a taxpaying state in the next financial year, the EPS growth ambition will need to be adjusted accordingly. But -- and we've emphasized the impact that the transformational part of our agenda over these 3 years has had from a cost of capital and resource on the business. But we're setting us up now for a very solid platform with all the transformational projects coming to a close as we go forward for the next 3 to 5 years. Going on to the next slide. And we -- our view and our move to go to a divisional structure, effective the beginning of FY '26, was really around the fact that each of these areas of the businesses had largely been run as either stand-alone or with a particular focus and emphasis through the governing Board or management team. So as we've laid them out, we've laid them out in order of supply chain, starting with Elders Crop Protection. very experienced managers right across all of the divisions. So Elders Crop Protection with Nick Fazekas. This includes our Titan Crop Protection business and our formulation businesses in Eastern Australia and Western Australia with AgriToll and Eureka. And it's a specialist crop protection business as per Nufarm, Adama, et cetera, et cetera. Then we move the next step along the supply chain to our wholesale business, with Peter Lourey. And this has -- I think you're all aware of AIRR, with multiple touch points and membership base throughout Australia for the AIRR business, and its highly efficient and effective warehouse network throughout Australia. Next, as we go to retail, we have Elders Rural Services, which has a complete offering of retail products, agency products, real estate, financial, et cetera, right across the board. And that business at the moment, since the split of divisions, I've been acting as the divisional CEO for ERS. And very shortly, we'll have an upgrade to that appointment, and we'll announce that in the next few weeks. The next business, again, Gerard Hines running Delta Agri business, very experienced and competent manager and co-founder of the business and with an excellent executive team. So the Delta Agri business doesn't have -- sorry, has a much greater focus on cropping technical service with some additional services -- products and services, but very well run, and looking forward to a period of strong growth and profitability across the board. Elders Real Estate. So Tom Russo had previously run the product of real estate before he ran the Elders network. And so we thought it was appropriate for him to take control of the separate dedicated division. The idea here is that Elders Real Estate has grown significantly, and we'll talk about the growth profile, some slides coming up. Tom is a highly experienced professional in this area, across a number of areas as well, has been the guardian of the expansion of the property management component of Elders Real Estate and also our entry into commercial real estate, which we kicked off a big time in Tasmania. So lots of growth opportunity there, highly dedicated manager and executive team and pretty exciting. And then feed and processing, that, we talked about with Andrew Talbot, another highly experienced manager with a great team. He's grown the profitability of feed and processing fivefold since the First Eight Point Plan, have done an excellent job. The record profitability of this division this year is based on a number of the investments we've made historically with feed mill, center-pivot irrigation, shading, a bunch of investments that have enhanced well [indiscernible] productivity. And it's a very, very well-run business in the portfolio. The consideration we've had with feed and processing is actually if you look across that supply chain, feed and processing is a different business to the others. And our thinking is that it's been highly successful. It's grown significantly. We've invested significant capital and got good returns as we saw with record profitability this year. But we've reflected on whether feed and processing would do much better and go to the next level with under natural ownership. And so that's the reason we're considering a divestment of the feed and processing division. And if the moons align and there's an appropriate shareholder value-creating proposition put in front of us, we'll consider it strongly. And I'll just reiterate Paul's earlier comment that our pathway to back on leverage and to a lesser extent -- well, actually, on leverage is the key metric we're thinking about, is not dependent on the divestment of feed and processing. So if the exercise comes up with options that are not to enhance the shareholder value, then obviously, we're very happy, and it's a great business and a great team to be in the Elders Group. So moving to the next slide. And if we look at the modernizing of the platform, we've talked about SysMod. We gave a commitment from a transparency viewpoint to disclose each of the cost of capital components of each of the waves as the Board approved business cases, so when it was formally approved. And we've done that. But you can see -- and if we include Wave 1, there's some $100 million to $110 million investment over this period. And this is the period in that slide that we talked about upfront, where from '22 -- FY '22, where we have had considerable transformational investment. Now with all of these investments, as we've seen with Killara on the capital investment there, there is a lag. And so the benefits of these investments are coming through now, in FY '26. And as we close off SysMod at the end of FY -- calendar FY '26, we look forward to those investments coming through into the future. And I think it's worth noting that this does really set Elders up with a contemporary platform where we can take advantage of multiple AI opportunities that historically we haven't been able to. So just looking to the next slide and running through each of the waves and the different components of the waves. That's really for information. But as I mentioned, the plan is that we'll complete these. We're still running in full on time, which I know sounds amazing for an IT project, but we're still running in full on time, and it's -- we're looking for the finish line as we run out next year. Okay. Now moving to the next couple of slides. In the next 2 slides, we've wanted to showcase a couple of products and services just to put more of a spotlight on them. And for this presentation, we picked financial services and real estate, which we had covered in the half year. But really to emphasize, in terms of the balance of our portfolio, products and services, we've now -- clearly, we've strengthened our position across the whole supply chain and real products, from Elders Crop Protection, to wholesale, to retail, all the way through and technical service. And in our portfolio, we're looking at really strengthening and rebalancing our financial services, all capital and real estate. So the characteristics of both of these services, as we look at them, and it fits nicely in our portfolio management, a high return on capital. We have a relatively low market share in both, financial services and in real estate. The brand is important. So unprompted most trusted brand in Australian -- regional, rural Australian agriculture. So the Elders brand is critical. There's excellent market outlook in both areas. And obviously, there are links to livestock outlook and general commodity outlook, but a strong outlook, and it really does help us balance the portfolio. So just a quick a quick look at financial services. And you can see, in line with Paul's comments, solid growth, replacing the Rural Bank exclusivity agreement and growing in a capital-light manner. So -- and we can go to questions on that in detail. The next slide on real estate. Very, very similar profile. And I think the gems that are probably not as obvious for everyone. One is the product -- sorry, the property management business. We have some 20,000 properties that we're managing now across Australia, which is a very solid and reliable flow for us and also our entry into the commercial real estate only in regional, rural Australia. So very, very positive platforms. And in terms of portfolio balance, a bit -- quite nuanced, and this is how we run Elders as you -- many of you are very aware. So then going to the forecast and outlook across all of the areas on the next slide with -- without going through each one of them, and [indiscernible] each one of them on the next slide. You can see our thinking is that we've had a period of difficult market conditions and significant transformational investment. We've come through that period. We've lagged benefits from the transformational investment. Right now, we're confronted with the next 3 to 5 years, we're looking at completion of the transformational projects, the commodity outlook and the seasonal outlook being average to positive and our ability to really hone in division by division to grow, to drive the capital out, as Paul mentioned, from a leverage viewpoint and to enhance the business for strong growth against the backdrop of average to good seasons. So it feels very positive. For the first 6 weeks, as I mentioned, of this trading year, FY '26, apples-with-apples. So with that, Delta included, we're up some 30% on the previous year. So very early days. But I think it does fall into the -- our thinking and how we've been talking about our outlook for FY '26 going forward. So with that, I think I'll open up for questions. So we'll just leave that slide on the screen, and we'll open up for questions. Operator: [Operator Instructions] Your first question comes from James Ferrier from Canaccord Genuity. James Ferrier: First question I wanted to ask you about was just on your view on livestock volumes in the year ahead, just in the context of the volumes that were achieved in FY '25 as a baseline, herd sizes as they stand right now. I mean everyone can see the livestock prices, but what's your view on volumes in the year ahead? Paul Rossiter: Yes. Thanks for the question, James. And it is one where there is a little bit of uncertainty going forward, I think particularly in sheep volumes. And just for those who don't know, we saw certainly higher cattle volumes in FY '25, up about 13%. Sheep volumes were down about 8.1%. So we do see that rebuild coming through SA and Western Vic, and that's likely to drag on sheep volumes into FY '26. Cattle is a little bit different just because of the geographical footprint. But it is one to watch. But what we do expect is that if volumes do taper off in sheep, we expect prices to offset because the international thematic for Australian protein remains very strong. And so we just see that price being flowing through the supply chain. James Ferrier: Yes. That makes sense. Second question, on Slide 17. We can see there that crop protection gross profit declined 9% on PCP. What was the volume of product associated with that $129 million of gross profit? Paul Rossiter: Yes, I don't have a volume number to hand, James. So I'll see if I can cover that post. But I will speak to the impact of dry conditions. So we did note a roughly $12 million impact from SA and Vic, [ Riv ] at the half. We saw that continue into the second half, mostly in Q3. We think the impact was roughly $19 million volumes. Yes, we're certainly up in Northern New South Wales, obviously down in SA and Vic, but I don't have the net numbers here. Mark Allison: I think, James, the story is on margin compression as you've seen with other businesses and the sales that we experienced particularly in the dryer areas. James Ferrier: Yes. Okay. Understood. And last one from me and probably one for Paul again. Just some thoughts on D&A, CapEx, interest and tax for the year ahead. Paul Rossiter: Yes. Look, depreciation, well, will increase given the completion of Wave 2 and the commencement of the continued amortization of SysMod CapEx. In terms of CapEx outlook, once again, in FY '26, it is dominated by SysMod. Some of Wave 4 will fall into FY '27, as you can see on the SysMod slide. So it's a bit uncertain, but we think -- I'd say, sort of $20 million to $25 million will fall from SysMod into FY '26 and perhaps another $5 million to $10 million outside of that. In terms of tax, so we will pay a small amount of tax, about $1 million following the submission of the FY '25 tax return. So it will be in February 2026, and then we'll pay effectively pay-as-you-go company tax thereafter. I think your question may be referring to the statutory tax rate, which fell in FY '25. That was pertaining to a tax credit related to prior period for R&D. So that's likely to be nonrecurring. Operator: Your next question comes from Richard Barwick from CLSA. Richard Barwick: Can I just double check, when you're talking SysMod -- and obviously, it looks like some benefits from an EBIT perspective are expected in FY '26. Are you able to put some numbers around that? And then equally, what you would see as the non-underlying OpEx impact from SysMod in '26? Paul Rossiter: Okay. So yes, thanks for the question, Richard. So in terms of benefits, the major tranche of benefits is through an uplift in retail margins. And we see that coming from better control of discounting and better categorization of clients. And just for context, a 1% uplift in retail gross margin percent is about $22 million. So 0.5% uplift there gets us fairly close to the benefits required. The other benefits we see coming from uplift in sales, and that comes from better client data over time, but probably longer dated than the retail margin benefits. In terms of non-underlying OpEx for FY '26, so if we work on roughly 60% CapEx, 40% non-underlying OpEx, over that sort of $20 million to $25 million in FY '25. Richard Barwick: Okay. And my other question is to do with the -- there's quite a sizable impairment of goodwill obviously captured within this FY '25 result. Can you just give us a little bit more background exactly what that related to, please? Paul Rossiter: Yes. So there's a couple of businesses that we impaired, both which were reported on during FY '25. So one was Currin Co, where we lost a number of agents in Victoria. The other was Esperance Rural. Yes, we had, I suppose, an unsuccessful transition post earnout. Mark Allison: I think, Richard, it's -- one of the learnings is that, as you know, we've been highly successful with our acquisition -- bolt-on acquisition template in keeping the vendors in the business. And when we do our post-implementation reviews post earnout, it's been 95% plus positive. And we've identified in the last 12 months, whether it's through tougher conditions or whatever the driver is, that the 2 years post earnout is now an area that we need to really focus on in terms of potential loss of staff as we saw with -- actually, it was longer than 2 years with Currin Co, where the vendor leaves the business, the earnout is completed. Historically, we've seen that in business as usual within ERS. And we've now established a project a couple of months ago to identify how we ensure that we don't get a repetition of that situation because it had been a very high success rate of post earnout of keeping the people. Richard Barwick: And well, I guess it's -- the obvious question is, what are the risks? I mean, obviously, you've got something in place here to try and to mitigate it, which would suggest you are a bit concerned that this could repeat with some -- because I mean you made a lot of acquisitions in the last few years. Yes, how do we think about that risk? Mark Allison: Yes. Well, I think the -- a couple of points, is that if there is -- like something in the order of 100 bolt-on acquisitions, and we've had 2 or 3 like this. Clearly, the Currin Co was a larger one. If you like a sense of Shakespearean irony, the Esperance rural supply defection was to Delta. I'm sure you enjoy that. But the -- I think the materiality of it has dropped off because we aren't pursuing the same sort of strategy on bolt-on acquisitions that we had, as you're aware, given that the rural product supply chain is pretty complete and also given that the ACCC regime is hard to unscramble to do business. The -- our sense is that, that won't be where we'll be getting our growth from. It will be more organic. But I think the issue is that post earnout, the -- and we have time. We have 2 or 3 years each time. We have to have the business as usual hooks and retentions in place for these people. Because as you know, in regional, rural Australia, the personal relationship goes a long way. Operator: Your next question comes from Ben Wedd from Macquarie. Ben Wedd: Maybe just turning to your question -- your comments around capital allocation there and particularly with the potentially moving some of the receivables into third-party lenders there. I'd just be interested in sort of, I guess, any timeframes you can give around that and how that sort of looks from an operational standpoint. Paul Rossiter: Yes. Thanks, Ben. Look, it is something -- and I think the way that I'd explain it firstly is that we are taking a return on capital approach. So where we're not seeing, I suppose, a deep relationship with clients that warrants the use of Elders' balance sheet, then we'll look to obviously do that business with the client that use third-party financiers. So we do see this as certainly something that has commenced already. It's a process that's commenced. And that will roll through FY '26 and beyond. But it won't be something that we seek to do hurriedly either. So it will be an incremental thing over a number of years with a significant start in FY '26, particularly in the fin services and seasonal finance areas. Ben Wedd: Yes. Got it. And then maybe just any comments you can sort of give us around Delta's sort of performance over the last 12 months as it might compare to Elders as well in some of those key categories like ag chem and other cropping areas. Paul Rossiter: Yes. Thanks, Ben. So I mean, just a couple of comments. I think the first thing to note is that Delta's financial year is June 30, and their footprint was very exposed to dry conditions that occurred in FY '25. So I think there are a couple of key distinctions between Delta and Elders. The other being, Elders obviously had an offset in livestock agency that doesn't exist to the same extent in Delta. Yes, so the Delta result was impacted certainly more than Elders by the dry conditions. Trading, since it started raining in July in Delta has been above -- certainly above PCP. So yes, that business is operating very well. Operator: Your next question comes from Evan Karatzas from UBS. Evan Karatzas: Maybe just to follow up on that one then, so sort of the ASIC accounts for Delta. So the EBITDA went from sort of the $53 million to $40 million. Can you sort of just give a bit more information around if you expect that original FY '24 earnings to be realized assuming, I guess, normal conditions? And then anything you can say around the synergy benefit we should expect in '26 for Delta as well? Mark Allison: Yes. I think the key point for us is that what we experienced as the turnaround from these dry conditions was outside the Delta financial year. And so that's what we've experienced ourselves. Just as a note, prior to going to the next phase on the acquisition a few months ago, we -- so Paul, myself and the Chair of the time, Ian Wilton, sat down with the Delta management team to go through their FY '25 results, just to give ourselves comfort that our proposition and thesis on the acquisition remained on track. And after the presentations, discussions, I think, Paul, it's fair to say that we felt very, very comfortable. In terms of your question on the synergies, I think it's a key point for us. We've already had meetings with the team, with [ Jarred ] and Matt and Chris and the team around the synergies. We had planned for 12-month -- sorry, a 3-year development of the -- or extraction of the $12 million synergies. Our belief is that given the timing, given the November 3 timing and the proximity to the FY '26 winter crop that we do have time to do a lot of the work that we wouldn't have been able to do if it had been in the same period the previous year. So our sense is that we can fast track those synergies and bring them through. And as you know, they're largely crop protection. They're largely providing different crop protection supply chains out of Titan into the Four Seasons brand. And with Steve Hines, the person who runs that business within Delta, there's great alignment with Nick Fazekas, who runs the overall crop protection business. So we've established the governance structure, the Board structure, et cetera, around Delta and all the divisions. And again, I feel pretty comfortable and optimistic that we will get -- we will optimize the synergies in FY '26. Evan Karatzas: Okay. And just final question. Just with the debt position, can you provide a number of -- to sort of normalize it if you remove the reduction in carryover inventory in SA, Vic and removing or transitioning some of the select client loans from Elders' balance sheet to third parties, just so we can sort of look for an adjusted or a like-for-like debt position, please? Paul Rossiter: Yes. Look, just very high level and back of envelope, I would say the carryover inventory, I've put a number of around $30 million on that, which we expect to be resolved in the first half. In terms of -- I'll put another bucket in there, Evan, in terms of overdue debtors, we think there's a $20 million to $25 million opportunity there. You may have noted that we have had a $10 million increase in 90-day plus receivables. That is 2 clients -- 2 large clients, that we expect to be resolved in FY '26. So we feel that we're at a peak in terms of overdue receivables as well. And then you've got -- in terms of client receivables or client loans, seasonal finance and loans, I've put a number of sort of around -- a target of around $50 million across financial services and seasonal finance. Evan Karatzas: Okay. That's super helpful. Maybe just a quick one, I'll just sneak it in. The 1Q comments you made, do we assume you're up 30%? Do we assume we're sort of back close to that? I think you previously mentioned, like, a through cycle 1Q average EBIT was around $37 million. Is that sort of where we're, I don't know, trending towards or run rating towards? Paul Rossiter: Yes. And I think the -- in terms of tailwinds in the business, Evan -- so I think the -- certainly, livestock prices are up relative to year-on-year. I'd say that tailwind will moderate the further we get through the financial year. Obviously, livestock prices increased throughout FY '25. But I think in terms of the Q1, it goes back a couple of years, when we gave that number, obviously noting that's not audited. But yes, it's a fair comment. Operator: Your next question comes from Paul Jensz from PAC Partners. Paul Jensz: Just one at the top, Mark, if I can. You talk about the 5% market share you have in the wider farm input space. Can you see some additions to your business or the Elders business? Or is it a case of organic growth from where you are to get a larger part of that pie? Mark Allison: Yes. Thanks, Paul. So when you say the larger rural products, are you referring to finance? Paul Jensz: Right across the board. You had a chart there with the Delta acquisition where you're a small part of a very big pie in farm inputs. and you've got the new structure that you have. I'm just wondering where to from here if you're just such a small part of the pie? Mark Allison: Okay. Yes. So that broader pie includes fuel, like all the finance, et cetera, et cetera. So a whole heap of services that we're not in. So I think our focus with -- well, I think it's -- the focus that Delta has had for a long time, will continue on, where it's a service-based customer-centric approach across the board. Delta is very small in Queensland and -- but ERS is also not that strong in Queensland. So there are geographical gaps, but it will largely be sticking to the knitting of what each of the divisions does best. And in that -- in the case of Delta, although it's got some broader offers, the focus is around that very technical rural products-based customer centricity. Paul Jensz: And that's across the broader Elders business as well, if I look at the new structure that you have? It's really just sticking to the core business? You don't see another bolt-on there? Mark Allison: No, I don't think so. I think our view is that the -- any deviations, slight deviations from where we are now, we've talked about in the Elders Real Estate business, it's around strengthening our commercial real estate in regional rural Australia area, continuing to build on our property management business, which is a really solid good business. I think in ERS, there's a lot of -- in the traditional pink-shirted DRS front end, there's a lot of efficiency. Because we've just put SysMod through ERS, they've got the front-end point of sale across all the branches across Australia. So it's really around all the efficiencies that we promised and controls. And again, customer understanding that Paul talked to in terms of data, that ERS hasn't been doing in the past. In terms of Elders Crop Protection, I think the focus will be some -- a little more on integration because the formulation businesses run stand-alone to the traditional Titan business. So we'll slowly move around integration there on systems. And then feed and processing, really, we're looking at ways of expanding efficiency with acquiring extra land with some increased backgrounding, many of the efficiency programs that we've had previously. So across each division -- and I guess it goes to the point of why having focused divisions makes so much sense. Because each of them have their own nuance, their own focus, and it allows the management teams to really drive the efficiency and profitability. Paul Jensz: Okay. And then if I -- just a second question, if I can, if I build the building blocks towards, let's say, 2027, '28 numbers that consensus have, it doesn't seem to be a lot of, I suppose, underlying organic growth if you do the SysMod 250 staff that came across with the bolt-ons, Delta and the small free kit you get from '25, some of the earnings come into '26. So I'm interested in that organic growth number because I don't think consensus has got a big number in there for it and neither do I at the moment. Mark Allison: Yes. Well, I'm not sure how the -- what the assumptions are on the models. But I do know from a -- I mean, if backward integration is organic growth, and we certainly see it that way, the backward integration opportunity for ERS still has 10-or-so percent to go of the available generic portfolio and the -- just in crop protection and in Delta, there's probably 40% to go. So I think from us doing things that we control, not relying on market conditions, there's a lot of -- and then you've got also the benefits, the lag benefits of the transformational projects. But yes, your observation is probably right, Paul. Paul Jensz: And the final one, I thought others would ask this question, Mark, but I'll do it. The press -- I love talking about management transition, Mark, and your term comes up at the end of next year. I'm interested in whether you could return fire with what the press, like, talking with management change. Mark Allison: Yes. No, I thought the comment in the Australian was relatively accurate. I said when we refreshed the Board and I stayed -- I decided to stay, I said the earliest that I'd leave would be at the end of this Eight Point Plan, so that's September next year. And that's still the case. And it's not a term in the contract. It's an ongoing contract. So basically, my position has been that as a minimum, I'll stay to the end of the Eight Point Plan. Operator: Your next question comes from John Campbell from Jefferies. John Campbell: Firstly, just for clarity, what's the dollar value of adjustments that you've made to arrive at adjusted EBIT? Paul Rossiter: So you're -- in the investor presentation, John? John Campbell: Yes. Yes, it just said $143 million, just for clarity. So I know what we're adjusting. Paul Rossiter: Okay. I might just come back offline on that. So we do have -- we've got a list in the annual report, but yes, I'll come back on that offline. John Campbell: Yes. I can see where you've got that in the accounts. I just wasn't 100% sure which is included in your adjustment calculations. But I think we've got a call on this afternoon, Paul, so we can maybe touch base then. And just Mark, around -- and you sort of touched on it, but I presume with the improving seasonal conditions in the Southern regions that impacted in FY '25, in terms of that competitive intensity in crop protection that you've been talking about, I presume you see FY '26, so that sort of level of intensity and price competition and the like abating over the course of '26? Mark Allison: Yes. I think there are probably 2 components that leads us to think that way. One of them is around the seasonal conditions, as you just mentioned. And the second one is the stabilization of COGS out of Chinese factories. So the idea of lower priced cost of goods coming into Australia and then driving market price down, that doesn't seem to be where it was. Earlier, I think 6 months ago, we were concerned that tariffs on Chinese crop protection into North America may drive dumping of product in Australia and therefore, further drive prices down. If you're caught with high-cost inventory, you're obviously going to be screwed from a margin viewpoint. But our sense is that it's stabilized. And regardless, even a stabilized normal season environment, Australia has the lowest crop protection prices for all around the world. And it's not uncommon for multinational companies to divert product from Australia to Europe because they can make so much more money out of the same active ingredient. John Campbell: Okay. So that all augurs pretty well for crop protection for '26? Mark Allison: It looks like -- yes, as I said, I think we're pretty optimistic, both commodity season and the back of the transformational projects. Operator: Your next question comes from Mark Topy from Select Equities. Mark Topy: I just wanted to ask a question around the property side, the retail, the growth and both in the gross margin and the sort of volumes and some expectation around that and maybe some breakdown between what's organic and what's been achieved by acquisition because you clearly got a very strong growth rate. Can you give us some sense of how that looks going forward now? Paul Rossiter: Yes. Thanks, Mark. So just for clarity, so that was for real estate services. Mark Topy: Yes. Paul Rossiter: Yes, yes. So look, we -- in terms of growth, we see roughly the split between acquisition and organic, about 60% acquisition in F '25, 40% organic. I do note that one of the significant benefits from the acquisition of Knight Frank was to substantially grow our commercial real estate business. It also introduced a valuations business to the group as well. So when we think about real estate growth, it is across residential properties under management, broadacre, commercial and now valuations. So there's a few strings to the bow there. I'd also just make a comment in regards to broadacre. It did grow, but very fractionally in F '25, that part of the book was held back by the dry conditions in South Australia and Victoria. We do expect sort of pent-up vendor demand as those regions improve. Mark Topy: Right. Just thinking about the Tasmania market, kind of, say, how much growth opportunity do you see in that market going forward? Mark Allison: Yes. I think with Tasmania per se, I think it's -- it would be incremental growth. But I think the big benefit of that acquisition, which is the old Knight Frank business, is the commercial real estate knowledge, networks, et cetera, in the Mainland. And we're already seeing that is very, very important. So there are many contacts and insights that we didn't have on commercial real estate that we've gained from that business that is really helpful in our approach to Mainland expansion in commercial real estate. Mark Topy: Great. And just on the Delta side then, can you just talk to the systems and system harmonization in terms of what's being done in the Elders and whether any CapEx might be required if you like to harmonize Delta in line with Elders? Mark Allison: Yes. So the SysMod project is predominantly Elders'. And our approach at the end of Wave 4 when we switched off the AS400, and we're completely on Microsoft Dynamics 360 -- 365, sorry, we might have got a discount. Definitely not. So from that point forward, each of the acquisitions or each of the other divisions, whether that be AIRR, Elders Crop Protection or Delta, will be business case-based. So if there's a business case from the Delta Board around aligning, enhancing systems, then it will be treated on a return on capital business case basis. And we want to take it to business as usual because it's not just an ideological, everything has to be on the same system. This is all around return to shareholders. And all the systems that they're all operating on are fine. Mark Topy: They're all fine. Okay. I was going to say. And then in terms of -- I know you want to accelerate the Delta, but in terms of any risk areas, in terms of that integration, I noticed, for instance, they've got -- they're using different property managers. Do you perceive any sort of issues in migrating Delta across to Elders in that regard? Mark Allison: No. Well, I mean, it's all going to stay the same. So there's -- in terms of backup and stuff, which I think you're talking about. So we've got a mandatory integration. We've got a [ might ], and then there's a light touch component of it. Each of those are being developed with project teams between the businesses. So the -- our view is that it's a well-run business. It's got good management. It's got a strong Board governance to set the direction, and we'll be making the right decisions for the right reasons rather than any kind of ideological control-based decision. Of course, the mandatories around safety, financial transparency, regulatory compliance and so they're mandatories, as you'd expect. Operator: Unfortunately, that does conclude our time for questions. I'll now hand back to Mr. Allison for closing remarks. Mark Allison: Okay. Well, thank you very much to everyone. I did note that we have a couple more in the queue. So apologies to those. Paul and I have a back-to-back with all Elders staff. So 2,000 or 3,000 people will be waiting on the line for 5 minutes. So we've had to call it there. So for those that we haven't been able to talk to, we look forward to talking to you in our one-to-one sessions. But I appreciate everyone coming in, and thank you very much. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Hendrik du Toit: Good morning, ladies and gentlemen. Welcome to the Ninety One interim results presentation for the half year to 30 September 2025. I will highlight the key numbers before moving to the business review. Kim McFarland, our Finance Director, will then present the financial review. I will then update you on recent developments and conclude before we take questions. Those of you participating through the webcast can submit questions during the presentations via the chat function at the bottom of your screen. Assets under management rose more than 19% over the past year. Flows turned around strongly. We recorded net inflows of GBP 4.3 billion for this half year, resulting in adjusted earnings per share growing by 15%. This net inflow number consists of GBP 2.4 billion of organic inflows and GBP 1.9 billion that came from the Sanlam U.K. transaction. The dividend per share increased to 6p per share and operating margins expanded to 32.1%. Staff shareholding grew to 32.7%. The people of Ninety One are fully aligned with all our other shareholders. I'm delighted to report that our business is growing again, in terms of revenues, earnings and assets under management. This is supported by investment returns and a significant turnaround in net inflows. We are sticking to our core strategy and investing in our existing growth drivers, while selectively backing new growth initiatives across our ecosystem. Investment performance remains competitive. The Sanlam relationship is delivering, and Ninety One is poised for further growth. We always show the long-term track record of Ninety One to remind everyone that we are about growth over time and not growth all the time. The business has been built over many years in a patient and predominantly organic way. Markets have been supportive of late, but we are clear that sustaining growth over time takes focus, rigorous execution, discipline and belief. We remain committed to our people-centric, capital-light and technology and AI-enabled business model. Market conditions have improved over the reporting period. The panic that followed Liberation Day is now history, and animal spirits are back supporting overall equity market levels. More interestingly, we are observing a new openness to diversification of institutional portfolios, which includes interest in emerging markets. This interest seems to be driven by the desire to diversify geographically as well as a recovery in relative returns. Given the high concentration levels in indices, we are also witnessing a renewed interest in active strategies. A little over 1 year ago, I reported to you in a world in which active long-only and emerging markets across the capital structure would deeply out of favor. Therefore, Ninety One was experiencing a third consecutive year of hostile business conditions. I'm delighted to report that these conditions have improved substantially over the past year. Despite the strong performance from emerging markets and the rise in financial asset prices generally, we are some way off historic levels of demand at this stage. As mentioned at the end of the previous reporting period, our industry continues to be extremely competitive. Clients are setting high standards and continue to be price sensitive. Fee pressure remains a challenge. It goes without saying that Ninety One is exposed to market levels and how financial assets are priced. A sharp decline in markets will affect revenue generation and new business volumes. More generally, the Internet era is being replaced by the AI era. This touches every industry, including our own. At Ninety One, we are embracing this and look forward to reporting progress in more detail in due course. In summary, conditions have improved, while competition remains relentless in this industry. Equity markets have done well over the past 3 years with headline indices close to doubling. Over the past 6 months, our clients continued to benefit from strong performance. Emerging markets in general have outperformed developed markets and the strength in South Africa further contributed to our assets under management and driving these through the threshold of GBP 150 billion and $200 million, respectively. In fixed income, we have also seen positive returns, even though developed market bonds have had a tough time. Ironically, this is where most of the inflows in our industry have been over the past few years. Emerging market bonds are doing much better, and we expect demand to grow in this space. This is an area in which Ninety One is one of the market leaders. Since our listing, investors showed little interest in emerging markets. We're now seeing a decline in the active outflows in equities and an improvement in the environment for specifically active equities. For the second half year in a row, we're seeing positive active fixed income inflows. But as you can see, we are still well below the long-term demand levels for emerging markets. Judged by recent client engagements, we expect demand to pick up in due course. This assumes a world in which risk assets remain attractive. The outflows that have been with us from 2022 have started to reverse in the second half of the 2025 financial year, and inflows have now accelerated into the first half of the 2026 financial year. In addition, we have added GBP 1.9 billion of Sanlam U.K. assets with the completion of the acquisition of Sanlam U.K. We also benefited from the strongest year since 2020 in terms of market and portfolio growth. We are mindful of the fact that markets do not usually go up in a straight line, and we remain vigilant on the cost front. These slides show organic net flows, excluding the Sanlam take on. We had substantial equity inflows largely in our competitive global equity offerings, and positive flow in all asset classes, except multi-asset. This related to our own performance and general client demand. We have addressed the situation by bringing in new leadership and renewed focus on the multi-asset part of our business. The majority of our client groups were positive for the half year given the pipeline. And given the pipeline, I'm hopeful that U.K. will show positive results for the full year and that South Africa will return to positive net flows for the second half as well. Investment performance has been solid over the period, and we can compete in the areas where we need to compete for net inflows. As always, a few strategies have done outstandingly well while there are also laggards. Overall, we have a competitive offering, which has the potential to generate ongoing net inflows and meet the high standards of our clients. I now hand over to Kim McFarland, our Finance Director, to take you through the financial results. Thanks, Kim. Kim McFarland: Thank you, Hendrik. I'm here to present a set of strong financial results for the period ended 30 September 2025. I would like to highlight that our core operating business has again produced a solid outcome. Management fees and adjusted operating expenses both increased by 3%, resulting in the core business recurring results increasing by 2% on the prior period to GBP 82 million. Management fees were at GBP 290.7 million. This is as a result of the increase in average AUM from GBP 126.7 billion to GBP 139.7 billion, alongside a decline in the average management fee rate to 41.5 bps. More on this later, but worth noting that the increased closing AUM positions Ninety One's revenues well for the next 6 months. Adjusted operating expenses of GBP 208.7 million includes the interest expense on the lease liabilities for our office premises and the full bonus accruals. It does exclude nonoperating costs. The business produced an adjusted operating profit of GBP 98.8 million, up 12% from the prior period. This increase is predominantly as a result of higher performance fees of GBP 4 million. Other income is negligible and there's mainly a number of fair value adjustments on seed investments. There were FX losses as a result of the stronger GBP to USD in the period. So the adjusted operating profit margin increased from 30.5% to 32.1%. And at the finals for 2025, we reported an adjusted operating profit margin of 31.2%. So let me explain further the decline in the average management fee rate. This is calculated as a monthly average and over the 6-month period has shown a slow decline. However, there was a market fall at the end of H1 2026, which we have analyzed. During the period, daily average AUM upon which the management fees are generated, consistently lagged monthly average AUM upon which the average management fee rate is calculated due to the manner in which markets moved markedly during the period. And this effectively overstated the average management fee rate decline by an estimate 0.8 bps. Calculated on a daily averaging basis, the actual daily average rate is closer to 42.3 bps. So closer to a fall in 1 bp over the 6-month period, which is higher than our historic guidance. There were further factors that are impacted on the fee rate in the period, which were a significant AUM increase in lower-than-average fee rate clients. The Sanlam U.K. take on being an example, although this impact was small. However, the take on of large mandates at lower-than-average fee rates has and will have a material impact on our management fee rate, an AUM decrease for higher than average fee rate clients. The U.K. OEIC being an example, and this would have had an estimate 0.5 bp negative impact. And at the same time, there were some downward fee adjustments for existing clients who generally compensated with additional assets. Ninety One's profit before tax after considering the list of nonoperating adjustments, adjusting net -- adjusted net interest income, the small share scheme, net expense, corporate-related professional fees and now the amortization of the intangible asset as a result of the U.K. Sanlam transaction increased by 10% to GBP 102.2 million. At the interim, the share scheme is generally a net expense. And this is largely reflecting the amortization impact from prior year credits where staff bonuses were allocated to Ninety One shares. At the year-end, we have a better understanding of the share scheme and the allocation of annual staff bonuses to Ninety One shares. Remember, we fully expensed the bonus payments within adjusted operating expenses, irrespective of how settled. IFRS requires the amortization of bonus-related share awards over 4 years, which is then included in the share scheme expense. The effective tax rate for the year was 25%, down from 26.3% in the prior period, and this was driven by higher earnings in lower tax jurisdictions. And in the prior period, there were a larger number of nondeductible expenses. So the above factors resulted in a profit after tax of GBP 76.7 million, up 11% from the prior period. And our adjusted EPS shows a 15% increase to 8.4p, more than the increase of adjusted operating profit of 12% due to the lower effective tax rate on the adjusted operating profit and a lower number of ordinary shares for the calculation of adjusted EPS. So this analysis summarizes the absolute movement in adjusted operating profit from H1 2025 to H1 2026. It clearly shows that management fees, performance fees and other income increased. These increases were partially offset by the increase in employee remuneration, but noting business expenses were actually lower by GBP 2.7 million than the prior period. This is the analysis of the movement in adjusted operating expenses. Adjusted operating expenses increased by 3% to GBP 208.7 million. Employee remuneration represented 64% of the total expense base. In the prior period, it was 62%, and increased by GBP 9.5 million to GBP 134.1 million. This was driven by an increase in fixed remuneration consistent with the increase in head count and annual inflation increases as well as an increase in variable remuneration in line with increased adjusted operating profit. Over 50% of employee remuneration remains variable and the resulting compensation ratio was 43.6%, up from 42.9% in the prior period. Business expenses decreased by 3% to GBP 74.6 million. We began to analyze the cost changes, at a high level, we've broken this down -- the movement down as follows: inflation-linked increases of GBP 1.4 million for those costs that are impacted by inflation. FX-linked impact was negative GBP 2 million. And there's been a pickup in technology spend of GBP 1.7 million, with other costs then decreasing by GBP 2.8 million. Technology now is the largest business expense. Previously, it was third-party administration. Looking ahead, we're expecting business expenses to be impacted by inflation, ongoing technology spend and the move into the new offices in Cape Town planned for January 2026. Post the Sanlam integration in South Africa, there will be a cost impact, which will be predominantly headcount driven. So increases to employee remuneration as well as the resulting general operating costs. This is showing the business expenses and total expenses as a percentage of average AUM in basis points over a 5.5-year period. The adjusted operating profit margin over the period is also reflected here. Irrespective of the movement in AUM, business expenses have marginally decreased over the period, even noting the continual investments in our core technology system. Total expenses as a percentage of average AUM hav,e, in fact, declined aided by the growth in the denominator. The adjusted operating profit margin has remained in the range of 31% to 35%, reflecting ongoing cost management with the underlying AUM growth. Ninety One's qualifying capital was GBP 316.3 million at the end of September 2025. In line with our dividend policy, the Board has proposed an interim dividend of 6p, this is an increase of 11%. After this dividend payment, there will be an estimated capital surplus of GBP 155.3 million. This will result in a capital coverage of 245%. During the period, we continued with our buybacks, and this resulted in another return of capital of GBP 20.4 million and a reduction of 14.1 million shares. We did, however, issued GBP 13.7 million of plc shares for the U.K. Sanlam transaction in the period. In line with our capital-light model, since listing over 5.5 years ago, we have returned close to 60% of our initial market capitalization to shareholders. So a few updates regarding the Sanlam transaction. All regulatory approvals have now been secured. The U.K. transaction completed on the 16th of June 2025, with the result of GBP 1.9 billion of AUM on boarded and Ninety One plc issuing 13.7 million shares. It's planned for the SA transaction to be completed by the end of the financial year, which results in expected total onboarded AUM of circa GBP 17 billion and revenue in line with what we previously reported. An additional 112 million shares will be issued when the SA transaction closes. Now reviewing the position for H1 2026. The adjusted EPS and operating margin were accretive. There was a slight dilution on the average fee rate, which I mentioned earlier. And also, as previously mentioned, we will be waiting the shares issued to Sanlam for the determination of the adjusted EPS for the interim and then for the final 2026 results. For the interest, this looks as follows. So shares in issue, excluding Sanlam U.K. is GBP 882.7 million, weighting of shares issued for the Sanlam U.K. is 13.7 million times by 107, the days since the transaction in the period, divided by 183, so the days in the total period, which gives you 8 million shares. So shares in issue for adjusted EPS calculation is 890.7 million. The actual number of shares and issue at end of September 2025 was 896.4 million. The intangible assets arising on the balance sheet for the Sanlam transaction will be amortized over 15 years. To note, this is tax deductible in the U.K. but not in South Africa. And so on that final technical point, I will now hand you back to Hendrik. Hendrik du Toit: Thank you, Kim. At Ninety One, we think long term and our commitment to our strategic pillars do not preclude us from constant improvement and development of our firm. Over the period, we've continued to invest in talent. We've broadened the top leadership team and evolved accountability throughout our firm. We ensured that our 3 core opportunities international public markets, Southern Africa and private markets are adequately resourced to compete effectively as market-facing units, supported by our 3 pillars of investments, client group and operations. And so as we go into the second half of the year, we have formed a dedicated international public markets team, which can focus on the commercial opportunity for a recovery in demand for active investment management especially in international and emerging market strategies. We have a focused and strong Southern African team to take a market-leading business to an entirely new level. Finally, we've reinforced our private markets team with fresh talent and additional senior leadership and asked them to accelerate progress in this growth market. We are backing new growth opportunities out of the recently established Ninety One Foundry. These include in-region presence and partnerships in key emerging markets, allowing us to become domestic competitors in certain regions and deepen our investment insight in these fast-evolving markets. For example, we opened 2 offices in the Middle East in the previous reporting period. We have now put additional resources in, and we are building an on-the-ground domestic business in the Kingdom of Saudi Arabia, which includes a strong investment presence. In Asia, we're developing an exciting joint venture with a Singapore-based alternative investment firm with deep experience and relationships in the region and in particularly China. This will strengthen our investment capabilities in the region as well as positioning us to compete more effectively for capital flowing out of the region. We have established a digital finance unit with dedicated leadership to provide clients in certain markets with a far better experience than they traditionally have received from asset management firms. We've committed substantial resources to AI-related innovation which we will update you on further at the end of the year. I must stress that these developments are fully expensed through the cost line and are not consuming significant additional capital. Over the reporting period, we've made meaningful progress on the technology front, which includes a major systems migration. Now that this has been fully completed, significant resources have been freed up for further enhancements and innovation. These are the additional 3 areas of growth we're pursuing, which we believe will impact the way we run our business in years to come. What we're really trying to do is from strong foundations, build the active investment manager of the future. To become the active manager of the future, AI is key. At Ninety One, we approach AI on 3 levels: advocate, equip and use. So this is how we rate ourselves. We see quite high levels of adoption, we see reasonable levels of experimentation given the widely available AI tools to all our staff members, sort of 6 out of 10. Then our people have embraced it, and we are working hard to get our proprietary data organized for the effective deployment of AI across the firm. The proof of the pudding is in the transformational impact of AI. We have much to do on this front. The business is stronger than it was in the previous reporting period, supported by better business conditions and recovering demand. We plan to improve and modernize our business through disciplined investments in and adjacent to our core activities and markets. Emerging markets and the search for diversification are coming back into favor, which supports us. Active investing has a role to play in this world particularly within emerging markets and in the global equity opportunity set. The strategic clarity and simplicity of our business model enables us to seize the opportunity with pace and strength. In short, we see renewed opportunity for growth. Thank you very much. We can now move on to Q&A. We will take questions in the room first, and then will watch -- then we'll take questions from webcast viewers. [Operator Instructions] I think Angeliki, you had the hand up right in the beginning, so. Angeliki Bairaktari: This is Angeliki Bairaktari from JPMorgan. So your flows were much stronger than the previous semester, GBP 2.4 billion. And we -- you say in your presentation that you feel that active is back. Can you perhaps give us a little bit more color with regards to where you see that strength coming from I think you had APAC, Middle East and also equities. But if you can just give us a little bit more color on the pipeline that you're seeing for the next 6 to 12 months where you see the strength coming from? And that's my first question. And then maybe on the management fee margin outlook. There's a lot of moving parts there, relative to my expectations, the management fee margin followed more. I think we still have some dilutive impact to come from Sanlam once the further AUM gets onboarded on the platform. So how should we think about the run rate, management fee rate for next year perhaps? Hendrik du Toit: I think you've asked the real questions that we all need answers for. So I can give you color on what we see rather than a prediction, Angeliki. So firstly, the -- if I can go to the flow or the pipeline that we see. Firstly, the result is again emphasizing the strength of our diversity. We source capital from the same kind of client but in different regions around the world. They have slightly different perceptions on risk and on willingness to take risk at a point in time. And that's why we've seen equity up weightings from large clients in Asia. And that's really where we've seen it. In the rest of the world, particularly North America, where we've delivered some positive, we are seeing a significant search activity or investigating activity's about how to diversify's their portfolios. That flood's gate has not yet opened. We expect that given the sense that markets normalize over time, and we've come out of a long period of underperformance for the rest of the world relative to the U.S. And we know these things go into 10, 15-year cycles. There's a very good paper on our website about dollar cycles and dollar cycles and international investments seem to be highly correlated. You can go and read that. So -- but what we have seen in the last 6 months picking up from the previous 6 months, not the year ago, but the preceding half year is an intensity or intensification of client and search a client engagement and, call it, presearch engagement. What, of course, can change the flow picture is whether we, in this very competitive world win in the very final stage. I mean an example in the last 6 months, and it really hurts me to say it. But after eliminating all competitors, we came second for a sort of close to $5 billion mandate, one client that would have made this figure look a lot better. And so we are driven, and I think you should understand it Ninety One deals in the upper end of the institutional market. Small numbers of clients make a big difference. The fee on that depends on where they're already engaging with that client at scale, and therefore, the client gets a better deal and we price persistency as well. So clients that are persistent, and this is not price cutting, but clients that are persistent have proven themselves to be persistent over time, get a better deal than those who rent your capacity. And so sometimes, we would not do a deal, which we could do and create great inflows to make all of you happy because we know this client is a capacity renter. And they'll come for 3 years and then cause a problem for us when they go out again, whereas others deserve the respect of a value-for-money deal plus scale benefit. So it's very, very difficult to predict where we are. I think we still, with our underlying guidance of market fee pressure is around -- and I still think it's around the 1 where we are is 50% of our growth typically when we're in growth cycles is upweighting from existing clients, 50% is new. If those existing clients are the big ones, your fee goes lower, if they come from general market, mutual fund market, et cetera, your fees are a bit better. But I think over time, Ninety One is moving towards and increasingly institutional. So the breakdown in the addendum to the slide pack, the appendix where we show institutional versus adviser actually, we are trending towards a much more institutional business. And even in South Africa, where we have a strong advisory business, those advisory firms are getting bigger and bigger and behaving more like institutional multi-manager. So I think -- we're going through that lowering a fee process but hiring of what increasing of volume and therefore, increase operating margin but not necessarily on a fee basis. So I think the 1% we guide to is still the underlying fee compression in our industry. We might as of late, be hit by something a little more or less, but it depends. And it also depends on the growth of the alternatives business because that is a still and where I see the real fee pressure in our industry is actually on the alternatives business. I don't think the 2 and 20 models are going to hold because if clients look at their fee budgets, this is where. So what they're currently doing, just an interesting thing in private equity, private credit, et cetera. They pay the full fee, but then they do a deal on the side to co-invest for nothing. So what is the real effective fee of providing those services and your capabilities to a client for free. So I think about -- it would be a really interesting work -- a piece of work for you to do when you look at that side. So I think that's where the fee pressure is more than in ours, but we are preparing for a world where we have to be at least 1 basis point more efficient every year. And I can't tell you whether we're going to be at 40. Right now, I'll -- Kim, I think you've got the answer. We're running at a slightly higher fee level, maybe you can add here for me, then actually the number shown there. Kim McFarland: Yes. Well, I kind of explained that in my sort of daily -- I think I did that on the call this morning actually as well on the sort of daily, monthly factor. But I think you're sort of -- you're asking the question about looking ahead. And Hendrik is right, we are seeing pressure on the fees, both. You've got the standard 1 bp a year that we advise on. But when you're looking at both new mandates, but actually more so existing client mandates that are coming on board at lower rates and then giving us the asset to compensate. So hence, we're seeing the pickup in the AUM, but they are often negotiating at lower fee rates. So this is why we're definitely seeing more fee pressure. Hendrik du Toit: But for us, it is -- the value lies in embedding those relationships for the long term. And if you can do that, you have a higher-quality business. But what we're not doing is price-cutting to win volume. We don't going out there saying, "Hey, we're cheap". But this -- and I still believe, this market will settle down when nominal interest rates are on the rise again because actually, it's hard for a treasurer or someone to sign a check, when he earns it out of interest, it's easier. So I think there's a -- there is a link, which one day will prove statistically, but we can't give you an exact number now. The next step on the pipeline, we're seeing substantial opportunities against scale ones, so there won't be fee level enhancing ones, they'll probably be roughly where we are for the rest of the year that we should convert. What we don't know is where the unexpected redemptions or changes in strategy can happen with the client. And that's the problem when you deal with these large clients. They get a new CIO, they get staff changes and a new strategy comes in, you're being seen as okay, but not necessarily central to the strategy. So -- but I'm fairly comfortable that the visibility of the pipeline is better than it's been in recent reporting periods. Jonas Dohlen: Jonas Dohlen here from Deutsche Bank. Just one follow-up. Yes, just one follow-up on the fee margin. I was just wondering if that guidance now includes the Sanlam or if that's still on kind of the legacy assets on that 1 basis point... Hendrik du Toit: Sanlam is lower because it's a $20 billion deal. So it's lower, and it's largely fixed income assets. Jonas Dohlen: Yes. But on a group level, you expect 1 basis point... Hendrik du Toit: Yes, on an organic basis. So there's an organic basis and then there's the Sanlam transaction. And what I'm saying, the 1 basis point is the market pressure. If we were to ex Sanlam or if we were to get a big up weighting from a sovereign wealth fund where we already have a premium deal because they've got billions and billions with us, it's probably going to be below that fee level. If we win 500 million mandate chunks, it will be at or around or above that fee level. You see. So that's why I'm saying the market -- the institutional market pressure is roughly 100 basis -- or 100 basis points per year. The -- sorry, 1 basis point per year excuse me. 1 basis point per year. But the -- for us, Sanlam is a separate transaction and then obviously hugely accretive from a profitability point of view, and it depends then what kind of flow we get. Jonas Dohlen: Great. And then just on the tax rate as well. I think you mentioned... Hendrik du Toit: I don't understand... Jonas Dohlen: 25%. Kim McFarland: 25%. Correct. Jonas Dohlen: Being a reasonable number to go forward. I'm just wondering how to kind of square that circle. I mean you have a higher tax rate in South Africa, and that amortization part not being tax deductible as well? Kim McFarland: But we have tax in many other jurisdictions as well. So it's linking up the 2 of it. And -- you're right. When I'm looking at it, I'm looking for the next 6 months and the South African impact is only -- it's going to be in the results for a couple of months next year. I think looking ahead with the nondeductibility of the amortization piece, it will tick up a bit. Hendrik du Toit: Piers, you'll come back in new uniform. Piers Brown: Yes. Indeed, yes, it's Piers Brown from Investec. Hendrik du Toit: Very good. Piers Brown: So very happy about that. I might be greedy and actually, go for 3 questions. So the first one, yes, just back on to the fee rate conversations. So I guess, if you look at this from the perspective of the operating margin, you're -- I mean you printed 32%, which looks very good for the first half. If I take out the performance fees, you -- which I know is a slightly dubious calculation, but it looks like you're maybe sub-30%. But the question would be just on the fee rate outlook, do you think 30% is still the level you can protect? Hendrik du Toit: I think you have to compensate higher average assets under management, that compensates a bit because remember, the markets had a run close to the end, there was Liberation Day down than up. So your average AUM doesn't reflect your actual AUM. And you've got to look at where the sterling is strong or weak, which then deflates a big cost base. So I'm more comfortable than you. But you are right, there's -- the core revenues have not grown as much as they should have. So we don't run to a target actually. And therefore, it's not something we monitor daily. But I'm not at this stage, I'm comfortable that we're going to come back to you with a 25% operating margin, put it that way. Kim McFarland: I think that's too right. I think you've also got to recognize the fact that we're taking on the Sanlam assets, as I said, next year at a low cost. Hendrik du Toit: And I would remind everybody, we've bought I know we call the GBP 1.9 billion acquired growth, but we bought back those shares already. So if you think about it, it's just a mandate win, the big one is going to take a bit longer, but if we can do that, if we have the cash flows, then you know what, it's actually akin to an organic transaction. Piers Brown: Okay. Second one is just on the composition of flows. And sort of relating this into Sanlam, but I mean you've had GBP 1.3 billion of Africa outflows, offset by very strong inflows in Asia Pac. Is there anything in the Africa performance, which is maybe impacted by clients reallocating in advance of Sanlam or... Hendrik du Toit: No, no, it's not Sanlam. It's the -- South Africa is actually a very competitive market, and it's very transparent. When you know exactly what each competitor is doing and your cousin or your kid works at the competitor, you literally know what goes on. And so we had some performance pressure in 1 or 2 strategies, which didn't get -- the market goes quickly, moves quickly against you. We've had the back end of the so-called 2-pot system, which means money was released out of the pension system, where if you're a large provider, you have to suffer that. That is now gone. So that structural bit has left. And then, of course, there was the back end of the internationalization of the SA equity or SA investment market because the exchange controls were relaxed for international opportunities opened up for retirement funds. The Minister gave a big -- a few years -- 2 years ago, a big -- there was a big change in the -- what they call Regulation 28. And that means they could invest more. So there was a structural flow abroad. Typically, to new competitors rather than to someone already has a high wallet share with a client because it just makes sense for those clients. And actually, international passive was a big winner there where we don't compete. So I think those 2 forces are over, think on our investment side, we have all intends -- we intend to be very competitive, and we have recovered quite a lot in terms of competitiveness. So I think on all 3 factors, we're stronger in the second half than the first, but it is one of those markets where if you have a big share and you're not absolutely on top of it, the competitors come after you and we've got some very good competitors in that market. Piers Brown: Okay. Perfect. And just maybe a last one on capital. So 245% capital coverage ratio. I think you've sort of indicated 200% in the past is where you'd like to be. It doesn't feel like there's an awful lot of need for seed capital for some of the new initiatives. So the obvious question is, would you look to move closer to the [ 200% ]? Kim McFarland: We will -- I mean, as you noted, we've continued with buybacks in the actual period. We will continue to look for opportunities to use additional seed capital for buybacks when we're comfortable with the price, and obviously in agreement with the Board. Hendrik du Toit: If pricing is reasonable, we think reducing the denominator is always better than just paying out the cash. But we must look at where the market goes. And who knows, there may be opportunities. Any other questions? Investing definitely add value for money, you'll get your dividend. Varuni, are there any of online questions. Varuni Dharma: Yes. There are a few. First one is from Brian Thomas at Laurium Capital. Are you able to comment on the buyback program that was suspended during the half? Are there any metrics that you take into account in determining when you buy back stock that we should be mindful of? Hendrik du Toit: Before we answer that, there's -- Kim just reminds me, there is one thing in the Africa side. There was a 1 single client sort of -- and many clients pay out and eventually but reallocated away from us as well. So you should sort of have the impact of that number. And that's why I'm quite confident that it can turn around. Sorry, on the buyback, yes, we carefully -- we carefully look at value and value in the context of the industry and the context of what we see ahead because the one downside with buying back is if you overpay for your own stock. And therefore, it's always a consideration and a discussion with the Board. It's not an automatic buyback process. And -- but our industry has been so extremely -- I actually had benefit of last week in Paris when I went to watch the Rugby and I have to remind, I know the French listeners, it was a wonderful moment for South Africa and Paris. But in spite of referee against us, we're still -- but I actually went to watch the Rugby with someone who used to be one of the top financial analysts in the market about 25 years ago -- 20 years ago. And he's gone to private equity. He hadn't looked at valuations of asset managers. He was -- it's a bit like talking to someone who fell asleep 25 years ago because he was completely mind boggled by the relative valuation of asset managers against other financial firms particularly wealth today because in his time, it was exactly the opposite. We were the 20 multiple shops and the others were single digit. So I think broad -- and that reminded me again, that these cash flows, quality cash flows are still, in my opinion, or at least in our opinion, fairly cheap, which is why we have also been acquiring stock slowly and as a management team because we think the market is not appreciating the quality of the cash flows we generate. And so even though they don't -- may not grow as much organically there could be -- and there has been a re-rating of late. Now if the re-rating is too much, we will obviously step away. But our industry is still structurally very cheap compared to other cash flows of similar quality. I mean just close your eyes, 30%-plus operating margins is that's tech. Okay, what do you pay for tech? Palantir last when I looked at 185 PE multiple. So it's very different. And it's in that context that we think rather than in short 1 month, 1 week, 1 quarter valuation cycles. But there is a proper process, which Kim can talk to you about when she reports it again. Do you want to add something, Kim? Kim McFarland: Yes, that's fine. Hendrik du Toit: Any other questions? Varuni Dharma: Yes. Next question, Murray Winckler from Laurium again. Congratulations on returning to net inflows for the business. Headcount increased by 8%, which seems high. What should we expect going forward? Hendrik du Toit: Murray, well to done to you, by the way. You're one of those guys stealing business. We will have to come take it back. Just I mean that is one of the big questions. Can we get to a bigger -- a real efficiency for our business? That's about the digitization and the technology investment. But we should also remember that there was some preparation for -- although we're not taking on many people from Sanlam, there's a significant preparation for taking on a book of that size that -- and then there's also the improvement of our communication with end clients, which we had to invest in to make sure it's there. And again, technology over time will make that a lot easier but it was really important, and we've had challenges on -- with South Africa being on the gray list. We've had real challenges on dealing with our international funds into South Africa and our service capability had to just be much sharper, much better equipped to deal with it. And then we've also been building the private markets business, which is much more -- actually much more human intensive than certain public markets investment businesses. And that's about the reasons. I don't know Kim, are there any other ones that you pick up and you want to... Kim McFarland: I think that's right. I think the pickup in a lot of op staff on the IP platform in South Africa. Likewise, on the Sanlam. A lot of them are actually long-term contractors at this stage because I see it as a temporary thing. So I think the sort of more permanent headcount growth has been in private markets and within the actual business. So I think the question is what are we thinking about it looking forward? I'm not seeing an 8%. I wouldn't be looking at an 8% increase in headcount going forward, I think, would be my answer. Hendrik du Toit: And I think with a better use of technology, we could run the same quality service, leaner, that includes client acquisition, client service, investment processes, but it's very important to do these things very slowly over time. I'm not as bold as the big banks that say that they will run -- I mean, 2 of the big bank CEOs in Global Bank CEOs confirmed to me that they'll double their business over the next 5 years with the same staff levels. That has to be seen whether that's going to realize, but those are ambitious goals. I think we should have similar goals, but it's early stage saying it because the promise and the layer of technology is always there and then the delivery is slightly behind. And we've -- those of us who have worked in the markets a long time have realized that. But definitely don't budget for a 8% staff increase, Murray. That's not going to happen. Varuni Dharma: Next question from Jaime Gomes, Laurium Capital. Can you please explain the expected total onboarded AUM from Sanlam remaining the same as what it was this time last year, circa GBP 17 billion. Has the book experienced some outflows given the strong market performance over the last 12 months? Hendrik du Toit: The book is roughly -- it's the same number. There might be a little benefit rand to sterling exchange. So it might be a little more in sterling. But remember, it's a very fixed income, heavy book. There are also -- there could be a few wins associated as well, but we first got to deliver them. So we're very comfortable that the numbers will reflect what we told the market at least. Varuni Dharma: Next question from Hubert Lam. Can you give us an update on the alternatives business and new initiatives, including private credit? And he has a second question, which is, how should we think about further investments you need to make in AI and tech and what that means for your cost base? Hendrik du Toit: Hubert, nice to get a question from you. I know you have another meeting, so you're not here in person. I would say that my simple answer is private markets are hard. And I'm so glad we didn't buy an overpriced boutique to grow, which then doesn't grow, okay? Because the top guys dominate they've got such a strangle hold. And so that's my one point. I think we found niches which we can live in and defend and grow. And what we have actually done is put some of our -- to make sure they get the full support of the firm, put some of our top leadership very close to the private markets guys and they support them to get through and we build it around and particularly around our emerging markets positioning. Now what we know is the emerging markets haven't had huge flows as such. We think there will be appetite and there will be appetite coming. We modest net inflow have been consistently in that space. But we are building through our cost line, and it's fully reflected in our cost line, we are building capability to be actually -- to be fully competitive in our various areas. And I think our focus is private credit. And private credit and transition credit, and that is very clear, and we have built a market name and position there. So we would expect accelerating flows to follow. But those businesses take -- will take a while to impact -- to truly impact on the bigger Ninety One bottom line. If you model us, model us largely as a long-only business, long-only active business because that's still very dominant in terms of revenues and flows. Kim McFarland: Cost. Hendrik du Toit: And yes, but private market is costly to build. It's high fee, but costly, whereas public markets could be done very efficiently with slightly lower fee, and that's the sort of trade-off between the businesses. But we do see the merger. And so the partnership we announced in the joint venture we announced with in -- with the Singapore based, which we are about to announce because we'll probably -- will probably sign in the next few days, and that's why we haven't been long on detail because anything still -- things have to be -- until they're fully signed, you don't want to talk too much. But there, we have -- we're talking to a business which does long short and crossover between public and private. Now I think these universes are getting closer, and one just has to make sure you understand what happens to the other side of the liquidity fence rather than just staying in the curated even if you want to be a very good long-only business staying in the highly curated screen-based long-only part of life. You've actually got to get -- understand what entrepreneurs are doing and what's happening in the ever longer pre-IPO pipeline because we do know a lot more happens on that side of the fence now from venture right through to growth. And I think that's important for us. But as these things emerge, who knows what product constructs will look like, who knows what client appetite will look like. Clients today are still very organized in boxes between the so-called alternatives units, which is now quite frankly, mainstream and active long only, which is becoming increasingly alternative and passive. So they've got their different boxes. But as they start looking at the total portfolio approach, who knows how they are going to buy and that's what we need to be prepared for. Kim McFarland: And I think the question on uptick in technology spend or AI spend, which was the other one, I think Hendrik mentioned the fact that our big technology replatforming exercise did complete early this year. So those costs are now -- and the ongoing cost of that are actually largely built into our figures. AI has largely been a part of our operating cost line. So the gain, how you should think about it is really a continuation of what our cost base is right now. Hendrik du Toit: Yes. And we absorb in what is available or what can be bought. We don't go to bleeding edge development. The big thing is getting your data organized. And I mean it's been with -- that data story has been with me ever since I've been in this firm. Everyone said we have to organize our data better. But you can get so much more value if you are properly digitized as digital middle business models are showing, it is not trivial and that easy. But as a midsized business, if we can't get it right, nobody can get it right. So -- but we're spending resource and effort on it to make sure we can extract maximum value given the enhancements of the available tools. And they are genuinely moving very fast. And I think 5 years from now, we will be in an entirely different world, and we need to be ready for it. Any other questions, Varuni? Varuni Dharma: Yes, a couple. We have a couple of questions on buybacks. The first one from James Slabbert from Standard Bank. There was a slide on the existing capital stack in the business, would it be aggressive to model for annual buybacks far in excess of earnings remaining after the payout of dividends. I think you've touched on that. But -- so by modeling for buybacks in excess of earnings. And then whilst we're on buybacks, a question from Keenon Choonoo from Investec. Is there a preference between Ninety One Limited or PLCs when considering buybacks? Kim McFarland: So we look at both the plc and the limited lines as far as buybacks are concerned. In fact, we look at even PLCs on the JSE line when we look at buybacks. So we look at all three because there sometimes is a variation in price. So we look at all 3 -- effectively 3 lines, although there's obviously 2 shares to answer that question. As far as buybacks to ceding earnings, we look at buybacks from a capital position. So we -- it comes back to the question asked earlier by peers, you aim for a 200% capital position. We're in excess of that. So I'm rather looking at my capital position, understanding, yes, is there any seed? Is there any regulatory requirements. As you mentioned, there's not an awful lot of that at the moment, but we take that into consideration and at the same time, then look at opportunities for buyback based on surplus capital that we're holding on the balance sheet. Hendrik du Toit: Yes. But we -- what we don't do is this is a highly operationally leveraged business. It will only be an extreme that we will leverage the business. You remember, this is what sticks out asset managers. They go on leverage and then they get the fall in assets under management. They get outflows and the debt stays the same and the equity gets wiped out. So we will be very, very careful to ever go beyond what we can do out of our ongoing earnings or surplus capital. Some other industries, people get very brave. I think, yes, this is probably one of the reasons why we haven't bought the firm from the market yet, okay, because you don't leverage these businesses. . Varuni Dharma: Another question from James Slabbert for clarity on the 1 basis point fee margin compression. Would you apply that to the current fee rates that H1 2026 or the FY '25, so the year-end? Hendrik du Toit: I think we've already done this year, we've already done it. I mean we doubled it. So we think we could have a -- we're not 100% sure, but we could have a far lower decline in the second half, just given what's happened in flow dynamics, excluding the Sanlam. But -- and it's really a gut feel here. But that 100 basis points feels like the underlying trend in the market, not necessarily ours. And James, I wish we can't even forecast it to our Board where we're going to be -- it's very -- you've got a very hard job at doing that. I don't know whether Kim can give you any more wisdom except to say the trend is not up. Kim McFarland: Well, I think you're right. I think you're going to look at the most recent fee rate. And if it's in the half year, so you're taking half or 0.5 based on the most recent fee rate, but then you have to take into consideration, as we mentioned, the Sanlam assets coming on board, which will have a further impact and should we take on any large new mandates in the period. If we see those flows, there's likely to be further fee erosion, hopefully not, but there's likelihood. Hendrik du Toit: You see -- especially when you do the relationship deals, with a large insurance company or something like that. And they are genuinely sensitive because it hits their profit, but they can give you assurance about commitment, timing, i.e., embedded value or present value of the deal, that's different from when you get in the normal distributed pension market OCIOs most -- many of them are in -- or multi managers are different because you're not going to compete on price there at all. So it depends where the flow comes from. What we haven't seen, and I think that's the bit you should understand. We haven't seen the sort of -- I've hinted that there are opportunities to grow. But the good times aren't back yet. When you get into the good times and clients want to deploy fast and -- they just want to get the money out there. Then price sensitivity tends to take a backseat. At the moment, they have lots of time to deploy. They're thinking multiyear. They're not chasing markets. I think if you get up severe underperformance or you get -- and I don't think we're going to see it immediately, but if you get a big correction in the dollar, then that changes life. And that's the positive for us. But I don't want you to model that. Varuni Dharma: Last question from Herman [ Van Veltsa]. Do new clients favor fixed fees? Or do they tend to opt for performance fees? Hendrik du Toit: Herman, nice to hear from you again. Another old campaign. I wish clients wanted to give more performance fees because the way you could resolve this constant fee bickering and say, come on, pay us afterwards, pay us properly. But Interestingly, clients have typically been burned by performance fees because they end up paying more. And so they're reluctant to do that. They're also reluctant to go to the -- I mean, in mutual funds, where it's quite prevalent in South Africa, it's not actually encouraged in the rest of the world. ETFs are very difficult. You can't really do -- it's difficult to do, whereas institutional owners don't want to go and pay the big check and ask their Board to pay a large check to a manager unless it's in the alternative bucket. Now again, if those buckets fade and different kind of people contract with us, we could possibly push more performance fees. We think it's a way to align well, although buy-side analysts or sell-side analysts would say it's lower quality of earnings. But I think we could make more profit. They're very happy to do that when they buy Millennium or Citadel. But for some reason, there is a reluctance in our space because that's just what it is. So we would be quite open because we know, over time, 80% of our offerings beat the benchmark. So it's in our favor. But -- it's not the reality today. So I wouldn't model for much bigger performance fee component in our business. I'd roughly keep it similar, noting that a period of good performance, we will own more performance fees. Thank you very much. Thank you very much, and I'll see you after second half, and I hope the positive -- the positive hence, have realized, but it's up to the market. Thank you. Kim McFarland: Thank you. Hendrik du Toit: Thank you very much, guys.
Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2025 Earnings Conference Call for XPeng Inc. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex. Alex Xie: Thank you. Hello, everyone, and welcome to XPeng's Third Quarter 2025 Earnings Conference Call. Our financial and operating results were issued by Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from management team will include Co-Founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that XPeng's earnings press release and this conference call include the disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-Founder, Chairman and CEO, Mr. He Xiaopeng. Please go ahead. He Xiaopeng: [Interpreted] Hello, everyone. In Q3 2025, XPeng reported record sales -- record results in key operating metrics with new highs in deliveries, revenue, gross margin and cash reserves. Vehicle deliveries for the quarter totaled 116,007 units, a 149% increase year-over-year. The all-new XPeng P7 launched recently quickly became one of the top 3 BEV sedans priced between RMB 200,000 to RMB 300,000 boosting monthly deliveries to over 40,000 units starting in September. Additionally, the company's gross margin exceeded 20% for the first time in Q3, and we reduced our net loss further. Our goal is to achieve breakeven for the company in the fourth quarter. These continuous operational improvements strengthen our focus on physical AI R&D, supporting the targeted mass production of our VLA 2.0 model, Robotaxi and humanoid robot in 2026. As AI models advance and become increasingly integrated with real-world data, machines are slowly gaining the ability to interact, communicate, transform and create within our physical environment. This development is reshaping the future of mobility and daily life. Over the past 11 years, XPeng has dedicated itself to building full stack technologies in-house evolving from software-defined vehicles to the emerging realm of physical AI. We understand that vehicles and humanoid robot, the 2 primarily applications of physical AI, share a homogeneous physical world model, SoCs and infrastructure, allowing for rapid iteration and evolution. Excitingly, new capabilities are continuously emerging from our physical AI technology stack. Over the next decade, my goal is to make XPeng a leading global company in embodied intelligence. Focused on physical AI applications, we're developing an extensive portfolio of technologies, products and supporting business ecosystem. Besides providing AI-powered vehicles to consumers worldwide, we aim to deploy pre-installed mass-produced Robotaxi on a large scale and achieve the mass production of humanoid robots. We believe that an open and dynamic ecosystem is crucial to unlocking the full potential of physical AI for humanity. To achieve this, we plan to open source our physical world model, launch Robotaxi services in partnership with mobility platforms and relieve our humanoid robot SDK. This approach will expand the physical AI application ecosystem through collaborations with business and technology partners and accelerate the value creation process. I'm also glad to report that as we introduce the one vehicle, dual energy product cycle for AI vehicles, we'll expand our scale and increase our NEV market share through a wider product range. On November 6, we launched presales for the XPeng X9 Super Extended-Range EV, an industry frontrunner in extended-range vehicles equipped with a 5C rate high-capacity LFP battery and a total range of up to 1,602 kilometers. It is the world's first large 7 seater to offer the longest range, highest AI computing power, smallest turning radius and most efficient space utilization in its category. We see super extended-range EVs as crucial for accelerating the shift from ICE vehicles to NEVs. Since presales began for the X9 Super EREV, we've experienced unprecedented interest, especially in northern regions and inland cities of China, attracting many customers who previously hesitated to switch to BEV models. To date, preorders for this model are nearly 3x higher than the presale of the previous X9. On a like-for-like basis, the X9 Super EREV will officially launch on November 20 with deliveries starting immediately afterwards. I anticipate reaching a new delivery record in December. We plan to introduce 3 super extended-range products in Q1 2026 focusing on alleviating key challenges for our EREV users by offering long, pure electric range and quicker 5C supercharging, thereby capturing more of the EREV market. We have put in more R&D expenses in 2025. As a result in 2026, we'll also launch 4 new one vehicle, dual energy models, including our first product launch in some key market segments. These innovative products will help us establish a presence in these markets and build leading products like the MONA M03. I'm confident that the 7 one vehicle, dual energy models with super extended-range technology debuting next year will greatly increase our total addressable market or TAM and provide significant sales growth opportunities. On the global business front, we maintained strong sales growth and established a solid foundation for long-term expansion through our localized approach. In September 2025, our monthly overseas deliveries exceeded 5,000 units for the first time, a 79% increase year-over-year. During the third quarter, we grew our global presence with 56 new overseas stores, expanding our sales and service network to 52 countries and regions worldwide. Additionally, our first European localized production facility at Magna plant in Graz, Austria, officially commenced operations with the initial batch of XPeng G6 and G9 rolling off the line. Simultaneously, XPeng's R&D center in Munich, Germany, officially began functioning, helping us better understand overseas customer needs and accelerate technological advancement and product launches. In 2026, we plan to introduce 3 new overseas models, including popular mid- to small SUVs that meet the diverse preferences of global consumers. Our strong focus on investing in AI large models, computing infrastructure and data set is driving the continuous emergence of advanced capabilities from our physical world model. Our upcoming VLA 2.0 model, which has 10x more parameters than its predecessors will substantially enhance safety and user experience in intelligent driving. From my own recent driving experience during very complicated and complex road conditions, we experienced very impressive and unparalleled driving experience from the intelligent VLA model. So starting from late December, we will initiate a co-creation program with our early adopters. In the early quarter of 2026, we aim to deploy the VLA 2.0 model across the entire Ultra lineup. I see the mass production of VLA 2.0 as a major breakthrough in physical AI models, offering a significant generational leap in user experience and attracting more people to choose XPeng for its leading intelligent driving technology. Going forward, XPeng will open source it's VLA 2.0 model to global commercial partners, aiming to provide industry-leading advanced driver assistance experience to a wider audience. Volkswagen will be the initial launch customer for the VLA 2.0 model. Additionally, XPeng's Turing AI SoC has earned a formal sourcing designation from Volkswagen with codeveloped vehicles expected to start mass production early next year. Revenue from licensing our technology to external partnerships will be reinvested into our R&D, mainly to support iteration and upgrades of the Turing SoC and VLA models. This fosters a positive cycle of innovation and commercialization. We invite more automakers and Tier 1 manufacturers to collaborate with us on the Turing SoC and VLA 2.0, working together to promote the adoption of advanced intelligent technologies in both Chinese and global markets. Traditionally, end-to-end models were able to maybe reach advanced Level 2 at its best; however, the rise of physical world model is speeding up the arrival of true autonomous driving. I believe that only pre-installed mass-produced Robotaxis with a strong ability to generalize can achieve widespread adoption and create a sustainable business model. In 2026, XPeng plans to launch 3 Robotaxi models. Our technology stack for Robotaxi does not depend on high-definition maps or LiDAR. This approach enables us to address current industry's challenges, including high cost, operational limitations and poor generalization, allowing for an efficient and scalable deployment worldwide. We intend to begin pilot operations of XPeng Robotaxi in China in 2026, continuously improving both software and hardware of Robotaxi while building an operational ecosystem. I believe that a collaborative ecosystem where all industry stakeholders' benefit is key to scaling rapidly. Therefore, we plan to open our SDK to our partners, and Amap will be the first ecosystem partner for XPeng Robotaxi. We also invite more companies in the mobility sector to explore Robotaxi collaboration opportunities with us. Our humanoid robots adopt a technology road map driven by physical world model. With full support from our vehicle and powertrain R&D teams, we unveiled our next-generation IRON robot at the latest XPeng Tech Day. The IRON's human-like posture and agile gait surprised and deeply moved many XPeng fans and also highlighted the great commercial potential of humanoid robots. Currently, IRON demonstrates only a very small fraction of its capabilities. In Q2 2026, we plan to achieve full capability integration through cross-domain innovation aiming for performance and user experience for far surpass current market offerings. Our target is to begin mass production of advanced humanoid robots by the end of 2026. Once produced, IRON will be first deployed in commercial scenarios, providing services like tour guiding, retail assistance and patrols. By the end of next year, I hope IRON will be working alongside us at XPeng stores, campuses and factories as our new team members. Additionally, XPeng Robotics will open its SDK to global developers, inviting partners from various industries to collaborate on secondary development. This will enable IRON to be trained and to evolve across diverse and long-tail real-world well scenarios, unlocking broader application possibilities. From a long-term perspective, I believe the market potential for humanoid robots will exceed that of automobiles. Once a new generation of robots reaches the inflection point just as China's EV industry did with electrification, we expect explosive growth ahead. I envision that by 2030, XPeng robots could sell over 1 million units annually. With the launch of our one vehicle, dual energy product cycle, I expect total deliveries in the fourth quarter to reach between 125,000 and 132,000 units reflecting a year-over-year growth of 36.6% to 44.3%. We project fourth quarter revenue to be roughly between RMB 21.5 billion to RMB 23 billion, up 33.5% to 42.8% from the previous year. XPeng's AI-driven vehicle business is in the early stages of rapid expansion in terms of scale and market shares, while Robotaxi and humanoid robot programs are swiftly moving forward and towards mass production. I'm confident that XPeng will establish itself as a leader in physical AI, both in China and globally, delivering greater value for our customers and shareholders worldwide. Thank you, everyone. With that, I'll now turn the call over to our VP of Finance, Mr. James, who will discuss our financial performance for the third quarter of 2025. Jiaming Wu: Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the third quarter of 2025. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 20.38 billion for the third quarter of 2025, an increase of 101.8% year-over-year and an increase of 11.5% quarter-over-quarter. Revenues from vehicle sales were RMB 18.05 billion for the third quarter of 2025, an increase of 105.3% year-over-year and an increase of 6.9% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries from newly launched vehicle models. Revenues from services and others were RMB 2.33 billion for the third quarter of 2025, representing an increase of 78.1% year-over-year and an increase of 67.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the increased revenues from after sales services and technical R&D services rendered to the Volkswagen Group due to the successful achievement of certain key milestones in the current quarter. Gross margin was 20.1% for the third quarter of 2025, compared with 15.3% for the same period of 2024 and 17.3% for the second quarter of 2025. Vehicle margin was 13.1% for the third quarter of 2025, compared with 8.6% for the same period of 2024 and 14.3% for the second quarter of 2025. The year-over-year increase was primarily attributable to the ongoing cost reduction, while the quarter-over-quarter decrease was due to targeted promotion to clear outgoing inventory during product transition. R&D expenses were RMB 2.43 billion for the third quarter of 2025, representing an increase of 48.7% year-over-year and an increase of 10.1% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models and technologies, as the company expanded its product portfolio to support future growth. SG&A expenses were RMB 2.49 billion for the third quarter of 2025, representing an increase of 52.6% year-over-year and an increase of 15% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily due to higher commission to the franchised stores, driven by higher sales volume as well as higher marketing and advertising expenses. As a result of the foregoing loss from operations was RMB 0.75 billion for the third quarter of 2025, compared with RMB 1.85 billion year-over-year and RMB 0.93 billion quarter-over-quarter. Net loss was RMB 0.38 billion for the third quarter of 2025 compared with RMB 1.81 billion year-over-year and RMB 0.48 billion quarter-over-quarter. As of September 30, 2025, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of RMB 48.33 billion. To be mindful of the length of the earnings call, I will encourage listeners to refer to our earnings press release for more details on our third quarter 2025 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead. Operator: [Operator Instructions] For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. [Operator Instructions]The first question today comes from Tim Hsiao with Morgan Stanley. Tim Hsiao: [Foreign Language] So my first question is about the physical AI because in the past, the competitive advantages of other companies were reflected in several aspects like cost, brand and channels. Just wondering if the management could elaborate a bit more about what aspects XPeng's long-term competitive advantage in physical AI will be demonstrated? And how will the company continuously enhance its strength in these areas? That's my first question. He Xiaopeng: [Interpreted] I think this is definitely a big question. The traditional way for automakers to make money is completely different from the new physical AI model generated kind of business format. They come from different DNAs. Traditionally, older traditional automakers focus on their own positioning and also about how they target their user segments and then everything boils down to their integration of Tier 1 suppliers and all the other different parts of the supply chain. However, when it comes to a physical AI-generated model, the definition is different. We determine what the -- we -- everything boils down to the definition of the future tech. It involves full-stack technology capability and also custom integration. For example, the launch of our IRON robot is a great example of that. So that's why different DNA is going to generate different products and different growth momentum. In the future, I believe that cars will be a new format of robotics, and it's going to actually come to the real life in the coming 5 to 10 years as the next generation of robotics in our life. So traditionally, the integration of supply chain is completely different from what we are looking at right now, which is the physical AI technology integration across different domains and involves software, hardware and infrastructure upgrades, which will lead to a completely new set of products. As a result, traditionally, software were only a small percentage of traditional car development, whereas right now, it takes up a large part of new product development. And I believe that when you look at our future developments, we are actually going to see more and more physical AI components in the future for car development over 50%, and we are going to see that very, very soon. Thank you. Tim Hsiao: [Foreign Language] My second question is about revenue from the collaboration with Volkswagen. So first of all, congratulations on the project wins of Turing chips at Volkswagen. So may I know from which quarters the related revenue will start to kick in? And how should we think about the trend of the revenue contribution from the collaboration with Volkswagen in December quarter and the full year 2026? That's my second question. Charles Zhang: Tim, this is Charles. So in Q3, we delivered a few key development milestones on time. So you probably have seen that the revenue from the technology collaboration increased significantly quarter-over-quarter. And we continue to see that there are a few key development milestones to be delivered in Q4. So we believe that the revenue from technical collaboration in Q4 will be expected at a comparable level we see in Q3 2025. And then regarding your question on the Turing SoC. Yes, we were -- our Turing SoC was selected by Volkswagen for the 2 B class vehicles we're jointly developing. And we have already started to supply the Turing SoC to some of the -- our partners, the preproduction and verification vehicles. So therefore, the revenue -- we would expect that the revenue from Turing SoC will start to be recognized in Q4 and probably in the small amount. But however, as our jointly developed vehicle SOP from early next year, and we would expect the revenue from the Turing SoC will ramp up with the sales volume of the 2 vehicles we jointly developed. In terms of the revenue from the technical collaboration in 2026, and we expect that as long as we can deliver the key milestones that are scheduled in 2026, we would expect that the revenue -- the technical -- the revenue from the technical collaboration for the full year 2026 would be comparable to that of the revenue we recognized in 2025. So I think looking back, we have demonstrated that we can -- well, we delivered the revenue from commercialization of our technology for 7 consecutive quarters. And I think we believe that there are still opportunities we would like to explore to commercialize our technology and also as our CEO, Xiaopeng, mentioned, and we will reinvest such revenue from the licensing or technical collaboration back into our R&D. Thank you, Tim. Operator: Next question comes from Nick Lai with JPMorgan. Y.C. Lai: [Foreign Language] My first question is -- my 2 questions is actually related to humanoid robot strategy and ambition in the longer term. At a recent Technology Day, XPeng demonstrated our first humanoid robot IRON which worked really like human. And can you talk about our technology road map and compare with the comparable peers? And where is our competitive advantage comparing with the peers in the medium and longer term? That's my first question. He Xiaopeng: [Interpreted] Thank you. Because there are so many robotics companies in the market, to be honest, the technological and product development road map and strategy of XPeng's robotics is moving forward as we expect, according to our own plan. We have paid really little attention to any other differences in the robotics industry to other companies before we launch our own products. Now when we look at XPeng, for example, our product philosophy is highly theoretical. You can actually -- well, it's highly human-like. That is the goal of developing our own humanoid robot. What's interesting about our product is that we realize that when we incorporate muscles and very bionic skin on to our robots, we actually attracted a lot of people to dare to hug him. And this is very, very exciting because traditional robots really were not that attractive and appealing for human beings to give them a hug. In addition to that, we also would like to mention that in the future, I believe that across many aspects of lifeline work, we are going to see more and more robots that is working alongside us. So for the current generation of XPeng robots, last time that we launched it, it was actually the seventh generation, and we are going to begin mass production of the eighth generation of our humanoid robots. In fact, when we look at some of the available robotics in the market, I believe that a lot of them are between generation 3 and 5, which is mainly being driven by joints and all the operation of different hardware. And when you look at the operation of hardware and software, you can see that the available products in the market look very similar in the way that they walk and they move. And these kind of robots, I believe, are very, very hard or difficult to commercialize in the end. So in the future generations of our robot, we actually have been thinking about what kind of technological route we should be used, and we have fully integrated actually hardware and software driven by integrated AI. So this time, you can see that the robot that we showed to the market is based on our full-stack R&D capability and cross-domain integration. I believe that XPeng Motors has many advantages when it comes to our robotics and humanoid robot development. For example, our physical AI resources have a synergy effect with our AI cars. For example, we actually are considering may be producing higher than car grade performance for our humanoid robots. And also our thinking logic on how to conduct business and mass production of our humanoid robot is largely driven by our knowledge and industry know-how in the EV industry. For example, when we build the future sales and marketing layout and globalization, there's a lot of synergistic effects that we can enjoy from the existing layout with our car sales. Also I believe when it comes to the future robotics development, some company will still -- some of the players will come from auto-making industry. And I believe that XPeng will definitely have a first-mover advantage in this regard because of the data, the SoCs and the capability that we have. Thank you. Y.C. Lai: [Foreign Language] My second question is also related to humanoid robot long-term strategy and operations. And from here to commercialization, what are the key critical milestones that we should be mindful? And from now towards the end of '26, can you remind us what the capacity and expected scale of our human robot operations? And also in terms of use case, by, say, 2030, you mentioned that 2030 we target to deliver 1 million units, can you also talk about the use case in the longer term? He Xiaopeng: [Interpreted] Thank you. To be honest, IRON's mass production is probably the most challenging kind of vehicle or products I've ever worked on at XPeng Motors, if I have to make the comparison between mass-producing IRONs and other cars because there's still a lot of challenges. For example, our ultimate goal is for it to be easily trained with human language so that it can really help us in various ways, and there's a lot of room for improvement there when it comes to capability integration. For example, if this robot can walk or run in various safe postures that requires a lot of integration of capability as well. For example, it needs to have all the joints embedded in management and also full coupling of different wiring, et cetera. Also, if we need to allow it to have more generalized kind of dexterous hand movements, well, it will also require a lot of hand-based VLA, which we believe by beginning of next year will be integrated. We also need to allow it to have that kind of communication and language-based communication capability between the robot and humans. So that also will come from, for example, a lot of VLM and VLT, which is the small brain and large brain kind of modeling capability. But what I'm really excited to share here is that we will start entering the 1.0 stage of our new generation of mass-produced models next month. I believe that in the next 10 months, we'll be able to actually promote the robot development in an orderly manner during mass production. And I think that's the first part of my answer. Thank you. I think the ramp-up in robot production capacity is much simpler compared to cars. However, the commercialization of robots is indeed very, very challenging. It requires us to look for really new heights of technology and ultimately achieving more capabilities. Therefore, we hope to initially implement in several commercial scenarios included tour guiding, shopping or retail assistance, et cetera. In 2026, we hope that we actually can see a lot of our own robots working alongside us at our XPeng stores, campuses for the first stage of field testing. At the same time, we are also opening our SDK to more of our partners so that our partners can easily and simply buy our robots and train them for commercialization purposes. If your question is about future possibilities of scenario application, I think it's going to be even more than you think. For example, for commercialized robots, maybe you can switch their arms and allow them to go into the industrial production scenarios. And when will the robots go into our household setting? I think maybe 5 years' time, we still have a big chance of achieving that. And I hope that through opening our SDK, we can allow more kind of partners to help us tackle those diverse and long-tail scenarios of application so that we can all enjoy a better robotic future and build a better ecosystem. Thank you. Operator: The next question comes from Ming from Bank of America. Ming-Hsun Lee: [Foreign Language] Why does XPeng choose to launch Robotaxi service in 2026? Could you share your technology inflection point or how fast you lower your cost? And compared to other Robotaxi companies in China, what is XPeng's technology path or business model? What is your advantages? He Xiaopeng: [Interpreted] Thank you, Ming, for your question. I think that within our R&D strategy, there are 2 key aspects, which are full-stack self-development and also cross-domain integration. I believe that in 2026, we will be actually seeing a collection of inflection points within our own development system. For example, we are going to be able to launch our current models into the Robotaxi configuration of fleets, which, by that time, we believe that the inflection point will arrive. At the same time, our VRM models will continue to offer new capabilities for our future vehicles to be more robotic-like. In addition to that, our current second-generation VLA can actually train our intelligent driving Ultra cars and also in the future, maybe also train our mass version of cars using the same kind of large model, too. In other words, we have our cross-domain capability based on our robotic development, which really can solve a lot of Robotaxi current limitations, for example, the high cost of production and also the limitation of the mobility destinations. For example, current Robotaxi now cannot really handle very complicated and complex road conditions and also in residential areas that has a lot of unpredicted scenarios and also a lot of them currently require LiDAR for their perception capability and so on. So in 2026, we hope that by commercializing fully shared L4 capability in our Robotaxi. We actually can have the dual development of the driverless L4 model together with an assisted driving L4 model. With the launch of both method or road map in the future, I think very soon, it will be proven that XPeng has actually a better commercial logic thinking compared to other Robotaxi companies and that will give us a great competitive advantage. Thank you. Ming-Hsun Lee: [Foreign Language] So how does the management team think about the commercialization of your Robotaxi business? Especially in the future, what is your planned milestone, for example, like in terms of the number of fleet? Or when will you plan to roll out in different cities or overseas market? And also currently, you already have a cooperation with Gaode, Amap, and could you elaborate more about your cooperation? And in the future, do we expand -- do you plan to cooperate with small partners like other ride-hailing companies? He Xiaopeng: [Interpreted] Thank you. Actually, next year, XPeng is going to launch 3 different types of Robotaxi models at different price points to support different mobility purposes and demands. In the next phase of development, I believe, with the premise of regulatory approval, our priority is to really get everything running smoothly, when it comes to the whole technological and operation and business model. So in that scenario, we hope to work with more and more business partner in the ecosystem. For example, Amap will be a great partner. They are going to give us more development support when it comes to traffic and also payment and operation and services, et cetera. That really set us apart from a lot of the autonomous driving OEMs. And I believe that in the future, for different countries and regions and different steps of development, we are going to actually launch more partnership with different service providers across different lanes. And for XPeng, what we need to do is that we are building our toolbox really well, and we're opening up our interface capability so that we can work more with our ecosystem partners in the future across different countries and cities. And so once we really get everything up and running commercially in different environments, we can then quickly build our ecosystem. This is one of our considerations. Thank you. Operator: The next question comes from Tina Hou with Goldman Sachs. Tina Hou: [Foreign Language] Let me translate my first question. So first, I would like to understand, over the next 1 to 3 years, do we have a rough revenue estimate or breakdown for our new businesses, including Robotaxi, humanoid robot as well as eVTOL? Gui Hongdi: Tina, it's Brian. First of all, I would say that for these future development areas, we do not provide any numerical guidance at the moment. Clearly, all those 3 areas, we anticipate volume, scale level production and operations in the next 12 months. For example, the Land Aircraft Carrier from our flying car company is aimed to be delivered to end customers before the end of next year, will be in volume, also scale, which I would say, in the thousands of range. But the other 2, for example, the humanoid robot as well as autonomous driving Robotaxi, as we just discussed earlier, next year will be actually a year we'll see a lot of operational testing as well as scaling up process to make them ready for large quantity production and use. So I would say the contribution from next year will probably be limited. But I think the volume we'll expect to ramp up rapidly once the model and the stability of these products is proven in the use, consumer end as well as application end. So the long-term goal of having 1 million per year humanoid robots sort of sales by 2030 is our long-term goal. And that is something that we have good confidence given we see the quick ramp-up in terms of technology as well as multiple application areas in home, in offices, in factory settings. So with all these future areas, we believe the potential is immense. So at this moment, unfortunately, I cannot give you the exact breakdown as well as precise cost estimates because these are still, I would say, evolving. But I think the overall trend is very exciting for us. Tina Hou: [Foreign Language] So my second question is regarding our passenger vehicles. So wondering if we can get more details on the new models, their segment as well as price segment, both in the domestic market as well as overseas and also do we have a volume target for 2026? Charles Zhang: Tina, it's Charles here. I think we believe that one chassis, dual powertrain vehicles present very attractive opportunities. It is also one of our strategic initiatives to expand the volume and the TAM of our -- each of our vehicles. So I think on November 20, we are launching the X9 with pricing, that will be our first, we call it the Super EREV product to be launched. And then you probably also have noticed that we have -- we already have 3 existing vehicles, Super Electric model, already registered with regulators, and we plan to launch those 3 products in early 2026. As Xiaopeng also mentioned that we have 4 vehicles -- 4 new vehicles when we launch, it will be equipped with both BEV as well as EREV powertrain options. And those 4 new vehicles are positioned in the different various segment -- various pricing segments we're in. And we believe that, that will continue to enhance our product portfolio in each of the price segments we're targeting. So in terms of the growth into next year, and we believe that the huge -- the one chassis, dual powertrain vehicle models, the 7 models will significantly drive our growth next year. And also another growth driver we have seen is that the international market will continue to be a major growth driver for us. With our current products available in the international market, we have already hit 5,000 per month for September and also October, the 2 consecutive months already. And of the 7 new vehicles we're launching next year, 3 of them -- at least 3 of them will go to international market. And so we are confident that the international market volume will continue to be a very important growth driver for us into 2026. Operator: The next question comes from Pingyue Wu with Citic. Pingyue Wu: [Foreign Language] I have 2 questions. And my first question is about the new EREV model. And what do we think about the growth potential of our new EREV models in 2026? And my second question is about the humanoid robots. And how do we think about the fuel economy of the humanoid robots since we have implemented some new technologies, for example, the solid-state batteries and et cetera. And in terms of the affordability, will IRON robot be affordable for family, say, like RMB 200,000 or even less? He Xiaopeng: [Interpreted] First of all, regarding the first question, I think what's interesting that we discover from the sales figures that we gather from -- since the launch of X9 was that the targeted customers and also the actual users of BEV and EREV are quite different. So we believe that we can expect to actually see several times of quarter-over-quarter growth when the new version of X9 actually get delivered, and actually different customer groups, when they purchase BEV versus EREV, they are using the cars across different scenarios as well. And specifically, what I want to share is that, obviously, BEV and EREV users in different sizes or scale of cars are also different. In larger vehicles, the percentage of EREV adoption is higher, whereas for Class A vehicles, especially smaller passenger vehicles, BEV ratio is actually higher. So I think we'll have to wait for more numbers to show maybe by Q4 and also Q1 next year before we actually can give you a more concrete answer. Thank you. And the second part of your question, regarding the pricing affordability of robotics, I think, first of all, the pricing logic is very different between cars and robots. When we look at the BOM cost of our Gen 6 and Gen 7 robots, they remain very high last year. But by first half of this year, when we were preparing for true mass production, we actually have enough reasons for us to actually believe the future retail sales price of the robotics -- of the robots can be very similar to car prices. And the second point that I want to mention here is that the traditional way of pricing a car is weight-based. It involves how many kind of iron and lithium and all kinds of elements included and components included in making a car, whereas robots, it's very different because the percentage of software in a robot is over 50% since day 1, whereas the number is only 10% to 20% for a lot of cars. In other ways, you have to put in a lot of cost to train the software and the model, and you need to have the overall capability to do a lot of integration and also domain controller as well. For example, you need to be able to combine all 4 SoCs into a super domain controller so that you can make them as light as possible and as affordable as possible. And these remain very challenging for many industry players. In other words, we really have high hopes for our future when it comes to robotics development. Hopefully, we are going to -- we expect to handle a limited amount of SKU integration, not as many SKU as when you're making a car. And we also will try our best to make the pricing of robots as affordable as possible. So it really can truly help and empower thousands of households in the future. Thank you. Operator: The next question comes from Xiaoyi Lei with Jefferies. Xiaoyi Lei: [Foreign Language] I have just one question. Could you please provide an update on the progress of our overseas localized production for next year? And additionally, how do we plan to leverage our smart driving capabilities to drive the sales growth in international markets? Gui Hongdi: It's Brian, again. Just to address your question on overseas plan for next year. You're right, we actually initiated our local production this half -- second half of this year with first factory in Indonesia and also the -- another factory production facility with partnership with Magna in Austria. Those, I think, is slowly ramping up the capacity. So we anticipate the volume for next year's production in these 2 plants will continue to rise and support our overall sort of overseas growth. I think in the Europe, we are looking at the tens of thousands in terms of numbers of vehicle locally produced there. And in Indonesia, I think probably a smaller, but also a sizable number, high thousands is something that we want to achieve. Looking beyond those 2 plants, we continue to look at additional opportunities to have local capabilities in other markets as well as building local supply chain capabilities to support the localization in these key regions. So we will be increasing our local content, increasing our local stores materials and also looking for further localization strategy to be implemented. So that's something I think is ongoing. I think it's a must do for a company has global ambitions. Looking at the global product sales next year, I think, as Charles mentioned, we're looking for higher growth in the international markets compared to our domestic market. We're also looking for higher contribution economically from those markets. So I would say in the next year or the year beyond, we're looking at a faster growing, higher profit contribution for our international businesses. Operator: Since there are no further questions, I'd like to turn the call back over to the company for any closing remarks. Alex Xie: Thank you once again for joining us today. If you have further questions, please feel free to contact XPeng's Investor Relations through the contact information provided on our website or the Piacente Financial Communications. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, good day, and welcome to Full Truck Alliance Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mao Mao, Head of Investor Relations. Please go ahead. Mao Mao: Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the company's future performance, which are intended to qualify for the safe harbor for liability, as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and discussion. A general discussion of the risk factors that could affect FTA's business and financial results is included in certain filings of the company with the SEC. The company does not undertake any obligation to update these forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to the financial results, please see the earnings release issued earlier today. Joining us on the call from FTA's senior management are Mr. Hui Zhang, our Founder, Chairman and CEO; and Mr. Simon Cai, our Chief Financing and Investment Officer. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast play of this call will be available on FTA's Investor Relations website at ir.fulltruckalliance.com. I will now turn the call over to our Founder, Chairman and CEO, Mr. Zhang, please go ahead, sir. Hui Zhang: Hello everyone. Thank you for joining us today for our third quarter 2025 earnings conference call. In the third quarter, FTA continued to reduce logistics costs and enhance efficiency across the road freight industry by leveraging digital and intelligent technologies, amid a complex and evolving macro environment. Anchored by our core “user-centric” ethos, we strengthened our user protection mechanisms, enhanced our platform ecosystem, and further elevated the overall experience for both shippers and truckers. Our ongoing enhancements to transaction efficiency and service quality drove total fulfilled orders to 63.4 million, a year-over-year increase of 22.3%. This continued growth underscores the industry’s accelerating transformation from traditional offline logistics transactions to digital and intelligent logistics solutions. Furthermore, we consistently improved operating metrics across three key areas during the quarter: user operations, ecosystem development, and technology enablement. For shipper users, we further expanded our brand visibility and drove targeted user acquisition of SME shippers, while refining the user experience across different cargo categories and freight scenarios. As a result, average monthly active shippers reached 3.35 million in the third quarter, up 17.6% year over year. The number of shipper members grew significantly year over year, reflecting rising user engagement and stickiness. In addition, fulfilled orders contributed by direct shippers increased to 54%, demonstrating ongoing optimization of our user structure. In terms of trucker ecosystem, we continued to promote and enhance our trucker credit rating and membership program to incentivize high-quality service and elevate trucker benefits. These initiatives boosted capacity and increased reliability of truckers, driving the overall fulfillment rate to 40.6%, an increase of approximately 6 percentage points year over year. Simultaneously, we reinforced our trucker protection framework to better safeguard their rights and interests. By the end of the quarter, the number of active truckers fulfilling orders over the past 12 months reached 4.48 million, marking another historical high. On technology, we accelerated full-chain AI deployment across the platform, leveraging our extensive scenario-based logistics data to address critical pain points in freight matching. Moreover, the successful acquisition of Giga.AI, previously known as Plus PRC, significantly bolstered our AI capabilities and technological foundation, positioning us for sustained innovation and operational excellence. Our robust operational performance this quarter translated into healthy financial results. Total revenues reached RMB 3.36 billion, representing a year-over-year increase of 10.8%. Transaction service revenues grew 39.0% year over year to RMB 1.46 billion, accounting for 43% of total revenues and reflecting continued optimization of our revenue mix. Non-GAAP adjusted operating income reached RMB 849.1 million, while non-GAAP adjusted net income reached RMB 988.1 million. Looking ahead, FTA will continue to penetrate the road freight markets and cultivate a resilient and sustainable ecosystem for both shippers and truckers, driving the industry’s digital and intelligent transformation and empowering enterprises with greater logistic competitiveness through continuous technological innovation. Thank you all once again. Now, I’ll pass the call over to Simon, who will provide an update on our third quarter’s business progress and financial results. Simon Cai: Thank you, Mr. Zhang, and thank you all for joining today's earnings conference call. I will now provide an overview of our operational highlights and financial results for the third quarter of 2025, starting with our operational performance. During the quarter, we sustained solid growth momentum with continued improvements in key operating metrics highlighting the strength and resilience of our business model. Despite challenging macro conditions and adverse weather such as typhoons and certain regions that temporarily disrupted freight demand during the quarter, we continued to deliver strong order volume growth. Total fulfilled orders once again significantly outperformed the broader freight industry, reaching RMB 63.4 million in the third quarter representing a year-over-year increase of 22.3%. The steady growth in fulfilled orders was driven by the healthy engagement of our shipper users and the ongoing enhancement of our fulfillment service infrastructure leading to improvements in both scale and service quality. In the third quarter, our overall fulfillment rate reached 40.6%, increasing by more than 6 percentage points from the prior year period. Specifically, the average fulfillment rate of mid and low frequency shippers reached nearly 60% and their contribution to total fulfilled orders increased to 54%. The positive outcomes are the result of our ongoing optimization in shipper structure, which further strengthens the reliability and sustainability of our ecosystem. These achievements underscore the effectiveness of our long-standing refined operations strategy, laying a solid foundation for the platform's long-term high-quality growth. Turning to user growth. Average monthly active shippers reached 3.35 million in the third quarter, increasing by 17.6% year-over-year. Our shipper membership program continued to gain traction with over 370,000 active members in the 288 membership program during the quarter, representing a significant year-over-year increase. In the meantime, 12-month rolling retention rate for shipper members held steady at around 80%, underscoring the strong appeal of our services and the high stickiness of our user base. In addition, the number of active truckers fulfilling orders over the past 12 months hit a new record, increasing to 4.48 million in the third quarter, while the next month retention -- next month's retention rate for the truckers who responded to orders was consistently above 85%. We're delighted to see that our trucker users continue to demonstrate strong platform loyalty. During the quarter, we also continued to enhance our trucker infrastructure by expanding the breadth and the depth of the right protection program, which helped improve truckers' order acceptance rate and experience. For example, supported by targeted incentive programs and diversified protection mechanisms, the number of trucker members continue to grow. These trucker members have significantly higher order acceptance rate as compared to nonmembers, creating a positive flywheel of user engagement, other growth and platform stickiness. Now turning to monetization. Building on a solid foundation of steady growth in order volume, we continue to explore and unlock monetization opportunities. These efforts enabled us to deliver another quarter of robust top line performance despite strategic changes to some noncore business such as freight brokerage, backed by significant improvements in operating leverage. As a result, transaction service revenue grew 39% year-over-year to RMB 1.46 billion. To further break down, monetized order penetration rate reached 88.6%, up nearly 6 percentage points from the prior year period, and average monetization per order increased to RMB 25.9 from RMB 24.4 in the prior year period. These improvements stem from our deepened understanding of high-value users and our ability to meet their increasingly diversified needs through upgraded services and tailored incentive programs. At the same time, our growing scale enable us to drive down unit operating costs, leading to enhanced monetization efficiency and profitability while maintaining fair trucker earnings and strong order fulfillment. Looking ahead, we remain keenly focused on further unlocking the monetization potential of high-value users, leveraging our intelligent freight matching system and flexible subsidy strategies. In addition, our refined and tiered membership system enables us to cultivate and empower our core transportation capacity, further reinforcing a virtuous cycle of user growth, operating excellence and profitability improvements. We're confident that we are well positioned to achieve our full year targets and deliver long-term sustainable value to our platform and stakeholders. Now I'd like to provide a brief overview of our 2025 3rd quarter financial results. Our total net revenues in the third quarter were RMB 3,358.2 million representing a 10.8% increase year-over-year, primarily attributable to an increase in revenues from freight matching services. Net revenues from freight matching services including service fees from freight brokerage models, membership fees from listing models and commissions for transaction service were RMB 2,797.6 million in the third quarter representing an increase of 9.6% year-over-year, primarily due to the record increase in transaction service revenues. Revenues from the freight brokerage service in the third quarter were RMB 1,094.3 million, compared to RMB 1,280.9 million in the same period of 2024, primarily attributable to a decrease in transaction volume and partially offset by an increase in service fee rate. Revenues from freight listing services in the third quarter were RMB 247.1 million, up 10.6% year-on-year, primarily due to the falling number of total paying members. Revenue from the transaction service in the third quarter were RMB 1,456.1 million, up 39% year-over-year, primarily driven by increase in other volume penetration rate and per other transaction services. Revenues from value-added services in the third quarter were RMB 560.7 million, up 16.9% year-over-year. The increase was primarily due to growing demand for credit solutions. Third quarter cost of revenues was RMB 1,605.2 billion compared with RMB 1,364.9 million in the same period of 2022, primarily due to increases in VAT-related tax charges and other tax costs, net of grants from government authorities. These tax-related costs net of government ground totaled RMB 1,427.2 million compared with RMB 1,221.6 million in the same period of 2024, primarily due to an increase in tax costs net of government grounds related to the company's freight brokerage service. Our sales and marketing expenses in the third quarter were RMB 438.8 million, compared with RMB 412.5 million in the same period of 2024. The increase was primarily due to further investments in enhancing user ecosystem construction and protecting user rights and interests. General and administrative expenses in the third quarter were RMB 161.6 million compared with RMB 222.9 million in the same period of 2024. The decrease was primarily due to lower share-based compensation expenses. R&D expenses in the third quarter were RMB 233.3 million compared with RMB 195.1 million in the same period of 2024. The increase was primarily due to the inclusion of Giga.AI previously known as Plus PRC's R& -- Plus PRC's R&D costs. Following the completion of our further investment in Giga.AI on July 9, 2025, and its subsequent consolidation into our financial results. Income from operations in the third quarter was RMB 776.3 million, an increase of 1.9 percentage from RMB 762 million in the same period of 2024. Net income in the third quarter was RMB 921 million compared with RMB 1,121.9 million in the same period of 2024. Under non-GAAP measures, our adjusted operating income in the third quarter was RMB 849.1 million compared with RMB 884.5 million in the same period of 2024. Our adjusted net income in the third quarter was RMB 988.1 million compared with RMB 1,241.2 million in the same period of 2024. Basic and diluted net income per ADS were RMB 0.87 in the third quarter compared with RMB 1.06 in the same period of 2024. Non-GAAP adjusted basic net income per ADS was RMB 0.94 in the third quarter of 2025 compared with RMB 1.18 in the same period of 2024. Non-GAAP adjusted diluted net income per ADS was RMB 0.96 in the third quarter of 2024 compared with RMB 1.17 in the same period of 2024. As of September 30, 2025, the company had cash and cash equivalents, restricted cash, short-term investments, long-term time deposits and wealth management products with maturities over 1 year of RMB 31.1 billion in total compared with RMB 29.2 billion as of December 31, 2024. For our fourth quarter 2025 business outlook, we expect our total revenues to be between RMB 3.08 billion and RMB 3.18 billion compared with RMB 3.16 billion -- RMB 3.17 billion in the same period of 2024. Excluding freight brokerage service, net revenues are expected to range from RMB 2.18 billion to RMB 2.28 billion, representing an estimated year-over-year growth rate of 17.1% to 22.5%. These forecasts are based on the company's current and preliminary views on the market and operational conditions, which are subject to change and cannot be predicted with reasonable accuracy as of the date hereof. That concludes our prepared remarks. We would now like to open the call to Q&A. Operator, please go ahead. Operator [Operator Instructions] Your first question comes from Ronald Keung from Goldman Sachs. Ronald Keung Goldman Sachs Group, Inc. [Foreign Language] I want to ask about field orders that had still maintained very solid growth momentum, increasing 22%. So what were the main growth drivers? And can you share the outlook for the fourth quarter and next year? Simon Cai: Yes. Thank you, Ronald. Our fulfilled others continue to outgrow the broader market in the past quarter due to key 3 factors. First, solid user acquisition provided a strong foundation for growth with deeper brand penetration along SMEs and steady improvements in the market's acceptance of online freight matching models, the number of newly registered shippers continue to grow organically. In addition, we continue to focus on proactively reaching potential users through key touch points via highly efficient marketing channels, including app stores and high-traffic offline placements such as high-speed railway stations. As a result, the first order conversion rate of new users improved substantially year-over-year. Secondly, higher engagement from existing users, coupled with ongoing product optimization, continue to enhance our matching efficiency. During the quarter, human frequency among shipper members further improved year-on-year, demonstrating strong customer loyalty and stickiness. On the trucker side, we introduced the new cargo zone, which highlights newly posted high-quality orders and help truckers secure attractive opportunities more efficiently and driving improved performance in matching and fulfillment. On the shipper side, we further streamlined the order posting interface by removing or reducing unrelated entries and product sections. These initiatives made the other placement process more intuitive and efficient, significantly improved user experience and effectively boosted repeat order intent. Third, the new uses new business continued to drive incremental other incremental growth momentum supported by improving service quality and growing user base, both our lesson truckload and interested businesses continue to deliver robust growth in the third quarter. As these 2 businesses continue to mature and improving operational efficiency, we expect that on top of the solid growth in our core food truckload business, they will further satisfy the diversified needs from both our new and existing shippers and supporting our long-term order volume growth. Looking ahead, we remain confident in our platform's order volume growth momentum. Despite ongoing macro uncertainties, our dominant position and rising digitalization penetration has driven deeper engagement among SME shippers and maintain stable member retention and enhanced matching efficiency consistently, all supporting sustained order growth. At the same time, we will continue to optimize our user ecosystem by strengthening qualification reviews and credit rating systems to attract and retain highly credible, highly active users and laying a solid foundation for our high-quality order growth. Thank you. Operator Your next question comes from Eddy Wang from Morgan Stanley. Eddy Wang Morgan Stanley [Foreign Language] In the third quarter, the number of the monthly active shippers reached 3.35 million, representing a year-over-year increase of 17.6%. What are the major drivers behind the growth? Simon Cai: Thank you, Eddy. In the third quarter, the number of monthly active shippers continue to grow very steadily, supported by more efficient multichannel user acquisition and organic growth driven by referrals. These drivers not only grew our user base but also helped to strengthen the overall engagement and quality of our active users. First, our highly efficient multichannel user acquisition efforts continue to drive steady growth in shipper users. We implemented a dual approach combining brand exposure and targeted conversion. We improved online acquisition efficiency by strengthening App Store campaign management and optimized keyword search while refining download page design and user conversion funnels. Off-line wise, we expanded advertising in high-traffic areas such as high-speed real stations, subway business districts and key commercial hubs. We also leveraged the scenario-based outreach channels, such as truck stickers to reach SMEs with actual shipping needs. This integrated online and offline approach not only enhance brand awareness, but also effectively attracted high potential shippers laying a solid foundation for sustained user growth. Second, word-of-mouth referrals continue to serve as the primary driver of organic shipper growth. Unlike consumer-facing businesses, most shippers are small- and medium-sized business whose decisions are driven mostly by trust, often requiring longer commercial cycles, but resulting in higher retention and repeat purchase rates. During the quarter, we continued to invest in service reliability, capacity assurance and fulfillment experience optimization, further strengthening user trust. As a result, word-of-mouth referrals from existing shippers became the most efficient channel for user acquisition. Notably, new shippers acquired through referrals tend to be of higher quality with stronger fulfillment rates and long-term engagement as compared with other acquisition channels while coming at lower acquisition costs. Looking ahead, we will continue to pursue a dual engine growth strategy, combining brand-led acquisition and referral-driven expansion. On 1 hand, we'll continue to optimize our marketing strategy to improve acquisition, efficiency and brand penetration within target user groups. On the other hand, we will -- user satisfaction by improving service quality and strengthening protection mechanisms, reinforcing trust and professionalism within the shipper community. These initiatives will support high-quality sustained growth across the shipper ecosystem supporting our long-term growth. Thank you. Operator Your next question comes from Brian Gong from Citi. Brian Gong Citigroup Inc. [Foreign Language] I have a quick question on ecosystem improvement on trucker side. Can you give an update on key divestments of trucker members in the third? Simon Cai: Thank you, Brian. As of the end of September, our active trucker members continue to grow steadily, reaching almost 1 million members achieving further growth compared with the previous quarter. Structurally, roughly 30% of trucker MAUs in the long-haul segments or membership subscribers and contribute to over 40% of the volume in the long haul segment. This state underscores the higher engagement and stronger stickiness of our trucker members who have become the core pillar of our capacity network. During the quarter, we continued to upgrade our trucker membership tiering system. The current framework focuses on 3 key dimensions for truckers, cost reduction, fulfillment enhancement and risk protection. Our commission coupons helped truckers effectively reduce service costs during order fulfillment and our premium cargo bidding cards increased truckers' visibility and ranking priority in matching with high-quality shipments. We also relaunched the freight payment protection program, expanding its coverage scope, which further strengthened truck trust and security doing transactions directly addressing many of the fundamental operation needs. Overall, the trucker membership program has become a key driver in securing high-quality trucker capacity and improving fulfillment efficiency on the platform. Looking ahead, as we further expand membership benefits and refine incentive programs, we expect trucker programs to contribute to a growing share of our total transportation capacity and building a stronger and more sustained -- sustainable foundation for continued order growth and fulfillment stability. Thank you. Operator Your next question comes from Yuan Liao from Citic. Yuan Liao: [Foreign Language] Under the current policy environment of innovation, so how has the company implement any measures to align with these policy objectives and offer enhanced protection of our benefits to shippers and truckers? Simon Cai: Under the current policy environment of an anti evolution, the -- so we basically -- against the overall background of anti evolution and promoting high-quality growth, our strategic directions remain clear. We will continue to pursue sustainable high-quality growth through ecosystem refinement, structural optimization and user protection enhancement. First, we remain committed to enhancing ecosystem integrity with a key focus on advancing healthier user protocols by implementing ID verification and fulfillment credit scoring as well as refining user tiering. We enhanced the value of user accounts and increased switching costs which in turn accelerates the exit of low-quality users. At the same time, we have shifted the focus of our credit rating system for both shippers and truckers or frequency of transaction to quality of their behaviors. This system evaluates metrics such as fulfillment rates, positive feedback rate and complaint rate, reinforcing both through rewards and disciplinary measures to guide users towards higher standards and stronger trust fostering a healthier platform ecosystem. Second, we have focused on emphasizing fair pricing and healthy competition on our platform. For example, to prevent malicious pricing competition, we employ algorithms to identify and block abnormally low prices in real time, removing or restricting orders that fall significantly outside reasonable market price ranges. Additionally, we incorporated a price rationality weighting into our order matching, prioritizing the pairing of high-quality freight with reliable truckers. This approach protects truckers' earnings and enhance shippers fulfillment certainty. Together, these measures provide a robust technological foundation to healthy market behaviors between truckers and shippers. At the same time, we achieved notable progress in strengthening user protection and trust. Our upgraded comprehensive protection program currently provides full coverage for key risks for both user groups, including fleet payment defaults, empty runs and cargo damages to address truckers top concerns of timely freight settlement, we have implemented a guaranteed compensation account that provides trucker members with expedited reimbursement for freight, empty runs and cancellations, ensuring prompt payment and minimizing trust barriers throughout the fulfillment process. Overall, we are building a more sustainable efficient and transparent freight ecosystem by continuously optimizing user -- our user base, fulfillment certainty and matching and protection framework. Our focus on high-quality growth is reflected not only in a healthier user base but also in continuous improvements in our service quality and governance. Looking ahead, we will continue to focus on improving user trust, operational efficiency and fulfillment quality driving development sustained development of the freight industry and laying solid foundation for our growth. Operator Your next question comes from Wenjie Zhang from CICC. Wenjie Zhang China International Capital Corporation Limited [Foreign Language] My question is regarding freight brokerage business. I wonder what's the rate of progress of the business since the pricing adjustment in August? Could you give an update on user retention and profitability for in these changes? Simon Cai: Yes. Thank you. The business generally performed better than we expected. So in the third quarter, our freight brokerage business transition to a higher service fee rate, steadily and the overall performance was good. Following the expected gradual removal of tax rebates and increasing service fee rates to between 10% to 11%. User behavior showed healthy structural improvement. From a user perspective, churn from shippers in the third quarter was primarily concentrated among those who demanded frequent VAT invoicing service only and contributed to limited value to the platform beyond invoicing fees. Conversely, retention rates among shippers with small and medium value VAT invoices remained above 80%, significantly exceeding our expectations. These users are generally less price sensitive and care more about the convenience of freight matching and fulfillment certainty, which kept their engagement rates stable following the policy adjustments. Currently, invoicing plus freight matching orders represent over 70% of the total orders in our freight brokerage services, highlighting the growth importance of our matching service and the strong alignment between this business and the platform's core capabilities. At the same time, we are closely monitoring user retention and structural shifts in our user base, with a particular focus on the long run stability of small- and medium-sized shippers and ongoing conversions of new users, ensuring that the benefits of these structural optimizations are sustained and reinforced. From a financial standpoint, the freight brokerage business primarily aimed to increase stickiness by enhancing shipper experience and platform engagement rather than a major profit contributors. Although this is emphasis on invoicing results in relatively low margins and a limited impact on our overall profit, it still plays a strategic role in strengthening our user engagement and refining more order fulfillment. Looking ahead, we will continue to focus on improving the experience for small and medium-sized shippers, gradually expanding contribution from high-quality users and ensuring that the freight brokerage business delivered sustainable performance under the new policy. Operator Your next question that comes from Ritchie Sun from HSBC. Ritchie Sun HSBC Global Investment Research [Foreign Language] In the third quarter, revenue from freight listing reached RMB 247 million, up 10.6% year-on-year. So what were the main growth drivers? And how do you feel the user payment conversion trends going forward? Simon Cai: Thank you, revenues from -- our freight listing service continued to grow steadily in the past quarter, primarily driven by growth in paying users and the ongoing optimization of the membership structure. As of September 2025, the number of shipper members on our platform reached 1.27 million. The majority of the incremental growth came from the 288 membership program, which was launched last year. This program was designed to meet the needs of small and medium-sized business owners new to our platform by lowering the entry barrier and offering benefits such as freight rate, coupons and other placement tracking. The program significantly improved membership conversion and user satisfaction. Looking at the membership mix, while 688 memberships achieved steady year-over-year growth in this quarter, the 288 membership showed the most robust growth across free membership tiering with active members increasing by more than 300% compared with the same period last year. The strong growth not only broadened our user base, but also strengthen the platform payment rate. Notably, the number of high-frequency shippers under the RMB 1688 tier continue to decline, reflecting a structural shift in our shipper base. This change reflects the platform's ongoing optimization and matching efficiency and fulfillment guarantees, which are gradually replacing traditional agent roles and further encoding the quality of our user ecosystem. Turning to user conversion. Our latest data shows that around 20% of the users who reach the limit of their 288 membership chose to upgrade to the RMB 688 tier. These results are aligned with our initial expectation when designing the program and underscore the effectiveness of our tiered membership system. Our membership business has established a healthy growth cycle that attracts users, low-entry barriers ratings and with area experience and drives upgrades through tiered benefits. This model enables long-term and steady penetration among direct shippers and supports the high-quality growth of the overall business. In addition, retention among existing members remains robust, demonstrating solid user stickiness. As of the end of the third quarter, our 12-month rolling retention rate for shipper members held steady at around 80%, consistent with prior quarters. This validates our ongoing optimization in member experience and reflects strong recognition from shippers from our platform's reliable fulfillment capabilities and responsive service. We expect the 288 and 688 memberships to continue driving growth in freight listing service revenue. Meanwhile, as the platform continues in-house features such as fulfillment protection and shipment tracking and payment conversion rates are expected to trend up steadily. We will continue to optimize our membership program and benefits aiming to further strengthen long-term user retention and lifetime value. Thank you. Operator Thank you. That concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. Mao Mao Head of Investor Relations Thank you all for joining us today. If you have any further questions, please feel free to contact us at Full Truck Alliance directly or TPG Investor Relations. Have a good day. Operator That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to Aramark's Fourth Quarter and Full Year Fiscal 2025 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded for rebroadcast. And that all participants are in a listen only mode. We will open the conference call for questions at the conclusion of the company's remarks. please proceed. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed. Felise Kissell: Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer; as well as CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors MD&A and other sections of our annual report on Form 10-K and SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. With that, I will now turn the call over to John. John Zillmer: Thanks, Felise, and thanks to all of you for joining us. On today's call, Jim and I will review our fourth quarter and full year results including the strategic, financial and operational milestones accomplished in fiscal '25. We've built upon our historically strong consistent performance and advanced a number of initiatives that position us well for the years ahead, which will be discussed in more detail. First and foremost, we take delivering on our commitments very seriously, and it's important to understand that as we onboard an unprecedented level of new business, we took the appropriate time to work closely with certain large clients in preparing for a seamless transition to Aramark becoming their new hospitality partner. In some cases, this led to a shift in the timing of new account openings, which impacted revenue in the fourth quarter. With many of these sites now up and running, we are well positioned for strong revenue performance in the quarters ahead. We are more resolved than ever to meet and even exceed the high yet very attainable bar we set for ourselves. This past year has represented many consequential firsts for the company, all of which contribute to the strong growth trajectory for the businesses, including annualized gross new wins of $1.6 billion, which is 12% higher than fiscal '24 and reflects the largest contract awarded in FSS U.S. history and the second largest globally. An industry-leading client retention rate of 96.3%, with many lines of business and countries in the portfolio above this retention level. All combined, resulting in net new of 5.6%. Over $1 billion of new purchasing spend added for a second consecutive year in our supply chain GPO network. And lastly, achieving a leverage ratio of 3.25x, a number we haven't seen since prior to when Aramark went private in 2007. Our new business pipeline across the organization is significant, including first-time outsourcing opportunities, and we are already off to another strong start at this early stage of the fiscal year. This includes adding Blue Origin, Pennsylvania's Eastern Public Schools, the Welsh Rugby Union as well as expanding our services for Airbus. I have great confidence in the company's continued ability to achieve net new of 4% to 5% of prior year revenue, with retention levels exceeding 95% in fiscal '26 and beyond. And when we over-deliver on this metric, we reward our teams appropriately, as was the case particularly in the fourth quarter, reflected in additional incentive-based compensation from net new business, an objective representing 40% of the company's incentive plan for leaders across the organization. Moving to our results in the quarter. Aramark's organic revenue increased 14%, largely from net new business and base business growth. Excluding the 53rd week, organic revenue was toward the higher end of our long-term growth model. FSS U.S. grew organic revenue 14% in the fourth quarter. Again, excluding the 53rd week, organic revenue was up mid-single digits, led by Workplace Experience and Refreshments continuing its pace of record net new business, Collegiate Hospitality with strong retention rates, meal plan optimization success, and benefiting from higher student enrollments, particularly from our portfolio of academic institutions in the popular South and Southeast. And Healthcare reporting its best performance in over 2 years. Our Healthcare+ business was recently named #1 in Best Places to Work by Modern Healthcare for our commitment to a people-first culture and operational excellence across the industry. While we are encouraged with our roster of high-performing teams as the MLB playoffs approached, the outcome was not what we anticipated with the majority of our teams ultimately falling out of playoff contention. We've now entered the NFL, NBA and NHL seasons where fan attendance has been strong to date. Leveraging our expertise in professional sports, Aramark's Collegiate Sports business is experiencing double-digit revenue growth with per capita rates up 14% year-over-year, driven by increased concession spending and expanded premium services. I also want to commend our employees in the Destinations business, who worked closely with the National Park Service to assist during and following the devastating Dragon Bravo fire in the Grand Canyons North Rim. We had been operating the historic Grand Canyon Lodge, which was severely damaged. While it's still early, we are supporting the recovery and rebuilding efforts in the region and are optimistic about what's ahead for their visitor experience at the North Rim. We continue to expand our enterprise-wide capabilities and collaboration, which resulted in our new multiyear agreement with the University of Pennsylvania Health System, the largest contract win ever in the U.S. from one of the most prestigious medical systems in the world. We are proud to put our understanding of sophisticated and complex health care systems to work in new settings. We will be providing patients in retail food, environmental services and patient transportation, alongside an integrated call center to support these operations at sites across a nearly 4,000-bed, 7 hospital system. Among our many technologies offered at Penn Medicine will be an AI-driven patient menu platform that configures patient meals based on diagnosis and dietary requirements, in addition to proven robotic applications for both environmental services and meal preparation. Our proprietary AIWX platform will be used to map staffing and other needs, as well as our Quick Eats micro markets and mobile ordering platforms. We look forward to launching operations early in calendar '26 and are working closely with Penn Medicine to identify other opportunities to further grow the partnership. Additional clients added to the U.S. portfolio in the fourth quarter included Chicago's DePaul University in Collegiate Hospitality, where we'll begin operating next semester. Discover, following the acquisition by Capital One, also a client, as well as expanding our hospitality services into top-tier law firms within Workplace Experience. Now on to International. Once again, International delivered consistent double-digit organic revenue growth increasing 14% in the fourth quarter, with approximately 3% growth coming from the 53rd week, led by substantial new business, high retention and strong base business growth. All geographic regions contributed to this performance, with particular strength in the U.K., Canada, Ireland, Spain and Latin America. Toward the end of the quarter, International experienced its highest revenue ever for a single 1-day event when the NFL's Pittsburgh Steelers played the Minnesota Vikings at Croke Park Stadium in Dublin, Ireland, all Aramark clients. We also just had great success at Olympic Stadium in Berlin, Germany with another NFL match-up as the league's fan base continues to quickly grow in Europe. International was awarded new clients in the fourth quarter across sectors and geographies. This included expanding our growing presence in the UEFA Champions League and Bundesliga with the addition of Bayern Leverkusen Football Club in Germany, the health care network of Hospital Italiano in Argentina, energy exploration and developer, ENAP, in Chile, and mining leader, IAMGOLD, in Canada. Looking forward, we expect International to maintain its strong business momentum, delivering on a growth agenda focused on culture, team, capabilities and process. Turning to global supply chain. Avendra International added another $1 billion of new purchasing spend in its GPO network this past fiscal year, primarily from travel and leisure, health care, senior living and education. The supply chain team is also leveraging enhanced technology capabilities to optimize client compliance and contract productivity. We're making the appropriate investments to build upon our strong analytics and client mobile chatbot platforms. These powerful tools put the answers our frontline clients need in the palm of their hand and continue to deliver back-end efficiencies in our supply chain operations. We are now deploying these solutions globally. We are expanding our international footprint and supply chain, and the Quantum acquisition has fit well into the portfolio, contributing accretive growth to both Europe and Latin America. Inflation levels have been as expected, and we currently estimate inflation around the 3% range heading into the new fiscal year as we continue to effectively manage the broader macro environment. Our teams are closely monitoring any changes in the marketplace and will leverage our extensive capabilities to support our clients. Before turning the call over to Jim, I want to reiterate that our teams across the company are hard at work and focused on accelerating performance, and we are already seeing success entering the new fiscal year in leveraging enterprise-wide capabilities, starting operations for a record number of new clients, maintaining our client retention momentum, optimizing global supply chain strategies and, lastly, pursuing substantial growth opportunities. Jim? James Tarangelo: Thanks, John, and good morning, everyone. We reported another year of commendable operational performance on both the top and bottom line, a testament to the capabilities of our business model. We are experiencing unprecedented levels of success in key leading indicators of performance, annualized gross new wins and client retention, which provide us the momentum to deliver our expected growth in fiscal '26 and even beyond. I want to now provide some insights into our fiscal '25 financial performance before reviewing our expectations for the upcoming fiscal year. As John reviewed, fourth quarter organic revenue was up 14%. The growth was driven by new business, high retention levels, increased base business and the benefit of the 53rd week which contributed approximately 7%, more than offsetting a shift in the timing of new account openings. For the full fiscal year, we reported revenue on a GAAP basis of $18.5 billion, up 6% compared to the prior year, with approximately 1% of foreign currency impact. Organic revenue grew 7% versus the prior year, again from net new business, base business and 2% from the 53rd week. And as you know, also reflects the company's portfolio exits in Facilities in the prior year. Adjusted operating income for the quarter was $289 million, and grew 6% on a constant currency basis, led by higher revenue levels, leveraging technology capabilities, particularly in supply chain, and above-unit cost discipline. The increase more than offset higher incentive-based compensation of $25 million recorded in the quarter associated with achieving record net new business. As a reminder, our growth-oriented model is structured with 40% of our incentive-based compensation tied to an annualized net new business metric. Throughout the fiscal year, we accrued this compensation based on expected performance. The Penn Medicine win in the fourth quarter, in particular, resulted in a maximum payout under the incentive plan for this metric. Additionally, we did have higher prescription claims in the quarter along with some new business start-up costs in Higher Ed and Collegiate Sports, areas of attractive growth for the company. Excluding these expense items in the quarter, AOI margin would have been higher by 70 basis points. The company has taken decisive actions to decrease future medical expenses related to elective lifestyle prescription, specifically GLP-1 coverage. For fiscal '25, AOI was $981 million, up 12% on a constant currency basis, which represented AOI margin expansion of nearly 25 basis points. This growth was led by our operating levers and the estimated contribution from the 53rd week of approximately 2%. Which more than offset the additional incentive-based compensation I just mentioned, affecting AOI growth by 3% or 20 basis points. Turning to the business segments. The U.S. reported AOI growth of 2% during the quarter. Growth was due to higher revenue levels, enhanced technology capabilities and effective cost management. AOI growth in the quarter more than offset the higher expenses associated with incentive-based compensation, medical and some new business start-up costs already mentioned. We also took the opportunity to make some strategic reinvestments within Destinations, which included property development, digital marketing optimization and other enhancements to drive the guest experience. To a lesser extent, we did feel some effect from our MLB teams falling out of playoff contention. The International segment experienced AOI growth of 31% during the fourth quarter and 21% for the full year, both on a constant currency basis. AOI margin for the year improved by more than 40 basis points. AOI growth and margin expansion was led by higher revenue, effective cost management and supply chain efficiencies. For the fourth quarter, adjusted EPS was $0.57, up 6% on a constant currency basis. For the full year, adjusted EPS was $1.82, an increase of almost 20% and on a constant currency basis. The additional incentive-based compensation impacted adjusted EPS by $0.07 in both the fourth quarter and full year. On a GAAP basis, Aramark reported consolidated operating income of $218 million and EPS of $0.33 in the fourth quarter. And for fiscal '25, operating income was $792 million and EPS was $1.22. This included severance charges from restructuring initiatives to further optimize operations as well as a noncash asset write-down in the fourth quarter associated with a minority interest investment made in the previous fiscal year. Moving to cash flow. Consistent with our normal seasonality of the business, the fourth quarter generated a significant cash inflow, which contributed to our strong cash flow for the full year. Net cash provided by operating activities in fiscal '25 was $921 million, and free cash flow was $454 million. Our free cash flow grew by more than 40% compared to the prior year period from higher cash from operations and favorable working capital, particularly from improved collections. Our cash flow performance and higher earnings resulted in our consolidated leverage ratio improving to 3.25x at the end of September, down from 3.4x a year ago and represent the company's lowest level in nearly 20 years. We closed the fiscal year with more than $2.4 billion of cash availability. This provides us with the continued flexibility to execute on our capital allocation priorities, which effectively optimizes investing in the business, reducing leverage below 3x and increasing the quarterly dividend, which was just increased by 14%, while repurchasing stock utilizing excess cash generation. I'll now wrap up with our outlook for fiscal '26. Based on our current expectations, we anticipate the following full year performance. Organic revenue of $19.45 billion to $19.85 billion, representing growth of 7% to 9%. AOI of $1.1 billion to $1.15 billion, an increase of 12% to 17%. Adjusted EPS in the range of $2.18 to $2.28, reflecting growth of 20% to 25%. And a leverage ratio below 3x. One point to keep in mind on the quarterly cadence for fiscal '26. There is a slight calendar shift from the 53rd week in fiscal '25, which has no effect on the full year fiscal '26 numbers, with more detail in the analyst modeling section of our earnings slides. In summary, we remain resolved in driving our strategies to capitalize on the significant growth opportunities for the business centered on strong revenue growth and through new business wins, high client retention rates and base business growth. At the same time, we expect to continue accelerating our profitability from our multiple operating levers, including differentiated supply chain capabilities and disciplined cost management, enhancing our efficiencies and scale across the business. With a resilient business model and a clear path forward, we are well positioned to deliver long-term value for our shareholders. We believe the future of the company is extremely bright, and we're energized about the opportunities ahead. Thank you for your time this morning. John? John Zillmer: Thank thank you, Jim. With fiscal '26 now underway, we look ahead with great confidence. Our efforts are centered on building a high-performing, sustainable business focused on providing exceptional hospitality services to our clients. I want to reiterate that we are committed to creating significant value for our shareholders and are taking the appropriate actions to realize this unwavering objective. And operator, we'll now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touch tone phone. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. Remove yourself from the queue, please press star 11. Our first question comes from Ian Zaffino with Oppenheimer. Ian Zaffino: Very impressive on the new win side. I mean, I guess this kind of just speaks to the culture of the company, retentions going up. And I guess this is just a culmination of a very kind of client-focused culture here. Glad you're taking the time to spend time with the clients to do so. But the question would be, when we're thinking about these new account openings, can you maybe just delve a little bit more into the shift in timing? Was this in particular sectors or areas? Do you think it will continue? Any economic related factors that you didn't mention? Or any kind of other color there would be helpful. John Zillmer: You bet. Yes. First of all, it was the calendar shift or the opening shift, if you will, really occurred in multiple businesses, Corrections, Workplace Experience and Healthcare, all had kind of late-breaking opportunities for openings, which were deferred into calendar -- into fiscal '26. Without going into specifics, the impact was significant in the quarter, but it was appropriate from a timing perspective to make sure that we could open effectively. And frankly, it was also appropriate for the timing of the client. It was really ultimately their decision with respect to the opening timing. So yes, it was significant. It's not typical. Generally, we -- when we sell accounts, we tend to open them in the year that we sell them. This was a result of a number of different opportunities, all of which were terrific for the company. And we're very excited about the overall results. As you know, we sold nearly $1 billion of new business -- of net new business this year, on a gross basis, $1.6 billion. So just a fantastic performance by the entire team delivering on the new business objectives, and with the retention rate exceeding 96.3%, just ends up being a great trajectory for '26. Ian Zaffino: Right. And since you mentioned new business, congratulations on this Penn deal, and this will bring me into my next question. Maybe you could talk about 2026 cadence here. Maybe talk about that UPenn contract, how that kind of ramps throughout the year. Do you have any other deals baked in to the guidance or how are you thinking about deals? And then also, just as you talk about cadence, just maybe day count, playoff lapping, which might mean maybe a better back half of the year. But any other color you can kind of give. John Zillmer: Sure. With respect to Penn specifically, Penn will begin -- we'll begin operating at Penn in February. That will be staged over the course of several months as we open up the operations in the individual locations over multiple cities and multiple institutions. So it is a very exciting process. As you know, much of it was self-operated, so we're converting self-op, we're converting some competitors' operations as well. So a very complex opening. So taking the time to do it effectively, I feel absolutely committed to delivering on the performance for Penn and, frankly, to taking the time to do it right for Aramark as well. So in typical fashion, we have significant new business expectations for next year as well, but really don't have any cadence, if you will, on those opportunities. Our pipeline is very robust and very strong. We've had very strong early successes. As I mentioned, the Welsh Rugby Union and others, DePaul University opening as well. So the cadence, I think, is going to be more normal next year than it happened this year. So all in all, very strong results, and we're very pleased. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: I wanted to start with a question on margins. Just wanted to understand with the new wins that you got this year, I know there's this cost dynamic where sometimes there is a ramp in higher costs when you ramp up on those contracts. And so I just wanted to understand the cost trajectory there. And then also, if you could talk about any AI initiatives or other efficiency initiatives that should contribute to '26 margins? James Tarangelo: Yes. So we've had really good progress right on margins. I mean, from 4.6% to 5.1% to 5.3% this year. And if you look at the midpoint of the guidance I think for next year, to be at about 5.7%. So sort of consistent 30 to 40 basis points of margin appreciation has been generated. So yes, we do have some -- obviously, with the large wins coming in next year, that will be associated with maybe some incremental start-up costs. But I think we're able to offset that with the continued productivity we're seeing in our supply chain, in particular, leveraging AI in supply chain and across other functional areas. And then continuing to scale our overhead. We have very good visibility with respect to our corporate costs and SG&A. We're able to take on this business really with not adding much in the way of new above-unit overhead costs. So I think we're fit for purpose and able to take this on and still continue to leverage the operating levers that have been working well for us over the past couple of years. John Zillmer: Yes. And Toni, I would just add, normalized opening costs are baked into our projection and into the guidance. So we don't anticipate opening costs impacting our guidance negatively next year. If we continue to see accelerating performance in terms of net new, that ramp does occur. But as Jim said, we're basically able to offset those cost increases through efficiency, through productivity, through SG&A leverage and through supply chain dynamics. So we're very comfortable with the continued margin accretion as we continue to grow the company. Toni Kaplan: Great. And then you mentioned the double-digit growth in Collegiate Sports, which is great. And just want to ask about the pipeline there and particularly how the progress is going with converting some of the education contracts, either sports to education as well or education to sports, et cetera, that would be great. John Zillmer: Sure, you bet. We have taken the opportunity. We do engage both the Collegiate Hospitality and the Sports & Entertainment teams collectively when we pursue those opportunities. As you'll remember, we added Arizona State's system this year. As we grew the relationship there, we added the sports. That's being run by our Sports & Entertainment team. And Oklahoma, that's being run by our Sports & Entertainment team. We are pursuing several large university athletic programs right now. They're currently underway and that we have engaged the S&E team on those opportunities. So we run them based on what we think the needs of the business are, particularly if there's alcohol involved. Our S&E team has extraordinary capabilities with respect to the delivery and the appropriate management of alcohol systems in university environments. And so we engage both sides of the organization to do it. And we are seeing significant opportunities for growth there and major institutions that are currently self-operated and looking for support and help and also some competitors who are currently out for bid as well. So it's a great marketplace and we intend to -- we're the #1 company in that space and we continue to be focus aggressively on pursuing growing it. Operator: Our next question comes from Leo Carrington with Citi. Leo Carrington: If I could ask a follow-up on that Penn Medicine deal. What's the implications in terms of the potential for further hospital groups to follow suit and consolidate and outsource their catering? What can you tell us about the rest of that subsector, if you like? And then secondly, on the B&I segment, the organic growth, even excluding the 53rd week, was quite a sharp acceleration. My understanding is this is the most consolidated segment. So can you elaborate on what is driving your market share growth here in terms of your capability? John Zillmer: Sure. I think both great questions. First of all, on the health care systems, yes, there are significant new opportunities that we're pursuing in health care for self-op conversion, large systems adopting strategies like Penn did to go ahead and find ways to become more effective and to reduce their overall cost of operation. And we're able to deliver very significant benefits to the institution as a result of both our supply chain capabilities as well as our systems that we're bringing to bear across their enterprise. And so the solutions that we offered to Penn are very, very transferable to other institutions, and we think the opportunity there is very large. So in this particular case, Penn is such a wonderful institution and has such a stellar reputation that we do believe other systems will follow their lead in terms of consolidation and systemization, and we're already pursuing new opportunities in that regard. With respect to B&I, Workplace Experience group, our team has just done a fantastic job growing that business, pursuing opportunities, competitive opportunities, and as you noted, continue to grow share across the organization. I think it's a function of both our capabilities, our different brand offerings, if you will, under the Workplace Experience umbrella, and frankly, just overall performance. Our team is delivering at a very high level. Our customers recognize that, our potential new clients recognize that. And so we've been able to grow that share in a number of niches where we haven't historically competed. So we're very excited. It's got -- it has great leadership, and we're very confident in its future growth opportunities as well. James Tarangelo: Yes. And John, I would just add that it also includes our refreshment services, coffee service and micro market, which is also growing very rapidly, very consistently. Both Workplace Experience, Refreshment Services, high levels of retention, high levels of net new as a result of the branding and success they've had with clients that John just mentioned. So we're seeing it from really all parts of that organization. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: It's Andrew. When you talk about base business growth, I'm pretty sure you're talking about both price increases and other base business growth like cross-selling. And so with that, in mind, could you just go through the organic revenue drivers between net new price increases and other base growth both in the fiscal '26 guide as well as '25 just completed? James Tarangelo: Yes, I'll take that. So yes, in terms of the components of growth for fiscal '25, the base business growth was consist of volume and price. And pricing generally has been at about 3%, and so base business sort of 3.5% in '25. Net new contribution, that's the in-year contribution, about 1.5%, and then the 53rd week added about 2%. That gets you to the 7% for fiscal '25. And in terms of the outlook for '26, we'd expect to gain about 3% to 4% base business growth, roughly 3% or so coming from price. And then again, given the strong levels of retention and record new, be in the 4% to 5% range on net new contribution in fiscal '26. And this is on an apples -- on a 52-week comparison to the prior year. That gets you to the guide of 7% to 9%. Operator: Our next question comes from Jaafar Mestari with BNP Paribas. Jaafar Mestari: I had just a follow-up on this net new business contribution in '26 in the year. Given where you ended at the end of '25 and given some of your KPIs in terms of new signings and retention being very much forward-looking, why is the outlook for '26 not a bit stronger in terms of the contribution in that year? The 5.6% wasn't reflected in '25 because of the timing of some of those signings and the ramp-up, should we now expect it to be reflected in '26 fully? James Tarangelo: Yes. So there's a couple. So as we -- so Penn Medicine, remember, it's an annualized number, and Penn Medicine, for example, the largest one, is starting early in the year and will ramp up throughout the course of fiscal '26. And then the Oakland A's is another large win that will have more of an impact into the following fiscal year. So that's why there's some -- there's always a bit of timing between the annualized and in-year realization of those revenue. Jaafar Mestari: That's clear. And then one follow-up on the margins. You're right, obviously, that the guidance in '26 will mean that the margin improvement year-over-year will be between 30 bps and 40 bps. But that's using as a starting point '25 with some of the items you flagged, including the exceptional sales team compensation in Q4. And so a similar question here, if we don't expect those to reoccur -- if they reoccur, fantastic, it's something you've signed a lot. But if we don't expect those to reoccur, shouldn't the margin in '26 normalize a touch for those and then grow 30 to 40 bps on a normalized basis? James Tarangelo: Yes. If you look at the range of outcomes, so I think if you sort of the low end and high end of the range, right, sort of 5.6% to 5.8%, and as I mentioned, 5.7% in the middle. So the range of outcomes is wider. So correct, those items, if you don't -- if they repeat, it's a good problem to have. But sort of, yes, if you normalize fiscal '25 and you're in the 5.4%, 5.5% neighborhood. The other factor is, given the large ramp-up of these accounts, there will be some additional start-up costs in '26 that is baked into the guidance. You can think about that as sort of maybe 10 basis points as part of that. Jaafar Mestari: It's baked in. And then just last point, very quickly. You've updated us on health care opportunities where you're saying you're still working on some material opportunities. Another area where you've been talking about some potential big wins to come was Corrections. Any update here? Is the decision-making process in that segment just very slow? John Zillmer: Yes. We actually had some significant Corrections new wins, some of which did actually get recorded as wins in the net new and are ramping up now. So we are continuing to pursue additional state systems and it continues to be one of our largest opportunities for self-op conversion. And so we think the pace of that business's growth will continue, both on the correctional feeding side as well as the commissary side of the business as well. So still a very significant total addressable market available to us to pursue and very confident in that team and its approach to the business and its ability to generate top line growth. Operator: Our next question comes from Neil Tyler with Rothschild and Co. Neil Tyler: I'm just interested in the restructuring measures that you've initiated in the International business. Can you talk a little bit about the thought process and maybe operational metrics that prompted you to initiate restructuring in a business that seems to be growing very healthily? And then secondly, perhaps when you're talking -- when you refer to the postponement or sort of slightly delayed startup of some of the operations, can you talk a little bit -- give us a little bit of a sort of context or description around what sort of factors need to be considered when you decide to slow down the start-up of operations in a contract? Maybe give us some anecdotal evidence or anecdotal sort of description of why that might be the case. John Zillmer: Yes. It's really more client-driven than it is Aramark-driven. Clients have time frames that they have -- that they're working under, and in particular, they're dealing with multiple constituents. One of those opportunities, for example, using Penn as an example of an account that we anticipated potentially opening earlier, they had to work through a number of different decision processes. They needed to inform their employees, they needed to work through union relationships. And so really, we tend to respond to our clients' needs and our customers' needs more than ours with respect to timing. And that was also very significantly evident in a couple of those correctional opportunities where decisions were deferred by states and in a couple of opportunities in the Workplace Experience group where we had a large client we were already serving that was making a decision to displace a competitor that was also a customer of theirs. So as I said, more often than not, these deferrals tend to be related to customer timing, not Aramark timing. And we just had a number of them occur that affected our fourth quarter this year. James Tarangelo: Yes. And on the restructuring in the International, again, the backdrop here, this -- the International group has had a long track record of success, multiple quarters, multiple years of up double-digit growth. So this is a business we're happy to invest where we need to, to make sure we're well positioned to achieve our financial targets and streamline the business a little bit. So it's geared toward streamlining some SG&A and optimizing some SG&A. As you know, it's fairly expensive to do that in certain parts of Europe. So that was a piece of it. Optimizing a little bit in mining in South America to position us for the coming year. And then there is a final piece that was related to some real estate consolidation as well, some of the bolt-on deals that we did presented an opportunity to bring those together more efficiently. Neil Tyler: Got it. And then just going back to the first question just so I have it clear in my mind. When we think about the slight growth shortfall relative to the sort of lower end of your guidance that occurred in the fourth quarter, is it fair to characterize the majority of that as being down to contract timing as opposed to sort of the comp effect of things like the MLB playoffs and the like? John Zillmer: Yes. I think that was certainly the most significant part of it. The MLB impact was secondary. The closure of the Grand Canyon was certainly secondary to that. So there are a couple of items. Rather than giving you a laundry list of every reason, the one that I would really focus on is that, opening deferral mechanism and timing of that. But the other 2 impact items were also part of that fourth quarter. Operator: Our next question comes from Jasper Bibb with Truist Securities. Jasper Bibb: I wanted to ask if you could give us a bit more detail on the organic run rate into fiscal '26, maybe using what organic growth looked like in October or September excluding the 53rd week? James Tarangelo: Yes. Thanks, Jasper. Yes, so the cadence in '26, so just a couple of points here, I said that the 53rd week will have an impact on the cadence, as I mentioned in my comments, on '26. So essentially, we have a strong operating week in higher ed and K-12, in particular. That sort of gets absorbed into fiscal '25 with that extra week. So with that, you could think about losing a few days in Q1 that will come back in Q2. So first half growth will be kind of consistent with our run rate. But I think the first quarter, think that sort of minus 3%, 3.5% versus the run rate that will be captured back in the second quarter. So that's the cadence I wanted to note. But we're exiting with good speed, good run rate here as we exited here in Q4, and good momentum as we expected in October and the outlook for Q1. So it's running according to track, but I just did want to note there's some timing of -- due to the 53rd week that will have no impact on the full year, just quarterly. Jasper Bibb: Maybe give us a bit more detail on the quarterly cadence of margin. I imagine with the contract ramps, you might be a little lower in the first half than is seasonally normal and stronger in the back half. Is that a fair interpretation? Or any other detail you can give us on what that will look like? James Tarangelo: Yes. I think that's fair. But again, the larger driver on the margins will be the same thing. It's the drop-through on the revenue in Q1 versus Q2. So the first half will look normal. But given less revenue in Q1, there will be a margin impact on Q1 as well, but it will even out in the -- for the full first half. Operator: Our next question comes from Andrew Wittmann with Baird. Andrew J. Wittmann: I think the last question is actually a really important question. And I understand that you commented on percentages here, Jim, for the revenue first quarter down 3% to 3.5%, bigger -- sounded like bigger impact to margins just because you don't get the fixed cost leverage. Did you want to -- did you want to be even more precise on that one? I think we can all do math, but did you want to give revenue and EBIT kind of numbers for 1Q? I just feel like it's a big enough change. And then I think as we -- given kind of the last couple of quarters how numbers have been kind of moving around a lot, it might be even better to give actual numbers for 1Q. I know that's a big ask, but I just think it's important here. James Tarangelo: Yes. Again, I think what I would just say there, if you think about the first half versus second half, and if you sort of again adjusting for the 53rd week, and I'll just give a sort of ballpark, if you're sort of running at sort of 7% to 8% in the first half, a little bit higher, in the second half, right, I mentioned about a 3% impact in Q1, you could think of that coming off of the 7% to 8% roughly, and then that will be captured back in Q2, just to give you a little bit of sense. But again, I don't want to be too specific, but that gives you a sense of some of the movements. Andrew J. Wittmann: Okay. And then, John, maybe have you comment a little bit more on the pipeline. Obviously, it's been robust. Can you give a little bit more there, kind of what you're seeing, how the size of the pipeline compares today versus maybe this time last year? I think that would be kind of helpful to just build some mental model for all of us around how the top line might unfold this year. John Zillmer: Yes. I would say the pipeline continues to be very robust. And at least as good as last year at this point. So we continually build on those pipeline of opportunities and we continue to add new markets and new niches that we're pursuing aggressively to go ahead and expand our total addressable market, adding sectors, in particular, if you think about Workplace Experience, really aggressively pursuing new opportunities in the legal world, if you will, in top-tier law firms. If you look in International, pursuing new mining initiatives, new remote camp initiatives. So we continue to build the pipeline with lots of new opportunities, and it continues to be very robust. So I would say there's really no fundamental change year-over-year other than we're continuing to invest in the growth of the enterprise. We expect it to continue. Very encouraged by the strong results this year. And also, again, encouraged by the very strong retention rate and the discipline inside the organization. And so all in all, I think it leads to fundamentally a very strong trajectory going into '26. And as Jim described, we'll have our seasonal kind of normal impacts on a quarter-to-quarter basis. But overall, I think our full year guidance is absolutely achievable and, yes, very comfortable with the ranges that we've talked about. Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Can you just talk -- just getting back a little bit more to those contracts that didn't start quite as expected in the fourth quarter. Can you just talk a little bit more about whether there were carry costs that were incurred as part of that? And for some of those contracts, does that continue into the first quarter in terms of impacting margin? Or just trying to have a better understanding as to the impact financially. And then frankly, the visibility that you have in terms of managing your business towards those things. And then I have a follow-up. John Zillmer: Yes. I would say, yes, there is a little bit of ramp-up in starting costs, particularly for those accounts that have already opened in the first quarter on the correction side and in some of those other businesses. So yes, we were preparing to open them and incurring costs in the fourth quarter in terms of the run rate opening costs, if you will. So there is some -- a little bit of an impact there that dribbles into the fourth quarter or into the first quarter, I would guess. But I wouldn't characterize it as overly significant. So I think all in all, the -- I would point you to 2 big items. Obviously, the medical costs last year were a significant impact on the total earnings of the company, both the medical claims cost as well as GLP-1s. And we have taken very decisive action with respect to the GLP-1 impact and which will go into effect in the -- in January and which will significantly reduce our costs year-over-year from that perspective. So if you look at the 2 big impact items in the quarter, there are medical costs and the higher incentive compensation. I'll take those higher incentive costs every year if I can achieve those kinds of numbers, and drive permanently the growth trajectory of this organization by outperforming on new growth, I'll do it every time. And I feel very good about that. And I love the fact that I've got to pay the people of this organization for delivering on those results. The GLP-1s, we've taken care of that; that won't be an issue. So if I really look at year-over-year, the earnings miss in the quarter, I would be focusing on those items as opposed to the other details in the business. That's really where the fundamental miss was. Shlomo Rosenbaum: Okay. And then one of the things when you started years ago and you and I talked about the focus on retention, and you've done -- you really moved the retention up significantly. And I was wondering, are we looking at retention right now as a steady state? Or hey, it was kind of unusually high, we're usually looking for like around the 95%, but we had some big contracts that really skewed those numbers? Or is the bar just moving higher because of the operational changes that you've made within the business in terms of getting ahead of some of those contracts, better servicing the contracts, better in [indiscernible]? As we sit here next year, are we going to talk about 96% plus again or we should think that, hey, annually, you want to expect 95% and, if you can outperform, you outperform? John Zillmer: Well, I think I would love to be sitting here next year talking about 96% or higher again. We have very high expectations for our people. We hold them accountable. And so it's our expectation that we're going to get better, not worse. Part of that is both performance, part of it is negotiation. Part of it is continuing to find ways to extend agreements with clients and customers proactively. So this is a process we are fully engaged in all the time. And so I would love to sit here and say next year, we'd love to hit 97%. I don't know if that's possible. But we're going to be striving to that and we're going to do the best that we possibly can. And so yes, 95% should be a floor. It should never be -- it should never fall below that. And frankly, we have high expectations that we can do better. And we're raising the bar for our people all the time. Operator: Our next question comes from Josh Chan with UBS. Joshua Chan: On that retention point, I know that some years, it's never easy, but some years, it's easier than others to retain business just because of the cadence of what comes up for renewals. Could you just like remind us what's happening in 2026 compared to '25 in terms of what of your contracts may be rebid or have to come up for renewal? John Zillmer: Yes. I would say it's pretty much a normal year, a normal expectation. Some of the businesses that have more cyclical contract renewals like K-12, like Corrections will have their normal cadence. And those are the ones that are really impacted and have different impact items -- or different cadences year-over-year. I would say, we're very well positioned this year from a retention perspective. Last year, going into the year, we had Arizona State was our largest Higher Education contract. It was going out for bid for the first time in over 20 years because the State of Arizona dictated that it needed to. We retained that business and grew it. So that was a very exciting result. But I would characterize '26 as kind of a normal year, really no high-impact items one way or the other. So we continue to be focused on delivering at a very high level from a retention perspective. Joshua Chan: And then I think, Jim, you talked a little bit about the impact in Q1 from the calendar shift. I guess does Q1 not also have the Major League Baseball dynamic as well? And maybe could you just kind of put a finer point on whether that will have a material impact also on the growth rate, just so that everybody can be baselining off of the right numbers? James Tarangelo: Josh, you're correct, there's less. You only had the Phillies advanced to less playoff games in '26 versus '25 Q1. But having said that, the overall strong retention and net new coming to the year should offset that. So I would say, more of a normal cadence aside from that. So a little downward pressure from playoffs, but offset by other areas of growth in the business. So the main factor I would say in Q1 is just simply the calendar shift. Operator: Our next question comes from Stephanie Moore with Jefferies. Stephanie Benjamin Moore: Maybe touching on a more of a higher-level question. I'd love to get your thoughts as you look at -- reflect back on fiscal '25 and you look towards fiscal '26. Just what you're seeing from an overall in-sourcing versus outsourcing trend, how '25 compared to maybe prior years? And then in the same vein, if you could touch on just the competitive landscape, especially given maybe some more changes with one of your competitors as of late. John Zillmer: Yes, I would say the level of first-time outsourcing continues to be in an elevated state. And in particular, for us this year, the single biggest impact item was the Penn contract and the fact that they were moving to first-time outsourcing in a number of those operations. But we continue to see elevated outsourcing in a number of the segments, in particular, Higher Education, particularly in their sports side and university athletic departments really seriously considering outsourcing as a strategic alternative, particularly as they cope with the realities of the NIL environment and their need for funding. So I continue to see a very, very strong marketplace, a very strong opportunity set, if you will, across a range of sectors. It's not limited to just one; it's in multiple sectors where that first-time outsourcing continues. And we're enjoying very significant success. As an organization, we have grown our share this year. We've had a very significant performance against self-op and against our competitors as well. And we just focus on those opportunities one at a time. We believe we focus on the strength of our operations and on our client relationships and we sell from a position of quality and consistency and program. And we've been very successful doing that against all elements of the market. So we're very pleased with our overall results, but we are striving to do better day in and day out, and we'll continue to compete aggressively on quality and capability and client relationship. And that's how we win. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Zillmer for closing remarks. John Zillmer: So again, thank you all for your support of the organization. We're very pleased with the overall performance, most especially with the net new and with retention this year. Really very strong finish to the year. We're very excited about our prospects for 2026 and the future ahead for the company and for our shareholders. Thank you. Operator: Thank you for participating. This does conclude today's conference call. You may now disconnect, and have a wonderful day.
Operator: Hello, and welcome to Freightos' Q3 2025 Earnings Conference Call. A press release with detailed financial results was released earlier today and is available on the Investor Relations section of our website, freighters.com/investors. My name is Anat Earon-Heilborn, and I'm joined today by Dr. Zvi Schreiber, the CEO of Freightos; and Pablo Pinillos, CFO. Following the prepared remarks, we'll open the call for questions. We are sharing slides during the call and using video, so we recommend using Zoom on a computer rather than dialing in by phone. The slides as well as a recording of this earnings call will be available on our website shortly after the call. Please be aware that today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors. Please refer to today's press release and our SEC filings for more information on risk factors and other factors, which could impact forward-looking statements. Copies of these reports are available online. In discussing the results of our operations, we'll be providing and referring to certain non-IFRS financial measures. You can find reconciliations to the most directly comparable IFRS financial measures along with additional information regarding those non-IFRS financial measures in the press release on our website at freightos.com/investors. The company undertakes no obligation to update any information discussed in this call at any time. Before we begin, I'd like to note our upcoming investor events. In December, Freightos will participate in the AGP Electric Vehicle and Transportation Conference and [indiscernible] year-end investor conference. In February, the company will participate in the Oppenheimer Emerging Growth Conference. Links to webcast when applicable and other event updates can be found on our website. Today's earnings call will begin with an overview of Q3 performance and overall progress by Zvi. Next, Pablo will present the financial results and the guidance for Q4 and full year 2025. We'll conclude with Q&A. Questions can be submitted in writing during the call by using the Q&A feature in Zoom. Zvi, please go ahead. Zvi Schreiber: Thanks, Anat, and welcome, everyone. And today, I'll cover 3 topics. I'll start with the quarter's highlights and what they mean. Next, I'll discuss the product and network progress that will power our next phase of growth. Lastly, I'll share how the digital transformation of ocean carriers is creating a significant midterm opportunity for Freightos, particularly as we expand our multimodal capabilities. First, let's start with the quarter. In Q3, we processed 429,000 transactions, up 27% year-on-year. It's our 23rd consecutive quarter of record transactions. Unique buyer users were about 20,600, and the number of carriers with more than 5 bookings from our platform during the quarter increased to 77%. Most major airlines are already connected to our platform. So new airline additions are often regional or niche airlines at this point. We're focused on expanding airline coverage in Asia and expect further global expansion as smaller carriers look to leverage our digital channel. These metrics tell a consistent, more buyers and more sellers are using Freightos more frequently, driving short-term revenue growth and long-term scalability of our business. This gives us both breadth and depth on the platform, more opportunities to monetize transactions and to deepen relationships with higher frequency users. Now, let's put this performance in context of the market. During Q3, air cargo volumes increased 4% compared to Q3 2024, reflecting growth in many markets, even as transpacific e-commerce volumes faced headwinds from tariffs and changes to U.S. import regulations. According to our Freightos' Index, FCX, average global air cargo rates decreased 6% compared to Q3 last year. The bigger picture in the freight market, given tariffs and macro uncertainty, is that of volatility and nervousness. Such conditions make speed, transparency and automation in logistics more important. When customers need to move faster and make decisions with less friction, they turn to digital platforms. This is helpful to our Platform segment, but the market nervousness is unhelpful for selling solutions. Now, let's discuss product and network progress. We're excited to highlight our strategic partnership with Visa and [indiscernible], announced by Visa a couple of weeks ago. This collaboration enables us to provide freight forwarders and importers and exporters with access to modern financing solutions through our platform. The partnership integrates Visa's global commercial solution expertise with transcard's payment orchestration technology, creating a more efficient payment experience for our users. The fact that a global leader like Visa has chosen to partner with Freightos demonstrates the significant potential they see in the $600 billion international freight markets and the role that we, Freightos, play in it. Next, we launched and commercially validated our new multimodal rate management and quoting SaaS product, WebCargo Rate & Quote ocean. In Q3, we completed a rollout at our first multinational freight forwarder customer and proved that the workflow quoting air and ocean in 1 product works well in practice. Unifying air and ocean quoting allows freight forwarders to give a superior service to their customers, the importers and exporters. But the real transition towards digital booking happens when that workflow is supported by bookable carrier inventory. For Ocean, that bookable inventory depends on carriers digitalizing more meaningfully, so we can connect them to our platform. I'll expand on that in a moment. A notable early adopter of this product, the new multimodal solution, is Nippon Express, a top 5 global freight forwarder. Nippon Express expanded its use of Freightos this quarter, moving from our own usage to a multimodal deployment across much of its global network. This expansion increased their annual commitment to Freightos by multiples. Given that 90% of goods are transported by ocean, we expect to see many more upsells from air to ocean. Other successes in our Solutions segment this quarter included a number of renewals and targeted scope expansions. For example, we closed an upsell of our terminals rates benchmarking capabilities to a global mining company, expanded Procure tendering functionality with a top 5 pharma company and extended our terminal data contracts with a major electronics customer. That said, we had anticipated even stronger solutions revenue growth than the 30% year-on-year we delivered this quarter. As we mentioned earlier in the year, due to tariffs and the current macro environment, enterprise SaaS deals have had longer sales cycles. So in the meantime, we're strengthening commercial execution. Michael recently joined Freightos as Chief Revenue Officer. Michael brings deep experience scaling digital logistics and enterprise sales, most recently as VP at Premion and previously as SVP of Sales for Intermodal at Project 44 and other B2B companies. He has a proven track record of building commercial relationships across carriers, forwarders and shippers, which will help us further scale multimodal adoption and our enterprise deployments. Michael will ensure Freightos has world-class sales and customer success capabilities with value-based selling to both enterprises and small and medium-sized businesses worldwide, optimizing our LTV to CAC ratio. Now, we talked about our updated software solution for quoting Ocean, but what about ocean booking transactions on our platform. This, of course, requires ocean carriers to make capacity pricing in booking, available digitally, through APIs. We discussed One Ocean Carrier integration success on our last call. And in Q3, we made progress with 2 more integrations, which we expect to go live in the coming quarters. Each integration brings more capacity into our system in an automated form, helping forwarders better source and decide on shipping options in real time. We're now among the first platforms receiving rates from several major global ocean carriers. And our launch of a next-generation ocean rate management solution is, of course, synergistic with our platform finally making progress integrating to ocean liners. With ocean representing approximately 3x the GBV of air cargo, the potential is significant, but we do expect adoption to follow a measured pace, as the conservative industry works through its transformation. We anticipate meaningful revenue contribution in the midterm, not in the immediate future as this transition continues to unfold. Of course, platform growth is not limited to new carriers. Once a carrier is launched on Freightos, we can continue to grow in different geographies. We can add more advanced services, like expanding from general air cargo to temperature control services, expanding from spot bookings or one-offs to handling bookings against negotiated contracts. So these are the operational and commercial priorities that drove our Q3 progress. Pablo will now walk through the financials and explain how these milestones translate into revenue, margin and cash. Pablo? Pablo Pinillos: Thank you, Zvi, and good morning, everyone. I will now go through how the quarter's operating progress translated to the P&L, cover cash and liquidity and then walk through our near-term outlook and priorities. Revenue for the quarter was $7.7 million, up 24% year-over-year. Platform revenue was $2.6 million, up 15% year-on-year, and Solutions revenue was $5.1 million, up 30% year-on-year. As Zvi we said, Solutions and Platforms support each other. The way solutions drive bookings is practical and proven. Our mission-critical SaaS solutions become embedded in a customer's day-to-day operations. Our customers centralized pricing and workflow on freighters and makes it far easier for them to go and then convert those quotes into bookings. Our data supports that dynamic, forwarders that adopt our tools tend to grow transaction volume materially over time. Looking to our cohort data, we see 3 to 4x growth in transaction volumes for cohorts over their initial 2 years using our platform. Put it simple, solutions creates the stickiness that enables more frequent platform bookings because we're still early in the industry's transition to platform model, solutions today represents the majority of our revenue. Over the long term, we target Platform revenue to scale faster and ultimately outpace solutions revenue. Now, let's take a closer look at Platform revenue. You will notice that platform transaction volume and GBV are growing faster than our platform revenue. This is purely due to our business mix. Take rates are not going down in any segment. Our WebCargo platform, which connects freight forwarders with carriers, consistently grows at a faster rate than Freightos.com, which serves importers and exporters. WebCargo operates mainly on a fixed fee model with a lower implied take rate compared to Freightos.com higher take rate structure. As the fastest-growing web cargo continues to outpace Freightos.com, the aggregate revenue platform naturally grows more slowly than transactions volume. Our carrier cohort analysis reinforced this, carriers run quickly after integration, producing a strong booking growth, but much of that early volume is under relatively low fixed fees. So it doesn't translate into proportional transaction revenue immediately. Gross margins were strong this quarter. On an IFRS basis, gross margin improved from 65% a year ago to 69.1% in Q3 this year. And our non-IFRS gross margin rose from 72.7% to 74.8%. That improvement reflects the inherent operating leverage in our model as we continue scaling. We are seeing benefits from automation efforts in customer services, which allow us to handle more transactions with our proportional increases in personnel or infrastructure costs. Looking ahead, restructuring our hosting agreements and infrastructure improvements represents our next significant opportunity to enhance margins. While we have made good progress optimizing our infrastructure costs, there is still more efficiencies to capture. Adjusted EBITDA improved to negative $2.6 million in Q3 2025 versus negative $2.8 million in Q3 last year. That improvement reflects revenue growth, a stronger gross margin and disciplined cost management. Those operational gains were, however, partially offset by continued currency impact, a stronger euro on cycle versus the U.S. dollar, reduced the gain in adjusted EBITDA compared to our operating performance. Our hedging program limited the impact on the cash, so the translation effect shows in the P&L more than in the cash balance. We closed the quarter with **$30.6 million in cash and short-term bank deposits**, a position that supports our continued measured investments in product and commercial execution, while we scale the business to breakeven. Looking ahead, we remain focused on the levers that will narrow losses and drive durable profitability. The overall plan remains the same, keep growing revenue and margins while keeping OpEx close to constant. Our new CRO is already laser focused on cost-efficient growth. With these concrete actions, we continue to plan to reach adjusted EBITDA breakeven in Q4 2026. For the fourth quarter of 2025, we anticipate continued year-on-year growth across transactions, GBV and revenue. Adjusted EBITDA will likely continue to be impacted by foreign exchange headwinds. This means that for the full year, we now expect a more modest year-on-year improvement in adjusted EBITDA than what we have projected at the beginning of the year. Despite successfully reducing our total cost by almost 5% this quarter and 3% year-to-date compared to our budget in a constant currency basis, exchange rate fluctuations have created an unfavorable impact that has significantly reduced these cost savings. A secondary factor relates to our revenue composition, while we remain on track to meet our revenue guidance despite a challenging year on the logistics industries, the mix between our revenue streams differs from our initial expectations. We are finishing the year with a slightly better performance of platform revenue relative to solutions revenue than what we had planned, which we attribute to the longer sales cycles, as Zvi has mentioned it earlier. Since solutions typically generate higher margins, this shift in mix has modestly impacted our overall profitability. Nevertheless, we are pleased that our cash spend remain on track throughout the year. We expect to end the year with cash and equivalents of approximately $27 million, reflecting on cash burn of about $10 million for 2025 compared with $15 million in 2024. We remain focused on the fundamentals, growing revenue while maintaining disciplined cost management and operational efficiency. Based on these fundamentals, we continue to expect reaching breakeven adjusted EBITDA by Q4 2026. Anat Earon-Heilborn: Our first question will come from the line of Jason Helfstein. Jason Helfstein: So when I look at the contribution margin, it's basically year-to-date, it doubled year-over-year, so clearly, you're seeing efficiency and the sales cycle. I think your OpEx, excluding sales and marketing, is up 9% against revenue up, I don't know, some 27% or 29%. And obviously, you called out the pressure of the FX. So you're doing everything you can do. I guess the question is, and you've now told us you're going to -- the plan is breakeven EBITDA by the end of next year. So I guess, is there anything you could do to grow faster organically or inorganically? And I guess, how much of the gating factor growth at this point is kind of the path to breakeven EBITDA and managing the cash balance? And then I have 1 quick follow-up. Zvi Schreiber: Yes. Thanks, Jason. Well, that was a complicated question. So I'm thinking where to start from. The -- look, it's a constant balance. I mean, even now as we finalize our budget for next year, it's a constant balance between growth and breakeven. And we very much want to grow and break even by the end of next year. And so it's a balance between them. For sure, yes, we're doing what we can. Thank you for calling out. We have done a lot of work on efficiency. In fact, if you look back a bit, we've grown in the last -- 2 years, I think revenue has grown 40-something percent and the team hasn't grown at all. So we're certainly becoming more productive the whole time. And beyond that, we are, of course, now with AI, there may be further opportunities for efficiency. So we've been doing that the sort of the hard way, and now, there may be other ways to become more efficient. And Pablo mentioned, we're already seeing some improvements in the customer support using AI. So we're going to continue pushing on that side as well. And then, it's just the balance between how much do you want to spend in sales and marketing to grow, but also to break even. And we'll -- we're finalizing a budget, which will allow us to grow as fast as we can without compromising the target of breakeven. Jason Helfstein: And then just to follow up. I mean, where do you feel like we are with kind of the tariffs volatility? Like are we at a point where now you feel like you're seeing kind of normal shipping volumes? And I don't say normal, like the volatility has slowed down. Like are their patterns now that makes sense? Or it still feels like the ecosystem is still working through the kind of week-to-week changes around certain products and certain tariffs, et cetera? And I don't know if you want to call out China specifically, but any color how it's impacting your kind of thinking, your forecasting of the business. Zvi Schreiber: Yes. It's a bit of both. I mean, certainly, there is not as much uncertainty as there was in April or something like that. But even so I just saw today a headline that President Trump canceled certain tariffs on food. And so it's still -- a, there's still some uncertainty, and you never know what you're going to -- what's going to happen tomorrow. And secondly, even if there's no uncertainty, the tariffs are higher, and that certainly creates some friction for imports to the United States. So in the market data, I presented actually that the overall global trade is up on the year, but trade with the U.S., if I'm not mistaken, was down a bit. So it's still an issue. The uncertainty is still an issue, the tariffs themselves still creates some friction, but it's not at the levels that it were and people are at least to some extent adjusting to the new normal. Like I said in my remarks, it affects us more. We don't feel it's affected. On the platform side, it can be good as well as bad because uncertainty drives the need for marketplaces and finding new opportunities to ship in different ways or from different sources. But solutions, yes, although things have somewhat stabilized, people are still -- freight forwarders, importers and exporters are still more nervous than they used to be to write big checks. We're now busy talking to customers about their plans for next year and getting a feel for whether things can get back to normal. But it was harder to get a big contract signed this year for sure, although we did several, but it was harder than expected, yes. Anat Earon-Heilborn: Next question from the line of George Sutton. George Sutton: I wondered if we could just talk about penetration. You mentioned a lot of the growth will come from -- at least on the air cargo side, from just growing your penetration with the carriers. Can we talk about where we stand in terms of penetration? Any sort of cohort type analysis that you could suggest? Zvi Schreiber: Yes. If you look at -- it sort of -- it varies quite a bit by geography. Our penetration in the European market from a supply perspective is very high. We've got virtually every airline in Europe turned on to the platform, at least for a lot of the capacity, not always for all their capacity. But in Europe, we have a very significant penetration. We have a very nice proportion of the freight forwarders in Europe. I don't know have exact numbers to hand. I don't know exact numbers at all because there isn't a very reliable list, but very significant in the U.S., we're growing nicely, but it's still smaller penetration. And in Asia, we reckon we're still sort of -- whether you look at supply or demand, we're still in the single digits of penetration. That's still a huge amount to do there. George Sutton: So I wondered if you could explain the Visa link and how that might impact your opportunity? And just give us a sense of how it was occurring prior to that or separate from that. Zvi Schreiber: George, you said Visa? George Sutton: Yes. Zvi Schreiber: Yes. Good. So 1 of our initiatives with airlines, both to add more value and to get -- to monetize more to get a better take rate with the airlines is handling payments. That's still a minority of the transactions, the vast majority of transactions on our platform or with airlines. And in most cases, the freight forwarder books on our platform and then pays through an off-line system. But we have a growing platform value add, where we handle the payments. And up to now, we've been doing that with other financial partners or through our own sort of bank accounts in certain cases, depending each country with its regulation, et cetera. Now, with Visa, obviously, we have a partner who's a worldwide name and who has credit lines and other sort of financial technology that we just don't have. So we definitely think that this will enhance our payment solution a lot, and we hope to see payments growing. And over time, really bringing up our average take rates with the airlines, which as you know is one of the issues is we have this fantastic amount of airline revenue being generated from our system. The monetization is still modest. Payments is definitely a way we increase that. and the partnership with Visa is a key way that we make our payments more attractive. George Sutton: Last question for Ocean [indiscernible] midterm growth opportunity, but maybe how you define midterm? Zvi Schreiber: George, you were pretty cut off there, but I think I got the question. George Sutton: I'm just curious how you're defining midterm growth relative to the ocean carriers. Zvi Schreiber: Okay. Yes, very good. That's what I thought you said. So how do I define midterm? Let's say only meaningfully contributing to revenue in 2028. Next year, I don't think Pablo is even going to budget at all for -- there'll be some, but I don't think there's -- it will be even in the budget, 2027. It will start growing. I think it's only in 2028 that we get significant revenue from that aspect. But, of course, just to remind you, and we've discussed this before, George, but once you become the leading platform, that can be a -- that can hold for decades. So this is a very strong long-term opportunity. Pablo Pinillos: Yes, to double down on what you just said, and we will provide guidance for 2026, whenever we provide, but we will probably won't assume revenue for oceans bookings in 2026 at all, and really, really, really probably a small 2027. Any significant will come in 2028, as you said. Zvi Schreiber: But on the solutions side, we did start to see -- I mentioned the deal with Nippon Express and a couple of others where I didn't give names, we will see a nice contribution from solutions to ocean in already in 2026. Anat Earon-Heilborn: Okay. I'm going to read a question from the chat. So as you've stated earlier that platform revenue will be driving the revenue in the future, what target do you have for the take rate by the end of 2026? Zvi Schreiber: Pablo, you want to take that or do you want me to comment? Pablo Pinillos: No, I can start. So we are finalizing the plan for next year. And of course, the -- we will be driving plan to increase the take rate. It will all depend, as we've been saying about the mix, the business mix and how the growth in the WebCargo platform versus the Freightos.com, and within that mix, what are the fasting growth carriers that will drive that mix. Right now, we are in the middle of addressing all of that, and -- but for sure, the take rate will not decline year-on-year, and we are expecting that to grow. Anat Earon-Heilborn: Next question is why is revenue growth slowing down in Q4 despite the addition of carriers and forwarders? How much do you expect FX headwind to affect the revenue? And if the FX stays at the same level as Q4, would it delay the timing of breakeven point? Pablo Pinillos: Let me take this, Zvi. So this, again, for us, is the slowdown in Q4 revenues is related to slower revenue -- solution revenues coming in that we have seen a slightly delayed in being able to close business. It's important to say as well that the -- most of our revenue in Solutions revenue is recurring with a small piece of nonrecurring revenue, and the decline of Q4 that we see is specifically related to a competition of one of development that finished in Q3 that when we did plan, we expected to -- that the Solutions revenue will overcome that decline. But so far, we are -- due to the delays, we are not able to foresee that in the future. And the second question is, if FX stays at the same level as Q4, it won't -- from our point of view, it doesn't mean that it will delay our breakeven in 2026. As a guiding principle, we're going to manage expenses as needed to breakeven in Q4 2026 even if the Solutions revenue, it doesn't accelerate in the future. Zvi Schreiber: And I think Pablo, the FX is mainly affecting us on the expense side, right? Our revenue is mostly dollars and less affected by FX. Pablo Pinillos: Yes. But if the FX maintains the same in a 12-month cycle, everything at the end compensates. Zvi Schreiber: Yes, because we'll budget for next year based on the exchange rates that we know now. And just to emphasize a point that Pablo made, the -- our solutions revenue is mostly recurring. And recurring revenue for solutions will be up, we believe, in Q4, not by as much as we hope for the reasons we discussed, but it will be up. And if you see a dip, it will be just, as Pablo said, because of a nonrecurring project, which has recently come to an end. Anat Earon-Heilborn: Okay. The next question, I think we answered part of it, but the second part -- of the first part, so you recently launched WebCargo Rate & Quote integrating Air and Ocean quoting into a single multi-model platform. What early traction have you seen with major forwarders? And how quickly do you expect Ocean to scale relative to Air in terms of transactions and platform revenue? So I think we answered to George about the second part, but maybe we can talk about the traction with forwarders? Zvi Schreiber: Yes. So I want to separate when it comes to Ocean, which is obviously a major part of how we grow in the next few years. I want to separate Platform and Solutions. Platform, as we said, we are connecting 1 by 1 to some very big ocean carriers, which is exciting progress, but we're not yet at critical mass. We're not expecting for at least a few months to see real volume on the platform side. But Solutions, we mentioned Nippon Express, we mentioned a couple of others. I can also mention that we've just started selling ocean to some of our small forwarders. And so we expect to see good traction on the Solutions side. With Ocean, we have -- the great thing is it's existing customers. So we have 4,000 freight forwarders roughly using our solution for air using our software for air. And so it's just going back to the same freight forwarders and saying now we've got a modern solution to ocean, you can do air and ocean in 1 platform in a beautiful modern software. And so we expect that to be a major part of how we grow solutions revenue next year. Anat Earon-Heilborn: Okay. Our next question is about revenue share with partners. If partners like Meg cap Aviation bring 13 carriers to Freightos platform, what would make a benefit from the partnership? Would get the revenue share from this partnership? Zvi Schreiber: It's not -- yes, interesting question. It's not really a revenue share scenario because they are resellers of the carriers. They're a general sales agent or whatever arrangement they have. So from our perspective, they're a carrier. They may be a virtual carrier, but we treat them as a carrier. They pay us a fee for bringing them a booking. And then, what's between them and the airline is between them and the airlines. So they're not a channel in that respect. They may be a reseller of the airline. But as far as we're concerned, they're a carrier or a virtual carrier. They're the ones selling the capacity on our platform. Anat Earon-Heilborn: Okay. Our last question, I believe. Could you please say how much proportion is recurring and nonrecurring among the solutions revenue? Zvi Schreiber: I don't think we give numbers, but Pablo, I think it's fair to say that a very big majority is recurring of our solutions revenue, right? Pablo Pinillos: Nonrecurring, it doesn't get up to 5%. Zvi Schreiber: Yes. We only mentioned it this quarter because there was a big part of the nonrecurring came to an end. And that's actually not -- it's not our business model to do nonrecurring. We do it sometimes because we have to help the customer -- if we need to help the customer with a project and help them adopt our software, we do it sometimes. And we had 1 big project, which just came to an end on the nonrecurring, but yes, as Pablo said, that's not our model. Our model is selling SaaS and data subscriptions, and it's almost all recurring. Anat Earon-Heilborn: Okay. That was the end of the questions. Thanks, everyone, for joining. Have a good day. Zvi Schreiber: Thanks. Pablo Pinillos: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the J&J Snack Foods fourth quarter 2025 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'd now like to hand the conference over to your first speaker today, Reed Anderson with ICR. Please go ahead. Reed Anderson: Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2025 Fourth Quarter Conference Call. Before getting started, let me take a minute to read the safe harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives as well as our anticipated financial performance. Operator: This includes, without limitation, Reed Anderson: our expectations with respect to the success of our cost savings initiatives, and customer demand improvements in the sales channels in which we operate. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our annual report on Form 10-Ks and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on the call today. Any such forward-looking statements represent management's estimates as of the date of this call today, 11/17/2025. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share. All of which are reconciled to the nearest GAAP measure on the company's earnings press release, which can be found on our Investor Relations website. Joining me on the call today is Dan Fachner, our Chief Executive Officer along with Shawn Munsell, our Chief Financial Officer. Following management's prepared remarks, we will open the call for a question and answer session. With that, now like to turn the call over to Mr. Fachner. Please go ahead, Dan. Dan Fachner: Good morning. I am pleased with our fourth quarter results. Despite a challenging backdrop during the summer, we delivered adjusted EBITDA of $57.4 million on sales of $410.2 million, down 3.9% on sales versus the prior year. As anticipated, over half of the sales decline was associated with our frozen beverage business, as we lapped strong volumes from the Inside Out 2 movie last year. Pretzel sales in both retail and food service rose in the quarter, reflecting progress on key initiatives to drive growth through innovation. Pretzel growth helped to offset some declines in frozen novelties, that we are addressing through marketing, trade spend, and innovation. For the full year, adjusted EBITDA was $180.9 million while net sales increased 0.5% to $1.58 billion. Although 2025 was a more challenging year, I'm encouraged by our operational execution in the second half, which puts us in a strong position moving forward. Some bright spots for fiscal 2025 include we achieved record sales, and adjusted EBITDA in fiscal Q3. We modernized our flagship Super Pretzel product with a recipe enhancement, and fresh packaging. The effort to reinvigorate our pretzel business led to a 2.7% pretzel sales increase in 2025 driven by a strong second half performance with sales up 8% compared to the prior year. The rollout of Dippin' Dots to theaters was substantially completed with a presence now in almost 1,600 theaters. Dippin' Dots Sundays were launched at retail with great success, adding approximately $5 million to the top line. We optimized our frozen beverage distribution and service network, which reduced expenses by 2% in the fourth quarter. Now I'll talk through some initiatives underpinning our optimism for fiscal 2026. To start, we have initiated a business transformation program which we are calling Project Apollo. That will generate sustainable efficiencies and cost savings across the enterprise. Some key elements are already underway and we expect the program to deliver at least $20 million of annualized operating income once all the initiatives are implemented in 2026. The initial focus of Project Apollo is consolidation of our manufacturing network. During the fourth quarter, and early in 2026, we announced the closure of three facilities, Holly Ridge, North Carolina, Atlanta, Georgia, and Colton, California. Production from these facilities will either be consolidated into other facilities or discontinued as part of an ongoing portfolio optimization. The closures reflect the next logical step in the evolution of our manufacturing footprint and are enabled by the investments we have made in our plants to modernize and expand capacity for core products and to build out our regional distribution centers. We expect annualized savings associated with the plant closures of approximately $15 million which should be materially complete in 2026. We are also undertaking various initiatives within our distribution system that will generate approximately $3 million of annualized savings. The remaining net savings from Project Apollo are associated with various administrative initiatives we expect to realize most of the annualized freight and administrative related savings by 2026. The initiatives I have just outlined represent the first phase of Apollo. We are working on a second phase that is focused on generating within the plants further efficiencies following the completion of the consolidation work. We are also developing a robust roadmap for modernizing our system and tech infrastructures to streamline additional corporate processes and sharpen the quality of our data analytics. We'll be sharing more as the next phase of the project work is finalized. I am energized that the projects we have identified will generate durable structural savings and will do so relatively quickly in fiscal 2026. I'm encouraged by the impact that these actions are having on our early performance so far in Q1. Our operating teams are focused on the closures and seamless redeployment of production within our network to prevent any disruption to customer orders. I'm also excited about several commercial and innovation initiatives that are being rolled out for our fiscal 2026. Starting with the commercial activities. We will commence shipping churros to a major QSR later in fiscal Q1 as part of a limited time offer program. We expect the program to be successful given it is such a great fit with this customer and believe there is potential to be converted to a permanent volume. We are completing the rollout of ICEE machines for a large and growing convenience store operator in the Southwest, the frozen beverage test with a major West Coast QSR operator is nearly complete and we are encouraged by the results. And the handheld capacity outage should be remedied by the start of our second quarter. With respect to innovation, we have several exciting launches around the corner for fiscal 2026 with most of these products available to consumers beginning the fiscal second quarter. These innovation items underscore the quality, and breadth of our iconic brands. Our new protein pretzel for retail will be available for consumers as a four-pack of large pretzels with 10 grams of protein or a smaller mini pretzel with seven grams of protein per serving. We are rolling out Super Pretzel pizza sticks, and queso sticks which are smaller pretzel bites with tasty fillings. On the frozen novelty front, we are introducing Luigi's Mini Pops which feature exciting flavor profiles and better-for-you attributes such as hydration, and immunity support. We are extending our popular Pet Street brand, Dogsters, to include a new mini ice cream sandwich. Regarding Dippin' Dots innovation, I am pleased to announce that we will be launching Dippin' Dots in its original form for resale. This represents another major growth milestone for the brand. Additionally, we are introducing two new flavors to the Dippin' Dots retail sundae lineup, taking the flavor total to four. The outlook for theater also is encouraging. As the industry continues closing the gap, to the pre-COVID environment. Box office sales for the period that aligns to our fiscal 2025 up 10% versus the prior year. Industry sources are projecting North America box office sales that aligns with our fiscal 2026 to increase by 9% supported by a great lineup of movies that includes Wicked for Good, Zootopia 2, and Spider-Man, A Brand New Day. The lineup for our fiscal first half looks particularly promising as compared to last year's slate. With $106 million in cash and no debt, our financial position remains strong. And we continue to take a balanced approach to capital allocation across three areas: investing in our business to drive growth and operational efficiency, strategic acquisitions, and returning capital to shareholders through dividends, and share repurchases. Given the current trends of our business, and outlook for fiscal 2026, including the benefits we expect to realize from Project Apollo, we expect to increase our focus on share repurchase activity as we see compelling value in our shares. Share repurchases totaled $3 million in the quarter, and we intend to accelerate our pace significantly during the current quarter. I'll now turn the call over to Shawn to discuss the quarter and full year results in a little more detail. Shawn? Shawn Munsell: Thanks, Dan. And good morning, everyone. Before I discuss the results, I'd like to note that we no longer allocate all corporate expenses to segment results. Starting with the fourth quarter, as Dan indicated, we are pleased with our Q4 performance. This methodology change has been applied to our historical results, with some expenses now captured as unallocated corporate expense. We believe we are well positioned early in fiscal 2026. 1.1% to $259.3 million as volume softness more than offset price increases. Soft pretzel sales increased 3.6% marking consecutive quarters of year-over-year sales growth. Bavarian pretzel sales continue to lead the growth. Pretzel dollar share increased 1% in the quarter. Frozen novelties declined 5.1% driven primarily by transition between Luigi's and ICEE branded products. We expect volumes to normalize over time. Churro volume declines primarily reflect the wind down of last year's LTO, with a major QSR customer. Retail segment net sales declined 8.1% primarily driven by lower frozen novelty volumes, partly offset by higher pretzel volume. We are taking action to support our frozen novelty business with shopper marketing and trade spend. And we see improving trends in the recent four-week data. Dogsters continues to stand out of the portfolio with sales and units up in the quarter and we anticipate additional distribution in 2026. Handheld sales declines reflect the temporary capacity constraints from the fire at our North Carolina facility last year. Soft pretzel sales increased 9% continuing the momentum from the third quarter. Frozen Beverage segment sales declined 8.3% attributed to lower beverage volume in the quarter. Foreign exchange translation did not have a significant impact on segment results in Q4. Beverage volume declined primarily due to lower theater sales. As we lapped the success of the Inside Out 2 movie last year. Box office sales for our fiscal fourth quarter are estimated to have declined approximately 11%. As I mentioned earlier, we expect the theater industry to continue its rebound in 2026, and we're encouraged by the solid lineup of movies that we expect will be popular with our target consumers. Consolidated gross profit was $130.2 million compared to $135.5 million last year. While gross margin was 31.7% compared to 31.8% last year. Gross margin in frozen beverage declined given the lower mix of beverage revenue in the quarter. Tariff costs added approximately 35 basis points to cost of goods. These unfavorable impacts were partly offset by insurance proceeds for business interruption costs, related to our handheld capacity constraints. And early plant consolidation savings in the quarter. Operating expenses increased 24% to $118.8 million or 29% of sales. Which included $24.8 million of nonrecurring charges primarily related to Project Apollo plant closures. Plant closure charges predominantly reflect noncash asset write downs and write offs totaling approximately $21 million. We expect additional plant closure and other nonrecurring costs associated with our business transformation project of $3 million to $5 million in fiscal 2026. Marketing expenses were $32.6 million or 4.8% higher than in the prior year driven by increased spending on new sponsorships and other promotional activities. Distribution expenses for the quarter declined 8.3% on lower volume and steady efficiency gains. The efficiency gains were driven by fewer internal transfers and better truck utilization. Distribution as a percentage of sales declined to 10.3%, compared to 10.8% in the prior year. Administrative expenses were $19.1 million, an increase of 5.1% from the prior year primarily associated with higher compensation expenses. Adjusted operating income was $37.7 million as compared to $42 million in the prior year. Adjusted EBITDA for the fourth quarter was $57.4 million versus $59.7 million last year. The effective tax rate for the quarter was 4.8%, compared to 26.8% in the prior year. Adjusted earnings per diluted share were $1.58 versus $1.60 last year. The significantly lower effective tax rate in the quarter primarily reflects a change in estimate on our blended state tax rate and the corresponding impact on the valuation of our net deferred tax liabilities. Our balance sheet and liquidity position remains strong with approximately $106 million in cash and no long-term debt as of quarter end. We had approximately $210 million of borrowing capacity under our revolving credit agreement. Let me briefly touch on full year results. Sales increased 0.5% to $1.58 billion as price increases helped to offset lower volume. Growth in foodservice, which was up 1.6%, was partially offset by declines in retail, including from lower handheld sales related to the capacity constraints. While frozen beverage was essentially flat. Unfavorable foreign exchange rates for fiscal 2025 reduced the top line by approximately 40 basis points. Adjusted operating income was $108.2 million as compared to $130.4 million in the prior year. Adjusted EBITDA for the fiscal year was $180.9 million versus $200.1 million last year. Adjusted earnings per diluted share were $4.27 versus $4.93 last year. That concludes our prepared remarks, and we are now ready to take your questions. Dan Fachner: Operator? Operator: Star 11 on your telephone. And wait for your name to be announced. To withdraw your question, please press 11 again. Dan Fachner: Our first question comes from Jon Andersen with William Blair. Jon Andersen: Hey, good morning. Dan, Shawn. Thanks for the question. Dan Fachner: Good morning, Jon. Jon Andersen: Hey. I wanted to start by getting you to mention the portfolio optimization work that is going on. And that's one of the reasons why the closure of the three facilities, you know, you were able to do that while kind of moving production on production that you're going to keep. Can you talk about the impact of that portfolio optimization on sales both kind of in quarter but then how to think about that perhaps going forward as we look to kind of 2026 and what impact that might have on the top line. We'll start there. Dan Fachner: Sure, Jon. Thank you. That's one of the things that we've been talking about for a while, especially as it relates to our bakery group of optimizing that portfolio. And then as you look at our plans and the consolidation that we've been working on with the plants, it just made sense that during this timing that we'd be able to optimize the portfolio that we have and be able to consolidate some of these plants. The total impact of that, if you think about our business growing in that mid-single-digit rate year over year, might be a one, one and a half percent impact on that overall sales. But we're, you know, we're kind of bullish. It's the play that we called a couple years ago as we continue to build efficiencies inside our system and put in some new plants or new lines within our plants. And then rebuild the distribution system now allows us to be able to go back and optimize. And we're really excited about that work that's being done. Shawn Munsell: Yep. And in terms of timing, Jon, you know, think about that as being kind of near that full run rate sometime in Q2. Jon Andersen: Okay. Helpful. And maybe stepping back even a little bit more, but I know you don't provide specific guidance. But as we exit '25 and think about '26 at this point, there are quite a few moving parts, some of which should be tailwinds. And some of which might be a bit of a headwind, but headwinds for the right reason in terms of the portfolio work. Can you talk at all about just kind of the macro environment? Dan Fachner: And you know, kind of try and combine that to the extension to can't can with some of the internal initiatives. To give us some sense of how you're thinking about '26, both from a maybe a top line perspective, but also a margin standpoint because with the transformation work that's happening, I think some of the pricing that you've been able to implement and may implement to offset commodity costs. There's a lot of different ways that we could go with this. So just want to get your any commentary you could provide forward-looking around that. Thank you. Yeah. The macro environment, if I started there first, we still think that there's a consumer sentiment that is cautious. Alright? And so, we're gonna continue to watch that, especially as it relates to our retail side of our business. But we're really, really feeling some good momentum as we exit '25 and enter into '26 with some of the great things that we have going on. The plant closure benefits that we already talked about, some tremendous innovation. The teams are doing a really, really good job with that. And we feel positive as we move into 2026 and some even early results in Q1. And we think the theater industry is bouncing back some. So we feel good about the overall business as we move into it. You know, we think back at '25 and know, we think of some of the challenges that we faced there. And you kind of you can kind of tally it up to just a few primary factors. We had that big churro LTO that we're not facing anymore. We had some unfavorable foreign exchange impact. We had the chocolate cost inflation. Most of that hit us in the first half of the year. But when you really look at the second half of the year, you know, the second half EBITDA was just shy of what we delivered the second half of '24. So for all those reasons and the Apollo that we're doing, we're really we're a little bullish on 2026 as we turn that page. Shawn Munsell: Yeah. That's helpful. You'll see those closure benefits relatively quickly in the P&L. We just announced the closure of that third facility. So consider by the time you get to the second quarter, we should be at or very near that full run rate. Jon Andersen: And Shawn, on that, you mentioned the full run rate. Do you mean on the plant closures or on the kind of the Shawn Munsell: Yeah. That's right. So on the plant closure component, the $15 million, we should be very near that full annualized run rate come the second quarter. And then the rest of those savings, you know, think about that, you know, sort of layering in in the third and the fourth quarter for the balance of the year. Jon Andersen: Excellent. Super helpful. Just one more question. You talked about maybe a little bit of a near-term or short mid-term adjustment to your capital allocation approach with a greater focus on share repurchase. Can you talk about, you know, just kind of ongoing how you how you kind of evaluate that? And what kind of acceleration or step up we might anticipate there to the extent that you can. Comment on it. Thank you. Shawn Munsell: Yeah. So, yeah, for sure. And, you know, we said in the prepared remarks that, you know, we're we intend to accelerate our stock buybacks here in the quarter when the window opens. Just for context, and I'm not you know, I'm not implying that this is the amount by which we're we're gonna execute. But, you know, we've got about $42 million remaining on the authorization that we implemented earlier this year. We did buy back about $3 million worth of stock in the quarter. But notably, we pulled back a little bit on that. Dan Fachner: You know, there was some M&A in the pipeline, and we thought that it would be a prudent thing for us to do. But we'll be buying back some stock this quarter. Jon Andersen: Oh, maybe I have to follow-up on that one. You just mentioned M&A in the pipeline. Can you comment at all on that? Should we be thinking about some near-term actions there? Dan Fachner: I wouldn't go that far, Jon. We were looking at a couple different things that just caught our attention. And so at the period of time where we had the window open to be able to buy some stock back, we were just trying to take a conservative approach there. But I would not go as far as to see anything imminent on the M&A front. Jon Andersen: Okay. Thanks. And looking forward to a strong '26 behind these initiatives. Thanks. Dan Fachner: Great. Thank you. Yep. Thanks. Operator: Our next question comes from Scott Marks with Jefferies. Scott Marks: Good morning, Scott. Dan Fachner: Good morning. Scott Marks: Hey. Good morning, guys. Thanks so much for taking the questions. Wanted to ask first about this efficiency initiative. You mentioned Project Apollo, and then you mentioned kind of a second phase where you're looking at some more automation and efficiencies within the existing or remaining facilities. Just wondering if you can share some more color on that and how we should be thinking about the timeline for that, maybe expected benefits. Thanks. Shawn Munsell: Yeah. Sure. So the way I think about that is probably gonna be later '26, but, you know, more likely 2027. And I'd say that that's gonna be a combination of just, you know, automation and process improvement. You know, once we get the consolidation work behind us, you think about it as just making those plants more efficient. You've got some plants that are gonna be taking on, you know, new production. So for 2027, it's, you know, for '26, it's, you know, optimize the network. And then 2027, kind of optimize further within the four walls of each of those plants. Scott Marks: That's helpful. Appreciate that. And then, next question for me. You touched on some challenges in the frozen novelty business within retail. Wondering if you can kind of share any color on what's been happening there and how we should be thinking about the stabilization of some of those. Dan Fachner: Yeah. We touched on that at the end of last quarter. That's just a segment where the consumer probably has hit the hardest. And really saw those, most of that impact in July. The teams have been working really hard at greater marketing and trade spend within that category, and we're starting to see it come back. And we think that will continue to come back over this next year. We're actually feel like we've corrected the things that we needed to correct and I'm really pleased. I met with that retail team this last week, and they're doing a nice job. And I think we'll see that come back over this year. But it is an area where I think, just a consumer sentiment where you'll see the biggest summertime. So if you challenges. So don't forget that, you know, it's frozen novelties. It's this July, it's hard to make those back up in the back half of the quarter. But the teams are working hard at getting the right trade spend as it relates to those. Shawn Munsell: And again, it was in the prepared remarks, but we've got a great pipeline of frozen novelty innovation planned for '26 that's right just around the corner. So we're excited about that. And, you know, going back to your prior question, Scott, I failed to mention that I didn't want to imply that, you know, sort of, like, all the additional automation is gonna be in 27. If you look at the closure of the Colton plant and the consolidation into a nearby plant in California, that was taking what was basically production through manual process and converting it to almost fully automated process at the plant that it's being shifted to. Scott Marks: Got it. Appreciate the follow-up there. I'll pass it on. Thank you. Shawn Munsell: Yep. Thanks. Thank you, Scott. Operator: Press 11 on your touch tone phone. Our next question comes from the line of Todd Brooks with The Benchmark Company. Todd Brooks: Hey. Good morning, Todd. Dan Fachner: Good to talk. Todd Brooks: To you about. Dan Fachner: Few questions kind of feeding off some of the things that we've heard earlier. Todd Brooks: Shawn, can we talk about I think we were talking about the consolidation or the rationalization of some of the bakery products and dinging a revenue algorithm by maybe 100 to 150 basis points? Shawn Munsell: In fiscal twenty six. Can you walk us through, like, where does the algorithm stand now for a baseline level? Does still start in that mid single digit place and we back off to Todd Brooks: Yeah. Yeah. That's right. Yeah. That's exactly right, Todd. Shawn Munsell: Okay. Great. And then the rationalization in Bakery, when like, how does that fall during the year? When should we see kind of the biggest drag from the 100 to 150 basis Todd Brooks: Yes. You'll start seeing it in the second quarter. Shawn Munsell: Okay. Great. Todd Brooks: Secondly, Dan, you've ripped through a list of exciting commercial opportunities for fiscal twenty twenty six. Can you maybe drill down a little bit on the two or three you think are the biggest needle movers and maybe status and timing. Dan Fachner: Yeah. We're really pleased just in total with pipeline that we have going through. Through the system. And have some some really nice opportunities. You know, we have the LTO with a with the churros with a big customer that ran an LTO last year, and it's a perfect fit with this customer that we know is gonna is gonna do well. And we have anticipations that it does so well that maybe it sticks also. So really excited about that particular one. On the frozen beverage side, we're in the midst of rolling out a large c store. In the in the Southwest that has the potential to continue to grow as their you know, that they're striving to be the third largest c store in the country. Also have talked a few times about a test that we have with the QSR in the frozen beverage in the West Coast. Just continues to do really, really well. We're in the third phase of testing now kind of bringing that to an end and having live conversations about how we might roll that out in this year. So really encouraged by the things that we have going on. You know, the last thing I touched on was just that handheld that we were up against with the fire last year in August. And now are just about as we hit the second quarter should have that capacity caught up and see the benefits from that in 2026 as well. Teams are doing a great job. Lot of really good opportunities, and pipeline is as strong as I've seen in a while. Todd Brooks: Okay. Great. Thanks. And the final one for me. Shawn, is there a way to kind of frame up And and I ask about kind of gross margin potential for the business. But obviously, you've identified savings from Apollo one. You've identified a framework for what Apollo two will consist of for maybe a plant efficiency and automation standpoint kind of post Apollo maybe. Can can you talk to what you think the the gross margin potential for the business is? Thanks. Shawn Munsell: Yeah, I'd say that we're still committed improving the gross margin. Getting up above 30% on an annualized basis, toward the mid thirties, let's call it. And you can do the math and see that, you know, that you know, just that the $15 million of plant consolidation savings, you know, all that's gonna roll through your gross margin. Obviously, there's some OpEx savings associated with this leg of Apollo, but, you know, that's that's not gonna get you all the way there. Obviously, but it's gonna help to close the gap. And I would think that we're just gonna keep kind of chunking away at that over the next few years. You know, through, you know, through Project Apollo and, you know, growing the business. The one thing we didn't talk about is the extent to which we can continue to grow the top line as we have historically. And start seeing some leveraging impacts as we, you know, both at the at the plant level and with respect to OpEx. Todd Brooks: Okay. And just a follow-up on that. Thoughts on CapEx in '26 based on the work that you're doing? Shawn Munsell: I would say about in line with fiscal twenty five, but we're working to trim that. Todd Brooks: Okay. Perfect. Thank you both. Shawn Munsell: Yep. Thank you, Todd. Operator: That concludes today's question and answer session. I'd like to turn the call back to Dan Fachner for closing remarks. Dan Fachner: Thank you, operator. In closing, I want to emphasize that while fiscal twenty twenty five presented its challenges, we built significant momentum in early fiscal twenty twenty six through our strategic initiatives and operational improvements. Our innovation pipeline is robust and should drive sustainable growth in key categories while Project Apollo enables meaningful efficiency improvements. With a strong balance sheet, including $106 million in cash and no debt, we're well positioned to invest in growth opportunities, while returning capital to shareholders through share repurchases. Thank you for your continued support, and we look forward to updating you on our progress throughout fiscal twenty twenty six. Thank you very much. Reed Anderson: This concludes today's conference call. Operator: Thank you for participating. You may now disconnect.
Alexandra Schilt: Good morning, and thank you for joining Else Nutrition's 2025 Third Quarter Financial Results and Business Update Conference Call. On the call with us today is Hamutal Yitzhak, Chief Executive Officer of Else Nutrition. The company issued a press release on November 14, containing its 2025 third quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the third quarter ended September 30, 2025. Before we get started, we would like to remind everyone that today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements, except as required by law. Information about these risks and uncertainties are included in the company's filings as well as periodic filings with regulators in Canada and the United States, which you can find on SEDAR and Else Nutrition's website. With that, we will now turn the call over to Hamutal Yitzhak, Chief Executive Officer. Please go ahead, Hamutal. Hamutal Yitzhak: Thank you, Alexandra, and good morning, everyone. The third quarter of 2025 represented a period of stabilization, focus and disciplined execution for Else Nutrition. We entered this quarter determined to build upon operational progress made earlier in the year, and I'm pleased to share that we delivered impressive results while continuing to position the company for sustainable profitable growth. The transformation we delivered is not subtle. It is meaningful, measurable and foundational to the future of this company. Let me begin with what matters most, the strength of our financial turnaround. In Q3, our gross margin surged to 34%, up from negative 9% a year ago and a negative 3.7% last quarter. This level of expansion reflects big structural improvements across manufacturing, supply chain and cost management. At the same time, we reduced operational expenses by 68% year-over-year, bringing them down to $1.15 million from $3.56 million. These reductions came from disciplined decision-making streamlined organizational processes and a firm commitment to focusing on value drivers. Perhaps most importantly, our monthly cash burn fell below $200,000, down from $1.15 million a year ago. That is one of the most significant improvements we've achieved as a company, and it speaks directly to the sustainability of our operations going forward. Revenue for the quarter was $1.66 million compared to $1.79 million in Q3 last year. And while revenue softened due to temporary out-of-stock issues, we saw no indication of weakened demand. In fact, demand for our powder plant-based nutrition portfolio and for our kids ready-to-drink products remain strong across both online and retail channels. These supply constraints were temporary, and we are already addressing them. We expect revenue to resume growth as inventories stabilize. These results give us confidence in our path towards cash flow breakeven between late 2026 and early '27. Behind these metrics is a tremendous amount of operational work. Throughout the quarter, our teams executed this with precision. We simplified the organization, strengthened forecasting and logistics, realigned roles and responsibilities and built more accountability across every part of the business. Else Nutrition is now operating as a leaner, more agile and far more efficient company than it was even 2 quarters ago. As we continue to reduce our manufacturing costs, both in the U.S. and in Europe, we believe that we can sustain our gross margin improvement through 2026 and beyond. As our financial and operational foundation strengthens, we are now in a better position to advance one of our largest long-term value drivers, our plant-based infant formula. The regulatory landscape in the U.S. is evolving in a way that strongly aligns with our mission and technology. The modernization of infant formula standards, including development tied to the financial year 2026 Agriculture Appropriations Bill and recommendations from the National Academies of Sciences, Engineering and Medicine signals a clear recognition of the need for innovation. We are preparing for the next clinical phase required to bring our infant formula to market. This process is rigorous, but we are committed to it. We believe that families deserve cleaner, dairy-free, scientifically sound infant nutrition and we intend to be a leader in shaping that category. At the same time, our strengthened financial position and operational momentum have accelerated interest from several international partners, including major global nutrition and food companies. We are in active discussions regarding commercial distribution, co-manufacturing and R&D collaborations. While these discussions are still early, they speak volumes about the credibility of our brand, the quality of our science and the potential scale of our product portfolio. Overall, Else Nutrition is becoming a stronger, more disciplined and more scalable company. We have stabilized the business, informed our cost structure, broadened our operational capacity and positioned the company for long-term sustainable growth. Looking ahead, our priorities are clear. We will continue expanding margins, driving operational efficiency, supporting clinical and regulatory progress, strengthening our commercial footprint and pursuing strategic partnerships that can accelerate scale globally. At this point, I'd like to address questions that came in from investors. Alexandra, please lead the Q&A session. Alexandra Schilt: Thank you, Hamutal. Our first question is, can you elaborate on your regulatory outlook heading into 2026? Hamutal Yitzhak: Sure. We remain encouraged by both legislative and scientific development. The U.S. market is moving towards modernized standards that better accommodate innovation and Else is well positioned to benefit. Our goal is to initiate the next phase of clinical trials in the near term, paving the way for plant-based and formula category. Alexandra Schilt: Thank you, Hamutal. Our next question is, how are you approaching partnerships and/or collaborations? Hamutal Yitzhak: Well, we continue to explore strategic partnerships that could expand global distribution, accelerate R&D and strengthen our operational footprint. These opportunities represent a validation of our IP and market positioning. Alexandra Schilt: Our next question is, can you explain the rationale and impact of Else Nutrition's recent 10-for-1 share consolidation? Hamutal Yitzhak: Of course, effective November 6, 2025, we implemented a 10-for-1 share consolidation to simplify our capital structure and support the continued viability of the company. All shareholder ownership remains fully proportionate, every 10 pre-consolidation shares now equal 1 post-consolidation share with no change to the total value of individual holdings. All outstanding options and warrants have been adjusted accordingly. This decision was not made lightly. After implementing extensive cost-saving measures and working to preserve the business, the consolidation became an essential part of our broader restructuring efforts. We appreciate investors' concern and remain committed to the company's long-term stability and strategy. Alexandra Schilt: Thank you, Hamutal. That does conclude the Q&A session. At this point, I'll turn it back over to you for closing remarks. Hamutal Yitzhak: Thank you, Alexandra. In closing, I want to thank our employees for their dedication and agility, our investors for their continued confidence and our consumers for believing in the Else's mission. We are building something meaningful, a new standard for clean, plant-based nutrition, and I am more confident than ever that Else Nutrition is on the right path to long-term success. We are excited about the road ahead, and we look forward to sharing further progress in the coming quarters. Thank you for joining us today and for your continued support. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Ms. Kristal Li, Investor Relations Manager of Niu Technologies. Ms. Li, please go ahead. Kristal Li: Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the third quarter 2025. The earnings press release, corporate presentation and financial spreadsheets have been posted on our Investor Relations website. This call is being webcast from company's IR site as well, and a replay of the call will be available soon. Please note, today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in company's public filings with the Securities and Exchange Commission. The company does not assume any obligation and update any forward-looking statements, except as required by law. Our earnings press release and this call included discussion of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li; and CFO, Ms. Wenjuan Zhou. Now let me turn the call over to CEO, Yan. Yan Li: Thank you, Kristal. Hello, everyone. Thank you for joining us today. In Q3, we delivered solid and sustained progress across all key strategic priorities, supported by disciplined execution in product innovation, channel expansion and brand elevation. Our results reflect the continued growth of our core China business and early signs of transition in our overseas operations, laying a strong foundation for the next phase of growth. For the third quarter of 2025, the total sales volume reached 465,000 units, representing a strong 49.1% year-over-year increase. This growth was driven primarily by exceptional performance in China, where sales rose to 451,000 units, up 74% year-over-year, supported by our strengthened product portfolio and effective channel expansion. Overseas volume reached 14,000 units, declining year-over-year, mainly due to weakness in the micromobility sector. Our total revenue grew 65% year-over-year to RMB 1.69 billion, accompanied by gross margin expansion to 21.8%, up 8.0 percentage points from the prior year or 1.7 percentage points sequentially. This improvement was driven by a favorable shift in the China product mix with increased contribution from higher-value models. Notably, sales of models priced above RMB 8,000 accounted for over 10% of China sales. Net profit for the quarter was RMB 81.69 million, extending the profitability momentum established in Q2. This improvement reflects daily efficiencies from higher volume and our continued focus on operational excellence. Those results underscore our ability to execute with discipline and resilience amid evolving market dynamics. We remain confident in our long-term strategy and the progress achieved this quarter provides a strong foundation for sustainable growth. China remained our primary growth engine in Q3 with unit sales rising 74% year-over-year to 451,000 units. A key driver was the channel inventory buildup ahead of implementation of the new national standard for electric bicycles, which provided a substantial short-term boost. This performance was also supported by successful product launches, strong brand-driven demand and steady channel expansion. The momentum built through 2024 and into 2025 reflects our refined strategy, enhanced competitiveness and growing consumer preference for Niu. In Q3, the China electric bicycle market entered a critical transition phase under the new national standard. While production of noncompliant models ceased after August 31, retail sales of existing inventories are permitted until November 30, 2025. This prompted distributors and retailers to build inventories in July and August, effectively pulling forward demand from October and November and created a temporary sales boost in Q3. Now to prepare for this regulatory shift, we emphasized on 3 actions: upgrading the existing high-end electric bicycle models to capture the short-term demand, rolling out the new electric motorcycles unaffected by this regulation to target lower-tier cities and redesigning and retuning our entire electric bicycle lineup to fully comply with the new standard for the rollout in Q4 2025 and Q1 2026. First, to capture is premium electric bicycle demand surge under the old standard, we launched the upgraded flagship models, the NXT Ultra 2025 and FXT Ultra 2025 version, each priced at RMB 11,999. The NXT Ultra 2025 introduced 10 major upgrades with 77% of core components redesigned to elevate the benchmark standards across safety, power intelligence. The FXT Ultra 2025 featured a futuristic performance-driven design on the same technology platform as the NXT Ultra equipped with automotive-graded millimeter-wave radar and dual-channel ABS setting a new safety benchmark for the segment. Together, those Ultra models contribute 8% of total Q3 sales, effectively serving high-end demand during this regulatory transition. Electric motorcycles are more prevalent in the lower-tier cities, Tier 3 and below due to a more relaxed regulations. This segment has historically been underserved in our portfolio and the channel footprint, making it a key growth priority for us. As highlighted in the previous earnings calls, expanding presence in lower-tier cities is a core strategy reflected in our store expansion and strengthened product line. In Q2, we completed a full N-Series motorcycle portfolio covering mainstream price points from entry-level NS at RMB 3,000 above and NL at RMB 4,000 and NXL at RMB 6,000 to the performance oriented NX just under RMB 10,000. Starting Q3, we extended the strategy to the F-Series, broadened the price band and enhanced the performance to value offerings. Now despite Q3 being a channel stocking period focused on electric bicycles, our enhanced motorcycle portfolio supported a healthy 14% revenue contribution from motorcycle sales. We expect this share to increase in the coming quarters. A key milestone in Q3 was the successful launch of FX Windstorm version on September 28. Known for its sharp distinctive styling that resonates strongly with Gen Z riders, the FX Windstorm reinforced F-Series' positioning as a performance powerhouse. Priced at RMB 4,799, it targets the RMB 4,000 segments at its first high-speed motorcycle for the young riders, equipped with 3,000 mass motor reinforced frame and a full-size TFT display and 4% disc brakes. It delivered performance comparable to model price above RMB 10,000, including mile 80-kilometer power top speed and 0 to 50 kilometer power in 4.7 seconds. The FX Windstorm was instant success with 14,000 units sold in the first 5 hours and generated RMB 68 million in GMV and ranked #1 on Douyin, Tmall, JD.com and Kuaishou in GMV and popularity. This success validates our strategic expansion into the electric motorcycles and create strong momentum for upcoming launches such as FS targeting the entry-level users. Now alongside the high-end electric bicycle motorcycles, we dedicated significant R&D resources to the new standard compliant electric bicycles. The updated regulation requires substantial redesigns from the limit usage of plastics to form factors. We now plan a full rollout of compliant products beginning in late November and extending through Q1 2026. The portfolio will include the renewed and new series offerings and also introduce new series designed to reach product consumer segments, including products optimized for female riders. Beyond the new product development, we continue to invest in core technologies, including the smart riding system, powertrain innovation and R&D platformization to enhance efficiency and capabilities. Our smart riding under AI efforts focus on 3 areas: expanding the foundational safety technologies such as ABS and millimeter-wave radar, developing assisted riding features for premium models such as the 2-way throttle and [indiscernible] Assist and building intelligent ecosystem to broader third-party integrations. Through partnership with Apple and Oracle with other industry leaders, we expand the cross-device connectivity, including the off-bike safety alert and Apple Wallet T access, enhancing overall user experience. In the powertrain system, we advanced several next-generation initiatives through a deeper motor controller R&D and the close collaboration with our battery partners. Our efforts focus on 2 key objectives: delivering higher peak current output for stronger acceleration and a fine-tune overall system efficiency to extend lower riding range under the diverse conditions. The NXT FX Ultra and FX Windstorm are the strong example of this R&D achievement. The enhanced powertrain architecture enables 0 to 25 kilometer power acceleration in just 1.92 seconds, setting a new benchmark for urban performance. For the FX Windstorm, the upgraded 3 kilowatts high-efficiency motor and optimized controller delivered top speed of 80 kilometer per hour while maintaining stable power delivery, improved thermal performance and consistent power output even during the extended high-speed riding. Those advancements not only elevate writings performance, but also form a foundation for the new generation of new powertrain platform that will scale across future product lines. Now lastly, our product-based R&D strategy continues to deliver a meaningful operational benefit. In Q3, it accelerated product iteration, strengthened manufacturing consistency and increased economy of scale. The improvement supported smooth delivery of 450,000 units, surpassing our previous peak by roughly about 20%, while enhancing margins through shared components and module design cross product lines. Now in Q3, we continued elevating the new brand and deepen engagement with our core audiences, particularly in premium consumers and Gen Z riders, our approach integrated lifestyle campaign, product launches and target digital engagement to strengthen brand equity and drive conversion. We acted on a series of youth-focused lifestyle campaigns, the Summer Ride and Splash campaign embedded new into the outdoor leisure experience such as lake diving and quick hiking across major cities generated 130 million impressions across online and offline channels. Following the FX Windstorm launch, we hosted large-scale test ride events in Chengdu and Chongqing engaged riders in real mountain environment. This created authentic word of mouth within the key user segment to provide valuable feedback. Our launch event continued to highlight news technology leadership. The June 17, Du Ultra flagship launch generated about 20,000 units sold in 5 hours with GMV exceeding RMB 228 million. The FX Windstorm launch delivered 14,000 units sold in 5 hours and 93% positive ratings, resonating strong with the Gen Z and delivery riders. Now strength in both offline and online channels as of Q3 Niu surpassed 4,500 stores nationwide with 238 net new stores added in Q3 and 800 year-to-date. Nearly half of new stores were in the lower-tier cities, supporting deeper market penetration. Our digital ecosystem also scaled rapidly. Niu now managed 9 official flagship accounts supported by 1,062 dealers operated accounts. In Q3, the network generated 30,000-plus live streams, 69,000 content pieces and [indiscernible] million impressions. The online sales representing close to 70% of our total work. We also expanded on to a new e-commerce platform Meituan, piloted with 10% stores generating RMB 40 million to RMB 50 million in monthly sales. We plan to expand store coverage and motorcycles next. On Kuaishou local services, over 2,200 stores have joined and FX Windstorm ABS launched ranked #2 nationally, reinforce our brand resonance among Gen Z riders in the lower-tier market. Now turning to our overseas market. Q3 unfolded as expected transitional quarter as we continue to optimize operation and preparing for our next growth cycle. The overseas sales volume reached 14,000 units with decline in micromobility, offset by encouraging progress in electric motorcycle. Despite Q3 being a seasonal low for European 2-wheeler demand, our electric motorcycle sales reached approximately 2,500 units, up 160% year-over-year. The self-operated sales accounted for 76% of total. We further accelerate our self-operated dealer network expansion. Dealers in those direct distributor regions grow from 120 at the start of the year to 289 in Q3, exceeding our initial target of 250. This reflects the strong brand recognition, product competitiveness and the growing retailer confidence in direct distribution model. With channel foundations now established, we will shift from capability building towards product rollout and deeper channel market penetration. The product lineup unveiled at EICMA position us strongly for multiyear growth. At EICMA, the largest 2-wheeler show in Milan, we showcased our international product road map, expanding from smart e-scooters to broader electric mobility portfolios. Highlights included 2026 NQi X-series with Google Map integration, featuring 125-kilometer per hour NQiX 1000 launching Q3 2026, the all-new FQiX Series for working commuters in L1e and L3e version for Q3 2026, the expanded XQi Series, including the 110-kilometer per hour XQi 500 Street version for second half of 2026. And lastly, the Concept 06, forward-looking 155-kilometer per hour platform featuring AI assisted intelligence, advanced safety. The new NQi 500 was awarded Top Award 2025 by German leading motorcycle media outlet 1000 PS, a strong validation of our product excellence. Our micromobility volume reached to 11,900 units, down 77% year-over-year, reflecting market headwinds in the U.S., Europe and Asia. Europe saw intensified price competition, while the U.S. shifted towards a lower price model due to tariff dynamics. In Q3, we intentionally reduced promotion and shipment to avoid overstocking and protect margin during a period of pricing pressure and supply chain transition. Given the current inventory levels in Europe and the U.S., we expect the structural adjustment to continue for the next couple of quarters. Now look ahead, we'll continue executing our strategy of driving fast growth in the China market and scaling our international electric 2-wheeler business while strategically adjusting the micromobility operation. We expect China to remain our primary growth driver of strong execution across the first 3 quarters. We break out product each quarter, demonstrating our capability in product definition, channel activation and brand influence. However, we expect some uncertainty and softening in Q4 this year due to the timing of the new standard implementation. The retailers are preloading inventory in Q3, shifting some demand from Q4. And a new standard compliant product will ramp up from late November through Q1 2026, shifting part of the Q4 demand into Q1 2026. Combined, those factors will likely result in a relative flat year-over-year volume in Q4. We expect growth to reaccelerate in Q1 2026 as the regulatory transition completed and the market stabilized. The fourth new standard electric bicycle lineup, along with 300 to 400 new stores additions in Q4 will support a strong momentum into 2026. Now turning into the overseas market. For electric 2-wheelers, we expect strong year-over-year growth in Q4, supported by ongoing expansion of direct distribution network. The new product introduced at EICMA will fuel the multiyear growth starting in 2026. In micromobility, we will continue prioritizing profitability or skills in Q4, reducing promotions that focus on clearing existing inventories. This will lead to a lower Q4 volume. We expect the adjustment to conclude in first half of 2026 with margin return to the normal level second half of 2026. Now with that, let me turn the call to Fion. Wenjuan Zhou: Thank you, Yan, and hello, everyone. Please note that our press release contains all the figures and comparisons you need, and we have also uploaded cell format figures to our IR website for your easy reference. As I review our financial results, I'm referring to the third quarter figures unless I say otherwise. And all mandatory figures are in RMB if not specified. As Yan just mentioned, our total sales volume for the third quarter was 466,000 units, up 49% compared to the same period of last year. Among this, 451,000 units sold in China and the remaining 14,000 units overseas. Nearly 50% of our sales volume in China came from our top 3 models this quarter and the number of franchise stores in China was 4,542 at the end of third quarter. Total revenue for the third quarter amounted to RMB 1.69 billion, an increase of RMB 670 million or 65% compared to the same period of last year, and the result came in slightly ahead of our guidance, primarily due to the robust sales volume growth in China during the peak season in third quarter. China revenues were RMB 1.62 billion, increased at 84% year-over-year and accounting for 95% of total revenues. Of this, the scooter revenue were RMB 1.48 billion, and this growth was primarily driven by a 74% increase in sales volume and coupled with a higher ASP. China scooter ASP was RMB 3,283, representing a nearly 7% year-over-year growth and remaining largely stable compared to the previous quarter. And this growth was primarily driven by a favorable shift in our product mix. In Q3, our top seller NT with a retail price range from RMB 3,699 to RMB 4,599 continue to perform well. In the meantime, complemented by a strong contribution from the new products like the [NLT] and NXT range from RMB 3,899 to RMB 6,299. Collectively, these 3 top sellers accounted for nearly 50% of our total sales volume this quarter. Overseas revenue was RMB 77 million, representing 5% of total revenue. Scooter revenues, including electric motorcycles and mopeds, kick scooters and e-bikes amounted to RMB 67 million, down from RMB 130 million in the same period of last year, and this decline was driven by decreases in sales volume and ASP of kick scooters. Overseas scooter ASP increased 90% year-over-year and 41% quarter-over-quarter to RMB 4,648 and driven by a greater proportion of revenue coming from the higher-priced electronic motorcycles and mopads. Revenue from accessories, spare parts and services were RMB 145 million, representing 8.6% of total revenue and a 51% increase compared to the same period of last year due to the increase in spare parts sales in China. Gross margin this quarter -- gross profit this quarter exceeded RMB 370 million, marking a significant improvement compared to RMB 142 million during the same period of last year and RMB 252 million last quarter. The gross margin was 21.8%, 8 ppt higher than the same period of last year and 1.7 ppt higher than the previous quarter, marking our best quarterly gross margin performance this year. And this improvement was driven by the ongoing cost reduction initiatives and the economy of scale from higher sales volume in China market. Operating expenses for the third quarter were RMB 297 million, increase of 48% compared to the same period of last year and the OpEx ratio down to 17.5% dropped from 19.6% in the same period of last year and 21.1% in the previous quarter. Selling and marketing expenses rose by RMB 87 million year-over-year to RMB 215 million, primarily driven by higher spending on marketing and online promotion campaigns in China. Selling and marketing expenses representing 12.7% of revenue compared to 12.5% in the same period of last year and down from 16.1% last quarter. R&D expenses increased by RMB 13 million year-over-year to RMB 43 million, primarily due to the higher staff costs and share-based compensation. R&D expenses representing 2.6% of revenue compared to 3% in the same period of last year and down from 3.5% last quarter. G&A expenses decreased by RMB 4 million year-over-year to RMB 39 million, mainly due to the improved cash collection from account receivable, which resulted in the reversal of bad debt provisions and G&A expenses representing 2.3% of revenue, down significantly from 4.2% in the same period of last year, while up from 1.5% last quarter as the company benefited largely from foreign currency exchange gains in the previous quarter. The net income was RMB 82 million with a net margin of 4.8% on the GAAP accounting compared to a net loss of RMB 41 million for the same period of last year and net income of RMB 5.9 million for last quarter. The non-GAAP net income was RMB 88 million. And turning to our balance sheet and cash flow. We ended the quarter with RMB 1.8 billion versus RMB 1.1 billion last year-end in cash, restricted cash, term deposits and short-term investments. And our operating cash inflow amounted to RMB 433 million. The CapEx amounted to RMB 73 million, reflecting an increase of RMB 32 million compared to the same period of last year. And this can be attributed primarily to an increase in the opening of new stores and modules cost in China. And now let's turn to guidance. We expect the fourth quarter revenue to be in the range of RMB 737 million to RMB 901 million, representing a year-over-year change of minus 10% to plus 10%. And please be aware that this outlook is based on the information available as of the date and reflects the company's current and preliminary expectations, which is subject to change due to uncertainties relating to various factors. And with that, we'll now open the call for any questions that you may have for us. Operator, please go ahead. Operator: [Operator Instructions] Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks. Yan Li: Thank you, operator, and thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Operator: Good day and welcome to the VerifyMe Third Quarter 2025 Financial Results Conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jennifer Cola, CFO. Please go ahead. Jennifer Cola: Good morning, everyone, and thank you for joining us today for our Third Quarter 2025 Earnings Call Presentation. On the call today, I'm joined by Adam Stedham, CEO and President, who will give an operations and strategic update, and I will provide a financial update. Following our management presentation, we will have a Q&A session. I'd like you to bring your attention to the note on forward-looking statements on Slide 3. Today's presentation and the answers to questions include forward-looking statements. It should be understood that actual results could materially differ from those projected due to a number of factors, including those described under the forward-looking statements and risk factors captions in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I will now turn the call over to Adam Stedham to discuss the company strategy. Adam Stedham: Thank you, Jen. I'm pleased with the success of our operating model combined with our sales and marketing plans in the third quarter. I do realize the third quarter revenue was down due to previously announced contract losses and changes associated with the transition from our previous Proactive shipping partner. That statement is a common theme in our last several earnings calls, and I think it's good for us to review the past year to put our enthusiasm about the future into context. During Q1 of 2025, the company's revenue was down versus the previous year, and our gross margin was 33%. The revenue and gross margin were significantly impacted by the insourcing decision of our previous exclusive shipping partner. During the second quarter of 2025, PeriShip revenue decreased approximately 14% versus the second quarter the previous year, and the major contributing factor was the previously announced customer losses from 2024. However, the gross margin had improved to 35% in the second quarter versus 33% in the first quarter. During the third quarter of the year, revenue was down only approximately 7% from the prior year because of our sales and marketing efforts. Although these efforts were successful, they have only partially offset the previously announced contract changes and changes by our previous shipping partner. Our gross margin continues to improve, our operating costs continue to reduce, and our adjusted EBITDA has improved. We are in the midst of a transition to our new Proactive shipping partner. We anticipate this will have a material impact on Q4 2025 and Q1 2026 revenues, and at this point, we're not in a position to provide guidance for 2026, but we do expect to provide that guidance during our next earnings call. We believe our new shipping partner relationship positions the company in a far better position long term, but we need a bit more time to define the opportunity and provide appropriate guidance. I look forward to calls in which we can report that our efforts are providing quarterly growth rather than only offsetting the impact of changes related to our shipping partner. As for our balance sheet, we continue to have plenty of cash to fund our organic and strategic growth strategies. We've received our first quarterly interest payment from our short-term note with Zen Credit in November and continue to believe this deployment of capital is very positive for shareholders. At this point, I'll turn the call over to Jen, our CFO, for more specific financial details of the third quarter. Jennifer Cola: Thank you, Adam. Our third quarter revenue was $5.0 million versus the prior year of $5.4 million, a decrease of $0.4 million. This decrease was primarily due to $0.8 million of previously disclosed discontinued services with two Proactive customers, partially offset by increased revenues from new and existing customers within our Precision Logistics segment. Gross profit increased by $0.2 million to $2.1 million in Q3 2025 compared to $1.9 million in Q3 2024. As a percentage of revenue, gross margin increased to 41% in Q3 2025 from 35% in Q3 2024. This increase was primarily attributable to improvements in negotiated rates with a primary supplier during Q2 2025, which was reflected during the full third quarter of 2025. This is our third consecutive quarter of improved gross profit. While we expect Q4 2025 and Q1 2026 revenue to decrease compared to prior year as a result of transitioning our Proactive services to a new shipping supplier, we expect our gross margin as a percentage of revenue to remain consistent with our current performance. As previously disclosed, in September 2025, we were notified by our primary Proactive shipping supplier that it would no longer provide shipping services in support of our Proactive services. As a result, we accelerated our efforts to implement services with an additional supplier, and we completed an analysis of the goodwill and intangible assets associated with our PeriShip business. Based on our analysis, we determined an impairment had occurred and recognized a one-time non-cash impairment expense of $3.9 million during Q3 2025. This compares to a one-time non-cash impairment expense of $1.9 million related to our Authentication business in Q3 2024. This $3.9 million impairment charge includes a reduction in carrying value of certain goodwill and intangible assets in our PeriShip business, as well as the accelerated amortization of certain supplier-specific technology development projects that will no longer be utilized. Excluding this impairment, our operating expenses were $1.7 million in Q3 2025 compared to $2.5 million in Q3 2024. This decrease in operating expense is primarily related to the divestiture of our Trust Codes business during December 2024 and cost-cutting measures in our Precision Logistics segment. Our net loss for the quarter, including the $3.9 million one-time non-cash impairment expense, was $3.4 million, or a net loss of $0.26 per diluted share in Q3 2025, compared to a net loss of $2.9 million, or $0.23 per diluted share in Q3 2024. Excluding impairment, our operating income for the quarter was $0.5 million in Q3 2025 compared to an operating loss of $0.2 million in Q3 2024. Our adjusted EBITDA improved to $0.8 million in Q3 2025 compared to $0.2 million in Q3 2024 as a result of our continued efforts to improve gross margins, reduce operating expenses, and develop operational efficiencies. On the last slide is our balance sheet as of September 30, 2025. Our cash balance as of September 30, 2025, was $4.0 million. On August 8, we entered into a $2.0 million short-term promissory note in exchange for regular interest payments at an improved interest rate. We received our first quarterly interest payment in November. Also, as previously described, we recognized an impairment of goodwill and intangible assets of $3.9 million. During Q3 2025, we generated $0.2 million of cash from operations compared to $0 in Q3 2024. We expect to use a portion of our available cash to fund our operations in Q4 2025 as we continue to transition customers from our previous Proactive shipping provider to our new Proactive shipping provider, but we expect to remain cash flow positive for the full year of 2025. We also continue to have $1 million available under our line of credit, and we have no borrowings outstanding. With that, I'd like to turn the call back over to Adam. Adam Stedham: Thank you, Jen. So we've covered several items during the call, and I'd like to summarize our situation prior to opening the call for questions and answers. The company has a strong balance sheet with no bank debt. We have deployed some of our capital to improve the rate of return, and we feel confident we have the ability to pursue both an organic and strategic growth strategy. We're in the middle of a transition from our previous Proactive shipping partner to our new Proactive shipping partner. We believe the new relationship provides a substantially better platform for sustained organic growth over the long term. We anticipate experiencing a transitional revenue impact associated with the effort and the timing of customer transitions, but the company continues to believe we will be cash flow positive in both 2025 and 2026. At this point, we'll open the call up for questions and answers. Operator: [Operator Instructions] Our first question comes from Michael with Barrington Research. Please go ahead. Michael Petusky: I was wondering if you guys would be willing to sort of size up the Proactive business that sort of came to completion at the end of September. I mean, how much did that contribute to the third quarter revenue, if you wouldn't mind? Adam Stedham: I'm not sure I completely understand what you're asking, but are you saying what was the.... Michael Petusky: What was the revenue contribution? Yes, what was the revenue contribution of the Proactive business that's no longer, going forward, no longer going to be part of the mix? Adam Stedham: No, so we don't have that in a way that we can present it for guidance. The reason is, this isn't a cliff type of conversation. It's a sliding scale. If I said what percentage of the customers have signed up one day or today, that wouldn't be a proper assessment of how many had signed up on November 1 versus how many will have signed up on October 1 or December 1. We continue to transition customers on an ongoing basis. I will say that we had approximately 7-10 days of shipping time in the third quarter that were negatively impacted by the transition. If you go back and look at the date of our discontinuing of our previous shipping partner relationship, that happened towards the end of the third quarter of the -- third month of the quarter, around September 24. Michael Petusky: Okay. So Adam, I just want to make sure I'm, I guess, processing this correctly. Are you essentially saying, "Hey, we expect to transition all the customers that were associated with the business that came to an end at the end of September or towards the end of September onto the new shipping partner?" Adam Stedham: No, we can't say that we expected to transition all of our customers. Some of our customers will never transition over to the new partner, and we have other customers that the new partner has brought that are going to come through that. There is going to be some offset. The challenge we face right now is a timing conversation. The peak season -- if you look at the overall shipping industry, the overall shipping industry is capacity-constrained during the peak season, Christmas shipping season. There are a percentage of customers that we have who are concerned about shipping or changing right before the peak season. We're doing everything we can to help them transition, to get over those concerns. Many of them have gotten over those concerns. Some are still having and have ongoing conversations. Others are saying, "We want to stay with you and we'll switch, but we're going to do it after the Christmas shipping season." Right now, it's a very dynamic situation, and we're in the midst of all those changes, so it's very difficult for us to predict what will happen in Q4 and Q1. We do believe that the loyalty we have with our customer base has been very positive. The feelings of our ability to transition everyone over or transition a meaningful percentage over and then have other customers come on board from the assistance of our new shipping partner, we feel very good about that. Over nine months, over the next three to six months, it's really a dynamic situation, and we're not in a position to give guidance on that. Michael Petusky: Adam, just from a modeling perspective for your investors, for analysts, I mean, would you guys be willing to share what the revenue contribution last year's Q4 from the FedEx business that left on September 24, what that revenue contribution was in last year's Q4? I really think, honestly, for investors, for analysts, I think that's an important piece. Adam Stedham: All of our Proactive customers went through FedEx last year. None of our Proactive customers are going through FedEx this year. They are transitioning to our new shipping partner. Are you saying exactly what percentage of customers are currently shipping with us now that were not shipping with us in Q4 last year? That is not a number that we have or we are prepared to give. Keep in mind, we have added customers since Q4 of last year, so there has been a turnover. It is not really a comparison that we can do. Michael Petusky: Right. No, no. Adam, I understand that. All I'm interested in, and I suspect more people than just me are interested in this, is the revenue contribution from that business in Q4 of last year. I mean, is that a figure you guys can share or no? Adam Stedham: Are you asking what percentage of our Q4 revenue last year was Proactive? Michael Petusky: Yes, connected to the business that ended on September 24, yes. Adam Stedham: Keep in mind, let's revisit what Proactive is. We have a shipping partner relationship with a major shipping partner. We have contracts with all of those companies ourselves. They do not end through that ship; they do not flow through that shipping partner. The premium flows through that shipping partner. That's not impacted by what we're doing. The Proactive, all of these customers that we have our contracts with ourselves, who historically are used to processes and systems to where their packages ship with our previous partner, now have the opportunity to shift and ship with our current partner. It's not as if our shipping partner canceled these contracts. The contracts were with the companies. The question is, are they willing to move their shipping over to our new partner? The percentage of that is not something we can accurately predict for Q4. That is why we're saying we can model more effectively during our next earnings call, but we can't accurately predict it for this quarter. It's a dynamic situation right now. That is where we're at. Michael Petusky: In terms of the cash on the balance sheet and the fact that you guys are generating some positive cash flow, I mean, where are you in the process in terms of potential M&A? Are there assets where there are actually discussions happening, or is that more likely to happen after sort of you get a little farther down the road with the new shipping partner and get farther into the next year? Adam Stedham: No, no. The timing of any of these things is very difficult, if not impossible, to predict. There have been significant ongoing conversations. I mean, you'll see some elevated legal costs. You'll see some elevated costs in the business that reflect meaningful ongoing conversations related to those types of activities. Michael Petusky: Are there any hurdles for those assets that you're considering in terms of cash flows or profitability, or is every case a little different? Or are there certain things that you will not sort of bend on in terms of what you're looking for in a potential acquisition? Adam Stedham: If it was a bolt-on acquisition, it has to be virtually immediately accretive due to synergies. Otherwise, I wouldn't do it. If it's a transformative acquisition, which I think would be desirable given the subscale nature of the company, something more transformative would be desirable to help address our subscale size. Then it's more difficult to model that out. It really ties to what's the overall value of the transformation as a whole. Michael Petusky: Okay, great. Last one real quick for Jen, and I'll let other people ask questions. In terms of that OPEX improvement, which to me seems great, how much of that, approximately $800,000, was associated with Trust Codes, and how much it was just sort of pure you guys doing a better job in terms of your managing the OPEX? Jennifer Cola: Sorry, just pulling up my file here. So we had about $500,000 of operating expense associated with Trust Codes in Q3 of 2024. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Adam Stedham, CEO, for any closing remarks. Adam Stedham: Thank you. I appreciate everybody joining the call today. Once again, we are in a transition. It's just been a really positive experience working with our new shipping partner. The commitment that our partner has to the small- and medium-sized customer and to the customer that requires a cold chain strategy is very deep and very strong. We are very pleased that we fit into that committed strategy they have. We think that positions us very well long-term. We are in the midst of a transition from our previous Proactive shipping partner. That relationship was a couple of decades old. Those transitions always have a couple of bumps, and we're working through those diligently. We do feel that our sales and operating model has consistently, quarter over quarter, been able to provide new customers, organic growth in terms of new customers, frequently or typically offset by reductions due to changes that were outside of our control. They have continued to, quarter over quarter, provide additional gross margin percentage and reduced operating costs and improved efficiencies. We feel that the underlying business is moving in the right direction, and our partnership relationship has substantially moved in the right direction. We look forward to our next call when we'll update everyone on the transition and where we are and give specific guidance for 2026. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Bianca Fersini Mastelloni: Okay. Good afternoon or good morning to everyone, and welcome to El.En.'s Third Q 2025 Financial Results Conference Call. Today's call will be recorded, and there will be an opportunity for questions at the end of the call. With me on the call, Andrea Cangioli, El.En.'s CEO; and Enrico Romagnoli, El.En.'s Chief Financial Officer and Investor Relations Manager. Before we begin, please note that there are management remarks during the conference call regarding future expectations, plans, prospects and forward-looking statements. Certain statements in this call, including those addressing to the company beliefs, plans, objectives, estimates or expectations of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including general economic and business condition in the industry in assumptions of -- in which we operate. These statements may be affected if our assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update the content or the forward-looking statements to reflect events or circumstances that may arise after the date hereof. At the end of the presentation, if you need to ask a question, please book your question on the chat of Bianca Fersini Mastelloni raise your virtual hand you will have the floor in order of request. But at this time, I want to give the floor to Andrea Cangioli. Please go, Andrea. Andrea Cangioli: Thank you very much, Bianca, for your introduction and for hosting us. And thank you to everybody for being with us in this call following the release of our financial report as of September 30, 2025. Enrico Romagnoli will be on this call with me, and I thank him for taking care of the details of our financial reporting that he will be sharing with you in a very short time. Our third quarter came out really strong, especially under the profitability profile, confirming the trend of this 2025, a brilliant performance in the medical sector and a softer one in the industrial business. The reported numbers say on the 9 months revenues were up 4.6% in medical and just shy of 2% in Industrial. And that consolidated EBIT was down 3.2% on the 9 months, but up 3.8% in the quarter, marking the EBIT recovery that hints and supports our guidance for this year-end. If we look a little deeper inside these numbers, we have grounds to be extremely pleased with the performance in the medical sector, also on the revenue line. In fact, this 2025 -- in this 2025, we're facing the inorganic effect of the exit of consolidation from March 1 of the Japanese subsidiary with us. Net of such effect, growth in medical would have been equal to 7.1% on the 9 months. Moreover, we're also facing the moving away of the historic and very significant customer Cynosure as our OEM contract for the supply of high-power alexandrite laser systems for hair removal is only formally in place after Cynosure merged with a South Korean company, Lutronic, that is now providing and that is going to provide to Cynosure such technology for their distribution net. By removing the negative effect of this circumstance and cumulatively with the removal of the without effect, sales growth would have exceeded 10% on the 9 months. This on the revenue side. The other pleasing news of this period is that the revenue increase is achieved with the increase of revenues in higher margins bearing sales segments and products with an overall beneficial effect to consolidated gross margins and overall profitability. Growth in system sales was mainly generated by systems for anti-aging treatments in which the innovative content of both the technology and the application is bearing higher margin on sales for us compared to the main and slowly declining revenue stream of the hair removal devices. I'm talking at first place of the Onda product. The revisiting of our flagship body contouring device, Onda based on the microwaves technology, a revisiting that expanded the intended use of the device to anti-aging face treatments. Based on this, Onda Pro is experiencing a second use with respect to the original launch of Onda with amazing acceptance also in the most advanced markets for innovation in the aesthetic application, namely the Far East markets like the Korean market, which are extremely developed and sophisticated in selecting the most innovative and effective devices. But as our group does not rely on the peak performance of single product devices, Onda Pro was not alone in driving revenues toward the anti-aging demand. I'll give you just a couple more examples of other successful products and related procedures. Nano and picosecond devices like the Discovery Pico by Quanta System and the TORO by DEKA are innovation leaders in the pigmented lesion, skin toning area that is traditionally prominent for treating the signs of aging facial skins. CO2 microablative procedure cool peel performed by DEKA's Tetra PRO is now the golden standard for facial rejuvenation and is encountering increasing worldwide success starting from the U.S. market. Another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones. [Foreign Language] so another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones and BPH, the benign hyperplasia of the prostate, a business that within the group is mainly pursued by the market leader, Quanta System, but also by Elexxion Surgical, the brand managed by our German sub, Asclepion. Revenue for laser systems in urology was up roughly 7.5% in the 9 months. The side business of consumable sterile optical fiber was also growing smoothly along with the increasing installed base and it now accounts for more than half of our post-sales revenues of the medical business. which means roughly EUR 10 million per quarter or 10% of the overall revenues of our medical business. Moreover, this piece of revenues is bearing gross margins that are in the upper segment of our products margin mix. And since operation expense in terms of sales and marketing and labor is less intensive than for system sales, the accretive impact on EBIT and EBIT margins is also significant as testified by the profitability of Quanta System that is the main factor in this business for us. In terms of expenses involved in this business, there is CapEx going on and coming up in Quanta System as Quanta System is starting the construction of a new larger semi-robotized clean room at Samarate facility dedicated to the production of sterile optical fibers to increase its production capacity for its medical devices. EBIT margin for the industrial division, I am providing you an -- excuse me, for the medical division, I'm providing you an unaudited figure is improving in 2024, 2025 on 2024 and was roughly 16.9% on the 9 months and around 19% in the third quarter. We were not able to achieve similar results for our industrial business. The only activity bearing margin similar to the medical business is the identification marking activity led by Lasit, which continues to perform well both in revenues and in profitability. The other businesses within our industrial world have not performed according to expectation, the expectation we had in our yearly planning, missing the revenue targets and therefore, lacking also in terms of profit generation. The most dimensionally significant business is the cutting business, which despite expectation and decent order bookings has been slowing down both in revenues and in profits in each quarter this year. Since order bookings came quite late in the year and delivery lead times for our sophisticated and often custom design systems are not easily compressible, as of September 30, we incurred in a major sales cutoff, meaning the inability to recognize revenues for several systems that had been physically delivered to customers but had not cleared the final testing procedure within the end of the month. To give you an idea of this adjustment, which, to a certain extent, physiologically always takes place at the end of each quarter, we're talking at the end of September of almost EUR 8 million versus less than EUR 1 million at the end of June. EUR 7 million worth 22% on the quarterly business revenue and 7% on the year-to-date revenues as of September. I am not stating that without this adjustment, everything would have been okay in this business segment as the market is very competitive, and we need a great effort to maintain our competitive position and win our sales. But of course, it would have looked different under several profiles. In fact, we are continuing to invest in what we feel is strategically meaningful for the market positioning of Cutlite in the sheet metal laser business, which can be summarized in 3 CapEx -- in 3 points that lead to CapEx or profit and loss outflows in 2025. The purchase of a plant to expand the versatile production capacity of Cutlite Penta that we closed in the first quarter of 2025. The P&L expenses involved in the launch of the European sales subsidiaries in order to get closer to the customers in the countries of Spain, Germany and Poland. The profit and loss expenses involved in the managing of Nexam, the company dedicated to automation system complementary to our laser cutting system, an addition to the product range that is highly strategical for the product offering, but that for the time being, is far from being EBIT accretive, though improving its EBIT result in the third quarter. For what concerns the other smaller businesses in the industrial world, the laser marking system for special application and for large surfaces provided by Ot-Las and also by the industrial division of El.En. very often in combined supplies with the mid-power CO2 laser sources in these businesses, the performance continued to be weak. We are identifying new application niches to recover in a year that has been hit by the negative cycle of the fashion world customers and also hit by the down trimming of the expectation in the motors for electrical vehicle segment. Cash generation has been outstanding in the quarter as we benefited from the onetime cash inflow stemming from the sale of the majority stake in Penta Laser Zhejiang, which on the net financial position was worth already factoring in the possible future price adjustments, roughly EUR 26.4 million. As I mentioned before, had we closed before, I mean, in previous conference calls we held, had we closed the deal 3 months earlier, the foreign exchange level with the Chinese yuan would have been much more favorable as it quickly deteriorated by 10% around and after the Liberation Day. Cash flows from operations amounted to roughly EUR 20 million, contributing to the EUR 47 million quarterly increase of the net financial position. Under this profile, it is worth to mention that the quarter highlighted a slight decrease in the overall net working capital and accounted for roughly EUR 3 million in capital expenditure that were offset in the effect on the net financial position by the release of EUR 3 million of long-term cash investment that cannot show up in the net financial position. By the way, the balance of such investments that are not accounted for within the net financial position since they are long-term assets was around EUR 11 million at the end of the third quarter of 2025. I give the floor to Enrico, and I will be back with more general remarks after his section. Enrico Romagnoli: Thank you, Andrea. Good morning, everybody. As usual, I'm going to comment the financials we released last week. As for the year-end and for the half yearly report, the quarterly report has been prepared in accordance with IFRS accounting standards, excluding the consolidation line-by-line of Chinese activities, both in 2025 and in 2024 due to the negotiation for the sale of the division in accordance with IFRS 5. The majority stake of the Chinese companies was sold on July 15. So since July 2025, Penta Laser Zhejiang is consolidated with the equity method for the residual stake of 19.3%. In the first 9 months 2025, the group recorded consolidated revenue for EUR 422 million, up 3.9% compared to the EUR 406 million and the medical sector up over 4.6% when the industrial up 1.9%. The gross margin was EUR 188.3 million, up 6.5% compared to the EUR 177 million of September 2024, with an impact on revenue of 44.6% improving the profitability of 1% compared with last year. It should be noted that in 2024, the group recorded proceeds for insurance and government reimbursement relating to the damages of the flood of November 2023 for an amount of EUR 1.9 million, 0.5% of the revenue. In 2025, Asclepion accounted EUR 1.3 million of R&D grants, 0.3 percentage point on the revenue. So excluding both of this nonrecurring income, the impact of gross margin on sales would have improved more than 1% in 2025, attributable to an improvement in the sales mix. Operating expenses increased in value and an impact on sales, mainly in G&A, R&D and IT costs and sales and marketing activities. Staff costs increased due to an increase in headcounts and in salaries. EBITDA positive at EUR 65.6 million. The result is in line with last year, even though the EBITDA margin in 2025 slightly decreased from 16.2% to 15.6%. Depreciation, amortization and provision amounted to EUR 10.6 million in 2025 compared to EUR 9 million in 2024. The main reason of the increase was the reversal of the provision for risk and charges in 2024 for EUR 1.6 million due to some legal disputes that were resolved more favorably than expected. Net of this amount, the overall cost aggregate is in line with the previous year. EBIT for the first 9 months was EUR 55 million compared to the EUR 56.9 million for the first 9 months of 2024. The margin on revenue was 13%, down from the 14% with a decrease over last year of 3.3%, having the delay registered on June. Financial Management recorded a loss of EUR 1.8 million. In the first 9 months, the interest income generated by liquidity was EUR 2.8 million, while the interest expenses on debt was EUR 1.3 million. Exchange rate difference has a strongly negative balance equal to EUR 2.4 million. But in addition, we have a onetime exchange rate loss recorded -- already recorded in Q1 for EUR 908,000 following the release of the currency conversion reserve resulting from the sale of the majority of with us. The contribution of associated company is negative for EUR 1 million, mainly due with us, minus EUR 0.5 million and Penta Laser Zhejiang, minus EUR 0.6 million. In other income last year was accounted the onetime income of EUR 5 million due to the write-off of liabilities related to the earn-out to pay to former minority Chinese shareholders in case of IPO of Penta Laser Zhejiang. So at the end, income before taxes showed a positive balance of EUR 52.2 million, lower than EUR 61.2 million at the end of September 2024. In the third quarter, as already mentioned by Andrea, the group had a strong performance and recording growth in both revenue and above all, operating profit, plus 3.8% versus Q3 2024 with a strong recovery compared to June when the delay in terms of EBIT compared to the first 6 months of 2024 was 7%. In the third quarter, the main segment that performed better than last year were aesthetic in medical sector and marking in the industrial sector. Looking into the cash flow, the group net financial position on September 2025 was positive for EUR 137 million, an increase by EUR 47.4 million in the third quarter from the EUR 90 million at the end of June 2025. In the 9 months, the increase was EUR 26.8 million, thanks to the cash flow generated by current activities and the proceeds received for the sale of the majority stake in Penta Laser Zhejiang for a net amount of EUR 26.4 million. The main reduction incurred in the period are dividend paid for EUR 19 million in Q2, CapEx for the 9 months of EUR 13 million, increase in net working capital of EUR 20 million. Furthermore, the group invested the liquidity in insurance policy, mid- long-term investment accounted in noncurrent assets. So we have additional liquidity of EUR 10.7 million on September 30. What concerns the revenue breakdown by business in the medical sector, system sales showed strong growth in all major segments. In the aesthetics segment, plus 4%, the very favorable trend for anti-aging and body contour application continued. Among surgical applications, plus 8%, urology, ENT and gynecology system continued to record significant growth in sales. Asa's performance in physiotherapy, plus 5% was also very satisfactory, thanks to the significant innovation in the range of products offered, a more effective coverage of international market, together with the relaunch of sales in Italy. Sales of consumable and aftersales service remained very satisfactory, driven by the sales of optical fiber for surgical application, more than 50% of the sale of the segment, which kept service revenue growth to 4% despite the loss for service contract revenue from the Japanese company with us, whose majority stake was sold in February 2025. In the industrial sector, the cutting segment, which no longer includes Chinese companies, maintained growth of 2%, thanks to the excellent sales result of the Brazilian subsidiaries, plus EUR 4 million of revenue in the first 9 months. Lasit also performed well in the market segment with the increased weight of its subsidiaries. In the Q3, we had a significant recovery in sales in the segment of large footwear marking application where Ot-Las operates. In the Laser sources segment, the slowdown was more evident and was primarily due to decline in revenues from system integrators for fashion application and electric motor windings. Sales for Industrial Service returned to show an increase of 6% as expected due to the progressive increase in the installed base. Geographically, the most positive note came from the Italian market with an extraordinary growth of 27% in medical. In the industrial sector, Italian turnover also recovered in the quarter, up 6% in the 9 months, thanks to the increased confidence among manufacturing market operators, supported by the return of tax policies to support investment. The performance in European market was very satisfactory, particularly in the German medical and professional aesthetics beauty sector and in the industrial sector, thanks to the progressive consolidation of the sales subsidiaries activities, particularly by Lasit. The negative sign appearing on sales in the rest of the world has different determinants depending on the sector. What concerns the medical, Andrea already mentioned the inorganic operation that affected the sector. The result is a good result because it was achieved net of the exit of Withus in February and the loss of the supplies to Cynosure due to the M&A that brought it closer to Lutronic. Net of this departure, turnover, therefore, increased significantly. The situation is completely different in the industrial sector, where our order intake in the American market, the most significant in the rest of the world was negatively impacted in the first month of the year by the image projected on the market by the potential acquisition by a Chinese entity. Andrea, please go ahead for what concern the guidance. Andrea Cangioli: Okay. In closing my prepared remarks, I would like to touch 3 more topics. The role of the industrial division, especially of the cutting division within the group, the use of our cash and finally, the 2025 guidance. As the performance of the industrial division markedly of the cutting division is weaker than the one of the rest of the group, I would like to share with you the strategy short term and midterm of the group with respect of this business area. We are very proud of the results and the dimensions achieved by our cutting business unit, but we are also aware -- but we are also aware that its business, especially after the CO2 laser sources have been ruled out of cutting by the fiber laser sources technology is not fully consistent anymore with the other businesses of the group. There is no market correlation and the technological correlation is very limited as well. Therefore, we are convinced that the Cutlite's Penta organization, people and business would benefit of strategically cooperating with organizations that are more consistent to Cutlite's business. Along this path, we moved towards a transaction that would have placed Cutlite within a larger organization, developing a specific growth strategy for Cutlite. I'm talking of the sale -- potential sales to the Chinese end. But when we were faced by the material risk under the new organization, that one of the most promising businesses of Cutlite, the U.S. business, was bearing the risk of being completely jeopardized, we decided that for protecting the organization itself, we would have not sold Cynosure -- Cutlite anymore. So the short-term strategy now that Cutlite is still within our consolidation perimeter is to manage the potential of Cutlite and to continue to invest in what we feel is needed for Cutlite to flourish. The longer-term strategy is to resume and pursue the design of finding a strategic partnership for Cutlite a partnership that would enhance its peculiarities, capabilities and potential, giving the best opportunity to Cutlite's organization to continue to flourish or better to improve its opportunities and chances to flourish on its market that are quite competitive. What is evident from our reporting is the amount of investment involved in supporting Cutlite's strategy. What we can additionally tell you about the larger picture isn't much at all for the moment, but we will update you as soon as we will have something meaningful to report. For what concerns the businesses of Lasit, Ot-Las and industrial division of the mother company, El.En., we are planning to continue to pursue such businesses within the group. Now the quite wide cash position we are holding today, which is beyond the ordinary operational needs of our companies, also considering potential expensive investment activities like the one I mentioned for the fiber optical -- sterile optical fibres manufacturing plant. As usual, capital expenditure and operational needs for our operations are first in the list for us as we believe that interesting growth rates can be achieved by further improving the operational performance of our own business units. In order to enhance our growth rate, especially in terms of profits, we are investigating a set of small M&A opportunities that could be accretive to the development of the business units involved, especially in the medical sector but also in the industrial sector, as we mentioned before. We could be closing soon one or more small deals across -- along this path. More complex deals that could fall under the label of transformational are now being more closely considered, though there is nothing for the time being to report about. The Board of Directors has not yet resolved about any onetime cash distribution to the shareholders in any form. Therefore, I'm not in the position to elaborate any comment about. Finally, the guidance. I can keep it simple here. We are targeting and planning to beat 2024, both in the revenues and in EBIT. As you know, we are on schedule for the revenue target. We are just a little bit behind for what concerns the EBIT target, but we are recovering and confident to be able to hit the EUR 23 million figure in EBIT in the fourth quarter of 2025. Thank you for your patience, and I believe we are ready for your questions. Bianca Fersini Mastelloni: Andrea, the first question in our list comes from Giovanni Selvetti of Berenberg. Giovanni Selvetti: Can you hear me well? Andrea Cangioli: Yes. Giovanni Selvetti: Well, I had two, but then let's just say that the final remarks added a few extra questions, but maybe I'll jump in the queue and ask more after. These are two regarding the medical division. The first one is on Asclepion that based on the press release seems to be doing much better in Q3. And as far as I remember, Asclepion was also mainly involved in hair removal, which was the area that was struggling the most. So I was wondering what's changed exactly also because if I can remember, in the first half, the cost of personnel was going up also in relation to Asclepion. The second one is about Quanta. If I look at your press release, you're saying that now optical fibers account for more than 50% of medical services. So if we assume, let's just say, a figure around 35%, that is, let's just say, more than 50%. If we had to double this capacity, do you see already demand to fill it? Or how much should we think before the excess capacity gets filled? And maybe the last one is on the Lasit, let's just say, part of the business that, again, based on what you're saying, we are talking about margins based on what the press release say strongly above last year. So I was wondering what kind of margins Lasit is now running at? Andrea Cangioli: Okay. So starting from Asclepion. Yes, there was a recovery. Yes, the recovery was also tied to a better performance in the hair removal in the third quarter. So I mean, this is a good line considering the hair removal segment. And yes, the impact of the cost of staff in Asclepion is quite significant. It was increasing a lot in the second -- in the first half. Since the result for the third half was extremely good in terms of revenues. Now the difference of the impact of staff cost between Asclepion and the rest of the group is smaller. Most important and what actually made turnaround in the quarter, the business of Asclepion is the increase in revenue, which is due to aesthetics, but also to its surgical line, which is performing very, very well. Quanta System and Fibers, we -- as of today, we do not feel we are limited or materially limited in the deliveries of fibers by our production capacity. But we feel that given the rhythm of new installation and of the absorption by the market of our optical fibers, we needed to expand the capacity in order not to incur in a sales limitation due to capacity in the future. So we are progressively increasing the volumes, and we are placing this very large investment in order to improve the production capacity, but we don't have an impellent need. It's, I mean, a strategic programming that will allow us to continue to increase the stream of revenue over the time smoothly. Finally, your third question was about Lasit. Lasit actually is improving. It's not improving its sales volume over the 9 months, especially due to a slow behavior of the Italian market, while we are doing very well, especially in Europe, where the subsidiary that Lasit set up on the territory are now starting to be really accretive to the business. I recall we have subsidiaries in Poland, the oldest one, in Spain, Germany, U.K. and France, the last one. So we have 5 subsidiaries. And quarter after quarter, they are becoming accretive to revenues and especially to profitability. In terms of profitability, we had an EBIT margin just shy of 8% after the first 9 months of 2024. After the first 9 months of 2025, we are exceeding 11% as EBIT margins. Those are unaudited financial results referring to the consolidated financial results of Lasit and its subsidiaries. Giovanni Selvetti: I'll jump in the queue and then I have some questions. Bianca Fersini Mastelloni: The second question comes from Andrea Bonfa of Banca Akros. Andrea Bonfa: I hope you can hear me. Very quickly, I mean, connecting to your last statement on M&A, potential M&A. So if I understood correctly, transformational deal are -- might be considered but unlikely for the time being, but some bolt-on acquisitions are definitely more possible. Is that possible for you to comment on which sector niches, technologies are you looking for? Andrea Cangioli: No. Andrea Bonfa: Or in which geographies eventually? Andrea Cangioli: I'm sorry, I said all I can say. Andrea Bonfa: Okay. Okay. Andrea Cangioli: It's nothing -- the answer wouldn't change. I mean we are -- we have several things on our pipeline related, as I said, both to medical and to industrial and they are both on the European territory and in the rest of the world. But I mean, in answering by this means, I don't -- I cannot give you any more detail. It wouldn't be fair. I can only tell you that we are examining several situations. Andrea Bonfa: Okay. And if I may, as far as the industrial business is concerned, I mean, within now, let's say, the recent input that you just mentioned, is the U.S. still a potential important market or now with the duties and your, let's say, smaller size is less so. And the third one is on the U.S. duties. How is the trading environment in U.S. now with this new duties environment, if it's possible? Also in relative terms because, I mean, maybe there are other countries now less competitive than Europe. Andrea Cangioli: First of all, the U.S. market for our industrial cutting systems is still very interesting and still the main market -- international market for our systems. We have suffered, as Enrico said explicitly and as I confirm, the image that was projected during the negotiation with the YOFC for the sale of the company. And we spent quite a lot of time in convincing our U.S. customers that we were not becoming Chinese. And also after the deal that was going to have Cutlite Penta fall under Chinese control was canceled. Still, we have our hard time in discussing with our U.S. partners and I mean, partners because we have distribution partners and making them fully comfortable that we will be able to provide them on the midterm, a sound and price attractive and technologically attractive Italian-made product. This is -- by the way, they are visiting us on Wednesday in order to clarify again this situation because based on this, we have had some sort of fluctuation in order bookings from the United States, notwithstanding our efforts, which include a massive deployment of technical service people in order to serve at top quality with top quality our systems installed in the United States and also a strong investment in terms of fares. We participated to the FABTECH, which is one of the most expensive fairs that you can approach on the industrial systems market. And so after this long speech, I would say that, yes, the U.S. market, it's still an opportunity. It's still an important opportunity. And it's not an issue of duties. Duties are impacting us in the industrial sector, but it's not duties that today caused a slowdown in sales to the United States in the industrial business. For what concerns the duty question on the medical system, of course, duties are there. They are quite impacted. But we have seen increasing interest in the last months from our U.S. customers in our products. This speaks about the fact that even though each and every of our customers in the United States will try to negotiate a deal in order to have us participate to the "undue extra cost driven by duties. " They are still looking for us because we are able to provide them the innovative content of products that allows them to make margin, notwithstanding the extra cost. And so basically, in this moment, we are -- I mean, at least for the first 10 months of the year, we are very pleased with what we have done in terms of revenues and what we have done also in terms of order bookings. Then, of course, -- we will have to see how the hot seasons on the U.S. market, which is the month of December, will roll out for our distributors to have a final judgment on the total effect of duties on our U.S. business. But so far, we have -- we can notice an overall positive reaction of the U.S. market on the duty situation. Bianca Fersini Mastelloni: Next question comes from Carlo Maritano of Intermonte. Carlo Maritano: Can you hear me? Andrea Cangioli: Yes. Carlo Maritano: I just have a couple of questions. The first one is on the European performance in the industrial cutting business in the third quarter. I see that there is a decline compared to last year. I was wondering if it is related to the EUR 9 million of revenue that shifted from the third quarter to the fourth quarter. And the second one is again on the industrial business, in this case, on Italy. So recently, the government changed again the incentives related to [indiscernible]. So I was wondering if you expect any kind of impact on your clients from this change or if the order book remains healthy and that you do not expect any kind of disruption. Andrea Cangioli: Thank you for these two questions. About the first one, the decline in the European revenues in industrial, you see it in the third quarter. It's something which is, let's say, local. It's not related to the cutoff, which is mainly an Italian issue. It's mainly an Italian issue because we don't -- it's tied to the means of delivery we have in Italy. And what we could say, it has been driven by a softer activity in Europe and by the slower activity of the subsidiaries, we should be able to overcome the situation over the rest of the year. For what concern the Italian laws, the Italian, I mean, funding situation, I didn't want to go in this detail. But of course, we are examining the effects of the cutoff that the Italian government put on Industry 5.0, and this might have some effect. I'm not able to quantify. It shouldn't be determinant, but it could be material. The good news is that it looks like that the new law for 2026 could be interesting for the investors. And so we might suffer a marginal correction. I mean, we have an order book, a book of orders, but some of them may not convert in sales due to the change in the approach by the Italian government as the monies for Industry 5.0 is finished, but we should be supported, hopefully, without the hesitation that took place in 2025, also in 2026 for a certain level of investments. Bianca Fersini Mastelloni: Andrea, we have one more question from Emmanuel De Figueiredo. I will read for him for problem of connection. The question is, why was medical so strong in Italy versus other markets? Andrea Cangioli: Of course, this stands out. It stands out. And because we did extremely well and because I believe we performed exceptionally well in the distribution of DEKA Renaissance in Italy, which is going to hit a record target, a record amount. We also had some sales in the professional beauty that increased its volume smoothly, and we are still experiencing very, very strong demand. Why is this happening? I believe the team that we have in Italy now provides to our end customers an unparalleled level of services. We have, I believe, 8 product managers, which are traveling all the time around Italy if they are not stable in a region because, of course, the main regions have product specialists, which are always providing support to our customers. So we not only, as we mentioned before, limit our activity in providing the laser box to our customers, but we are providing continuous training. We are providing very, very -- I wouldn't say cheap, but affordable service in order for them to take the maximum benefit of the lasers that we have sold them. And so since they are happy, since they make money with our lasers, they come back and buy. This 2025 is going to be a record year for Italy. And this is the only explanation I have on this point. Bianca Fersini Mastelloni: Thank you, Andrea. We have one more question from Andrea Bonfa of Banca Akros. Andrea Bonfa: Andrea, very quickly, in the numbers that you provided at the beginning of the conference call, the like-for-like figure, 7.9% without Cynosure and more than 10% without -- sorry, 7.9% without the Japanese subsidiary and over 10% without Cynosure is related to the medical division only or to the group. Andrea Cangioli: Medical division. What I was saying is that we are hitting in stable situation, the 10% revenue increase target after 9 months. This was the message I wanted to -- for the medical business. This is the message I wanted to give with these comments. Bianca Fersini Mastelloni: And we have no more questions registered in this moment. I would like... Andrea Cangioli: Giovanni Selvetti has said he wanted to ask more questions. Maybe we answered already, but I don't know. He said he wanted to. Bianca Fersini Mastelloni: yes, Giovanni. Go on. Giovanni Selvetti: Part of it was already answered, yes. I mean let's just put it this way. I don't want to ask too much information on M&A, right, also because you cannot give much. But it was more about whether the companies are more, let's just say, technological company that will add technology or company with actual sales, right? It's more about whether you're investing in technology or in market share. But I'm not sure if you can answer that. So... Andrea Cangioli: It's -- we have everything in our basket. So in our potential basket, there's something of any flavor. So you've got both. I don't know what and if we will close. Again, don't have too wide expectation on this. We're talking of small transaction, but we have both technological and sales solutions and sales opportunities. Bianca Fersini Mastelloni: Then at this time, we have no more questions. I would like to ask once again, if there are any further questions from investors still connected. No more questions. Then ladies and gentlemen, the conference is now over. If you have any inquiries in the future, please do not hesitate to contact Enrico Romagnoli, who will be happy to assist you. Thank you for attending this conference, for your participation, and we hope to have you all again next time. Goodbye, everybody. Andrea Cangioli: Bye-bye. Thank you, Bianca. Thank you everyone.
Operator: Good morning, and welcome to Datavault AI's Third Quarter Conference Call. With us today are Nathaniel Bradley, CEO; and Brett Moyer, CFO. This call will contain forward-looking statements, which reflect management's current judgment, including certain of our expectations regarding fiscal year 2025 and 2026 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause actual results to differ materially -- I do not have rest of the scripture, I do apologize. It's now my pleasure to turn the call over to management. Please proceed. Nathaniel Bradley: Yes, I am Nathaniel Bradley here. Thank you very much, everyone, for joining the call today. We put together a brief presentation. There's obviously the safe harbor there. So look, we had an incredible Q3. Our results really speak for themselves. Again, this is kind of loading both the performance of WiSA from a more scalable to a more scalable, more nimble business model around the WiSA technologies in our Acoustic division. And really a surge in our ADIO technology revenues and also the beginning of what becomes in our fourth quarter, an explosion around our flagship Datavault, our kind of pride and joy. The Datavault platform had incredible performance in our Q4, but Q3 was really a loading of that performance. And thanks to Jeff Jones and some of the key players on our team that we are able to marshal the technological resources and the integrations necessary to scale our systems globally. We're now in position with the Datavault platform here Q4. So aggressive revenue guidance for 2026. Really the highlight of this call is that based on the performance of Datavault and what we can see both in the WiSA, in the ADIO technology lines and our Acoustic divisions that we're going to aggressively advance our guidance. We're going to increase from a $50 million guidance in 2026 to a full $200 million minimum for next year. And that's just leading into that a process that's underway in terms of tokenizing real-world assets all over the world and some of the progress that we've made with our Acoustic division in the WiSA technology where we've really honed in that technology and see a very scalable future that includes robotics and includes using WiSA in signage and in other areas to deliver data over sound. And so we have a very scalable model moving forward that we're very excited about and very pleased to announce that we've increased our guidance quite substantially to $200 million by the end of 2026. And that's a process underway. It's hard to gauge in the fourth quarter how we're going to work through a lot of that growth and recognition and all the issues around our revenues in Q4. We do know that it's coming in droves, and we're managing that as a team. And so strategic investment in the financial flexibility, really, this was all triggered by the $150 million strategic equity that we received. This is a lifeblood of capital that unlocks our company inside the scale of our customers' operations. So we're expanding globally our footprint, and we've got a presence now in Zurich, in London, Taiwan, Japan, Korea, Hong Kong. And we really believe that, that footprint will support a scalable growth on a global basis. When you look at that forecast, it's really predicated on the strategic partnerships. We're very proud of Platinum partners of IBM. Of course, our NYIAX partners that have given us access to the NASDAQ Financial Framework, which is very special and Scilex, which will lead a biotech innovation using our technology that was kind of foundational to their investment in us, but also central to how we've marshaled some of our forces to meet their design and development needs and beginning, in fact, today, a force is rising there in biotech between Scilex and Datavault where we're developing an exchange that will be very special in biotech, in scientific research. So Burke Products also should be mentioned just giving us chops with the federal government and our ability to contract with the federal government. We have a sensor technology and an inaudible tone technology and a semiconductor product that Burke Products is working with our team, in particular, Sonia Choi and others on our team to develop. We have, of course, the RWA tokenization and our ability to tokenize really begins with our ability to really understand the attribution of many types of elements and resources. We're really specialized in understanding very deeply particular resources. We've just done an announcement in geothermal, but we'll be doing a great number of announcements in this area. And we've really specialized in tokenizing things that are very valuable all over the world. And so we're really excited about our RWA positioning. Our preeminent patent position and technology is really getting recognized on a global basis, and we're really excited about that. We have innovative technology and our partnership with IBM can't be overstated. It's really special what we have there in terms of engineering and sales throughput. We also have global execution through our headquarters now in Philadelphia and the locations that I mentioned, we're able to expand. If you look at really the patented technology that we have that's quite special, it's enhanced with partnerships and scalability, multibillion-dollar corporations that have put a stack together on our behalf that really is second to none. We've talked a lot about CLEAR and IBM, but Fiserv now and Houlihan Lokey coming to our aid in areas where we needed help around international attribution, around RWA, everything from sovereignty to governance to the underlying assets, and how they're treated. We have developed an American political exchange that we intend to launch into the midterm elections in November this coming 2026 November. And we have an international elements exchange that we've developed that's been central to our revenue and interesting from a standpoint of capturing an international attention and very strong use cases here in the United States, given the passage of the GENIUS Act and the passage of CLARITY Act, where we're able to see now the financial governance models that will allow us to have a New York-based exchange operation. We also have the information data exchange, which is the -- our ability to exchange information at a level where we believe companies can turn data into cash. And we're going to have a specialized biotech exchange with Scilex that will add to this cadre of exchanges, but these will be tokenomic exchanges that use a myriad of blockchain and AI tools for both yield management and product attribution. We, of course, can tokenize on any blockchain. We are agnostic to chain, but can select the proper chain for any initiative across these exchanges. And we're excited about that platform, of course. The -- just to give you kind of the use case around one of our exchanges, the Elements Exchange, which has a bit of a hot hand in terms of answering the call on a global basis. The International Elements Exchange allows for farming, mining, banking and manufacturing organizations to tokenize and realize a value. Again, our technology does really three things. It is a refinery that allows you to refine your data assets and identify them to objectify them. We have a Datavault where you can value your assets and you can use our agents that we've developed that are AI agents that are designed to score and value your data assets. And then when you are able to score and value them, the last piece is to exchange them. And of course, we have our exchanges. This Elements Exchange is focused on the elements of Earth and all of the products of Earth that are under earth in terms of being mined or that are forthcoming in crops or other manufacturing outputs, even geothermal as we announced today, where you have an energy output of earth. Our Elements Exchange will have a myriad of elements, it's a number of them. We have a focus around our Elements Exchange and how we make money on that exchange is our use of these elements to create objects that are traded on our exchange. We're focused on right now revenue drivers including commodities, agricultural and soft commodities, that's sugar and cotton. Commodities include gold and rare earth, pharma and genomics and biotech, our partnership with Scilex, our partnership with Brookhaven National Laboratory. We are focused around tokenizing, valuing and refining these objects and producing a revenues around these objects that is received on every tick of the trade on these exchanges. We operate exactly like the New York Stock Exchange or the NASDAQ. We are able to uplist companies' assets in the form of token, and we can trade them in between buyers and sellers in a brokered exchange that is secure and using world-class infrastructure, as I discussed. So we have the ability to do this in real estate as well. We have large RWA products in real estate, corporate data, including data in situations of banking, insurance and accounting, Tort law, a number of interesting data sets that are valuable and can be traded on our exchanges. We also have, of course, our NIL Exchange. And our international NIL Exchange will be making an enormous announcement about its rebranding, and we've targeted a corporation that has identified us and we've identified them, and we're going to make a big step forward and a big announcement in the near future around our sports NIL Exchange. We have also our focus around, of course, developing our quantum computing and high-performance computing capability. This is in combination, of course, with IBM, but it's also targeted around our London and New York and Hong Kong operations and also looking at using that technology infrastructure team and resource around our exchange resources as well as our ability to use that technology to optimize the output and the performance of our own company. We are focused on, of course, VerifyU, our credentialing technology, DVHolo, our ability to turn data into experience and to monetize experience on our exchanges. Our ability to use our NIL exchange with an enormous global brand recognized around the world across all professional sports and collegiate sports. And our ability to focus on our digital twin capability through our Twinstitute, our acquisition of API Media and our consolidation of CSI in the event space, our ability to have data from events to look at events around the world as creating data in their [ wake ] that is more valuable potentially than tickets themselves and the ability to optimize those events through data, the sales of merchandise, the development of connections to fans and the continuation of the revenue streams for our customers that engage our Acoustic division. ADIO which is data over sound; WiSA, which is the ability to control sound in high-definition and spatial environments and to broadcast wirelessly as synchronization that will have extreme value in robotics and into the future. We have, of course, the Sumerian crypto anchors and our ability to map the real world and bring data from adamant objects from real things to know when a file in a physical world is opened, to know when a statute is moved. Our Sumerian anchors are breakthrough technologies. We have, of course, our pipeline that's driven us to increase our guidance from $50 million to $200 million next year. This is driven by gold, diamonds, tin, Winsor Ruby deal we have in Africa. We just announced this morning a geothermal deal worth $8 million in tokenization that we believe we can recognize in our fourth quarter. We will then engage in a 5% revenue stream around geothermal energy, which we're excited to be a part of the Battery of America. We also have, of course, the contract discussions and projects that are underway in aluminum, titanium, tungsten, silver, copper, oil, natural gas, Boron, real estate. We have a number of opportunities around our X Club, which is an international Asian-focused club around XRP and our move forward there is exciting around these elements. We have our acquisition of API Media that's going to bring us into some high-powered activations and big-time events. The Kentucky Derby, PGA Tour. These are all events that we're excited to be part of, and we're part of it because of API Media. We have new leadership. We have new corporate governance and quality in our management because of that acquisition, and we're so excited to have that team on board with us in Philadelphia and New Jersey. We -- from here, have a guidance and updated our strategic guidance, is really around our launch of these exchanges. That's how we're going to drive revenue. That's how we're going to meet these expanded goals. It's difficult. It's not easy, but we didn't want a low bar for our team or for our management moving forward. We see this giant opportunity, and we've increased guidance accordingly. There's a lot of wood to chop, a lot of work to do. We're doing it. Scalable licensing models is our focus. We've upgraded our financial outlook, as I discussed, RWA and tokenomics, a world leader in that space with patents to prove it, underlying intellectual property that continues to grow, a big shout out to that team, Josh Paugh and now Jacob on that team that are developing patent resources for us on a daily basis including the opportunity to license the WiSA technologies on a scalable and global basis moving forward with partners that are second to none. So that sums up really our presentation today or my prepared remarks. We really appreciate the time and interest in our company. We're excited about what the future has to offer and happy holidays to everyone, and we give thanks to our shareholders and everybody involved in our company, moving and driving this forward. Thank you very much. Operator: [Operator Instructions] Our first question today is coming from Ken Londoner from Endicott Partners. Ken Londoner: That was a comprehensive update. Can you give us some detail on the scope of contracts you're talking about regarding the tokenization of real-world assets? You mentioned quite a few, but what are sort of the big focuses for you going forward? Nathaniel Bradley: So really, the strategy there is driven by the quality of the assets that are being tokenized, gold, diamonds, silver. We're big believers in copper. Copper will have -- it's a conductive metal, of course. And as we rebuild around the world and build new infrastructure around the world, including data centers, copper, we believe, has a lot of value as do many other elements. We're kind of an open ear around the world. The cool thing is we've been invited to governors' mansions. We've been invited into really the governments of international countries and places that we're excited to go and listen and find where the most valuable assets reside and how we can help move those assets. We did open out of Zurich, the opportunity to have a Swiss exchange, and we're working through all the legalities and proper modalities for that. And we're not quick to work through all of that. We're careful to work through all of that. And once we do, we will launch there internationally here in the U.S., really from our Philadelphia headquarters. We intend to have these token exchanges all expand. So to answer your question quite succinctly, we're following the money. We're listening to our customers and following the most valuable assets, proprietors in those assets that are most valuable that we could -- our team would focus on tokenizing assets that we could tokenize this year and recognize revenue for this year and also then move into volume on our exchanges where we have revenue generated on every tick of the trade as do our clients. So we're focused on RWA that is most valuable. I think the announcement today with geothermal, if you look at our priorities, we've started there with one of our big priorities, geothermal. Operator: Next question today is coming from Jack Vander Aarde from Maxim Group. Jack Vander Aarde: Okay. Great. I appreciate the update. You covered quite a lot of ground there. Where do I start? The guidance is jumped off the page to me. So revenue guidance raised in 2025 to over $30 million and $200 million plus revenue for 2026. So maybe, Nate, I mean, this is really leveled up here, I mean, clearly. So maybe help us understand what's sort of locked in that 2026 guidance versus how much is kind of are you working towards locking in? Just so we have a sense of maybe stress testing that a little bit. Nathaniel Bradley: So look, I had to arm wrestle with many on my financial team, Brett Moyer, who deserves a lot of credit for unlocking this value in the first place. But the concept here is to really underpromise and overdeliver. I don't look at that 200 number and feel intimidated. I want my team to feel inspired and to be fired up about a mission that we jointly have together. But I also -- so I didn't want to have a low bar where we are simply overperforming by a function of living. I wanted us to have a goal as a team in our public guidance is obviously our public guidance. Internally, we aim high. And as a leader, we would aspire to be much greater than that number. Our competitors have numbers that are much greater, but they were much older and much more, I would say, bloated and stuck in their way. We have a very nimble AI strategy. We have the #1 partner in the world in IBM around our development, around our technology and the development of quantum systems, which are in near term, a concern for every operation that has any technological reach. So to stress test, the fourth quarter is to understand that this is our first go around. We're working with our auditors. We're working with sophisticated systems around the world. There are revenue recognition and other things to consider that we simply need to understand. So the fourth quarter is likely the steepest climb. It has a lot to do with our technological resources, putting a lot of pressure on that Georgia Development Center that we've begun to develop. We will be expanding that development to meet the demand of this international demand for tokenomics. We also have our new facility in Philadelphia, where we're bringing a team that worked disparately or worked from a Philadelphia location that was private, but many from their homes and from locations that were disparate, bringing our team together, there's a common coffee pot focus that I think when we bring our team together, these numbers start to be quite achievable. And I hope to readjust guidance because we don't want to have a situation where it's easy to achieve what we intend to achieve. We are rookie in terms of our first year on the NASDAQ as data evolves. We have exceptional pedigree technology from WiSA and a tenure on the NASDAQ that shows in our volume and the respect that we're getting worldwide. We're also garnering a number of government -- and you can see today very important projects that impact our world. So I want to thank you for your early guidance for seeing this so early and for having the strength to come out and call us at $3. And as we shoot past that guidance, I hope people recognize your prowess. And we appreciate you following our company for so long. Jack Vander Aarde: Great. No, and I appreciate that. Let's -- there's so much to queue on here, Nate. I just want to understand it and also make sure I'm also setting the expectations appropriately. So -- and if Brett's there as well, maybe that would be helpful, too. On the gross margin line, so if we just look kind of going forward, these are, I imagine, high-margin licensing agreements right now on paper. And I've yet to see it play out within the tokenization on your guys' income statement. So that's going to be a forward-looking thing. Can you just help maybe, help us -- help investors understand what are we going to look like on the gross margin line as these revenues would seem to be pretty large, especially relative to historical levels. I'll... Nathaniel Bradley: Yes, I'll let Brett answer that. But what I would tell you is that we do a great deal of work. If you look at the refinement of data, you might make 20 points on your best day on refinement. You're not looking to get your customer really into these large contracts of CapEx expenditure where you end up in these kind of slow-moving board-level type decisions. Instead, we have a low-cost approach to that. We like to refine on our customers' premises and give them a data refinery and essentially a vending machine for their data. The ability to buy and sell data from our Datavault on the exchange is our aim. So when you get to the exchange and our SaaS has traditional SaaS margins, which are great. But our exchange has exceptional margins, and those can flirt with upper 80s on the exchange. So it's Refinery Vault exchange. And as you walk through that -- those tires, I think you have varying degree of margin in the business. And then, of course, our Acoustic division takes on the more traditional cost of goods versus price of product type analysis. But Brett, with that, I'll turn it to you. Brett Moyer: Yes. So Jack, if you -- I think Nate framed it actually, right? So when you look at the businesses we're acquiring or have acquired, right, CSI, API and ultimately NYIAX, that creates probably the opportunity to do $35 million to $50 million next year. And that's going to be more traditional margins in the, call it, 35% to 45% range. But when you move to -- if you go back and look at the deals we've announced, they all have a component of licensing. So I would expect the rest of the revenue to be weighted higher to the $60 million range, right? So I think when you blend it all out, you're going to be in a 55%, 60% margin across the company. Jack Vander Aarde: Fantastic. Okay. Those are excellent margins. And then can I get an update there's so many moving parts here, obviously, because you guys are on fire. How do we -- how do I think about the balance sheet? So -- because the third quarter, it doesn't really do a justice, I don't believe. So we have a huge Bitcoin investment, it sounds like coming in from Scilex. There's been a lot more acquisitions that have closed subsequent to the quarter. So there's debt, there's fiat cash. Maybe if we could just boil it down, do we have a rough sense of what cash is and what the state of that investment is from Scilex? Brett Moyer: From Scilex? Yes, Nate, do you want me to answer this? Nathaniel Bradley: Yes, yes please. Jack Vander Aarde: Scilex, my apologies. Brett Moyer: All right. So let's take the investment from Scilex because that's $150 million. We got aid in just at the end of the close of the quarter, but that investment is locked down and documented. The only thing between us and having that on the balance sheet is the shareholder vote on November 24. We -- that is an Annual Shareholder Meeting. So we will have quorum, and we have voting agreements prior that we had signed at the time of signing the Scilex deal that amount to, I believe, more than 40 million yes votes. So we're highly confident that the majority of the votes cast will be -- will approve the increase authorized so we can close that $150 million on November 24 or 25, right? So when you think about the balance sheet, that's triggered -- that deal triggered a couple of reactions on the balance sheet. A, it means by the end of the year, you have $130 million plus of liquid assets, maybe $125 million because we're buying API. It also meant that the convertible debt that we had in Q3 triggered out and is off our balance sheet for good. So the only debt on the balance sheet currently is debt associated with the strategic acquisitions of CSI and Datavault Holdings now known as EOS Technologies. So I think you get to a pretty powerful and strong balance sheet as we report out the K at the end of the year. Jack Vander Aarde: Excellent. That's very helpful. Just one more follow-up to that. With the Bitcoin investment, let's say the shareholder vote is approved, so all $150 worth of Bitcoin is now in your possession. Are you going to be -- does that mean your -- how much of that is going to be kept in the form of Bitcoin versus how much of that is out the door to fund some of this stuff? Brett Moyer: Well, look, I think there's -- I think it's real important for investors to understand that when we took the 150 -- when we signed that financing deal, there are no treasury restrictions around it. So from management's perspective, Nate in my mind, that $150 million is the same as cash, except it has a little bit more volatility than cash, right? But fundamentally, we look at it as cash, so we don't look at having any pressure for multiple years to have to raise cash, raise any money for the company which is fundamentally changing, right, our platform... Jack Vander Aarde: Yes. So for all effective purposes, it's both working capital or it's an investment. It's kind of whatever you need it to be when it's in the door. Brett Moyer: Exactly. Operator: Our next question today is coming from Peter [ Ruggieri ] from a private investor. Unknown Attendee: I'm going to tell you a little bit about myself. I got involved originally as an investor in Sorrento, which owns Scilex, which owns Semnur. They're involved with Celularity, piece of Aardvark [indiscernible] involved, now Semnur or Scilex has put $150 million into Datavault which is new to me. And I have a lot of questions because with all this -- with like IPMC and a precision medicine globally with Robert Hariri with Celularity, you're running a whole platform globally with increasing medicine AI. It's a big thing. And I'm just astounded by the revenue guidance, by the way. I'm wondering what's the revenue contract backlog right now? Nathaniel Bradley: It's significant. It's one of the hardest things to get through and particularly internationally, just in terms of getting the company's chops up for that. And our Philadelphia headquarters is going to address legal and governance and many other things. Also, these exchanges are not simple in their constructs from a governance standpoint. And we have a very kind of governance-first model that served us very well. We get to be the iTunes in the space as opposed to the Napsters, if you will. So I'm excited about that. I think your question is regarding to the biotech space and Scilex investment or interest in us. Scilex is wildly accretive to our strategy. We had announced previously digital twinning and digital twins as a marketplace that we were interested in developing technology around and we have. And its really data into experience, data into hologram, data into model, data into experiential models where management teams don't struggle to understand the challenges or the data related to the challenges around them. They're able to actually experience that data and see the pathways before them more clearly. And that's kind of at the center of the Datavault which is experience around and that experience includes valuation and score because it had to be sustainable. So valuation and score. And one of the things that is common across these threads, but very specific in the biotech space is our work with the Brookhaven National Laboratory, which I believe Scilex was studied and saw our progress there and read our cooperative research and advancement agreement drafts that are now being considered at Brookhaven. We have the great privilege of working with supercomputers there in a supercomputer environment of people that we've come to trust and in fact, love that we are able to develop a system between our federal laboratories, our allies, so BAE over -- just over the pond and some of the collaborators we have here in the United States, whether it's General Dynamics, Raytheon or Boeing, our ability to take information and have rather than stovepipes and everybody not share their marbles that everybody can collaborate on a global basis for the advancement of technologies across a myriad of spaces, none more important, none more probably well-funded than biotech. And Scilex is a leader in that, the people there and the leaders, Dr. Henry Ji, certainly financially Stephen Ma, who's become a mentor to me. These are incredible people who have a great grasp over biotech science and biotech technologies. And we're proud to have that investment that allows us to build that platform and so much more. We're a platform of platforms. We're exchange of exchanges, the ability to launch exchange after exchange, our biotech exchange, which will have a great name. I know the name, I can't say it, but the biotech exchange will be a very special attribute. So to the size question about -- part of your question about size and why is this space so hot or why did we increase our guidance? It's only partially for the real-world asset of biotech that's in our guidance. And I think it's an explosive piece that maybe makes us to re-guide. But the biotech piece is incredibly exciting and has attribution and use case and utility across every medical science, oncology and heart, acute, post-acute. When you look at the healthcare space, it is not a market, it's the market. Everyone will engage with it at some point. And many of us on a daily basis, many more on acute management basis are spending hundreds of thousands of dollars per annum to address our health. And the kind of compound nature of that makes it not only an international crisis, but something that needs technology to address. And we're happy and proud to be part of the solution of creation of digital twins. And you could see scanning the human body and having a digital twin could aid you, just like it aids management in experiencing their data decisions. When you see your digital twin, it has the same effect. And healthcare is very exceptional. It's very well-funded, but also in crisis. So it's a unique combination. We're happy to be part of the solution. Operator: [Operator Instructions] Our next question is coming from [ Tyrell Pruitt, ] a private investor. We reached end of our question-and-answer session. Ladies and gentlemen, this call contains forward-looking statements, which reflect management's current judgment, including certain of our expectations regarding fiscal year 2025 and 2026 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our periodic filings with the SEC. That does conclude today's teleconference and webcast. We thank you for your participation today.
Operator: Good morning, everyone, and thank you for participating in today's conference call discuss Jones Soda financial results for the third quarter ended September 30, 2025. Before we begin, let me remind everyone that the company's safe harbor disclaimer. Certain portions of our comments today will concern future expectations, plans, prospects of the company that constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements containing verbs such as aims, anticipates, estimates, expects, believes, intends, plans, predicts, will, may, continue, projects or targets and negatives of these words and similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. Factors that could affect our results include, among others, those that are discussed under the heading Risk Factors in our most recently filed reports with the SEC, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current report on Form 8-K. In addition, this call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA, most directly comparable GAAP measures, reconciliations for non-GAAP measures and are available in the earnings release and other documents posted on the company's website under Investor Relations. A telco replay will be available after the call through December 1, 2025, and a webcast replay of today's webinar will also be available for 1 year via the link provided in today's press release as well as on our company's website. Now I would like to turn the call over to Jones Sodas, CEO, Scott Harvey. Thank you. Sir, you may begin. Scott Harvey: Thanks, Jerry. Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. As you recall, the first half of this year, we primarily focused on disciplined cash management and strengthening our supply chain. These initiatives have proven highly effective for Jones, we reduced our selling, general and administrative expenses, rightsized our portfolio and completed the divestiture of our Marijuana assets, of which position the company with a stronger financial foundation. In the third quarter, we built on these operational gains and achieve further meaningful improvements. We consolidated myJones in the e-commerce under a single fulfillment partner, reducing costs and increasing efficiencies. We centralized warehousing and logistics, optimizing freight routes and enabling multi-SKU load pairing. And lastly, we improved forecasting and inventory management, supported by supplier renegotiations and a shift to just-in-time inventory model. The improvements made through the first 3 quarters of 2025 has strengthened operational efficiencies and position the company to scale effectively as order volumes are expected to increase. Under prior management, Jones faced challenges in maintaining margins during periods of heightened demand and as many of the operational efficiencies limited scalability. By addressing these issues in myself and Brian's first years of management, the company is now equipped to handle higher order volumes without the drag of significant rising cost. These enhancements create a stronger foundation for sustained top line growth while preserving margins. Furthermore, making these fixes has allowed us to shift our focus towards growth. This quarter, we expanded our Club and DSD distribution network to increase reach and volume in our core soda business. We achieved record D2C channel performance through our Bethesda partnership, and we broadened our Zero Sugar portfolio, meeting growing consumer demand. These initiatives support our overarching goal of driving sustainable growth across the 3 key categories of core, modern and adult beverages. Our strategy is to pursue controlled and disciplined expansion with each one of these categories. One of our biggest takeaways from this quarter is the success from our strategic partner and socially rooted marketing campaigns. Initiatives like Crayola and Bethesda were huge excesses, leading to record-breaking D2C sales. Today, consumers engage with brands as a form of personal expression, not just consumption, social currency is beginning to increasingly define category leadership. Collaborations roots in culture, virality and nostalgia have proven more effective than typical product innovations. Products designed with visibility, collectibility and community interaction are the products that we see the most success in the future, and Jones is strategically aligned with this shift. We see this alignment exemplified by the success of our launches like fallout and Crayola. This reflects our team's ability to anticipate consumer demand and deliver products that truly resonate. Looking ahead, we expect to continue similar launches in the quarters ahead. One of these upcoming rocket bottle launch is forthcoming in this quarter. The iconic rocket bottle from the follow-up series goes on sales in Q4, followed by additional flavor launches in 2026, is expected to become a collector-driven product supporting premium pricing and recurring demand. Before passing the phone over to Brian to cover our third quarter financial results, I wanted to cover 2 recent developments. The first major factor is the recent U.S. government ruling tied to new hemp regulations affecting HD9 products. This language was passed last week and was folded into the legislation for reopening the government with no debate. We are closely tracking evolving interpretations of the law and validating all effective dates, including that, the provision is set to take effect 1 year from the Bill signing, and we expect clear interpretation within the next 60 days to understand precisely how these changes may be applied. Until the final guidance is issued, it remains business-as-usual for our operations, including producing high-quality products, our fans consistently seek out and rely on. This period also allows us to work closely with other organizations to advocate for responsible science-based regulation across the industry. At the same time, we're prepared to activate our contingency plan immediately should the regulatory environment require it. While the situation is disappointing, we remain confident in the long-term strength and potential growth of our adult beverage category. The second development I want to highlight is the anticipated growth within our Core Soda segment in the fourth quarter. Through our strategic partnerships with Bethesda and the Fallout series and targeted marketing initiatives, we have secured a substantial volume of purchase orders scheduled to ship throughout this month and into December. When combined with strong performance across other channels, this is expected to generate more than $8 million in fourth quarter revenue. This achievement underscores our team's ability to identify and execute new growth opportunities. As we continue to deliver on similar orders, we not only strengthen our financial profile, but begin to develop credibility and build brand equity in the industry. Establishing this credibility in growing the brand is so important to our long-term mission as it opens up the door for opportunities that were unattainable before. This is a huge win for Jones, and we expect to build upon this momentum in the coming quarters. With that, I'd like to pass the call over to Brian to talk more about our third quarter financials. Brian? Brian Meadows: Thank you, Scott, and good morning, everyone. Net revenue in the third quarter increased 15% to $4.5 million compared to $3.9 million in the year ago period. The increase in revenue was primarily driven by sustained growth in our HD9, direct-to-consumer and fountain products. Scott mentioned, we expect to see increased net revenue in the fourth quarter, driven by higher volumes in our core soda category into 2026 for our very successful fallout related product lines, that includes Sunset Sarsaparilla and the exclusive Fallout Vault-Tec packs through our Club Channel. As we stated in our news release, our fourth quarter gross sales guidance is $8 million, driven by these Fallout products. Gross profit increased by approximately $0.6 million or 76.7% to approximately $1.3 million compared to $0.7 million last year. Gross margin as a percentage of net revenue increased significantly to 28.9% from 18.8% in the prior quarter or an incremental 10.1 percentage points. The major improvements to gross margin were driven by lower trade spend, lower product costs as well as lower freight and warehousing charges. As mentioned last quarter, our team issued RFIs for our freight lanes to further optimize transportation. We've continued to rationalize our warehousing to reduce costs, resulting increase in gross margin reflects these initiatives, along with ongoing efforts to lower COGS. The company continues to look for opportunities to decrease the cost of goods sold with it's co-mans, co-manufacturers and our warehouse and providers. Total operating expenses decreased approximately 20% to $2.7 million in the third quarter compared to $3.4 million in the year ago period. Additionally, G&A costs declined by 8 percentage points to the share of revenue year-over-year, and we remain focused on identifying further cost reduction opportunities. What's important here is the cost cutting, Scott and I implemented early in the year is sustainable. We are looking to now focus on growing the top line and continue to make improvements to the gross profit margins. As our top line growth is expected to accelerate in the quarters ahead, our volumes will increase and that means we'll have opportunities to negotiate lower co-manufacturing fees, ingredient and packaging purchase costs. We'll also continue to focus to hold down SG&A costs to get to a lower percentage of net sales in the coming quarters. Net loss for the quarter was $1.4 million or negative $0.01 per share compared to a net loss of $2.6 million or $0.02 per share. The improvement in net income was driven by a combination of higher gross margin and lower operating expenses. Adjusted EBITDA improved 65% compared to prior year to negative $0.9 million compared to a negative $2.2 million in the previous period. Lastly, I wanted to touch briefly on our balance sheet as of September 30, 2025, the company had approximately $0.2 million in cash and $0.6 million in working capital. Early on in my tenure as CFO, I made the decision to move to a different line of credit facility. This is an extremely important move for Jones as it increased our credit facilities from $2 million on a small base of assets to borrow against to $5 million on a larger base of assets to borrow against. Scott and I needed some time to ride the Jones ship and the extra room and -- the credit line has just done just that. We have reduced costs significantly and cut the EBITDA loss down by over $2 million for the 9 months. Credit facility is also financially supported the buildup of inventory for the sales forecast for Q4 of $8 million. We'd like to thank our partner, Two Shoes Capital for believing in the Jones leadership team to complete the turnaround in our business in 2025. I'd also like to highlight that with the change in HD9 legislation, Scott and I will carefully manage for this development to keep our inventory levels in HD9 as low as possible and continue to derisk our exposure in the coming months. Scott highlighted previously, we see a number of market opportunities for Jones in its core business with the success of the follow-up products in Club, DSD and the direct-to-consumer channels. Additionally, we plan to focus on the untapped opportunities Spiked Jones to build the alternative adult segment, and lastly, look to drive volume for the modern soda category in 2026. With all this momentum in the fourth quarter, I extend to see this growth take shape while continuing to focus on operational discipline. Scott, over to you for the final remarks. Scott Harvey: Thanks, Brian. The future of Jones remained in driving growth across our key focus areas, which are core Soda, modern and our adult beverage. Within our core soda, we continue to expand and grow our distribution partners while launching exciting and socially relevant initiatives. In modern soda, we're excited about the growth we see in our marquee products, Pop Jones and Fiesta and remain bullish about the functional beverage category as a whole. As we continue to sign new distribution partners for these products, we are excited to further align offerings with consumers' behavior and preferences. In the adult beverages, although we expect HD9 to be a smaller part of the category due to U.S. regulation, we are excited about Spiked Jones sits, and we will continue to look for ways to increase our market share in the adult beverage category. To wrap up, Q3 was a great quarter for Jones Soda. We continue to make significant operational improvements that have strengthened our business model and position us for success. Additionally, we're beginning to see some momentum across the brand in our sales channel, supporting by meaningful orders that will help elevate the company, drive revenue and create more opportunities ahead. This is an exciting time for Jones, and we look forward to building this progress and delivering sustained top line growth, increased profitability and long-term value creation for our shareholders. Before moving to Q&A, I want to take a moment to thank our team. Their resilience, passion and belief in what we're building have been the backbone of this turnaround. I'm equally grateful to our partners and our customers for their continued commitment and support. With that, we'll wrap up the call by addressing some of the questions that have been submitted via the live webcast. Scott Harvey: First question, Brian, it's probably a great question for you to take. Can you provide cash holding guidance given the large amount of accounts payable on the balance sheet? Brian Meadows: As I mentioned earlier, we have a $5 million credit facility that we utilize as we need to draw it to build up inventory. So we expect to have adequate cash resources to roll out our Q4 sales plan and into 2026. Scott, back to you. . Scott Harvey: Great. Thanks, Brian. Second question, it's great that Jones is being innovative with new product development, is there any thought about broadening the distribution footprint through independent DSD network in new markets and making investments in chain account teams to help distribution and authorization of new products? Great question. Yes, I mean, the independents are who we're targeting as well as we're still going after some of the larger distribution networks that are out there. We find that they're great partners with us. They believe in the brand. They're willing to go back and reinvest in the brand as well in order to put the products on to the shelves. When you start taking a look at independent chains, independent account teams. Again, it's just -- it's additional dollars that we'd add on to the -- on to SG&A lines. It's something that we are talking about internally whether or not we focused it on a specific region of the country and see how well it does within there to see the growth that we get out of there, but it's definitely something that we are actually taking a look at internally and continue to have those ongoing conversations about. Third question. Brian, is probably one for you. Where do things stand with the S-1 filing, any potential uplift to J-BEV fundraising efforts than anything material come out of the gateway conference? Brian Meadows: Start with the Gateway Conference. You'll see Scott and I attending these type of events as become available and makes sense for Jones to attend. We thought it was a good use of our time to meet potential new investors who are familiar with the brand from a consumer perspective, but not as familiar with it as a public company. So we think we made some good connections there with potential investors, and you'll see us out there in the future. In terms of the S-1 filing is paused at this stage. We're focused on delivering a great fourth quarter for Jones shareholders, and we will revisit sometime in '26. Scott Harvey: Great. Next question for Pop Jones and Fiesta, have store counts increase held steady or decreased and how well is the sell-through this quarter? Yes. So we've actually expanded our Pop Jones this quarter. We actually were able to get into a few different convenience and -- not convenient stores, but other channels for growth in there. We picked up about 4.3% on Jones year-over-year on Pop Jones moving through there. We were able to get into [indiscernible], which we saw a 96% lift Pop Jones. So it is moving through there. Again, the field is super, super competitive in there within the whole modern soda category. But again, I think the brand differentiator is our flavor profile that we're able to bring in to the consumers as we start to roll out there as well. On the next question, on the last earnings call, it is anticipated -- you anticipate Q3 revenue will exceed Q1 and Q2. What didn't materialize that may have caused that shortfall. Brian? Brian Meadows: The area that I could think, Scott, would be HD9 came in later than expected, and that was due to some co-man issues that were being resolved during the quarter. But I think will -- as you heard from our sales guidance in Q4, that is going to be significantly higher than last year's Q4 numbers. Scott Harvey: Great. Was the Southeast Costco test for core Jones Soda to successful, what were the sellout rate did you observe? It didn't meet the threshold of what Costco was looking for. They have a specific threshold. As I would say, it didn't perform poorly, but it did not achieve that threshold. And I attribute a couple of things to that is that we were into the Southeast, brand is not a lot of notoriety in the Southeast. But in some cases and had some great sell-through in some of the clubs, but not so much in some of the other ones that we were able to get through. How do we feel about that going forward? We're still optimistic. And again, we'll be able to share some more thoughts as we continue through our next conference call. But we've gone back and we're still pitching Costco on a few different ideas. And of course, one rotation through there that may not be successful does not bought you out from getting in there again. So again, more to come on that, some stuff that you'll hear forthcoming. But that initial rotation, yes, it wasn't -- did not meet the threshold that they were actually looking for. Brian Meadows: I just add some question, so there was a news release that we put out in October. I'd like to drive attention to on our success with the fallout exclusive Vault-Tec pack that we ran through the Costco Northeast region. That one exceeded the sell-through hurdle, Scott, right? And we are -- as the news release indicated, we're working around the clock to deliver additional products. So as Scott mentioned, just because one particular region, one product didn't work, there are other opportunities that we're exceeding -- we're selling with Costco. Scott Harvey: With Costco. Brian Meadows: Yes. That rotation that we did for them up in the Northeast was very unique. I mean it caused a bunch of fury online as to where you're able to find the product. We've seen it up on eBay. So I mean, it actually was a huge success, and we were very excited about that opportunity as was Costco just based upon the sell-through rights that they achieved. Scott Harvey: Next question. You recently hired a new CMO. What strategic and creative shifts do you expect this to bring. I think what Eric brings to us is the ability to be able to look at our current channels that we want to continue to focus on. We keep talking about the same thing, whether it's core, modern or adult, and really try to understand the consumer base that's within each one of those categories. So Eric's job will be is how do we communicate and we look at it from like this perspective, like I call it the 3Es really. For each of those categories, we want to understand how do we educate our consumers, how do we entertain them and how we engage them. And that's part of the pillars that Eric will be able to run after. One, it's identifying who those consumers in there, whether we think that they are or not, we need to validate that through data, figure out how do we go back and connect with them via social media or in-store displays or TPRs that we may do. So it's really about -- what he will bring to this is really that strategic vision as to -- how do we get the brand out there, how the brand gets notarized in notoriety. And as we mentioned, even with the Fallout Vault-Tec that we did with Costco and some of the others and some of the D2C stuff that we do, it's about building brand impressions, meaning getting that Jones name out in front of people where it becomes a household name where people begin to recognize it when they walk down their aisle. So his job will be is to strategically put us in place on how do we execute the 3Es and then how do we connect with our consumers to drive value and incrementality of each one of those categories. And then staying on top of flavors and profiles and brands and what do we need to change within our categories or add when new flavors are on the horizon, how do we adapt to stay relevant within our existing channels that we run after. So great question. Next question was previous leadership proposed a refreshed brand direction in modernizing Jones, look, while keeping key classic elements. Does Jones company plan to continue evolving the brand to remain culturally relevant to avoid a appearing outdated on the shelf. And I think quick response to this would be, yes, I mean there's -- I think it's a yes and no question. One, because one people recognize is for pictures that are on the bottles, right? So that brings back nostalgia. It brings back relevancy. It gives us the opportunity to be able to connect with our customers from them submitting in -- submitting in pictures that could potentially be on the bottles as well. But then you look on the flip of that when you looked at the Pop Jones and the Spike Jones that they're a little bit different. They don't have the pictures on there. couple of reasons for those could be the fact that, hey, when we do long production months and changing them out, maybe less frequently. But again, Eric, who's joined as the CMO is taking a look at those of how one stay relevant but don't lose who we are going forward. So I think that there's a combination of both and we have to find that medium in between as to how do we stay relevant with today's look and feel by not also raising our 30-year heritage of the brand that made Jones, which is, "Hey, I'm putting my -- somebody's photo up on one of our bottles. If we're able to come up with a way that we're able to define it as we continually talk about internally is that, we have to have a label strategy and a flavor strategy. If we're able to figure out how do we -- how we bring those pictures in and get them on the cans and rotate them more quickly, it's definitely something that we will continue to look at on an ongoing basis. Next one is sort of ties into the same one. Why did Jones steer away from including customer photos on top Jones and the Fiesta Jones. I'd literally just -- I just touched into that. And again, it's about quantity of production runs, cost of production runs, how do the pictures portray onto a can versus a printed paper label. So again, it's something that we're looking at and Eric is spending some time on how do we bring that to life, if possible. Because, yes, it does -- it is meaningful for people to see that on there and it really relates back to who we are. Next question, previously mentioned discussions with Walmart. Has that conversation advance? And what is the opportunity or has that opportunity been paused for now? Great question. We did have that meeting with them. There were 30 different brands that did the presentation to the Walmart buyer, which included all the better-for-you carbonated beverage. What Walmart came back with is that, hey, they were looking for strong regional retailers that are delivering sales in there, and we were able to point out that through some of the existing chains that we're in, how well that our performance did. They talked about a potential test to be able to roll that out, and they had great feedback on the 5 flavors that we have produced for them. Where is it today? Well, unfortunately, the buyer that we were speaking to has moved on. So now we are a bit in that -- a pause as they onboard that new buyer. And once they're in there, then we'll continue to get up in front of them and follow up as far as where we were within that queue of that potential product launch that we have there. If HD9 gets shut downs, can Jones repurpose the 800-plus coolers that have been deployed to pivot to Spiked Jones? Absolutely. Yes. So as a matter of fact, I was just at the National Association, the Convenience Store Operators convention a couple of weeks ago, and we had the coolers on site. The good news about the coolers is that they're not HD9 branded, they're Jones branded. So there other than some window claims that are on there, they can definitely be repurposed, not only for modern or spiked or core. So they can be reutilized and those are internal conversations that we are talking about as well. Brian Meadows: Sorry, I was just going to add, a number of our distributors carry multiple Jones products as well. So we wouldn't have to redeploy in those cases. Scott Harvey: Yes. Great. Thanks, Brian. What about Pop Jones, no mention of this. I did touch on Pop Jones. And just as an example, we launched Pop Jones in this past quarter, all 5 SKUs into Meijer, Jewel, Fiesta Foods as well. So there is movement on there. We are going back and taking a look to try to see how we improve the economics on that product as well to get us more competitive that's in there and whether or not that again, it's looking at the ingredients. We're not going to play with flavor because people love flavor, but we will look at trying to improve the COGS to get us to a better value proposition in order for us to be able to compete with, like I said, at Costco or at Walmart with those 30 different other manufacturers that are out there that are competing for that same space. Last question would be exactly why was the fundraise and uplist pause. Brian, can you add any additional color to that? Brian Meadows: Yes. I would say the following. First of all, Scott and I are, as you can see from our dialogue today, I'm pretty excited about the fourth quarter. We think -- and I use the word to complete the turnaround this year. We think we're going to be a better spot if we -- the Board wanted to raise additional capital once we complete the year and demonstrate what Jones has accomplished in 2025. Secondly, the NASDAQ, for example, has increased its uplift capital raise requirements to $15 million from the original $5 million. So these are the 2 reasons. But again, we've got the credit facility to help finance the increase in inventory that we need to do for the fourth quarter. So we're in good shape, and we are excited to complete the year, Scott. Scott Harvey: Yes. Great. Next question. A year ago, we were hearing about exciting growth with Jones Fountain. You mentioned Fountain as being part of the profitability. What is happening with this. Well, we actually launched a segment into a particular customer so far. And there is great excitement around that as well as that we've got some big things that we're working on within the convenience channel of open heads within some of those convenience channels to be able to launch fountain. And with great excitement. And it can either be carbonated or noncarbonated products. So again, the teams are working diligently on that to be able to see if that's another way for us to edge our way into space and unoccupied heads within some of the convenience stores that were in there. So more to come on that one, but it is something that the team is exploring as we go through. Next question, how often can you capitalize on Fallout opportunities do similar opportunities in the future? Fallout series is that we have a 3-year commitment with Bethesda, based who represents Fallout. So we still -- we're only in year 1 of year 3. So we will continue to capitalize as much as we can with Fallout. The question is, is there other opportunities? And the answer is absolutely yes. And we are going down those exploratory issues now with some really exciting potentials coming forward. We looked at Crayola. We did Crayola this year, too. So you look for us probably doing something again for the for the back-to-school coming up in next year with the Crayola as well. And the teams are actively out there talking to other potentials, which are getting us excited in there because we have the flexibility to be able to adjust, adapt and create. And again, going along those same lines about educating people about our brand and entertaining them and engaging them. So I really see that is an ongoing opportunity for us to be able to engage in these licensed properties opportunities for us on an ongoing basis, whether it's in a store and a club or on our D2C side or on their D2C site as well. So I think that there's great optimistic outlook on those abilities for us to be able to partner with these licensed properties on an ongoing basis. Brian Meadows: Scott, could I get you to maybe talk about one other thing. We talked about Fallout, the amount of the viral nature of how explosive that went in social media and how it brought people's attention to the Jones brand again and all that attention. I think you used the words that would have cost an awful spot in terms of formal advertising. They get the Jones name out there like that. I wonder if you could touch on that and then how that has elevated the Jones brand again to the other potential partners that have noticed and taken notice of the whole phenomenon. Scott Harvey: Yes. Great question. So yes, I mean, we -- when Fallout -- when we rolled Fallout out, we did put some allocate dollars behind how are we going to market this to be able to drive some social media buzz around this. So there is 2 ways that we were actually able to accomplish this. One was that direct investment in there about going out and paying to engage consumers to look at our post and paying for that. And what we saw was a minimal investment drove millions of impressions of the posts that we were able to put out there. We worked with specific influencers that were in the Fallout space. So hey, we went and engaged one of them. We pay them a fee. They did it post and that post just through their following, just explode it. What that did for the brand as it brought us back to relevancy is, hey, it's a Jones product, partnering with Fallout was able -- were able to drive these impressions all across. Each one of these -- and again, if you follow us on Instagram, you've seen a lot of posts over the weekend where we were in Vegas out in the desert where the Fallout series in a saloon where it all actually takes place and it's in the actual series itself. We had a booth. We were engaging with consumers. We debuted the rocket bottle that we're going to sell here in we actually had a picture of the rocket bottle in the stars, the star of the show stand behind the bar, and that just exploded as well. So all of that is, again, it's helping the fallout series itself, but it's also about helping the brand itself by one, building impressions of us getting that name Jones out in front of consumers where they go, Fallout and Jones. And it will drive consumers to us. And we did see this when we rolled out the Sunset Sarsaparilla on our website. Astronomical amount of sales. Again, it was associated with a follow-up, but we're able to capitalize on those benefits of selling our product and getting our name out in front of consumers on a go-forward basis. Brian, I don't know if I missed any part of the question that you had. Brian Meadows: The only -- and I know you can't name names, but we certainly saw other interested brands come forward as a result, I think, of Fallout, yes. Scott Harvey: Yes. Yes. Two different things. One is that we've had other licensed properties contact us already as to, hey, saw what you did there? Could you probably help it out with that? And we've had some really exciting conversations over the last week about that. So more on that. but not only on that side, but it also came from our customers. We've had customers that we've gone to approach before that didn't -- weren't really interested in Jones but came back to us since we've done this follow-up and saying, "Hey, how can you help us with something like that on a go-forward basis where before they wouldn't entertain a conversation with us. Now we're actually getting inbound phone calls from potential either big box clubs or such that are interested in how do we help them develop products for them to be able to draw consumers into their space as well. Great. Those are all the questions that were submitted today. And hopefully, we were able to answer your questions and again, provide you some insight and how things that Brian and I are working on. We'd like to thank everyone again for taking the time to listen today. Again, I'd welcome further questions or we'd be happy to take one-on-one calls later this week or in the next again, and please direct any inquiries to jsda@gateway-grp.com. I'd be happy to address accordingly. And again, if I don't speak to you soon, I look forward to addressing you all again when we report our full year and fourth quarter results in March. Again, thanks again, everyone, have a great day. And operator, back to you. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Welcome to ABN AMRO's Q3 2025 Analyst and Investor Call. Please note, this call is being recorded. [Operator Instructions]. I will now hand the call over to speakers. Please go ahead. Marguerite Bérard-Andrieu: Good morning, and welcome to ABN AMRO's Q3 results presentation. I'm joined today by our CFO, Ferdinand Vaandrager; and our CRO, Serena Fioravanti. After our presentation, we will hold a Q&A session to address all your questions. Let me begin with the highlights of the third quarter on Slide 2 before moving to the announcement of our intention to acquire NIBC. The third quarter was another solid quarter for ABN AMRO. Net profit reached EUR 617 million with a return on equity of 9.5%. The inclusion of HAL contributed EUR 26 million to our results across all products we managed to grow this quarter. Our mortgage portfolio increased by EUR 2.1 billion and corporate loans grew by the same amount. Net new assets increased by EUR 4.3 billion. Cost discipline remains a priority with FTEs declining by 700 in Q3 and by almost 1,000 year-to-date, excluding HAL. Credit quality remained strong with EUR 49 million in net impairment releases reflecting recoveries and improved macroeconomic variables. Our CET1 ratio stands at 14.8%, and we finalized the EUR 250 million share buyback in September. We will review our capital position in Q4 to assess the potential for further capital returns. Now turning to our other announcement of the day. I'm very pleased to announce that we have reached an agreement to acquire NIBC. This acquisition is fully aligned with our strategy and presents a unique opportunity to reinforce our leading position in the Dutch retail market, and accelerate our personal and business banking strategy. NIBC is a well-run, primarily Dutch-focused entrepreneurial bank with a strong specialization in mortgage lending and savings products. It serves around 500,000 retail clients and around 175 corporate clients with a high-quality portfolio mortgage and very low arrears. NIBC will add around EUR 28 billion of mortgages, significantly increasing our scale in these markets, further cementing our leading position in the Dutch mortgage market. Around half of the mortgage portfolio will be off balance as NIBC has an attractive originate-to-manage franchise with long-dated mortgages. The acquisition also brings an attractive savings platform, serving 300,000 clients across the Netherlands, Germany and Belgium. The savings offer an interesting cross-sell opportunity with our investment platform, BUX. Given NIBC's domestic focus and the overlap of service providers, there is substantial potential for cost synergies with limited execution risk. This transaction is expected to deliver return on invested capital of around 18%, 1-8, and will improve our group's financial profile. The capital impact of approximately 70 basis points is anticipated at closing. The acquisition is, of course, subject to regulatory approvals and is expected to be completed during the second half of 2026. We look forward to welcoming NIBC's clients and colleagues and to the opportunities this acquisition will bring to us all. Now turning to our third quarter results. I will start with the Dutch economy. While the Dutch economy continues to perform well, supported by a strong fiscal position and low unemployment, the housing market remains robust, with pricing still rising, though at a lower pace than in the first half of the year. Employment continued to rise and is at a record high. The debt-to-GDP ratio of the Netherlands remains very healthy -- and that's a French person telling you that, it is significantly lower than other European countries. The Dutch elections results have been announced and coalition talks have begun. Ideally, the quick and stable formation process will allow the new government to start addressing important national issues, for example, the housing shortage or the nitrogen issue. Given this economic context on the next slide, I will discuss our results. We again showed a quarter with strong mortgage production growth, thanks to a robust housing market. Our mortgage portfolio grew by EUR 2.1 billion in Q3 with our market share in new production rising to 19%. We made some important amendments to our mortgage terms. We now automatically adjust risk premium after repayments, reviewing it monthly instead of only at the end of the fixed rate period. This led our mortgage products obtaining the top rating in the intermediary market, which accounts for nearly 75% of new volume. We observed an immediate increase in new volumes following this. Today, we also announced the rationalization of our mortgage brand line-up. Going forward, we will focus on our core labels, namely ABN AMRO and Florius and we will discontinue the Moneyou brand. This allows us to focus investments in our core labels, in technology and innovation to further improve our services. Moving to corporate loans, further organic growth and the inclusion of HAL resulted in EUR 2.1 billion loan growth this quarter. Loan growth was partially offset by the wind-down of asset-based finance. This quarter, we sold our U.K. lease portfolio. Moving to deposits. HAL added close to EUR 11 billion of client deposits. Within Wealth Management, we also have provided targeted offerings starting in Q2, which have resulted in net new assets of over EUR 4 billion this quarter. Given this positive developments in our lending and deposit franchises, let's now look more closely how these have supported our net interest income. Our net interest income increased to EUR 1.5 billion. HAL's inclusion contributed positively to NII by around EUR 34 million. The inflow of NHG mortgages and the adjustments we made in the mortgage terms I just mentioned before, led to slightly lower margins. However, the strong growth in our mortgage book offset this. Deposit margins declined partly related to targeted offerings within Wealth Management at reduced margins. Treasury results increased during Q3. However, the increase was a bit lower than initially expected. Based on last quarter's forward rates, the inflection point of replicating portfolio yield was expected at the beginning of next year. However, current interest rates have brought this timing forward this quarter, bringing the decline in the replicating yield to a standstill. In the coming quarters, we expect the deposit margins will start to become a tailwind. Looking ahead to next quarter and assuming a modest increase in treasury NII and stable deposit margins, we expect full year NII of at least EUR 6.3 billion, including HAL. Now turning to fees. Looking at our third quarter fee income, the fee contribution from HAL becomes evident, increasing overall fee income by around 10%. These excluding HAL, continued to increase, with fee income for the third quarter, reaching its highest level in the past 2 years. Personal and Business Banking fees increased mainly from higher seasonal payment transactions. Wealth Management fees was primarily thanks to higher advisory and mandated business volumes. Other income is volatile by nature and ended at EUR 28 million for Q3. The decline was caused by a number of factors, all having a negative impact on other income this quarter. Specifically, we booked lower equity participation results, lower other income within treasury and a negative fair value correction of past bookings related to some mortgages. Now moving to our operating expenses. We have further reduced expenses as we worked on rightsizing our cost base. This quarter, FTE showed a significant reduction of 700, half of which related to contractors in Group Functions. Since the beginning of the year, the number of contractors have declined by 1,100. To a limited extent, we onboarded external for their skills, which explains the small increase in internal FTEs over the same period. The Dutch Collective Labor Agreement increased wages by 3.75% on the 1st of July, leading to an increase this quarter in personnel expenses. Thanks to our ongoing cost discipline, our underlying cost base declined this quarter. At the beginning of the year, we projected our underlying costs excluding HAL to be between EUR 5.3 billion and EUR 5.4 billion, and we are confident now of ending at the lower end of this guidance. Including HAL, this now translates to a full year cost guidance between EUR 5.4 billion to EUR 5.5 billion. Now turning to our credit quality, which again remained very solid. Prudent risk management supports our strong financial results. We recorded impairment releases of EUR 49 million this quarter, mainly related to recoveries in corporate loans and improved macroeconomic variables. We saw some inflow into stage 3 for specific individual files, although, this was lower compared to the last few quarters and fully offset by releases. The total Stage 3 ratio decreased slightly to 2% and our coverage ratio was broadly stable for each of our lending projects. Given the impairments year-to-date, the cost of risk for 2025 will likely end around 0 for the full year. Now moving on to our capital position on the next slide. Our CET1 ratio remains stable at 14.8%, well above the regulatory requirements of 11.2%. The impact of the consolidation of HAL was offset by the quarterly contribution of our net profit. The total impact of HAL on our CET1 ratio as of Q3 is 40 basis points, 7 basis points of impact were already taken in Q2. The formal move of certain loan portfolios to the standardized approach had no impact on our capital ratio, while RWAs increased by EUR 1.6 billion. This was offset by lower capital deductions in our CET1 capital. During Q3, data quality improvements were realized around EUR 1 billion of RWA reductions, mainly from data improvements on real estate collateral. Further progress on data remediation is anticipated, for example, related to the SME support factor, which may result in further reductions in Q4. Looking ahead, as I mentioned, NIBC will impact our capital ratio by around 70 basis points at closing, expected in the course of next year. Our capital position remains robust, and our capital generation is strong. In Q4, we will review our capital outlook and incorporate all the relevant capital and RWA developments. Now to summarize our third quarter results. For 2025, we expect net interest income of at least EUR 6.3 billion and costs between EUR 5.4 billion and EUR 5.5 billion, both including HAL. We are delivering on our cost discipline, improving our data quality and sourcing and are delivering profitable growth in mortgages and deposits. The seamless integration of HAL and closing the acquisition of NIBC are important strategic milestones as we build scale in our core markets. Looking ahead, we are excited to invite you to our Capital Markets Day in just 2 weeks' time. There we will present our updated strategy and financial targets with a sharp focus on rightsizing our cost base, optimizing our capital allocation and unlocking profitable growth opportunities. We look forward to sharing our vision for the future and the next chapter in our journey with you. With that, I would like to ask the operator to open the call for Q&A. Thank you. Operator: [Operator Instructions] The next question comes from Giulia Miotto from Morgan Stanley. Giulia Miotto: I'll start with a question on NIBC. Why do you think that the execution risk here is low? Like, can you give us any, I don't know, qualitative comment on, for example, do you have the same systems or -- anything that can give us confidence on essentially achieving this quite significant synergies? That would be my first comment. And then secondly, I wanted to ask on the costs. The quarter was very good. Was a beat versus consensus expectations, excluding the one-off, the EUR 55 million. However, the exit rate is actually quite high. If I take the mid-range, if I take basically EUR 5.450 billion and then I remove the EUR 3.9 billion that you've done so far, underlying would be EUR 1.55 billion for Q4, which is more than what I would expect. And then it's quite a high run rate for '26. So how should we think about the exit rate and yes, on the cost side? Marguerite Bérard-Andrieu: Thank you very much for your questions. I will start with your first question on NIBC, and Ferdi will take your question on costs. So on NIBC, bear in mind that this is an asset we know very well. We operate in the same market, in the same businesses, mortgages, savings. So this is an asset we know very well indeed. And you're right, we have evident synergies. I'm going to give you just one. We use, for instance, for mortgages, the same service provider Stater. So this is an evident synergy just to flag this one. It is too early to share all the details, of course, of the target operating model. Bear in mind that the transaction will be only closed in the second half of 2026. But we are indeed confident that this is below execution risk transaction for us. Now Ferdi to the cost this quarter and looking forward? Ferdinand Vaandrager: Yes, Giulia, I think the most important message on cost is that underlying our costs are going down, evidenced by the FTE reductions year-to-date. And this offsets the more than offset the CLA increase. As Marguerite said already earlier, we will end at the low end of the guidance range, excluding Hauck Aufhäuser Lampe, but if you add the cost of Hauck Aufhäuser Lampe, we will add in the range of EUR 5.3 billion EUR 5.4 billion. If you look at the exit rate in Q4, we always have some prudency in our guidance, specifically for Q4 because, as usual, you can always expect some seasonal cost increases. Last year, that was around 4%. So that's what you need to take into account if you look at the exit rate in the guidance. Giulia Miotto: Okay. But so just to clarify on the Q4 costs. So it will probably be higher than an exit rate for '26. It sounds like because there is some in Q4... Ferdinand Vaandrager: There can always be, Giulia, that is the question underlying, we expect the cost trend to continue as we've seen in the previous quarters. But normally, there is some prudency of the seasonal cost increase you can see in Q4. Giulia Miotto: Understood. Ferdinand Vaandrager: The guidance is fairly clear between the EUR 5.4 billion and EUR 5.5 billion, including the cost of Hauck Aufhäuser Lampe. Operator: The next question comes from the Namita Samtani from Barclays. Namita Samtani: The first one on the NIBC deal, thanks to the EUR 100 million of first run rate cost synergies in 2029. But when you speak about further upside from revenue synergies what are you referring to? Are these funding synergies? And do you have a sense of quantum? And also the legal merger of ABN AMRO Hypotheken Groep into ABN AMRO. Is that included in the deal maths that you've given today? And my second question, on the replicating portfolio, is it still EUR 165 billion in size? And how should we think about the long end part of the replicating portfolio? Is it more mechanical, for example, just a very simple 5-year swap rolling mathematically or in fairly even tranches? It's just that replicating portfolio slide on Page 16, it confuses me a bit. And I can't understand when year-on-year, I'm going to see a benefit from the hedge. Is it in 2027? So any color there helpful. Marguerite Bérard-Andrieu: Thank you very much. I will take your question on NIBC, and Ferdi will take your question on the replicating portfolio. So yes, we see this transaction on NIBC as very accretive indeed because there are synergies in costs as well as in revenues. Just to give you a few highlights, we are adding 500,000 new retail clients to the ABN AMRO Group. These are clients that have -- that are mass affluent clients. So they fit very well our group. We think that we can bring more products and services to these clients. We also see, as I briefly mentioned an opportunity in using BUX to serve these clients. Bear in mind that NIBC have clients, of course, primarily in the Netherlands, but also in Belgium and Germany. So BUX can really help with that. And yes, in terms of synergies, there are also funding synergies, both on the revenue side as well, I would say, on the cost side, just to hint at a few of the positives we see in the transactions. Ferdinand Vaandrager: Yes, maybe come back and to add to that Marguerite. Indeed, we're prudent in our assessment. So the EUR 100 million is the post tax cost synergies. Of course, there can be some funding synergies. For example, we can over time, refinance the debt securities at the lower rates and also potential reduced LCR targets. But also on the other hand, you might also see some dis-synergies from deposit churn. So overall, if you look at the synergies, it's negligible in our assumption on the revenue and the funding synergy side. If your question on the replicating portfolio, yes, I can confirm the size is still around EUR 165 billion. As you have seen some terming in, that means that it has increased somewhat over the past 2 quarters, and it's also still there around 40% to 45% of the replicating portfolio reprices within 1 year, and the overall duration is around 3 years. If you look at the sensitivity slide in the presentation. It's now an update on a quarterly basis. So the starting point is slightly different from the previous quarters. And there, you can see that we have seen the inflection point already on the income side. But if you purely look at the sensitivity, it does not take into account any changes in volume, and it does not take into account any cost changes, i.e., changes in deposit pricing. So you should just look at as a sensitivity on the replicating income as an 'as is' situation. Marguerite Bérard-Andrieu: And forgive me because I realized I forgot to answer your question on the legal merger and of course, yes the transaction with NIBC is subject to all regulatory approvals. And that, of course, includes the legal merger. Let's say, we do not anticipate difficulties on that front. Operator: The next question comes from Tarik El Mejjad from BofA. Tarik El Mejjad: Just another question on NIBC and one on cost base. I mean I guess you share with us more detailed math on the deal with the synergy expected with some time frame because, I mean, clearly, usually, at least on my M&A model, I mean revenue synergies is not something I would push too much. And on the cost sounds quite punchy here, but I mean, Marguerite, you gave some indications of what kind of synergies. But yes, if you can share with us would be helpful. I mean this is very important for your capital allocation, I guess. And my question is what's next? Because I was more expecting a deal on the Wealth Management to be honest. And in Bloomberg, you mentioned that this is it in terms of deals to be announced. So is this now back to focus on restructuring the bank and costs? Or should we expect more potentially destructive deals to come? So that's number one. And number two, on just maybe a question for Ferdinand. On the cost guidance, EUR 5.4 billion, EUR 5.5 billion, is that excluding incidentals or it's all-in reported guidance? Marguerite Bérard-Andrieu: Thank you. Thank you very much for your questions. A couple of things. Yes, this deal is highly accretive. The 18% return on invested capital, we are very confident is achievable. And indeed, what we primarily factored, I mean why we factored in this model was primarily cost synergies. So if there are revenue synergies on top of it, it is an upside. But I agree with you, this is not a primary thing that we looked at in this deal. And looking forward, we will be sharing yes, more details on the target operating model, but that will come in due course. Just to clarify the answer I gave to Bloomberg. This was more an answer on saying, well, we're not going to call every morning to announce to announce a new M&A deal. So it's just that -- I think the question I got from Sarah there was like, is there something else coming out at the CMD? So no, in the next 2 weeks, don't expect any other announcement from us. And as far as our strategy is concerned, organic and inorganic, we will share everything in 2 weeks when you come to our Capital Markets Day. Ferdinand Vaandrager: Yes. Tarik, to come back to your question on the guidance. Initially, the guidance was equal to last year. We expect to end up at the lower end of that range. Hauck Aufhäuser Lampe adds between the EUR 130 million and EUR 140 million. So this translates in the updated guidance. And clearly, the updated guidance is excluding the incidentals as announced today. Operator: The next question comes from Benoit Petrarque from Kepler Cheuvreux. Benoit Petrarque: So just to come back on NIBC, sorry for that. Just again, the strategic rationale. Because it sounds like a very financially attractive deal and it seems that from a strategic point of view, that was the main reason behind this deal. I was also a bit expecting a bit more other type of deals, let's say. And maybe I missed it, but do you see kind of any franchise value in NIBC or you see just purely 100% as a financial attractive deal with 10% accretion by '29. Just wanted to clarify that because I also see a very low fee base at NIBC. And I was also expecting a bit more fee business as target. And I was also wondering if you could provide some timing on the EUR 140 million pretax synergies, whether we'll start to see some positive effect from that in '27 or that will be more back-end loaded? And just second question on NII. So your guidance of more than EUR 6.3 billion implies roughly EUR 50 million quarter-on-quarter on NII in Q4. And I was just wondering if you could provide the moving parts, deposit margin, lending margin, treasury income. What will drive this improvement in the fourth quarter? Marguerite Bérard-Andrieu: Thank you very much for your questions. So on NIBC, it is indeed both, a financially sound deal, an accretive deal and also a strategic deal. I think it's a good -- it's a good way of proving how we look at M&A. M&A strategy will always be disciplined and we will only pursue it if we find it shareholder accretive. It will be -- this is one of our criterion. You see it with this deal and the 18% of return on invested capital that it brings to the bank. This being said, we see a natural strategic fit with NIBC. It brings us scale in our domestic market in mortgages and in savings. The NIBC brand is a very good brand in the Netherlands. This is a brand that has been existing for 80 years. It has an entrepreneurial flavor. It appeals to the client base that's also slightly different from the clients we already have at ABN AMRO. So it is a great way for us to keep growing and strengthen our position in our domestic market. To your question of -- yes -- to full -- when we see the full benefit of the synergies we mentioned, we express it as 2029 just because as I said, we do expect the closing of the transaction to only happen in the second half of 2026. So we do expect a full benefit of the synergies to be there in 2029. But it does not all happen in the last year, of course. Ferdinand Vaandrager: Yes. And Benoit, maybe on your NII. Arguably you could say NII for this quarter is slightly lower, but I want to reiterate here that is mainly by our own decision. So it was a targeted wealth management campaign. And there, you see a very good NNA growth of almost EUR 4.3 billion. So now it's key that we start transferring that in valuable assets. Number two is an acceleration in the ABF wind down, specifically portfolio sale in the U.K., which is ahead of plan. And what Marguerite already said that is the implementation of what we call here [ARNA]. And that has clearly a positive impact on our position with the intermediaries. Also, if you look at our market share now up till 19%, so for Q4, we expect a modest improvement in the treasury results, as well as stable deposit margins. And if you look at the update on the sensitivity slide, what we discussed earlier, the inflection point of the replicating portfolio is already reached this quarter or, I should say, a start of Q4. So that brings the decline in the replicating yields to a standstill. But if you look at the sensitivity, the tailwinds will be very limited initially and will be more pronounced in the second half of next year. Operator: The next question comes from Benjamin Goy from Deutsche Bank. Benjamin Goy: Two questions, please. So first, on NIBC, again, which over the last 6, 7 years, has built up a significant off-balance sheet mortgage book. Just wondering your thoughts on that part of the business because you very much rely on balance sheet growth? And then secondly, you also call it a low execution risk. I'm just wondering, when you look at capital return going forward, do you basically take your current capital ratio minus 70%? Or would you include a buffer given the uncertainties and execution risk? Marguerite Bérard-Andrieu: Thank you very much. So on the -- on your question of the originate-to-manage portfolio that NIBC has and that represents roughly half its portfolio. We see, it as actually an interesting and value-added opportunity for ABN AMRO because it's not something we were doing already, and we see opportunities with that. So we welcome that addition in our business model. And I confirm that we've been thoroughly assessing the CET1 impact of these transactions that amounts to 70 basis points. And this takes into account a very prudent approach to the transaction, including all form of day 1 provisioning and so on that may be needed. So I would say, so it's a fully loaded 70 basis points. Operator: The next question comes from Chris Hallam from Goldman Sachs International. Chris Hallam: Just a couple of follow-ups. So first, just on funding synergies. Ferdi, I think you said those have been negligible, i.e. not particularly incremental to the 18%, but I'm just wondering how that works given their funding mix, which is much less skewed to deposit funding than your own and their own deposit funding cost, which is higher than yours. So just is this a reason why either you wouldn't fully change the funding mix or why you would expect to see a very high level of deposit attrition? And then second, I acknowledge we've got the CMD coming up very soon. But just looking specifically into 2026, as you're going through the year-end budgeting process, what are the key items you're focused on for the cost side of the business? Are there any specific items or challenges for ABN AMRO that we should consider for 2026 in particular? Both for ABN I guess, on the one side, but also for the industry more broadly? Marguerite Bérard-Andrieu: Ferdi, I will let you take this. Ferdinand Vaandrager: Yes, Chris, I'll start with the first one. So absolutely, there is a potential. But again, the argument here that we try to be prudent and specifically look at cost synergies. Of course, there can be some revenue synergies, but also the funding synergies here. It's too early to start communicating on the potential here, and some of the funding synergies, arguably will be further out also beyond the indicated 2029. But for sure, this provides potential on top of the indicated cost synergies. Marguerite Bérard-Andrieu: And on your question. Well, '26 happens to be the first year of our strategic plans. So I promise we will share everything on '26 as well as for the following years at our CMD in 2 weeks. This being said, I believe in discipline and I believe in saying what we do and doing what we say. We've been very clear from the beginning that rightsizing our cost base, steering on capital and pursuing profitable growth are all 3 like motives. And so 2026 will look like that. Operator: The next question comes from Farquhar Murray from Autonomous. Farquhar Murray: Just 2 questions, if I may. Firstly, more broadly on M&A. You now have kind of 2 integrations with HAL and NIBC. Do you think there's sufficient management room kind of bandwidth for another deal in the near term? And then maybe coming back a little bit to HAL actually, as an integration given it's come on board post closing. I just wondered if you could give us an update on how that business is performing as compared to the original expectations of that acquisition. In particular, I'm thinking about the cost synergy target of EUR 60 million there? Marguerite Bérard-Andrieu: Thank you very much. So I'll take your first question on bandwidth, and I will let Ferdi comment on the HAL integration. I think that was your second question. So do we have the bandwidth? Yes, we do. We are moving at pace. We have a very strong management team. I'm very happy with our Executive Board. And basically, Choy, who is in charge of Wealth is very much involved in the integration of HAL and making it a success. We have colleagues that have been very much involved in the due diligence regarding NIBC, and who will be, in due time, fully ready also to be there for the integration. So we're very confident that we have all it takes to make this integration a success. With M&A, you don't necessarily plan in advance, but we will know how to be opportunistic, if needs be, as I said, always with discipline and only if it's shareholder accretive. Ferdinand Vaandrager: Yes. Maybe just on Hauck Aufhäuser Lampe, as indicated earlier, cost synergies, year 3, EUR 60 million. Also, if we look at the first quarter after consolidation, we're confident that we're going to reach that. So no unexpected surprises in here. We've also said that we need around one-off cost of around EUR 90 million, 1/3 integration cost and 2/3 restructuring cost. We booked so far this year around EUR 8 million in integration costs. The integration is fully on track. So the legal merger between HAL AG and ABN AMRO is to be completed by the end of 2026, and that will really simplify the further integration. So the bottom line is here over results, of the results what we see now is in line with expectations, and we're very confident we're going to reach the EUR 60 million run rate synergies in year 3, which is 2028. Operator: The next question comes from Delphine Lee from JPMorgan. Delphine Lee: My first question is just going back to NIBC and just your thoughts about M&A in general. I mean just wanted to understand kind of what areas of priorities you would have? Would it -- I mean, because is the intention in the long run to continue to strengthen the position in the Netherlands? Or would it mean more to kind of diversify a little bit away from your mortgage book through private banking or corporate banking? Just trying to understand a little bit kind of where your focus is M&A-wise? And my second question is just in terms of excess capital and the usage, and how you allocate capital more generally speaking, is the intention over the long run to sort of manage it to kind of increase the payout? Do you still think there is room with the transaction further down the line? Just trying to think about how you manage your capital with buybacks and what we should expect? Marguerite Bérard-Andrieu: Thank you very much. You are anticipating on what we are going to share in 2 weeks. I will only reiterate that, we only consider M&A when it is disciplined, when it is shareholder-accretive. We think that adding scale in our home market is a smart, strategic move, and back to how acquisition that the bank recently completed and Ferdi was commenting on. This is also a strong strategic fit for us as we grow in wealth in Northwestern Europe, which is part of our strategy. But we will describe all of this at our CMD. In terms of our capital position and our capital usage. Again, this will be the topic of CMD in 2 weeks. But basically, in a nutshell, we will continue to optimize our RWA both in data and from steering more to come on that. The outcome of our capital assessment will be communicated with our Q4 results, including potential capital distributions. But we have a strong balance sheet and a strong capital position. And I think, yes, the rest will come. Bear with us for 2 more weeks. Operator: The next question comes from Juan Pablo Lopez Cobo from Santander. Juan Lopez Cobo: First one is regarding NIBC. Probably I missed some of the KPIs, but you mentioned that the deal is highly accretive. Regarding EPS accretion, if we assume, let's say, EUR 100 million net income coming from NIBC and the EUR 100 million synergies lower post tax. Is it fair to assume an EPS accretion of around 7% to 8%. Does it sound reasonable for you? That's my first question. My second question is regarding the deposits campaign. If you could share some color on this deposit campaign? Volume can we assume around EUR 3 billion, cost probably around 2% or slightly above 2%. And maybe duration, if I got you right, I don't know if we can assume the NII impact in this Q coming from the deposit campaign could be something around EUR 15 million, EUR 20 million. So it will be interesting to know to listen the duration and what percentage of these deposits you think will stay in the bank? Marguerite Bérard-Andrieu: Thank you. Thank you very much. I will let Ferdi answer both your questions. Maybe just a clarification because I'm not sure that we fully agreed on the figure. But when we mentioned cost synergies, it's EUR 100 million post tax. So basically, pretax, it's higher, just to clarify that point. Ferdi, I'll let you go into the EPS accretion. Ferdinand Vaandrager: No. I think if you look at the underlying, how you come to your calculation, fully synergized a profit of around EUR 200 million, indeed, you would come in 2029 to around 7% EPS accretion. And then again, if you look at the overall deposits, yes, we assume some outflow, but we expect it to be limited from the overall deposit campaign. And the most important part of the targeted deposit campaign is increased our net new assets. It had an impact on our on overall margins, but now it should really translate into valuable assets. So that is a transfer into either discretely portfolio management either in advisory or private markets. Marguerite Bérard-Andrieu: But usually, what we observe is that it takes usually 6 months for bankers to actually transform into more valuable assets. Operator: [Operator Instructions] The next question comes from Anke Reingen from RBC. Anke Reingen: It's just 2 number questions, please. Firstly, on the other income, that was quite big this quarter. And I just wonder, is it sort of like a run rate? I mean, a number of banks talked about NII and other income of their value result, like mix effect. Should we see that the Q3 other income could be a run rate going forward? And then on the deposit costs, is there sort of like a change in trend where in the past, we were talking about cuts and savings rates. We're now talking about some selective campaigns on higher deposits with a benefit to volume? Would you say the trend has changed here? Marguerite Bérard-Andrieu: Thanks. Ferdi, on these 2 questions. Ferdinand Vaandrager: No, let me start on other income. It was low this quarter at EUR 28 million. So also quarterly-on-quarter significantly down. And we explained that the main impact here is number one, equity participation. You're always dependent when the revaluation is done. And in Q2, we had a successful exit of the portfolio. ALM results is always volatile. And in this quarter, it always depends on your economic hedges and hedging effectiveness. But the main driver this quarter was lower fair value revaluations on the IFRS 17 and it was specifically related to one-off correction of past bookings in the March fiscal, and that impact was roughly EUR 30 million. So if you look for the coming years, other income is volatile by nature. It also includes XVAs, ALM results and private equity revaluations. But overall, excluding incidentals in the past years, it was around EUR 450 million. And if you would also exclude volatile items around the EUR 400 million. Then if you look at changes on pricing. No, the deposit campaign was very targeted at Wealth Management. So we really target the specific client group. And as said earlier already, we are willing to do that at very low margins because there, we see the opportunity to transfer that in valuable assets. So it's absolutely not a change broader how you should look at our prices. Operator: The next question comes from Jason Kalamboussis from ING. Jason Kalamboussis: I'm coming back to what Tarik mentioned. While the deal is good value for money strategically and from a higher level, it looks like it distracts to what I thought was a clearer focus on wealth management. So if you have any additional thoughts, welcome there. So moving on to wealth. Could you please provide the split year-to-date of the inflows in custody and the rest? And is it something that we could see provided on a quarterly basis? The second thing is on HAL. What are the -- how does the AUMs that you brought in split again into -- can you split out the custody and cash elements, if possible? And my third question is, is the reasonable assumption to -- when I'm looking at your AUM to assume that most of the custody and cash assets above 75% are in the Netherlands, that will be very useful. Marguerite Bérard-Andrieu: Thank you very much. I'll take your first question, and we'll let Ferdi answer the 2 others. In terms of strategy, we believe that it is a perfect strategic fit to actually keep growing and at scale in our home markets. We have the platform for that. We already have 5 million clients in the Netherlands, NIBC adds, roughly 500,000 new retail clients. We do believe in scale and in using our platform, both in mortgages and savings in the Netherlands. This being said, we also do believe that wealth management is an extremely good business of ABN AMRO. I mean we have a strong #1 position in the Netherlands with the market shares of the 35%. We have now a strong #3 position in Germany. We also are present in France and to lesser extent in Belgium. So we will share our strategy for 3 businesses at our CMD. But indeed, we do like very much the wealth management business. Ferdi on the 2 other questions? Ferdinand Vaandrager: Yes, Jason, number one is the split between custody. Overall, you should see that there's the difference between core net new assets and total net new assets of core net new assets. So overall, core and net new assets we had a very strong quarter. As discussed earlier, mainly reflecting the cash inflow from targeted offerings and indeed, the majority of this was wealth management in the Netherlands. Total NNA plus EUR 4.3 billion. So the custody is included in here for this quarter was plus EUR 1 billion more or less. If you look at the total custody within Wealth Management of course that was also a question, I think that is around the EUR 50 billion today. Then I also think, but I didn't hear you that well this, client asset inclusion of Hauck Aufhäuser Lampe. So in total, this was around EUR 26 billion and the split there was around EUR 23 billion in securities and EUR 4 billion in cash. The majority of that inclusion is in securities. Jason Kalamboussis: That's very useful. Just a quick follow-up. I mean, on the NIBC deal, what I'm a bit surprised is that the fee element is quite small. So you have less than 10% that's coming in fees. So that was a bit the sense of my question that, yes, I understand the scale. And also it's a good deal financially. But on the other hand, I would have thought that your focus would have been towards increasing the fee side within your income, whereas this goes a bit the other way. But again, If you have any comments, that would be great. Marguerite Bérard-Andrieu: I understand your question. As I said, it adds scale, which is, I think, a very positive strategic move, and it's also financially very accretive. So we saw it as 2 very good reasons to pursue this acquisition. Ferdinand Vaandrager: Yes, maybe to add there, it's also had the addition of the savings account to the BUX platform, that might provide at least investment propositions there where we are absolutely focusing on transferring NII into fees. Operator: There are no more questions at this time. I will now hand the word back to the speakers for any closing remarks. Marguerite Bérard-Andrieu: Well, I thank you very much all for your questions this morning, and we look forward to welcoming you at our Capital Markets Day on November 25. And for the time on, goodbye. And thanks again. Have a great day.
Operator: Ladies and gentlemen, welcome to Luckin Coffee's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Now I'd like to turn the call over to Ms. Nancy Song, Head of Investor Relations for Luckin Coffee. Nancy, please go ahead. Nancy Song: Thank you, and hello, everyone. Welcome to Luckin Coffee's Third Quarter 2025 Earnings Conference Call. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via Newswire services. Today, you will hear from Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee, who will share a strategic overview of our business. Following that, Ms. An Jing, our CFO, will discuss our financial results in greater detail. Afterwards, we will open up the call for questions. During today's call, we will be making some forward-looking statements regarding future events and expectations. Any statements that are not historical facts including, but not limited to statements about our beliefs and expectations are forward-looking statements. These statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in our filings with the SEC. In addition, for non-GAAP measures discussed today, the reconciliation information related to those measures can be found in our earnings press release. During today's call, Dr. Guo will speak in Chinese, and his comments will be translated into English. Now I'd like to turn the call over to Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee. Dr. Guo, please go ahead. Jinyi Guo: [Interpreted] Hello, everyone. Welcome to today's earnings conference call. Thank you for your continuous interest in and support of Luckin Coffee. In the third quarter, our scale-driven strategy continued to yield strong results as we capitalized on the rapid expansion of China's freshly-brewed beverage market. Our revenue continued its solid momentum increasing by 50% year-over-year to around RMB 15.3 billion, while same-store sales growth in our self-operated stores further improved to 14.4%. During the quarter, as food delivery platforms intensified their subsidy campaigns, we saw the shift in volume share toward delivery continued at the current stage. Despite this temporary challenge, we maintained healthy profitability, achieving an operating profit of around RMB 1.8 billion. More importantly, in response to the rising demand in China coffee market, we accelerated our network expansion to strengthen store coverage and proactively secure whitespace locations for future growth. As of the third quarter end, our total store count surpassed 29,000, enabling us to effectively meet robust consumer demand. Our scale advantage drove record high new customer acquisition of 42 million, supporting a milestone achievement of over 100 million average monthly transaction customers. This scaled growth across both store front and the customer base have expanded Luckin's competitive edge and market share, placing us on a stronger footing for long-term sustainable growth. I will now share an update on our operations, and our CFO, An Jing, will present the financials later. This quarter, powered by Luckin's strong digital capabilities, we continue to enhance our core strengths across people, products and places, scaling our business at a faster pace and strengthening our market leadership. On the store front, we maintained industry-leading store growth, continuing to strengthen our presence across high-quality locations in high-tier cities while penetrating lower-tier markets. As a result, our store network continued to expand rapidly. By the end of the third quarter, Luckin's total store count reached 29,214, maintaining leadership in China's coffee market with growing customer reach and enhanced fulfillment capability. Domestically, we achieved 2,979 net openings, bringing our total store count in China to 29,096, including 18,809 self-operated stores and 10,287 partnership stores, which has now surpassed the 10,000 stores milestone as well. As coffee drinking habits continue to take hold and the consumer demand grow strongly, China's coffee market still offers much room for growth. Leveraging Luckin's strong brand influence and data-driven site selection capabilities, we can systematically and swiftly identify customer demand, enabling us to open high-quality stores efficiently and in convenient locations that closely align with customer demand. In the foreseeable future, we will maintain a competitive pace of expansion to fully capture the structural opportunities in China's coffee market. Internationally, we had 29 net openings this quarter, bringing our total overseas store count to 118, including 68 self-operated stores in Singapore, 5 self-operated stores in the U.S. and 45 franchise stores in Malaysia. As our first overseas market, Singapore has been steadily improving its performance and initially built a mature and efficient localized operating infrastructure. This has demonstrated the early signs that our digital business model is adaptable and replicable across diverse markets and set an impactful benchmark for our future expansion across the Asia Pacific region. Meanwhile, our U.S. business remains in the early stages of exploration with performance across various areas broadly in line with our expectations and overall consumer feedback being positive. We will continue to take a disciplined and steady approach, accumulating local market impact and enhancing our localized operational capabilities to lay the foundation for longer -- long-term sustainable growth. On the product front, we launched nearly 30 new freshly-brewed beverages and several snack items in the third quarter, continuously driving coffee innovation and shaping market trends. We also diversified our summer lineup with a wider selection of non-coffee options to enrich customer experience. In September, we partnered with our long-time brand ambassador, Tang Wei, to launch the Luckin drink from origin campaign, promoting a healthy lifestyle through high-quality locally-sourced ingredients and reinforcing our brand concept from the origin to you. For example, we launched Guanxi Honey Pomelo Latte, featuring famous Guanxi Honey Pomelo from Fujian province. We also selected Aksu apples from Xinjiang to upgrade our popular Apple C Americano and to launch our new Aksu Apple Latte. These products expanded our flavored coffee portfolio and received encouraging customer feedback. In addition, our Little Butter series surpassed 200 million cumulative cups sold in its first year on the market, underscoring our strong product innovation capabilities and ability to set category trends, which continues to strengthen Luckin's brand leadership. On the non-coffee side, leveraging our fresh coconut sourcing advantage. We introduced the popular Mango Pomelo Sago which sold over 12 million cups during the National Day Holiday, once again demonstrating our broad customer base and a strong market appeal. On the customer side, we remain aligned with diversified and use-driven consumption trends, capturing market buzz and evolving customer preferences through engaging an emotionally relevant market campaign. With these initiatives, we achieved impressive results in customer acquisition, engagement and purchase frequency during the quarter. For example, we partnered with a wide range of popular IPs such as hit movies, blockbuster games and classic animated series, effectively reaching a broader audience, strengthening brand influence and stimulating customer demand. Building on these efforts, we added over 42 million new transacting customers in the third quarter and achieved an average of over 110 million monthly transacting customers, both record highs. By quarter end, our cumulative transacting customer base surpassed 420 million, further strengthening our ability to cultivate a high-frequency loyal customer cohort, a key driver of our long-term high-quality growth. In addition, we remain committed to our sustainability strategy being a force for a brighter future and continue to fulfill our corporate social responsibility through charitable initiatives that support communities across our upstream supply chain. To mark Luckin Coffee's 8th anniversary, we partnered with the China Red Cross Foundation, Hao Fund, to launch the philanthropy campus health initiative, building multiple philanthropy heath centers in schools across Yunnan and Xinjiang. This program enhances campus health care infrastructure in coffee regions and other key sourcing regions, helping safeguard the healthy development of local youth. Moreover, as part of our ongoing focus on children's health in key origin region. We have sponsored the Angel Journey project for two consecutive years, funding screening and treatment for local children with congenital heart disease. Moving forward, we will continue to deepen our engagement in origin communities, giving back to society through charitable efforts to build a brighter future together. This year, built by food delivery platform subsidy campaigns, China's coffee industry has seen accelerated growth with consumer demand demonstrating strong elasticity. These trends further validate the enormous potential of China's coffee market. Amid this complex environment, we have remained focused on our established growth strategy, adjusting our operations dynamically to seize emerging opportunities. As a result, we achieved faster business growth and the market share gains in the third quarter, effectively meeting our strategic goals. At the same time, as temperature have dropped and the freshly-brewed beverage industry has entered its seasonal slowdown, we have observed food delivery platforms rapidly scaling back their subsidies, which are expected to become more targeted and refined going forward. In addition, international green coffee bean prices have remained elevated this year with no signs of moderation at the moment. These factors will introduce new dynamics and create headwinds for the industry and pose challenges to our fourth quarter or even next year's business development. In this evolving landscape, we will focus more on our long-term growth trajectory. We believe our continued strategic focus and enhanced operational excellence will enable us to weather short-term fluctuation and navigate various external environment. We will continue to strengthen our product and brand innovation, offering high-quality, affordable and convenient products that better meet diverse customer needs and support store performance. We will also leverage Luckin's robust digital capabilities and deep customer insights to enhance retention and repeat purchases, fully unlocking long-term consumption potential. Finally, we would like to extend our sincere gratitude to our customers, partners and investors for their continued trust and support of Luckin as well as to our 170,000 Luckin team members who stand with us through their dedication and hard work. Together, we will continue building a world-class coffee brand and making Luckin a part of everyone's daily life. As we move forward, we remain committed to long-term value creation for our customers, partners and shareholders. With that, I will now turn the call over to An Jing to go through our financial results in detail. Jing An: Thank you, Jinyi. Good day, everyone. Thank you for joining today's call. We delivered another strong quarter, underscoring our sustained momentum and competitive strength. With a continued focus on scale and operational excellence, we achieved record high in both customer acquisition and monthly transacting customers. This achievement further strengthened the foundation for our future store performance and long-term growth. Let's now look at our financial performance in detail. In the third quarter, total net revenues increased by 50% year-over-year to RMB 15.3 billion, primarily driven by a 48% year-over-year increase in GMV to RMB 17.3 billion. This accelerated growth reflected a strong performance across both self-operated and partnership stores, supported by our record monthly transacting customer count and the expanded store network to better market -- to better meet rising demand. Revenues in self-operated stores increased by 47% year-over-year to RMB 11.5 billion, mainly driven by stronger sales performance in our self-operated stores. Breaking down our product sales into three streams. Net revenues from freshly brewed drinks were RMB 10.6 billion, representing about 70% of the total net revenues. Net revenues from other products were RMB 622 million or roughly 4% of total net revenues. Net revenues from others were RMB 233 million or about 1% of total net revenues. Looking at product sales from the perspective of company-owned stores, revenue from self-operated stores increased by 48% year-over-year to RMB 11.1 billion. Same-store sales growth reached 14.4% for this quarter, driven by increased cost of sales and ASP, reflecting the shift in volume mix towards delivery. Store level operating profit grew 10% year-over-year to RMB 1.9 billion with self-operated store level operating margin of 17.5%. Revenues from partnership stores increased by 62% year-over-year to RMB 3.8 billion, accounting for 25% of total net revenues. This impressive growth was primarily driven by higher material sales, profit sharing from strong partnership store performance and increased delivery service fees resulting from a greater delivery volumes. Cost of materials as a percentage of total net revenues decreased to 36% from 39% in the same period of 2024, mainly due to our enhanced discipline supply chain advantages. In absolute terms, cost of materials increased by 41% year-over-year to RMB 5.5 billion, in line with our business expansion. Store rental and other operating costs as a percentage of the total net revenues decreased to 20% from 22% in the same period of 2024, mainly driven by improved operational efficiency and scale benefit from increased cup sales. In absolute terms, this cost increased by 36% year-over-year to RMB 3.1 billion, reflecting higher payroll costs tied to cup sales growth and increased rental costs from ongoing stock expansion. Delivery expenses increased by 211% year-over-year to RMB 2.9 billion due to a significant increase in delivery orders from food delivery platforms. As a result, delivery expenses as a percentage to total net revenues sharply rose to 19% from 9% in the same period of 2024. However, on an order basis, delivery expenses decreased year-over-year, reflecting improved efficiency at scale. Sales and marketing expenses as a percentage of the total net revenue decreased to 5% from 6% in the same period of 2024, mainly driven by enhanced operating efficiency and the leverage from accelerated revenue growth. In absolute terms, sales and marketing expenses increased by 28% year-over-year to RMB 751 million, mainly due to higher commission fees paid to food delivery platforms as a result of rising delivery volumes. General and administrative expenses as a percentage of total net revenue decreased to 5% from 6% in the same period of 2024, mainly driven by enhanced operating efficiency and leverage from accelerated revenue growth. In absolute terms, G&A expenses increased by 25% year-over-year to RMB 793 million, primarily due to increase in payroll expenses and share-based compensation, as well as greater investments in research and development. As a result, our GAAP operating profit increased by 13% year-over-year to RMB 1.8 billion. Operating margin was 11.6% compared to 15.5% in the prior year period, mainly impacted by a significant increase in delivery expenses. On s Non-GAAP basis, operating profit increased by 15% year-over-year to RMB 1.9 billion, with operating margin at 12.6%. Net profit was at RMB 1.28 billion with a net margin of 8.4% compared to RMB 1.31 billion and 12.9% in the prior year period, mainly due to a higher effective tax rate. On a non-GAAP basis, net profit was RMB 1.4 billion with a net margin at 9.3%. Finally, turning to our balance sheet and cash flow items. Our net operating cash inflow was around RMB 2.1 billion in the third quarter of 2025. As of September 30, 2025, we had RMB 9.3 billion in cash, including cash and cash equivalents, restricted cash, term deposits and short-term investments, compared to RMB 5.9 billion as of December 31, 2024. Our robust cash generation ability and a strong cash reserve enable us to flexibly adapt our business expansion pace to different market conditions letting us fully capitalize on emerging opportunities. In close, our solid third quarter results reaffirm our market leadership and the business resilience. We are particularly engaged by -- encouraged by the potential of our growing customer base, especially as we continue to expand loyal cohorts. This gives us greater confidence in capturing the vast opportunities in China's coffee market despite evolving external dynamics, while maintaining disciplined cost management and operational efficiency. With that, we will open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from Ethan Wang with CLSA. Yushen Wang: [Foreign Language] So in terms of the delivery subsidy, we understand that it definitely helps our revenue to grow very strongly in this quarter and the last quarter as well, but it also has an impact -- a negative impact on our margin. I think CEO mentioned that going to fourth quarter the subsidy -- the external subsidy has faded a bit, but I'm just wondering, is it because of seasonal effect or there are some structural changes behind and going to next year, should we worry about the high base effect? Jinyi Guo: [Interpreted] Ethan, I will answer your question. So regarding the potential impact of the subsidy situation, we think it's important to see this issue through the nature of our coffee business. And also, we need to evaluate within the context of the broader industry trends as well as our own operational capabilities. So first, coffee is inherently a location-based and store-driven consumer products. So this means pickup will remain the primary consumption format over the long term, but delivery will serve us more as a supplemental channel at certain stages of -- as the market evolves. So there are two reasons for this. One is delivery fulfillment costs are disproportionately high compared to China's mainstream price range of fresh-brewed coffee. So delivery is highly sensitive to per cup pricing and its unit economics are less favorable. So the second is longer delivery times can compromise the immediacy and the coffee taste experience that consumers expect, so which makes it a less ideal consumption model. And our Luckin's pickup-oriented store format actually allows us to densely open stores across nearly all of the consumption scenarios. It makes us -- keep us as close to customers as possible. So this is actually the core advantage of Luckin and underpins our long-term growth. So we believe the coffee business will naturally return to a pickup-oriented model over time. Although this transition period will take a longer time to happen. Yes. So this year's large-scale subsidies have driven a significant surge in the overall order volumes on food delivery platforms. So next year, these platforms are expected to adopt a more refined and online-driven operational strategies and the promotion intensity likely to taper gradually as well. So under such an ROI-driven approach, platforms will likely prioritize partnerships with brands who demonstrate high order density, strong fulfillment efficiency and effective subsidy conversion. So with our extensive store network, efficient operations at the storefront, and our reliable fulfillment in structure, I believe Luckin remains a preferred partner for food delivery platforms. So at the same time, we also see that food delivery platforms, they offered substantial subsidies in the early stages of their campaigns which objectively fueled a sharp increase in our order volumes and the customer base, creating a relatively high comparison base. As platforms, they have already scaled back their subsidies and will shift towards a more refined approach next year. The industry's overall growth trajectory will differ from this year and our same-store sales growth next year will also face challenges and pressure. And as I mentioned earlier, in this evolving landscape, we believe that the only focusing on long-term development is the key to navigating external changes. This means we continuously strengthen our product and the brand competitiveness, unlock customers' consumption potential, which we see this as a core key driver of our long-term sustainable growth. Thank you, this is my answer to the question. Operator: Our next question comes from Sijie Lin of CICC. Sijie Lin: [Foreign Language] My question is about long-term development strategy. We have constantly faced and may continue to face external environmental changes, such as competitive landscape and delivery platform subsidies. So how will we balance different targets, including scale, same-store sales growth and profit? Jinyi Guo: [Interpreted] Thank you for your question. This is a very good question and it's always on top of our mind. We need to take a much longer-term perspective when evaluating the relationship among scale, same-store growth and our profitability. So considering the current stage of China's coffee industry and Luckin's own development trajectory. So China's coffee market is still in its early stages of development, and remains in a high-growth phase with vast market opportunities and the potential. So for us, it's very crucial to capture this historic opportunity and maximize the long-term benefits from these structural trends. So in particular, this year's -- the food delivery platform subsidies have further accelerated industry consolidation as well as increased market concentration. So as these subsidies gradually phase out, this trend is expected to continue as well. And against this backdrop, our strategic focus will remain on growth and market share. And we continue to -- we will continue to steadily expand our store footprint, building a high-quality and efficient store network to meet growing customer demand and pave the way for our long-term growth. So regarding the same-store growth, we'd like to emphasize that since the financial issue in 2020, maintaining a high store quality has always been the top priority in our expansion. So on one hand, new stores can leverage our mature operational framework to quickly ramp up and improve their performance. And on the other hand, we continue to improve customer loyalty and repeat purchases through continuous product innovation and brand innovation, driving steady and sustainable store performance. And as I mentioned earlier, taking into account the factors above, our same-store sales growth metric in the fourth quarter and even next year will face some short-term fluctuations and pressure. However, from a long-term perspective, more convenient store fulfillment and improved customer reach play a very positive and important role in fostering coffee drinking habits as well as naturally increasing consumption frequency among customers. So this, in turn, can provide market momentum for our continued improvement of our store performance over time. So regarding margins, in the short term, the notable higher mix of our delivery orders has put some pressure on our margins fully reflected in the decline of our third quarter operating margin compared to the previous quarter and the positive impact of our improved operational efficiency was actually completed -- completely offset by the significantly higher delivery expenses as a percentage of total revenues quarter-over-quarter. But we view this as a temporary and expected impact, reflecting both the current stage of industry development and our strategic execution process. And at the same time, as I mentioned earlier, international green coffee bean prices have remained elevated with no signs of moderation, which could also pose some challenges to our coffee bean cost next year, which can also affect margins. And in this environment, we will continue to optimize cost structures through refined operations, leveraging our digital capabilities to further enhance operational efficiency and strengthen our supply chain management. And as we scale, we will strive to maintain a healthy and sustainable profit profile. So based on above, in conclusion, business growth and market share expansion remains our strategic priorities at this stage. We will continue to ensure our store quality while driving product and brand innovation amid our robust expansion. And during this period of rapid growth, even if same-store performance showed some fluctuations, the overall trajectory remains within our expectations. And at the same time, we will strive to maintain healthy and sustainable profit levels and remain confident in our long-term profitability potential. Thank you. Operator: Our next question comes from Huayi Li with [indiscernible] Securities. Unknown Analyst: [Foreign Language] I'd like to ask about the company's capital market strategy. At Xiamen Entrepreneurs Day entrepreneurs conference a few days ago, Dr. Guo mentioned the company's intention to pursue a relisting on a major U.S. exchange. Could management please share an update on the current status of this initiative? Jinyi Guo: [Interpreted] Thank you for your questions. Luckin is headquartered in Xiamen, where we received holistic and tremendous support since our inception, especially after the financial issue in 2020, with Xiamen's continued support and the guidance, Luckin has consistently delivered a strong performance and achieved a successful turnaround. So regarding this question, as we mentioned before, we remain committed to the U.S. capital market, though we currently have no specific time line or schedule for us listing on the mainboard. Our top priority at current stage remains focusing on our strategy execution and business development. So offering our customers exceptional products and services, we aim to fully capture the long-term growth opportunities in China's coffee market and expand our market share, creating sustainable long-term value for our shareholders. Thank you. Operator: Due to time constraints, no further questions will be taken at this time. This concludes the question-and-answer session. I'd like to turn the call back to the management team for any closing remarks. Nancy Song: Thank you, everyone, for joining our call today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you again next quarter. Thank you. Jinyi Guo: Thank you. [Foreign Language] Jing An: Thank you. Operator: The conference has ended. You may disconnect your line. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to SUNAtion Energy Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Devin Sullivan, Managing Director of Equity Group. You may begin. Devin Sullivan: Thank you, Bella. Thank you, everyone, for joining us today for SUNAtion's 2025 Third Quarter Financial Results Conference Call. Our speakers for today are Scott Maskin, Chief Executive Officer; and James Brennan, Chief Financial Officer. Mr. Maskin will open with prepared remarks followed by a question-and-answer session. Before we get started, I'd like to remind everyone that prospects of SUNAtion Energy are subject to uncertainties and risks. Remarks on today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. The company intends that such forward-looking statements be subject to the safe harbor provisions provided by the foregoing sections. These forward-looking statements are based largely on the expectations or forecasts of future events can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the control of management. Therefore, actual results could differ materially from the forward-looking statements contained during this call. The company cannot predict or determine after the fact what factors would cause actual results to differ materially from those indicated by the forward-looking statements or other statements. Participants should consider statements that include the words believes, expects, anticipates, intends, estimates, plans, projects, should or other expressions that are predictions of or indicate future events or trends to be uncertain and forward-looking. We caution investors not to place undue reliance upon any such forward-looking statements. The company does not undertake to publicly update or revise forward-looking statements, whether because of new information, future events or otherwise. Additional information respecting factors that could materially affect the company and its operations are contained in the company's filings with the SEC, including its Form 10-K and in subsequent filings, which can be found on the SEC's website at www.sec.gov. With that, I'd now like to turn the call over to Scott Maskin, CEO of SUNAtion Energy. Scott, please go ahead. Scott Maskin: Thank you, Devin, and good morning, everybody. Happy Monday. Thank you all for joining me today. This is a call that I've truly been looking forward to for quite some time. Since Jim and I took the helm of SUNAtion about 18 months ago, it felt at times like steering through unpredictable conditions, keeping steady, staying focused and making sure everyone on the team understood where we were headed and why. Now I won't tell you things have calmed down. They absolutely have not. As we look ahead to 2026, there's still a lot of movement in the industry and uncertainty. But the difference is that we're no longer reacting, we're leading. We've got structure, direction and a team that's completely aligned on the mission. And this quarter represents a turning point. For the first time in a long while, our results, our work reflect the impact of our hard work, the discipline and the cultural rebuilding that's taken place inside this organization. If I had to sum up Q3 in one phrase, it's this. We delivered it on our promises. Sales rose, costs came down, margins improved and profitability strengthened. Our capital structure is squeaky clean, and our balance sheet is the strongest it's been in years. That didn't happen by chance. It took tough calls, long hours and people who refused to give up, but it proves what happens when we stay focused and we execute. While many in our industry have struggled to find direction, SUNAtion has moved forward, stronger, leaner and ready for what's next. Those of us who've been in solar for a while know the ride never really smooths out. The One Big Beautiful Bill and the upcoming sunset of Section 25D have created new challenges and new opportunities, and our team is handled both with focus and professionalism. The rush to complete residential installations before the end of 2025 has been intense, and our teams in New York and Hawaii have been extraordinary and really stepped up to the plate. These are 2 of the most expensive energy markets in the country, and our people have helped homeowners take control of both their power and their costs. Residential sales in those markets were up 54% year-over-year in Q3. I want to say that again. Residential sales in those markets were up 54% year-over-year in Q3. And we expect that momentum to continue right through the year-end. At the same time, we're not focused on this surge. We're preparing for what comes after. We've been developing new financing options and lease-to-own programs that will carry us not just in 2026, but far beyond, tried and true approaches that have been part of SUNAtion's success story for more than 2 decades. On the commercial side, we're continuing to see steady demand from institutions and municipalities across Long Island and downstate New York. High energy costs and the longer runway for federal tax credits have supported a solid project pipeline, and we're executing efficiently. Our advantage continues to be our diversification in our people, our markets and our services. And it's what gives us balance and stability moving forward. We stand unique by offering residential solar and storage, commercial solar, roofing and our ever-growing expanding service division. We intend to expand into the energy-efficient HVAC market and stand-alone roofing, while we've doubled down on our service and O&M side, helping both our long-term customers and those left without support when their original installers disappeared. We're also evaluating strategic M&A opportunities that make sense, ones that bring scale, efficiency or exposure to fast-growing sectors like AI, crypto and data centers. These are reshaping how power is used, and we're positioning SUNAtion to play a meaningful role in the future. Through all of this, one thing hasn't changed. We stay calm, focused and deliberate. Running a business much like happening a ship isn't about avoiding rough conditions. It's about knowing your course, trusting you crew and making steady progress no matter what's ahead. Every day, I'm driven by 3 things: our team who show up with great purpose, our customers who trust us to deliver on the promise of solar and of course, our shareholders whose patients and confidence were determined to reward. SUNAtion is stronger than it's been in a long time. We understand the challenges ahead, but we also see tremendous opportunity in front of us. We've built a company that can adapt, grow and lead through whatever comes next. And I'll close with this. God willing, the market will begin to acknowledge and reward our efforts, our resilience and the results that this incredible team has delivered for you in Q3. Thank you all for your time and trust and your continued confidence in SUNAtion. With that, I'll turn it over to our COO, CFO and my steady co-captain, Jim Brennan, who will take us through the numbers. Jim? James Brennan: Thank you, Scott, and good morning, everyone. I appreciate you joining us today and especially those on the West Coast that are joining us at 6:00 a.m. We are joined today by Kristin Hlavka, SUNAtion's Chief Accounting Officer and Corporate Treasurer; as well as Mitch Sommer, SUNAtion's Corporate Controller. We filed our 10-Q on November 7 and issued our earnings release on Monday, November 10. As we reflect on our performance for the third quarter, I am pleased to report that the actions that we have taken have delivered significant improvements throughout the business as we promised. We ended the third quarter in the strongest financial position in recent history through in-depth planning, disciplined execution and sharp focus on operational efficiencies by the regional leadership teams in both New York and Hawaii. We strengthened our balance sheet, expanded our margins and improved profitability. These much improved results our direct outcome of the hard work of the entire team and the commitment to deliver value to our shareholders in the midst of a rapidly evolving market environment. We are on track to report strong results in the current fourth quarter and have reiterated our 2025 full year financial guidance for higher total sales and a return to positive adjusted EBITDA as compared to full year 2024. On to the review of our Q3 2025 results. Total Q3 sales rose by 29% to $19 million from $14.7 million last year. Sales at SUNAtion in New York and Hawaii rose by 22% and 47%, respectively, with residential sales rising 54% and service sales increasing by 72%. This was driven by an accelerated pace of system installations prior to the expiration of the federal tax credits on December 31, 2025. Although commercial sales declined by $1.7 million, we expect continued stability in this sector as businesses and institutions such as churches and schools continue to take advantage of the longer runway that the One Big Beautiful Bill has offered. Inherently, the commercial sector is more complex and nuanced than residential. So these projects tend to take more time to develop and install. On a consolidated basis, overall kilowatts installed on residential projects increased by 52% in the third quarter of 2025. Revenue per installation increased by 25%. Consolidated gross margins improved to $7.2 million or 38% of sales from gross margin of $5.2 million or 35.6% of sales driven by higher residential margins. SUNAtion New York's gross margin improved to 40.7% from 37.9%, while Hawaii's gross margin increased to 32.1% from 29.5%. We continue to effectively manage costs throughout our organization, while total operating expenses rose $7.5 million from $6.8 million as a percentage of sales, the total operating expenses declined to 39.3% from 46.5%, and we expect the total operating expenses in 2025 to be lower than 2024. Interest expense in the third quarter of 2025 declined to $143,000 from a whopping $812,000 last year, reflecting the continuing benefits of paying off the expense of debt earlier this year. We continue to expect our annual interest expense to decline by approximately $2 million for 2025 as compared to 2024. We operated just below breakeven for the quarter with a net loss of approximately $393,000, which is a $2.9 million improvement from a net loss of $3.3 million in last year's third quarter. Taking all of this into account, Q3 adjusted EBITDA improved to a positive $898,000 from an adjusted EBITDA loss of $1 million in last year's third quarter. With respect to the balance sheet, cash and cash equivalents rose to $5.4 million on September 30, which is our largest or highest cash level since 2022. Our total debt decreased by over $11 million, falling to $7.9 million compared to $19.1 million at the end of 2024. This total debt included an earn-out consideration of $1 million. Other areas of improvement this year through September 30 include accounts payable improved $7.3 million from $8 million on December 31, 2024. Current liabilities improved to $19.0 million from $27.2 million on December 31, 2024. And lastly, shareholders' equity improved to $21.7 million from $8.5 million on December 31, 2024. Based on these Q3 results, solar projects pipeline and general business environment, we are reiterating our guidance for 2025 as follows: Total sales are expected to rise to between $65 million and $70 million, a projected increase of 14% or 23% from total sales of $56.9 million in 2024. Adjusted EBITDA is expected to improve to between $500,000 and $700,000 from an adjusted EBITDA loss in 2024. Before turning things back to Scott, I want to again thank the entire SUNAtion team, both in Hawaii and New York for their hard work and dedication. This process has not been easy. Over the past 6 months, our financial health has improved dramatically. Sales are up, costs are down, profits are higher and our financial position is strong. It's no secret that our industry is in a state of transition and that the challenges we all face are significant, but that's okay. We are embracing these challenges as an opportunity to redefine SUNAtion as a whole and the value we can deliver to our shareholders. The global demand for energy is accelerating, and SUNAtion has over 2 decades of experience in delivering clean, sustainable solar energy. As we look ahead to 2026, we will continue to address these opportunities from a renewed and we believe, sustainable position of financial strength. We are optimistic about our future and look forward to keeping you apprised of any news and progress. I want to thank you for your time, and we'll now turn things back to the most handsomest guy in solar, Scott Maskin. Scott Maskin: Thanks, Jim. We're taking calls now, guys. All right. Fire away. Operator: [Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Hannah Velásquez: Hannah Velásquez on for Julien. I had a quick question or rather, yes, just an update on 25D expiration. Curious to see what you all are seeing out there in the market in terms of any pull-forward effect? And then also any reactions to the advent or I suppose the introduction of this new concept prepaid lease plus loan bundle. I think you alluded to it on your call. But any additional detail you can provide there in terms of if it's viable as a replacement of 25D and if you would consider pursuing it? Scott Maskin: Sure. Thanks for the time today. So listen, 25D has certainly -- the sunset of that tax credit certainly has a meaningful impact especially in markets like New York and Hawaii with high cost of kilowatt hour. We've traditionally been loan markets. We have done some leasing. And there's been a lot of different tools that are out there. So what I would say is that we're driving to the end of the year, pull forward, yes, there's a ton of people that sat on the fence for a long time, they got off the fence. And they're just -- I mean, there's a lot of angry else out there that were on the fence for too long, and we just simply could not get them installed. I mean my teams in both states are running 6 days a week plus to get this work done. That being said, I believe that there are some significant advances in a lot of different financing tools other than just traditional leasing and loans. So I think a lot is going to evolve as more information comes out on FIAC. When I look at our markets, we could still make a d*** fine financial model for a loan and for owning it. So I don't think it's going to slow things. I think that we're in the in a trough right now of people that rush to move forward and then when they could and they're in pause mode. And then what's going to happen is we'll figure out ways to get them back on the fence through some of these other tools. I think they're all going to be viable. I think that people that are coming out with new and unique financing options are really making sure that their eyes are dotted and their Ts are crossed on the tax side of it. And that's been -- I'd say that's been slower than the anticipated process. Did that answer your question? Hannah Velásquez: Yes, that was perfect. And then maybe just as a follow-up there. So we're hearing with 25D expiring, you're having new entrants, I suppose, in the competitive market, maybe more so on the TPO side. But can you just double-click in terms of what you're seeing out there? Are you seeing new TPOs enter trying to take advantage of the shift towards the leasing market? I know Tesla also joined the space. And so just what are you seeing from a competitive perspective? Scott Maskin: When you mentioned the T word, never count Elon Musk out for anything. He's got the bag -- the sheet that he can upend this entire industry on a moment's notice. But I think that as somebody who's been involved for 20-some-odd years, I have seen so many players, financial players kind of circle and circle and they take advantage of opportunities when they're there and then some get smacked down and then they reinvent themselves and they come back. I mean this all boils down to capital and available capital and available tax equity, right? So my understanding in the market, raising capital in solar is difficult right now. It doesn't mean that it's nonexistent, but I think that there's going to be a little bit of a lull. People still want solar, but the players, they -- some of them rename themselves, some of them retreat and then come back. I mean, I'm mindful of how SunPower -- and I'll say that SunPower exited bankrupt and now they're coming back in as a player. So -- and acquiring companies and stuff. I look at some other companies that were in the LMI market that just couldn't get the capital and imploded, right? So it's just like a big -- it's kind of a big vortex, a big circle. But ultimately, everybody comes back to the top, the same players that are involved in the space are the same players that keep rising. They may rename themselves. And listen, we're going to go back. Again, all that needs to happen as the cost of energy continues to rise, it makes every decision even easier and more palatable. James Brennan: I would add to that, that some of the newer tools that are becoming available based on some of the financial wizards in this market, prepaid leases, synthetic cash, you name it, there's a lot of buzzwords circulating around. But I love it. As long as we have the ability to deliver to these customers some sort of approach that works for them, even though the recent stupidity in Washington got at 100% wrong, we are pivoting to continue to survive. There are -- as Scott mentioned, there are companies in the industry that won't. The reality is New York and Hawaii are not alone with expensive power. Some of the target acquisition markets that we're looking at have even more expensive power than Long Island, which is hard to believe. But those folks are predicting higher revenue this year than -- next year than 2025 because their math continues to work in a purchase to own market even in the absence of the 30% federal ITC. Hannah Velásquez: Okay. And if I could just have one more follow-up question. On that point, maybe on a consolidated basis, how are you thinking about market growth in 2026? I mean you hear the consultants all over the place, right, talking about a 10% decline, best-case scenario and then up to a 20% to 30% decline all in just given 25D expiring. And as like a secondary question there, what's the latest you're hearing on FIAC? James Brennan: So the first part of your question was about 2026 guidance, and I'm not prepared to give that today. We do predict a lower-than-normal Q1, although as I say those words, I was recently pleasantly surprised from the New York team that they've already booked nearly 100 deals for January, which was surprising given the new set of circumstances that we're dealing with. And -- but by the way, that's the normal cycle of our business. Q1 and Q2 are always low in both New York and Hawaii for different reasons. And then Q3 and Q4, just like this year in 2025, Q3 and Q4 were cranking so much so that we're having trouble keeping up with all the work. And so I suspect that a very similar model will follow in 2026 as well. And Scott, do you want to... Scott Maskin: Yes. Just on FIAC, it's still happening, right? Every day, there's a change. Every day somebody is coming out with different -- securing different equipment, different ABLs and stuff like that. I don't think that anybody can securely say this is where it's going to be on January 1. It's just the guidance is just -- it's too fuzzy. I think that we will adapt. We will find products and cash is king also. Those with strong balance sheets are going to be able to get equipment and others are going to implode. And I just want to touch on what Jim said. I have often and the thesis of SUNAtion has always been a regional company. When the analysts say 10% decline, 40% decline, 50%, it's really unfair because you look at some -- you look at California, who's just a gut punch after gut punch. But last year, they blew it out of the door, right? Like with the exit of NEM 3. But North Carolina is growing. Massachusetts is growing. So it's hyper-regional markets and hyper-regional. I've always said we're very -- we're exposed by utilities and state politics. So find me a state that is really pro-energy, find me a state that's going to see a growth of data centers and AI. And I'll show you a state that it's going to grow revenue base because of cost of power is going to be so high. Operator: At this time, I would like to turn the call back over to Devin Sullivan. Devin Sullivan: Thank you, Bella. We do have a couple of questions from SUNAtion stakeholders that I'd like to ask on their behalf. And the first one to the management team is, what is your long-term vision for SUNAtion following the passage of the One Big Beautiful Bill Act? Scott Maskin: Thanks, Devin. And to whoever that shareholder is, thank you. I think harping on the diversification of SUNAtion as one of our strengths, maybe it's our greatest strength. For my shareholders and for our company, we see a rush to the end of the year. We're figuring out a lot of things for 2026 and moving forward. But we see the commercial industry really growing. We see the service industry growing. Residential is going to figure itself out. We've been through these cycles before. So I'm not too -- there's a lot of confidence. Sometimes things like this are also a good gut check. Where can we be better? Where can we be more efficient? And take advantage of that thing. And that's not just with OpEx. That's not just with employees and stuff like that. I mean over time, you kind of float and you look at your software stack and you look at all kinds of things that you spend money on as you're growing, growing and growing. And sometimes it's a good exercise to retool and reshape the company so that you can come back. It's almost like going into the corner of a price line so that you can come out punching after somebody flashes water on you. So I'm not concerned, overly concerned about '26 and '27 because we're in a good spot for it. We have a lot of different revenue streams. There's a lot of different opportunities out there to add revenue to the company, to the listing, to SUNAtion as a whole that may be in the energy field, maybe not, right? So those are the things that give me a lot of confidence moving forward into 2026 and 2027. And at 62 years old, I need those pearls to keep me going. James Brennan: Devin, I would add to that answer that just for clarification, revenue diversification has been our strength for a long time. The companies that we've seen that have failed over time are ones that have a single source of revenue, and you can name them off the top of your head, I'm sure. In our case, we went out of our way to have 6 or 7, hopefully, even more sources of revenue. So we have a residential revenue stream, commercial service, roofing. We actually do electrical work for some of our solar customers. We have community solar. And in the future, hopefully, if the moons align, we'll add HVAC and some high-efficiency HVAC tools that and so on. So that -- because as Scott mentioned, we'll see in the future a time where another part of our revenue stream slows down. That's fine. That's part of the cycle that we all live through, but we'll have a backfill from other revenue streams. Just like in 2025, the commercial team had lower-than-expected revenue. But I doubt that will be the discussion in 2026 because there's a ton of work that those folks are cranking through right now. Devin Sullivan: And actually, Jim, that's a good segue into our final question is, can you -- how would you describe the market for commercial in 2026? Scott Maskin: Yes. So I'll start with that one. I see that we've -- in New York, we positioned ourselves very well with national developers. We've always taken the approach that it's great to originate your own work. But I make money when trucks roll. Our shareholders win when trucks roll and money comes in. So I don't really care who sells the job, but we're really good at executing on those things. Because of that diversification with the national developers, we're seeing a big inrush in schools, institutional type things. And we're really, really well suited to execute on that kind of stuff. I'm not saying that traditional rooftop solar on an industrial building is going to go away. But we have a very strong pipeline, and that's going to be a major focus for us moving forward because, listen, that's kind of where the sweet spot is in the industry right now also at least until through 2027. So that's -- there's nothing d*** the torpedo's is full speed ahead on that kind of stuff. James Brennan: Devin, I would just add to that, that because we do a lot of work for these large national developers, and we do a pretty d*** good job at delivering on those projects, we are now getting asked or actually, we've been throughout the year being asked to do work in other states. So we historically have had an acquisition view on growth into new markets. But this is an organic view just simply because the commercial team does a good job of delivering. And then the next thing you know that national developer wants us to go into a different state because they have another project. And so that will definitely be some growth into next year that we'll see on the commercial side. Devin Sullivan: Thank you, both. That is our final question. So I'll turn things back over to Scott for closing comments. Scott Maskin: Well, thanks for everybody that spent a beautiful sunny Monday morning with us. Customers are happy. They're making money today because the sun is out in New York and soon Hawaii. I want to wish everybody a happy holiday season. Let's not forget what's important as we move forward, revenue and shareholders and business is important, but family first, and that's how we treat our business. So I wanted to thank everybody time and the confidence. And man, am I looking forward to that end of year report, okay? So thanks, Devin. Thanks, team. Operator: All right, ladies and gentlemen, that concludes today's conference call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Ladies and gentlemen, welcome to Richemont Financial Year 2026 Interim Results Presentation. I am Sandra, your call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Richemont. Please go ahead. Alessandra Girolami: Thank you, Sandra, and good morning, everyone. Thank you for joining us for Richemont's half year results presentation for the period ended 30th September 2025. Here with us today are Johann Rupert, Chairman; Nicolas Bos, CEO; Burkhart Grund, CFO; and James Fraser, Investor Relations Executive. We would like to remind you that the company announcement and results presentation can be downloaded from richemont.com, and that the replay of this audio webcast will be available on our website today at 3:00 p.m. Geneva time. Before we begin, please take note of our disclaimer regarding forward-looking statements in our ad hoc announcement and on Slide 2 of our presentation. Turning now to the presentation. Burkhart will begin by discussing key highlights and group sales. I will then provide further detail on the performance of our Maisons. And finally, Burkhart will take you through the financials and offer some concluding remarks. This presentation will then be followed by a Q&A session. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra. Good morning to everyone, and thank you for joining us today. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical environment. Sales for the period reached EUR 10.6 billion, up by 10% at constant exchange rates and by 5% at actual exchange rates. Operating profit stood at EUR 2.4 billion, up by 7% compared to the prior year period or up by 24%, excluding the significantly adverse foreign exchange movements. Operating margin reached 22.2%, improving by 30 basis points. Profit from continuing operations at EUR 1.8 billion was 4% higher than the prior year period. Cash flow from operating activities amounted to EUR 1.9 billion. Finally, our net cash position remained very robust at EUR 6.5 billion after the EUR 1.9 billion dividend paid in September. Turning to our highlights, starting with the top line. The group posted double-digit growth at constant rates, led by continued success at Jewellery Maisons and sustained local demand across most regions. In the second quarter, in particular, the group and its Maisons experienced strong momentum with sales up by 14% at constant rates. In Q2, we saw higher sales across all business areas, including a remarkable 17% increase at the Jewellery Maisons. Sales at the Specialist Watchmakers were up 3%, posting their first quarter of growth in almost 2 years, while sales at other business area rose by 6%. In addition, all regions posted double-digit increases in Q2, including Asia Pacific, supported by a return to growth in China. In the period, the group showed its ability to maintain a robust financial position. Operating profit in the first half increased to EUR 2.4 billion, reflecting the positive contribution from the strong top line growth, combined with effective cost discipline. This was achieved despite external headwinds, including unfavorable FX movements, increasing raw material costs and to a lesser extent, the initial impact of additional U.S. duties. Consequently, the group maintained a solid net cash position at EUR 6.5 billion, an increase of EUR 0.4 billion over the prior year period. In this context, our Maisons continued to demonstrate agility while investing for the long term. Showing their persistent drive for creativity and product innovation, they introduced strong novelties with craftsmanship at their core. They further nurtured their brand equity through impactful yet disciplined communication spending. They continue to cultivate future growth prospects through strategic investments. This drove a higher share of our CapEx envelope towards internal boutiques and manufacturing capacities, primarily for the Jewellery Maisons. Let me now discuss the group sales performance in more detail, first by region and then by distribution channel. Unless otherwise stated, all comments refer to year-over-year changes at constant exchange rates. Most regions posted solid performances in the first half, benefiting from double-digit growth across all regions in Q2, led by strong local demand. Sales in the Americas maintained their momentum throughout the first half and posted 18% growth with strength across all business areas, all channels and all markets in the region. Of note, Jewellery Maisons and Specialist Watchmakers posted double-digit performances while several Fashion & Accessories Maisons showed encouraging signs. In Q2, the Americas region posted its seventh consecutive quarter of double-digit growth with sales up by 20%. The Americas made up 25% of group sales, up from 23% in the prior year period. Asia Pacific returned to growth in the first half, up by 5% compared to the prior year period, fueled by a 10% rise in the second quarter. Of note, sales in China, Hong Kong and Macau combined stabilized in the first half, a notable improvement to 7% growth in Q2, led by the Jewellery Maisons. The performance was solid elsewhere in Asia Pacific with notable double-digit growth in the South Korean and Australian markets. Sales in Asia Pacific made up 32% of group sales, down from 34% in the prior year period. Sales in Europe increased by 11%, driven by double-digit growth at the Jewellery Maisons and single-digit increases at the Specialist Watchmakers and other. All major markets in the region posted higher sales, notably in Italy. Growth was led by strong local demand in addition to a positive contribution from tourist spending, particularly from the American clientele. Overall, the performance in Q2 was consistent with that of Q1 at plus 11%. Sales in Europe represented 24% of group sales, a tad higher than the 23% in H1 '25. Japan ended the first half with sales down by 4% after returning to double-digit growth in the second quarter, led by an acceleration in local demand, particularly at Jewellery Maisons, where spending, while improving in Q2 declined in the first half, reflecting demanding comparatives and a stronger Japanese yen. Japan's contribution to group sales decreased slightly to 10% compared to 11% in the prior year period. Middle East and Africa posted the strongest regional growth for the period with sales up by 19%, slightly ahead of the Americas. The performance was led by the Jewellery Maisons with positive Specialist Watchmakers sales at constant rates. All markets were up with the United Arab Emirates being the key contributor. Sales in the region made up 9% of group sales, in line with the prior year period. The largest contributors to sales growth in value terms were the Americas and Europe, each adding over EUR 200 million in incremental sales, followed by the Middle East and Africa region with a contribution of over EUR 100 million. Combined with broadly stable sales in Asia Pacific and a limited decline in Japan, the group was able to generate over EUR 500 million of additional sales in the first half despite a significant negative impact from currency movements. Let us now turn to sales by distribution channel with growth expressed at constant exchange rates. Overall, the 3 channels experienced broadly similar performances in the first half, leading to a stable contribution from direct-to-client sales at 76%. Let's start with retail, which accounted for 70% of group sales, unchanged from the prior year period. Sales rose by 10%, driven by double-digit growth at the Jewellery Maisons and mid-single-digit growth at the other business area, while sales at the Specialist Watchmakers declined slightly. All regions, except Japan, posted solid performances, led by double-digit growth in the Americas and Middle East and Africa. Online retail at 6% of group sales grew by 7%. Strong performance at the Jewellery Maisons more than compensated for softness in the other business area. Sales at the Specialist Watchmakers were broadly stable in the period. All regions posted growth, led by Europe. And now moving to wholesale, which includes sales to external mono-brand franchise partners and third-party multi-brand retail partners, sales to agents and royalty income. Wholesale sales represented 24% of the group sales and were up by 9%, supported by growth at both the Jewellery Maisons and the other business area. By region, the strongest contribution came from the Americas, Europe and Middle East and Africa. Now back to you, Alessandra. Alessandra Girolami: Thank you, Burkhart. I will now review the business areas with all comparisons at actual rates unless otherwise specified. Let me start with the Jewellery Maisons, which include Buccellati, Cartier, Van Cleef & Arpels and Vhernier. Sales reached EUR 7.7 billion, an increase of 9% in the first half. At constant exchange rates, sales were up by 14%, with all regions posting double-digit growth, except for Japan, which was nearly flat. Q2 was particularly strong with sales up 17% at constant rates after a solid plus 11% in Q1. In the first half, sales grew across all distribution channels. The Jewellery Maisons generated an operating result of EUR 2.5 billion, up 9% versus the prior year period or up by 21% at constant exchange rates. Facing significant adverse currency movements, higher raw material costs and to a lesser extent, the initial impact of additional U.S. duties, the Jewellery Maisons implemented balanced price increases while aiming to maintain long-term value for clients. In parallel, they continue to invest in their network while managing their cost effectively as demonstrated by the level of communication expenses only slightly above the prior year levels. Coupled with strong top line momentum, this allowed the Jewellery Maisons to mitigate the unfavorable impact of external headwinds, resulting in a stable operating margin at 32.8%. Let's now look at the main developments over the past 6 months. Both jewelry and watch collections posted strong growth, fueled by the success of timeless lines, such as Opera Tulle and Macri at Buccellati, Clash, Panthère and Santos at Cartier and Alhambra, Perlée and Flora at Van Cleef & Arpels. Blending heritage with creative spirit, the Maisons pursued persistent innovation to foster desirability. Cartier launched its new branding campaign featuring the Panthère. And later in September, the Love Unlimited line, bringing a bold new look to the Love collection that was imagined over 50 years ago. Also in September, Van Cleef & Arpels displayed their artistic and craftsmanship savoir faire with the launch of their new Flowerlace jewelry collection. In the first half, high jewelry sales were supported by impactful and curated events in Europe and Asia for the En Equilibre collection at Cartier and l’Ile au Trésor collection at Van Cleef & Arpels, while Buccellati also hosted exclusive events in Italy. Vhernier has now celebrated an intense first full year within the group. The performance is very encouraging, and the integration is progressing as planned. Vhernier has now internalized several boutiques and refurbished one of its [ astodiers ] among other initiatives, thereby continuing to build a strong foundation for future growth. The Jewellery Maisons continue to upgrade and expand their network in strategic locations. Notable renovations, including Cartier's boutique on Collins Street in Melbourne, while key openings featured Buccellati at the Mall of the Emirates in Dubai and Van Cleef & Arpels in Goethestrasse in Frankfurt. Let's now turn to Specialist Watchmakers, where sales were down by 6% in the first half. At constant exchange rates, sales were down by 2% with a notable return to growth in Q2 at plus 3%. Regional performances continued to show contrasting trends. Double-digit growth in the Americas partly offset lower sales in Asia Pacific and Japan, 2 regions that combined account for over 50% of sales in the prior year period. Of note, all regions improved sequentially in the second quarter. By channel, retail and wholesale experienced slightly lower sales, while online retail was stable at constant rates. The operating results amounted to EUR 50 million, corresponding to an operating margin of 3.2%. Gross margin was impacted by the combination of unfavorable foreign exchange movements, of which the weaker U.S. dollar and the stronger Swiss franc, rising gold prices and an initial effect from higher U.S. duties. Ongoing cost discipline visible through a slight decrease in operating expenses partly mitigated the deleveraging impact of lower sales on the fixed operating cost structure. Reflecting their varied regional footprints, the Maisons experienced mixed trends. However, they maintained a 100% sell-in, sell-out ratio over 12 months, demonstrating disciplined inventory management. Novelties drawing on the Maisons' strong heritage and showcasing their craftsmanship contributed positively. The Lange & Söhne Odysseus Honeygold limited edition, for example, was fully allocated within 1 week of its launch. IWC introduced new references of the Ingenieur and Pilot's watches. Jaeger-LeCoultre released the Reverso Duoface Small Seconds and Piaget, its new jewelry watch collection, the Sixtie. Of note, Piaget has seen 5 of its creations nominated for the '25 Grand Prix d'Horlogerie de Geneve, which recognizes watchmaking excellence. 2025 also marks the 270th anniversary of Vacheron Constantin celebrated through worldwide events and new launches. Worth noting is the creation of La Quête du Temps, a mechanical marvel 7 years in the making and currently displayed at the Louvre, showcasing the Maisons' ability to combine history, craftsmanship and engineering. In parallel, while the overall number of stores was largely stable in the first half, the Maisons continue to enhance their network. Notable examples, including IWC's new booking in Taichung, Taiwan, Vacheron Constantin strategic relocation in Seoul, and Jaeger-LeCoultre's major renovation at the Kuala Lumpur Pavilion. Let's move to the other business area, comprising the Fashion & Accessories Maisons, Watchfinder & Co., and the group's watch component manufacturing and real estate activities. Overall sales were down by 1% at actual exchange rates, but rose by 2% at constant exchange rates. Regionally, Europe was the main contributor to growth and trends in the Americas were encouraging. By channel, sales in both retail and wholesale increased slightly. Growth at constant rates was driven by a double-digit rise at Watchfinder and modest growth at the Fashion & Accessories Maisons. Trends improved sequentially across all regions in Q2, leading to a 6% increase in sales at constant rates. Overall, the other business area reported an operating loss of EUR 42 million. Fashion & Accessories Maisons posted a EUR 33 million loss, improving at constant rates, thanks to controlled operating expenses while continuing to invest in the desirability of the Maisons. Turning now to Maisons' highlights. Alaïa saw its sales grow by double digits, fueled by sustained success and brand heat of its icons such as La Ballerine and Le Teckel. It is also worth highlighting the continued solid performance at Peter Millar, thanks to its lifestyle positioning and success in its crown crafted collection. Chloé saw improved momentum led by ready-to-wear, confirming that its strategy to reconnect with its roots is resonating well with clients. Overall, ready-to-wear across the Maisons achieved double-digit growth in the first half, fueled by a sustained focus on creativity. Montblanc made progress on its transformation program, comprising a greater focus on writing instruments and leather goods categories in direct-to-client channels while streamlining its wholesale network. Gianvito Rossi has been increasingly recognized as a leading global luxury female footwear brand, underscored by the enthusiastic reception of its latest golden edge fashion collection. The Maisons continue to enhance their distribution networks over the period. Openings, including Chloé in Saint Tropez, Peter Millar expanding to San Diego and Columbus, and Watchfinder, launching its first U.S. internal boutique in Soho, New York City. This concludes the review of the first half performance of each business area. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra, and well done on the pronunciation of Goethestrasse. Alessandra Girolami: Thank you, Burkhart. Burkhart Grund: Let me walk you through the rest of the P&L, starting with gross profit. Gross profit increased by 2% to EUR 6.9 billion and represented 65.3% of sales, a decrease of 190 basis points compared to the prior year period. This is the result of several moving parts, which have evolved considerably in the past 6 months. Starting with our production costs that were affected by rising raw material prices, particularly that of gold and to a lesser extent this period, higher U.S. duties. With a time lag between production and effective sale, our inventory levels acted as a partial natural hedge in a period of rising material costs. Compensating for the higher production costs, we benefited from positive impacts related to pricing and favorable sales mix. This was not sufficient, however, to compensate for the material adverse currency movements of a negative 180 basis points we faced in the first half, notably driven by a weaker U.S. dollar and Chinese renminbi, next to a strong Swiss franc, one of our main manufacturing currencies. Before we move on to the rest of the P&L, let me add a few words on U.S. duties. In the first half, the impact of increased U.S. tariff rates was limited to some EUR 50 million, thanks to our proactive inventory management since April and due to the phasing of the implementation of different tariff rates, starting with 10%, then 15% for Europe-made products, followed by 39% in August for Swiss-made products. With this phasing in mind, we anticipate a greater unfavorable impact in the second half, particularly if the 39% tariffs on Swiss origin products are maintained. Based on the current levels of our U.S. inventories and planned shipments, we estimate the full adverse impact of the increased U.S. tariff rates to be around EUR 0.3 billion for the full current fiscal year. Let us now look at net operating expenses, which were stable compared to the prior year period in value and increased by just 3% at constant exchange rates. Operating expenses stood at 43.1% of sales, down 220 basis points, driving positive flow-through from higher sales. Selling and distribution expenses were up by 3% or by 6% at constant exchange rates. The rise in cost was primarily related to continued retail store network expansion as well as salary increases. As a percentage of sales, selling and distribution expenses were down 70 basis points. Communication expenses decreased by 4% or 2% at constant rates, reflecting the Maisons' efficiency in allocating the resources and to a lesser degree, some impact from the phasing of specific events from 1 year to the next. As a percentage of sales, communication spend was 8.2% down -- sorry, 8.2%, down 80 basis points and below our typical range of 9% to 10%. Administrative and other expenses decreased by 2% at both actual and constant rates amounted to 9.2% of sales, down 70 basis points, reflecting lower valuation adjustments and fewer nonrecurring costs than observed in the prior year period. This resulted in an operating profit of EUR 2.4 billion, up by 7% at actual exchange rates and by 24% at constant exchange rates. Overall, the strong sales growth contribution and the effective cost control mitigated the impact of external headwinds in the first half, namely of unfavorable foreign exchange movements, the sharp increase in the price of gold and to a lesser degree, additional U.S. duties. As a consequence, operating margin remained robust at 22.2%, a 30 basis point improvement versus the prior year period. Let us now review the rest of the P&L items below the operating profit line, starting with finance costs. Net finance costs reduced slightly to EUR 158 million for the first half, down from EUR 173 million in the prior year period. This EUR 15 million improvement is mainly comprised of the following items. On the one hand, higher net FX losses on monetary items for EUR 162 million, primarily due to a weak U.S. dollar in addition to the impact of lower fair value adjustments for EUR 129 million. The latter relates to the group's investments in externally managed bond funds and money market funds. On the other hand, more than compensating those 2 items were the EUR 326 million increase in net gains on FX hedging activities. Turning to discontinued operations, which consists of YNAP until the completion of its sale on -- at the end of April of this year. Profit for the period stood at EUR 17 million. As a reminder, last year's results included a EUR 1.2 billion noncash write-down related to the transaction. Figures presented here are the estimated final closing adjustments related to the disposal, our 33% stake in LuxExperience being now recorded as an equity accounted investment. Let's now review the profit for the period. Profit from continuing operations stood at EUR 1.8 billion, 4% higher than prior year period. This included the rise in operating profit and the improvement of net finance costs that I've just described. The evolution of the share of equity accounted results was down EUR 34 million, primarily reflecting lower gains than in the prior year period on equity-accounted businesses and to a lesser degree, the result of our stake in LuxExperience, which was included for the first time. The group's effective tax rate for the first half stood at 19.5%, in line with our expectations for the full year, absent any special unforeseen items occurring in the second half. Finally, profit for the period was EUR 1.8 billion, up from EUR 0.5 billion in the prior year period that included a EUR 1.2 billion noncash write-down from discontinued operations. Cash flow generated from operating activities came in at EUR 1.9 billion, an increase of EUR 600 million compared to the prior year period, driven by higher operating profit and lower working capital requirements. Indeed, inventories rose, but less than in the prior year period, notably as the Jewellery Maisons experienced strong sales growth. Specialist Watchmakers also demonstrated effective production management, contributing to controlled inventory levels. To a lesser extent, higher cash inflows from foreign exchange derivatives also contributed to the reduction of working capital needs. Let us now turn to our gross capital expenditure, which amounted to EUR 0.4 billion and represented 3.6% of group sales. Our CapEx was broadly in line with the prior year period. A higher share was allocated to distribution and manufacturing. Investments in our distribution network dedicated to renovations, relocations and openings of directly operated stores represented 55% of gross capital expenditure, a share 8 percentage points higher than the prior year period. The share of manufacturing spend increased to 30% of overall CapEx compared to 24% in the prior year period. The investment mostly related to the Jewellery Maisons. Other investments represented 15% of CapEx, down compared to the prior year period, the decrease mainly reflecting the completion of several noncommercial Maisons projects. Let us now turn to free cash flow. At EUR 1 billion, free cash flow was about EUR 0.8 billion higher than in the prior year period. The increase primarily reflected the EUR 0.6 billion benefit from cash flow from operating activities that I described earlier, in addition to the nonrecurrence of last year's real estate acquisitions in London. Our balance sheet remained solid. Shareholders' equity accounted for 54% of total assets. Net cash amounted to EUR 6.5 billion at the end of September, down EUR 1.7 billion compared to the end of March 2025. This decrease is more than explained by the EUR 1.9 billion dividend cash outflow in September that reflected an ordinary dividend of CHF 3 per A share, which was approved by shareholders at the latest AGM. Before turning over to the Q&A, I would like to offer some concluding remarks. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical context. Our sales growth, largely fueled by sustained local demand in most regions speaks to the strength of our Maisons' positioning built with consistency over time. And we will continue to nurture their brand equity and cultivate their potential through investing in quality locations and manufacturing capacities. While we continue to navigate uncertain times and face demanding comparatives, we maintain the course and remain focused on leading the group with the same discipline as in the past. We have full confidence in our talented team's dedication to continue to enchant our clients with craftsmanship and creativity at the core to deliver sustainable value creation for our stakeholders. Now this concludes our presentation. Thank you for your attention, and I will now hand back over to Alessandra. Anne-Laure Jamain: Thank you, Burkhart. We now start the Q&A session. [Operator Instructions] Operator: [Operator Instructions] The first question comes from Ed Aubin from Morgan Stanley. Edouard Aubin: So Ed Aubin from Morgan Stanley. So first of all, congratulations, obviously, for the strong set of results. And Mr. Rupert, congratulations for the opening of the [ former ] Cartier building in Paris. I think it's really stunning. And I guess, for your support of the art world. So just going back to the question. So Burkhart, on the exit rate and kind of the start of Q3, which I know you don't really like to comment about. But yes, if you could comment in terms of how things have been trending over the past few weeks. You're going to be facing a much higher, much more difficult comparison basis for the quarter ending December, particularly in the U.S. So are you already seeing some slowdown on the back of that and so on. So that would be question number one. And then question number two, on the gross margin, which was down 190 basis points. Burkhart, if you could just -- I know you've helpfully provided a profit bridge, but on the input cost inflation and particularly related to gold, if you could provide a little bit of color because ahead of the results, people were struggling a bit with the modeling. And related to that, you helpfully given some tariff -- quantified the tariff headwind for H2, which I guess is EUR 250 million. The consensus is currently assuming a lower rate of decline for the gross margin, only 150 basis points in H2. Does that seem realistic given that the tariff impact should be substantially higher in H2 versus H1? Burkhart Grund: Yes. Good morning. Let me -- okay, let me try to help you within the limits of what we usually do, right? I mean, forward-looking and looking at Q3 sales, you know that we will not give you that color because there is too much uncertainty going forward. What I can point out is and remember that we had a very strong third quarter last year, a growth of 10%. And I think we're confident again in the long-term prospect of the Maisons, but we cannot, at this stage, give you any indication of how we're trading. The performance across the second quarter was pretty uniform with a bit of slightly higher growth in the month of September, but that has something to do also with past year's comparison. So really nothing much to add to that. Now the gross margin, I think we have been giving some indications. Let me try to be helpful. So overall, we have a 190 basis point drop in the gross margin in the first half, out of which 170 basis points really are linked to the FX impact, so the translation effect. And it's a mixed bag between obviously weaker dollar and dollar-linked currencies, but also for example, the renminbi, to a much lower extent, the Japanese yen this year and some other currencies such as the Korean won, for example, combined with the relative strengthening of the Swiss franc, which you know is one of our major manufacturing currencies. The other drivers in the first half are about 20 basis points negative, all combined, right? The biggest downward pressure on the gross margin came from gold, which is about north of 2 percentage points. And as we pointed out, for the time being, a very minor impact from U.S. tariffs around EUR 50 million plus, which, as you know, is linked to, let's say, the inventory cycle. It sits in inventory today and will then when we sell the inventory, be recycled into the cost of goods line later. The stock revaluation and price increases for the time being roughly compensate for these negative impacts. That's why the overall decline of the gross margin not linked to FX is about 20 basis points in the first half. Now on tariffs, we will not speculate about that. We know the current rates. And answering your question, actually, your question is answered through what you put on the table saying, is that realistic to estimate that gross margin will be weaker -- with a weaker drop in the second half if we have a disproportionate impact of tariffs. So I think the answer lies in the question there. Operator: The next question comes from Antoine Belge from BNP Paribas. Antoine Belge: Yes. It's Antoine Belge at BNP Paribas. So 2 questions. First of all, can you talk a bit about China, Chinese, Greater China. I know it's a bit complicated. So in Q2, I think Greater China was up 7%. My understanding is actually Hong Kong and Macau were quite strong. So -- but so was Mainland China locally a bit positive. And what about the Mainland Chinese cluster, if you take into account maybe the impact of tourism? And more generally, what's your view on China, there is improvement, just easy comps? Are you seeing some macro impacts, better consumer confidence? And my second question is a bit of a follow-up on the topic of gross margin. So I understand that there will be some headwinds that are going to be greater in H2, but you passed quite a hefty price increases, I think, in September. So could you quantify those? I mean, according to our estimates in September globally for Jewellery Maisons, it was around a high single digit coming on top of around 3%. So I'm slightly surprised by the comment that the gross margin would be declining more than they did in H1 because there should be at least, in my opinion, more impact from pricing. So am I getting something wrong here? Nicolas Bos: Nicolas Bos here. I will answer your -- try to answer your first question although everybody would love to have a final view on China and its evolution. We've definitely seen an improvement, particularly in the last quarter, definitely on the region, what we refer to as Greater China. As you mentioned very well, it was driven by an improvement of business in Hong Kong and Macau, both touristic, so Mainland Chinese traveling to Hong Kong and Macau and also domestic clientele, particularly in Hong Kong. All in all, we see -- I don't know if it's a stabilization, but we are back to a positive performance for the region, including slightly positive in Mainland China on the very end of the period and clearly driven by the Jewellery Maisons. In general, we've seen some repatriation of purchasing, notably from Japan to Hong Kong for our Mainland Chinese clients. But it seems -- and it will be difficult to predict the future, but it seems that we are now at a more stable level of purchasing from our Japanese -- or Chinese clients, sorry. What we see at large, but maybe it's a wider discussion is that there is an evolution of consumption in China connected probably to the economic situation, but also to an evolution in taste where we see Chinese clients becoming much more demanding, discerning and differentiating when it comes to their choice of brands and collection. That affects positively the Jewellery Maisons. We still see on some of the watch Maisons a more challenging situation. And what we foresee, if we're able to foresee anything is that it's really a market that is reaching another new level of sophistication and of quality of demand, very much at par with what we see in the rest of the world. And that has an impact really brand by brand, category by category, collection by collection. But all in all, it seems to be quite stabilizing. Burkhart Grund: And Antoine, just picking up on your second question. Listen, we're not going to guide on any gross margin in the second half because we have uncertainty and volatility on currencies, on gold, et cetera. What we have pulled out or pointed out is that at current rates, we will have a disproportionate impact of tariffs in the second half. As for the first half, we have been shielded by inventory holdings and, let's say, proactive inventory management. So that's really all I can say on this topic. Antoine Belge: But maybe on the price increases, I mean, could you maybe confirm that what was taken in September at high single-digit overall global number for Jewellery Maisons, is that what happened? Nicolas Bos: Well, we had some -- as you noticed, we had some price increases because we discussed it before that we want to maintain price increases as limited as possible because for us, keeping the affordability of certain collections and the attractiveness of the Maisons is really what comes first. But regardless, we had to implement some price increases. There were some in May, low single digit. There were some in September, particularly for Cartier, quite limited on a worldwide basis to try to reflect some of the increase in the price of gold, notably. But then including also some specific local adaptation, we need to keep in mind that the dollar has depreciated 8% in 1 year. So we need also to maintain kind of fair international pricing and reflect the evolution of exchange rates. So that came on top of the slight international price increase. So we haven't seen a true impact, let's say, in desirability of traffic in the stores, meaning by that, that we didn't necessarily notice a specific spike of purchasing before the price increase nor decrease afterwards. We believe it's because it was quite reasonable and the desirability of the collection comes really first. So we'll see in the second half how that unfolds. Operator: The next question comes from Thomas Chauvet from Citi. Thomas Chauvet: A couple of questions, please. The first one, a follow-up on pricing and maybe your pricing philosophy. Nicolas, you said you're trying to maintain affordability and to try to limit price increase because obviously, you can't cut prices once you've increased them. So you're very careful. Nevertheless, do you think the consumer, not just in China but globally is also starting to buy jewelry a bit differently than in the past for other reasons than the beauty of the Cartier, Van Cleef design or the emotional value that you talked about before or simply gifting purposes or the big events of life, but also as a commodity investment? So very strategically to invest has more than as more than a store value, but maybe even an investment in an unprecedented rising gold and precious metal market. So -- and how would you react to that? Because we've seen some of your Chinese luxury competitors, if I can call them competitors. We know the way they operate, [ La Portugieser ], they increase prices by 20% today, tomorrow, mechanically, they'll reduce prices because gold prices have decreased. I know that's not how Richemont operates, but we're in a very different gold market now. So curious to hear your thoughts. And secondly, perhaps also for you, Nicolas or for Mr. Rupert. It's been over a year that Nicolas, you've been appointed as group CEO. Are there any areas where that you've identified where the group or perhaps the individual business areas, divisions could do differently, could evolve, could be a bit more efficient? Obviously, there's been huge cost efficiency in the first half, as we know. Could you share some high-level thoughts on your also perhaps portfolio review, particularly within Specialist Watchmakers and Fashion & Accessories? Are there any obvious brands that may need financial or strategic support or brands that you think maybe might prove challenging to turn around? I'm thinking perhaps Dunhill, Montblanc or Roger Dubuis. Nicolas Bos: Thank you very much for your questions. I think that would require probably a few hours to answer. But starting with the first one, I mean, the pricing philosophy has not changed. We really believe in what we call fair pricing, which is that the price of any of the creation should reflect its interest [ rate ] value. And of course, we need also to take into account variations in the price of raw materials and exchange rates. I have to correct what you said, it does happen that we decrease prices, and it has happened in the past because that fair pricing policy includes that as well. So it has happened. It's true, it's not something easy to implement, but it does happened. And on the very high end, high jewelry, exceptional watches, we do actually adjust prices up or down on a monthly basis from a European pricing that we translate into local currencies. So we have fluctuations that can go up and down. Of course, the primary focus is to limit the increases to make sure that the fair pricing is still there and the attractiveness of the collections is maintained. So we will continue to look at that. We really truly believe that our clients have a really precise understanding and assessment of value. And unlike what we sometimes hear is not because a piece is expensive and a client or collector has significant resources that elasticity is endless and that the price doesn't matter on the opposite. So we are very attentive to that, and we will continue to do so. I don't know if that answers your question. On the second part, maybe Johann will want to say something. But what I can say is that -- and we talked about it before, Richemont is very much about long term and continuity. And then I came after more than 30 years already in the group. So not here to make any form of revolution. I think that's not expected at all. We've seen a period where we had very, very unexpected and strong phenomena during COVID -- after COVID that actually led to a very, very strong ups and downs in performance across the board. And we were seeing also global purchasing trends in Asia, in America and Europe. What we see in the last period, clearly in the last year, 1.5 years is that we come back to a much more differentiated performance by brand, by category, by collection, by geography, in a way, back to what we used to see before that whole period and the pre-COVID and COVID period. So what I'm very, very attentive to with all of my colleagues is to make sure that we maintain or sometimes bring back all of our Maisons to really their core identity, their core expertise that they all have a very, very distinctive offer and complementary offer. We don't see today a global phenomena where everybody does well or everybody is challenged anymore. And my belief and our belief at Richemont is that each and every brand is much stronger when they are occupying their respective territories. And of course, the territory of expression of Panerai is different from Lange and the one of Jaeger-LeCoultre already different from Vacheron Constantin. Same for the Jewellery Maisons or the Fashion & Accessories Maisons. So this is the primary focus to make sure that they are all really playing in their specific respective field. And then taking with Burkhart and the team and all my colleagues, a very differentiated approach. Some of them are very successful, mature international brands. Some of them require still some more support because they are in development phase. Some of them are in redevelopment in some areas. You were mentioning Dunhill with this new, and I must say, fantastic designer, Simon Holloway. We also talk about Montblanc, where we do a lot of work with Giorgio Sarne, the new CEO and the team to see how Montblanc can revolve around the auto writing and the expertise in laser. And you've seen with renewed communications and identity where we try to bring back Montblanc in a way to its core expertise. So this is very much the kind of long-term work, but nothing at the end of the day, different from the previous decades, I believe. Operator: The next question comes from Erwan Rambourg from HSBC. Erwan Rambourg: Congratulations on such a standout performance. If I could just make a comment, you're sounding very low volume-wise. So -- and I don't think I'm the only one suffering from this. So if you don't mind speaking slightly louder. I'll keep it to 2 questions as asked. So one on Van Cleef. We've had pushback from people who are bearish talking about the Alhambra dependence, ubiquity, potential fatigue. Obviously, you're probably fed up with this, Nicolas, since you've probably heard these comments when you were running that brand. But I'm wondering if you could talk about maybe relative performance within Jewellery Maisons. I suspect, Buccellati is booming from a low base, but can you sort of compare and contrast what you're seeing from Van Cleef relative to what you're seeing at Cartier, please? And then second question on Cartier. Obviously, a management change there as well with now Louis being in the seat replacing Cyrille. I'm wondering, if you could talk maybe about -- I know there's no revolution going on, but maybe what the areas of focus can be and what has changed? I think people looking at the group from outside will possibly think that there's greater SG&A discipline at Cartier, that would maybe be a bit simplistic. But what would you call out in terms of maybe the 2, 3 focus points for Louis in running Cartier? And if I can cheekily add another very small question related to Cartier, Love Unlimited seems to be a pretty resounding success. Should we consider this as permanent or more in animation on the range? Nicolas Bos: Thank you very much. It's a lot of questions. And of course, we don't discuss so much performance and results by Maisons. Of course, on the Van Cleef & Arpels side, I need to answer. I don't feel any fatigue about Alhambra. So we have been seeing quite a few of them for 25 years. And I believe that most of our clients and stakeholders share the same view. So to have an icon is a blessing. So it's very often referred to as kind of liabilities. Is there a risk attached to it. At the end of the day, it's a blessing. I mean, the brands that do have iconic clients, in jewelry, in watches, in ready-to-wear or accessories are usually the ones that are very successful in the long-term if they manage to maintain the desirability and the creativity around these iconic lines. So Alhambra is, I can talk about Alhambra for some time, but I'm not going to. But it's -- to me, an extraordinary collection that's been here for more than 50 years and has offered over this more than 5 decades, almost endless opportunities for creativity with sizes, colors, styles. And that will continue, and we see that there is renewal within that collection, and that's widely appreciated. Needless to say, Van Cleef & Arpels like other Maisons is working on other collections. We've seen collections like Perlee. We were talking a bit earlier in the presentation about Flowerlace and Floral collection, some of the watch collections also at Van Cleef & Arpels that established themselves around Poetic Complications. So Alhambra is not the only collection far from that, but it's true that it's probably the most recognizable and iconic one, and it's something that we will continue to develop and protect. At Cartier, the same. Cartier is blessed with having several very iconic collection. Love is definitely one of them, created pretty much in the same period, Alhambra '68 and Love in '69. And Love Unlimited is actually a very important development within that universe of the Love collection. It's not the way I see it with the team and animation. It's really a new expression within Love. Love is a bangle bracelet. And for the first time, it has become so-called and articulated. And I believe personally, and I like jewelry, as you know, it's a fantastic piece and fantastic collection even with my Van Cleef shares, I've been quite -- I have to say and to acknowledge it's really a fantastic collection. And we've seen the response among existing clients of the Love collection or new clients actually entering the world of Cartier. And it's so far, a very, very positive response. So we'll see how it goes. But we believe it's here to stay for the long-term, and the team is already working on the further development around Love Unlimited. As for Louis and Cartier, I think Louis is doing a very good job. The transition with Cyrille is going on extremely smoothly and I pay tribute to both of them. Cyrille is still very involved with some activities at Cartier, if you think of the women's pavilion and all the philanthropic and artistic activities of Cartier. And they work really hand-in-hand with the current team. Once again, Cartier has the other Maisons is evolving and adapting to this new environment. I mean, there is always a new environment and typically the slowdown in China, which was a very, very strong market and still a very strong market for Cartier, something that the team is really addressing now and to see how we can make sure that Cartier will be ready for the next phase of the luxury industry in China. We've seen the strength of Cartier in America and the United States, which is quite impressive over the period. And they're also working there, renovating and improving the retail network and operations. So yes, he has a lot on his plate, but it's very much once again question of continuity with the previous management and the whole history of Cartier, and I'm quite confident it will continue to be very successful. Erwan Rambourg: Very useful. Best of luck. Nicolas Bos: Thank you very much. Operator: The next question comes from Jon Cox from Kepler. Jon Cox: It's Jon Cox with Kepler here. A couple of questions for you. The first one, just on the -- you had a very tight grip on costs, including on the CapEx side of things in the first half of the year. It's clearly an unprecedented environment, potentially maybe looking a bit better with China and Hong Kong coming back. Just wondering how we should think about the costs going forward in terms of you guys have a fantastic track record when things get a bit more difficult. You tend to look very closely at costs and cash flow and that sort of stuff. Is it more about maybe relaxing a little bit more? Or has the... Johann Rupert: Sorry, Jon -- it's Johann here, Jon. What makes you think that it's during tight times that we look at cash flow and cash. Jon Cox: I know you tell all the time, Johann. Johann Rupert: I just want to [indiscernible] your leg. Jon Cox: Because Nicolas is adding a bit more on the cost side maybe than you have historically done. That's the sort of gist of the question. Johann Rupert: No, no. No, then ask it directly. I think you've got to look at Burkhart as the gentleman that's managed to keep the costs under control through COVID up till now. Burkhart Grund: Yes, Jon, and we're not going to give you any guidance going forward, but we intend to confirm the reputation that you just cited and mentioned by keeping focused on that. But remember, this is not a cost-saving initiative that is disconnected from what our Maisons need to grow. And we will always continue to invest where we need to invest to make our -- prepare our Maisons for the future with the right level of resources that they need. So we would never suppress activities that will impact the future readiness, so to say, of the Maisons. We have done during COVID, have deployed an approach that have been executed by all the Maisons with a high level of responsibility and auto responsibility of how to make through a very challenging time. And the same approach is what the Maisons are driving today that they are aware of the external factors, and they know best what resources they need to deploy for the future of the Maisons. And I think this is built into the philosophy of our management teams in the Maisons and in the businesses. Jon Cox: Okay. And then maybe just as a bit of an add. You mentioned a potential EUR 300 million charge if the existing 39% tariff is maintained. If that tariff sort of goes back to 15% next week or in the next couple of days, should we just think it will be 6 weeks' worth of EUR 300 million costs? And just as an add, Johann, you're on the call. I saw your comments earlier to the media saying this misunderstanding between the Swiss and the U.S. could be resolved in the next day or 2. Any further comment on that at all? Johann Rupert: Yes. [indiscernible] those of us, Jon, that were on the call, I -- it was selective. You know what subeditors do. It could be today, but I say the comprehensive agreement would probably take up to February. But I have absolutely no idea. It's in the hands of third parties. So I'm not predicting anything. It was selective editing. Burkhart Grund: Yes. And Jon, based on what we know, which is the current rates, we expect for the full year roughly EUR 300 million impact. Again, after a good EUR 50 million in the first half, where, again, I pointed out that we're pretty much shielded in time from -- through our inventory. But that obviously, once we sell the inventory, we recycle it into the income statement, and that's where we expect overall at current rates, again, current rates, a total cost of about EUR 300 million for the full year. Jon Cox: Okay. I'm just going to throw in a cheeky one. Trade receivables have gone up a lot in that half compared to a year ago, certainly a couple of hundred million. Is this any sort of indication you guys are looking forward to a good Christmas period? Burkhart Grund: I'll answer that question right away, Jon. I just want to add one more thing on tariffs. Let's not forget that the biggest impact of tariffs comes from the tariffs -- the European tariffs, which is, as you know, 15% because we produce a significant amount of jewelry, fashion and accessory items and one watch brand as well in the European Union or inside the European Union. So that impact will stay. Here, the same logic applies. What has been in inventory will be recycled into the income statement, and that is where the biggest part of our sourcing actually comes from, right? So let's not equate just tariff impact with Swiss tariff impact. Second question, we have wholesale debt of around EUR 600 million, wholesale debt, meaning receivables, which are highly current. So this has -- is really on the back of the wholesale channel performance. We have pointed out that retail and wholesale are roughly growing at the same rate, which means that we also have a healthy recovery of sell-in, again, strictly controlled, which is watches, but which is also linked to the very strong performance of our ready-to-wear lines. And I would say this is pretty current. Our inventory -- our receivable days are quite low, talking about 40 days on average. So this is more, I would say, the expression of a healthy business in wholesale today, and I would not interpret that as pointing to the future. Jon Cox: Great. Well done on the figures. Well deserved. Burkhart Grund: Thank you. Operator: The next question comes from Luca Solca from Bernstein. Luca Solca: Luca Solca from Bernstein. Looking at the U.S., I wonder how you're thinking about American demand and whether there could be a reason to think that because of the stock market, because the crypto American consumers are very strong? Or is there also an element of consumers wanting potentially to avoid price increases and buying ahead of those price increases on the back of the tariffs that have been introduced? And how you separate which is which. I wonder if just myself thinking about the possible contribution from demand being brought forward or if that is not really a point that you would see from your retail activity in America. And congratulations, Johann, for apparently sounding the right tone with President Trump seeing the picture of you and Ponte and Dufour and a few others in the overall office with President Trump was clearly refreshing. If that goes through, I think you should be seen as a Swiss hero, but well done. On another point, and that would be my second question. There's a lot of talk about the K-shaped society coming forward. Artificial intelligence applications could possibly make wealth and income polarization and inequality even greater. You have a very broad range of prices to take care of the very rich and the middle class, and you stated that you're very careful to maintain accessibility for all consumers. Are you seeing in the way you're selling, and I'm referring to the different price points at which you sell that this K-shaped reality is indeed appearing and that you have the highest demand growth at the 2 extremes of your offer? Johann Rupert: Luca, as usual, Johann here, a very perceptive question. Plural, but please don't think that I had much to do with whatever the eventual outcome between Darren and Washington is. The -- like you, I'm really concerned, if I could put it like this, about the possible unintended consequences of the AI economy. We know that there will be winners. And -- but perhaps it's easier to spot the losers than the winners 5 years ends. Now -- and the hollowing out and polarization, I would say, especially in the United States, the biggest visible effect that I've seen is a hollowing out of the middle class. If you look at the malls and if you look at -- and I hesitate to mention names of companies. But if you speak to mall owners, they will tell you that Costco and Cartier are still doing very well. It's in the middle that the hollowing out has occurred. And this was clearly reflected in the anger displayed by the voters in the last presidential election. There is a hollowing out of the middle class. That's more evident if you look at where they're spending their money. Clearly, and I won't and worried about this in 2015. Societies cannot live with that massive differential between rich and poor. The problem is that in the new economy, and it's before AI, it's a winner takes all economy. In the past, the bricklayer who made 80 bricks an hour earned x, but if you did 120 or 100, you were paid more, but the person who laid 20% less still had an income. Today, if you write software that's 20% less effective, you get 0. And especially when you have an economy and an intellectual property-based economy where you can increase production at 0 marginal cost. It's a winner takes all economy. And if you look at, let's say, the top 10 companies in the United States and you look at their percentage of capital allocated and how it's circular amongst them, one does get a problem that how concentrated is this capital allocation and the wealth generation. I think I read somewhere that NVIDIA has created in the last year, 1.5 years, 100 billionaires amongst the staff. Now good luck to that. It does indicate that in 5 years' time and if you start looking at the differential between winners and losers because of AI, I think we're going to have more polarization. I suspect that we're going to have abundance. The real question is how is that abundance shared. That will be the real question, any case. Nicolas Bos: Luca, Nicolas here to continue on your first question. We haven't seen so much movement and variations of trends and sales linked to the timing of price increases. So there might be, to your point, some kind of global feeling that you might as well, particularly in the U.S. these days, buy before additional price increase or tariff impact materialize. It's clearly something that's in the air. But we didn't feel a massive impact of that. And over the last 6 to 9 months. We've had different price increases in the respective brands at different timings, but we haven't seen spikes or downs that we could see sometimes before that we used to see, as you know, for instance, in Japan, where a few years ago, if you are planning a price increase, you knew that the month before would be phenomenal and the month after will be really down. We didn't see any of that -- at that level in the U.S. So there is definitely that feeling, but I think it's not so important. And we feel that in a way, if I may, we have clients that -- and collectors that if they can afford and they have a good reason to buy and they want to enjoy it's the right moment. They don't know what the future is made of. So they say we might as well enjoy now and make that purchase because who knows how it's going to go. So this is pretty much what we hear. And so far, it's very much down to the desirability of the brands and the collections and the perceived wealth or actual wealth of the buyers and the clients. And we are discussing a bit earlier today with Burkhart. It's true that we see in a few countries, clients, collectors that are buying much more from their wealth's and their assets or their perceived wealth's and the stock exchange does play a role, of course, into that more than by -- according to their income and the variations of their income. And that's pretty much the case in the U.S. these days. Burkhart Grund: And Luca, if I just want to add one thing. If it were a quarterly spike, we would probably come to a different conclusion, but this is 7 quarters in a row with double-digit growth. So this is probably reshooting a bit that argument. Luca Solca: Absolute Absolutely. I understand the point on American demand. That is very reassuring. Thank you, Burkhart and Nicolas. I also think -- and thank you, Johann, for your explanations that artificial intelligence is proposing monumental questions to politics and society. So we'll see how that is taken care of. Operator: The next question comes from Patrik Schwendimann from Zürcher Kantonalbank. Patrik Schwendimann: Congrats for these outstanding numbers. And thank you, Johann, especially for your support for Switzerland. If the gold price stays where it is currently, how much more pressure on the gross margin do you expect for H2 and also for next year? And how much more price increase would you need? That's my first question. And second question, again, on China, the Chinese luxury consumption has improved recently. How sustainable do you think is this? I mean we've just seen this morning real estate market is still down. Burkhart Grund: Patrik, I really don't want to speculate. So can't really and won't really answer that question. I mean, gold pressure or gold price increase, we've seen it. Maisons have, I think, adjusted to it quite well in the first half, trying to find the right balance between limited price increases, efficiency gains, strong inventory management and strong cost management. And I think the way the mix has come out is quite favorable. And we will continue to apply that approach by our Maisons. And going into the numbers gain, how much would you need it would reduce the quality of the mix in a way. I mean it's not price increases to offset as a singular item, but we're working on many more items of the mix. And I can only confirm that this will be the policy and the approach going forward. But I would refrain with the high volatility that we have and the many moving pieces to -- and I know you have to feed your models, and I don't blame you for that at all. But it's a bit more complicated to actually run these businesses than just applying a simple model. Patrik Schwendimann: But just the recent price development, I would assume that the pressure is increasing, right, because you have a time lag. Burkhart Grund: Well, we have a time lag. Yes, that's the mechanics of it. And price increases also have a time lag because, as you know, most of them were applied pre-summer, during summer and after summer, so a bit later in the first half than from April 1. So that also has a time lag, or a stronger impact later in the year. Patrik Schwendimann: Okay. Nicolas Bos: And Patrik, if I may add, Nicolas here, to that, impossible to predict the volatility of the gold price. As you know, in others -- one of the specificities of jewelry is that gold, which is for many people, an investment vehicle, for us is a working material. So it has always been the case, will always be the case. So we have to see the fluctuations of the gold price and that they impact our cost of goods and our margins. On the other hand, as we discussed before, the desirability of gold and its investment value also, we believe, impact positively the attractiveness of jewelry. Of course, we prefer, and we will welcome your support in advising clients to buy gold under the form of jewelry instead of under purely a financial form because then they get the best of both worlds. But apart from that, we can only react afterwards. As for China, we believe that -- first of all, we've seen a stabilization of our sales. Is it going to last that we've seen the bottom of it? We never know and we cannot predict, but it seems to be stabilizing, both in Mainland China and in general, sales to Mainland Chinese, whether domestic sales or touristic, although we've seen some movements and, for instance, repatriation of sales from Japan to Hong Kong in the last quarter quite significantly. What we see is the strength of certain brands remains extremely, extremely important and that the desirability of certain lines, certain collection and probably the most iconic, the most historic the lines, the more attractive they are these days. We've seen that continue to strengthen. So we are very -- I wouldn't say optimistic, but -- yes, to some extent about China. It's a very, very sophisticated culture. Obviously, there is high purchasing power. It's impossible to predict how it's going to evolve quarter-by-quarter. But we continue to invest in our presence in China in the quality of our presence in the development of the visibility and desirability of our brands, retail network, exhibitions, activities. And we believe it's going to remain a very, very important market, although we're probably not going to see the type of growth that obviously we've seen during a few years before. Operator: The next question comes from Atiyyah Vawda from Avior. Atiyyah Vawda: I have 2 questions. The first one is on the Specialist Watchmakers store network. I noticed that the number of stores have been reduced by 14 during the period. Can you give us a bit more color on what that related to? And then the second comment is on the jewelry business. From a strategic perspective, how easy is it to launch maybe platinum versions of the products, for example, in the Love range or in the others from a manufacturing perspective, but also from the ability of the brand to actually have platinum versions of the current products? Nicolas Bos: Thank you very much. Maybe I would start with the second part, which is a bit more technical, and thank you for that. It's true that platinum that somehow decreased or almost disappeared in the jewelry [indiscernible] category a decade ago is becoming, again, a very interesting material to work with. But availability is still limited, and the workability is very different from the gold. So for instance, you are talking about the gold bracelet or if I'm talking about certain other collections, there are a lot of motives that you can create in gold that are very, very difficult to create in platinum is much harder material to work, and it's also a much heavier material. So it's less adapted to certain lines. So -- but you're right, there is a thinking behind that. And there are lines that are -- that always existing in platinum, but were a bit less visible and that become quite interesting and attractive again. But it's not going to replace gold anytime in the future for sure. It's going to complement at most. And we see that also in the watchmaking, some beautiful opportunities for platinum versions of some iron watches. Burkhart Grund: Yes. Let me just circle back on the Specialist Watchmaker network. Now just a bit of context between internal, meaning directly operated stores and external stores or franchise stores at the Specialist Watchmakers. We're talking about a good 920 stores. So 14 is a slight downward adjustment, which is primarily or a bit more than half is driven by some closures or adjustments on the franchise store network and some very few internal stores that we have closed. It's not in one market. There is a bit in China, but there's a bit in outside of China as well. I'd say, overall, it's pretty much what we do every year. We review the -- or the Maisons review their store network and adjust when they see the need. And this is not something very major that has happened here. Operator: Next question comes from James Grzinic from Jefferies. James Grzinic: I just had 2 quick questions. The first one, Burkhart, you talked to reduced building inventory at the end of half 1, if you compare it to last year, given that strong growth in jewelry sales in Q2. Can I just check that if demand were to grow as strongly in the peak quarter as it did in half 1, your machine really could feed that demand? That's the first question. And secondly, can you perhaps more generally talk to what the customer response has been to those meaningful Cartier price rises through mid-September. Any markets where there's been more resistance than others or vice versa? Nicolas Bos: James, Nicolas here. On the second question, we mentioned before that we haven't seen real significant trends around the price increases. So maybe a very, very case-by-case basis, some slight acceleration before the price increase and slight deceleration after. But even on a monthly basis, it pretty much averages. So we didn't see any noticeable movement there. Burkhart Grund: On the inventory, let me kick off and then Nicolas will complement. Just look at -- let's look at the numbers. First of all, there's about a EUR 600 million increase in inventory. A good half of that, so a bit more than EUR 300 million is linked to either FX, meaning valuation or revaluation of inventories due to the higher input costs, notably gold. So that automatically revalues or increases the value of our inventory. The other half is increased inventory per se. And the split there is between the biggest part of that in really underlying inventory increase is work in progress, meaning in the production or manufacturing process today and a smaller part is finished goods. So this is really just the number side. And when you see the inventory coverage, it's gone from close to 20 months to about 18. So that's really the financial frame of it, so to say. You know that we have been investing over the last years in -- primarily in additional capacity for jewelry making. And you've seen as well in the first half of the year that a bigger part, a bigger share of the CapEx went not just into distribution, but also into manufacturing, and that manufacturing was concentrated in the Jewellery Maisons. So we have been focusing over the last years already also because we've had shortage in lines to rebuild the inventory holdings to the right level and have had good success in it, but this is an ongoing process that we continue to complete. Does that cover, Nicolas, or do you have? Nicolas Bos: No, very much so then we could go more in detail, but it's very much the investment in production workshops that you will find for the Jewellery Maisons at Cartier and Van Cleef & Arpels and Buccellati and also at Vhernier and Valenza recently. So we are definitely -- we are very -- we are being cautious. We don't want to build overcapacity, obviously, but we want to make sure that we are ready for the future. And if trends continue to be positive, we can answer to them. With limitations that will remain, availability of craftsmanship for handmade jewelry remains an issue. And then it's a very lengthy process that we tackle of identifying young talent, training them, being involved with the schools and so on. But this is more a 3-, 5-, 8-year journey to train craftsmen. But it's been an ongoing process for years and years. So we're quite confident that we will probably continue to see some scarcity and some shortage on some collections, but that's the nature of the activity. But all in all, our capacity to supply will follow the demand, the way we look at it. James Grzinic: That's great. Thank you, Nicolas. So to paraphrase you, if top line turns out to be demand would support double digit in peak trade, you'll be able to feed that basically given your production capability now and notwithstanding the inventory balance at the end of September. And I presume you are satisfied with price elasticity since those price rises at Cartier in September that will allow you to continue to, I think, that -- use that fine balance of value, affordability, et cetera, et cetera? Burkhart Grund: James, are you trying to find out if you should buy now Christmas present or later? James Grzinic: I already had. So I'm kind of assess that. Burkhart Grund: Okay. So rest assured, that's fine. Operator: The next question comes from Chris Huang from UBS. Chris Huang: Chris Huang from UBS. Congratulations on the results, and I will stick to 2 questions. My first one, sorry, Burkhart, just to come back on the commentary you made on September faster than the quarter. I assume that's a group level comment. So could you perhaps please talk specifically about the Jewellery Maisons as you had newness from Love Unlimited at the end of the quarter, and that should be quite mix accretive. So just wondering if you can touch on the cadence of Jewellery Maisons to help us think about the momentum ahead. The other question I have is a clarification on pricing. Nicolas, you mentioned the pricing you did in September. So thank you for that. But just to clarify, what's the incremental contribution from pricing in Q2, specifically versus Q1 for the division? I'm just trying to understand within that 6 percentage point sequential acceleration, how much of that actually came from pricing? Was it more of a low single digit or mid-single-digit contribution, please? Burkhart Grund: Chris, I'm not sure if we can be really helpful on these questions. They're very, very short-term oriented. I understand where you're coming from, but commenting on a single month and then by -- with a high level of granularity by Maisons is not something that we recommend to do because it can lead to conclusions that are do not reflect the reality of our business. Our business is always be it by year, be it by quarter, cyclical and has as much to do with the current trends as well as the comp base of the prior year. And this is the way I would leave it today. I would not endeavor to go further. Sorry for not being more helpful than that. Chris Huang: No worries, understood. Operator: We will now take the last question from Carole Madjo from Barclays. Carole Madjo: Carole Madjo from Barclays. Two questions, please. The first one, can you share a bit more color on the state of the watch market? Do you feel like the market has finally stabilized, I guess, mostly in China and that the positive growth you are able to deliver in Q2 can be sustained? That's the first question. And then number two, just to come back on communication costs, which was lower in H1. Are you still happy with the ratio of around 10% of sales for the full year, which is what you have been doing over the past few years? I know you talked about some phasing effect. So are there any particular events worth flagging that you will do in H2 to push top line as again, you will be facing tougher comps? Nicolas Bos: Nicolas here, on the watch market, I mean, we would love to be able to predict how that market is going to evolve. What we've seen definitely in the recent period is a stabilization for most of our Maisons. They come from very, very different situations, the respective weight of the geographies. For instance, some of the Maisons were extremely successful in Asia and in China in the past. And of course, the slowdown in China did hurt them more than the ones that had more of an American or European footprint. So we see all the Maisons pretty much coming back to a more healthy and better balanced situation. As I mentioned before, also very much refocusing and focusing on their core collection, core identities and delivering a strong and clear message to the -- their collectors and their stakeholders. So we are seeing some positive impact of all this. How it's going to evolve in the future is difficult to predict. We see, for sure, a more and more differentiated watch market, where it's much more difficult to see a global trend even at the scale or the level of one country or one price category. And if you see, for instance, the success of Cartier watches in the past period, be it in sale or even in attractiveness and buzz around the Cartier collection, it's extremely high and shows also an evolution or kind of coming back in terms of taste towards smaller shaped watches that had a bit disappeared for a period. So we very much have individual and singular trend Maison by Maison, and we try to very much follow them on a very granular level. Difficult to say how it's going to evolve. For sure, what we see, and we see that also through the activities of Watchfinder, which is the secondhand watch business that we own. Burkhart Grund: Pre-loved. Nicolas Bos: Pre-loved, sorry, Mr. Chair. Pre-loved watches. We see for sure that the speculative bubble on watches that followed the COVID period has burst and is gone now, and we are back to a much more, let's say, rational and a bit more predictable consumer behavior when it comes to whether pre-loved or first love watches. Johann Rupert: If I may just make a final observation. These successes at, for instance, Cartier, it's not turn on, turn off. It takes years to develop. And I really would like to pay homage to not only obviously Louis, but Cyrille and what they have prepared. And what you are witnessing is really the power of Cartier. There are only so many Maisons in the world that have the power and the reach and the influence and the trust of consumers across all continents that if they have good products, these products sell and sell at scale. So I mean, this comes from Alain Perrin says, Cartier is a machine, and you are seeing the results of decades of work, really decades. And I'd like to pay homage to all of those people. That's why when you have something very, very good like the new Love's range, it can sell, and it can sell at scale. Alessandra Girolami: Thank you very much. This will now conclude the call. Please do not hesitate, of course, if you have any further questions, and talk to you soon. Thank you. Burkhart Grund: Thank you very much. Nicolas Bos: Thank you. Burkhart Grund: Thank you.
Operator: Hello, and welcome to the Air Industries Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. This call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Future developments and actual results could differ materially from those set forth and contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties there can be no assurance that the forward-looking information will prove to be accurate. This call does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company's shareholders. At this time, I would like to turn the call over to Lou Melluzzo, President and CEO. Please go ahead, sir. Luciano Melluzzo: Thank you, Donna. Good morning. Before we begin, I'd like to note that given the level of detail in our press release and Form 10-Q, we'll keep our prepared remarks brief. We will, of course, take a few questions at the end if anybody has them. Now on to the numbers. But before I turn the call over to Scott, I do want to let you know that on our consolidated balance sheet, we are reflecting all of our credit facility and subordinated debt as current. Our credit facility matures at the end of December of 2025, and our related party subordinated notes mature on July 1, 2026. At this time, I can't comment further other than to say that the company is actively engaged in a constructive discussion with all lenders regarding potential refinancing or extension of these obligations. I encourage you to refer to our Form 10-Q for more details on the status of these notes and related disclosures. With that, I'll turn the call over to Scott for the numbers. Scott? Scott Glassman: Thank you, Lou, and good morning, everyone. Our results for the third quarter of 2025 showed a meaningful improvement compared to both the first 2 quarters of this year and the third quarter of 2024. Net sales for the 3 months ended September 30, 2025, were $10.3 million. Gross profit was $2.3 million or 22.3% of sales. This is a strong improvement, reflecting the benefits of our cost reduction initiatives earlier this year. Our operating income came in at $316,000, our net loss for the quarter was just $44,000 or $0.01 per share compared to a loss of $404,000 in Q3 of 2024. Adjusted EBITDA for the 9 months ended September 30 was $2.7 million, up nearly 5% from the prior year. Let me touch briefly on the balance sheet. Our total debt has increased by approximately $2.4 million. Inventories increased by $5.6 million, reflecting our investment in work in process inventory and materials to support future deliveries. Accounts receivable has decreased by $2.1 million and accounts payable has increased by approximately $2 million. With that, I will turn the call back over to Lou. Luciano Melluzzo: Thanks, Scott. As you heard, our third quarter performance showed measurable improvements in profitability and operational discipline. While we remain focused on completing our ongoing lender discussions and finalizing the right capital structure for the future, we are confident in the strength of our core business. We continue to benefit from strong backlog levels and a healthy demand from both existing and new customers. Our focus remains squarely on execution, cost control and driving shareholder value. We look forward to a strong finish to fiscal 2025 and continued momentum into 2026. Thank you for your time and support. Donna, with that, I would like to open the line to questions and answers, if you may. Operator: [Operator Instructions] Mr. Melluzzo, we're showing no questions in queue at this time. I would like to turn the floor back over to you for closing comments. Luciano Melluzzo: Thank you, Donna. Thank you all for taking the time to be on the call today and for your continued interest in Air Industries Group. We look forward to updating you on the progress of our ongoing operations on the next call. Thank you all for joining. Donna, you may end the call. Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day.
Operator: Hello, everyone. My name is Sophie, and I will be your conference operator today. At this time, I would like to welcome everyone to Meren's Third Quarter 2025 Results Presentation. [Operator Instructions]. This event is being recorded, and the recording will be available for playback on the company's website. I will now pass the meeting on to Mr. Shahin Amini, Meren's Head of Investor Relations. Please go ahead, Mr. Amini. Shahin Amini: Thank you, operator. Hello, everyone, and thank you for joining us for Meren's Third Quarter 2025 Results Presentation. I am joined today by Roger Tucker, our President and Chief Executive Officer; Aldo Perracini, our Chief Financial Officer; Oliver Quinn, our Chief Commercial and Operating Officer. We will begin with prepared remarks and then open the floor for questions. Before we start, I would like to remind everyone that this presentation contains forward-looking statements. These are based on current assumptions and expectations and involve risks and uncertainties that may cause actual results to differ materially. You can find a full discussion of these risks in our regulatory filings that are available in SEDAR+ and on our website. Also, all dollar amounts in this presentation on U.S. dollars unless otherwise stated. With that, I will now hand over to Roger. Roger, we are ready for you. Please go ahead. Roger Tucker: I am pleased to present another strong quarter with continuing delivery on shareholder returns and delivery. The completion of the prime amalgamation marked a step change for Meren, and we have now honored our enhanced dividend policy with the declaration of the fourth quarterly distribution of $25 million, taking the total payout for 2025 to $100 million. So together with our share buybacks year-to-date, we have delivered meaningful shareholder capital returns of approximately $109 million. We have also materially reduced our outstanding RBL debt amount to underpin a stronger, more agile company that is built to deliver long-term returns and withstand market volatility. These deliverables reiterate the quality of production assets in Nigeria and the company's financial strength and our disciplined capital management. Maintaining a strong balance sheet continues to be one of our top priorities. Overall, it's been a resilient quarter and we've delivered on we set out to do, reinforcing our financial position and our commitment to creating long-term value for our shareholders. I'm also pleased to report that we have completed the integration of Prime and the combined organization is working very well and seamlessly under the Meren banner. I will now hand over for Aldo to give a more detailed commentary on the quarter's performance. Aldo Perracini: Thanks, Roger. Now turning to our production performance. In the third quarter, we delivered production of 31,100 barrels of oil equivalent per day on a working interest basis and 35,600 barrels per day on an entitlement basis. This brings us to a working interest of 31,800 barrels of oil equivalent per day and 36,300 barrels of oil equivalent on an entitlement basis for the first 9 months of the year, both of which sit within our 2025 guidance, which remains unchanged from the second quarter. Performance remained steady quarter-on-quarter, supported by strong contributions from the newly commissioned Egina wells and a successful well intervention on an Akpo well. These gains helped offset temporary impacts on plant and maintenance activity. With the Akpo and Egina drilling campaign now on pause, work is focused on integrating for the seismic and well data to define and mature the next set of infield targets. Turning on to the next slide. In the third quarter, Meren completed 3 oil liftings for around 3 million barrels at a realized all-in sales price of $70.8 per barrel. Year-to-date, we have completed 9 liftings of around 9 million barrels at an average owing sales price of $74.9 per barrel, which compares favorably to the Dated Brent at an average of $70.9 per barrel. We have 3 cargoes scheduled for the first quarter of 2025. Two of these are hedged at $64.6 per barrel with 1 cargo unhedged that will be sold at spot. For 2026, we have hedged 2.6 million barrels of oil at an average Dated Brent of $62.4 per barrel. The sales achieved in the first 9 months, combined with our hedging strategy for the remainder of the year, creates a prudent balance between risk management and market exposure, reducing volatility risk while preserving potential upside. This approach ensures we remain well positioned to generate solid cash flows through to the end of the year regardless of market fluctuations. Moving on to the financials. For Q3, we delivered an EBITDAX of $120 million, bringing total EBITDAX year-to-date to $368 million. Cash flow from operations before working capital came in at $66 million for the quarter with reported CapEx of $22 million, largely driven by the web intervention in Akpo. Free cash flow before debt service and shareholder distributions was $126 million. Overall, for the first 9 months, free cash flow before debt service and shareholder return stands at $229 million. We are on track to meet our management guidance as revised in Q2, and our full year guidance ranges are unchanged. Let's now turn to cash flows for the period. We closed the quarter with a cash balance of about $177 million compared to an opening balance of $267 million at the end of Q2. We achieved about $66 million in cash flow from operations before working capital adjustments and interest and had positive working capital movement of $81 million, most of which about $63 million was due to trade receivables driven by the timing of cargo liftings and receipt of sale proceeds between the second and the third quarters. Our major cash outlays were RBL repayments, dealing distributions and capital expenditures. In line with our approach to disciplined balance sheet management we proactively paid down our RPO balance by $18 million, bringing our total debt to $360 million. This has been paid down further post quarter, which I will touch on shortly. In line with our new payout policy, we made our third dividend payment of $25 million, bringing dividend distributions to $75 million year-to-date. And as Roger had mentioned, we are pleased to have announced our fourth dividend distribution of $25 million to be paid next month. Through disciplined cash management, we have materially reduced our debt interest expenses strengthen the balance sheet and establish a solid platform for sustainable growth and value creation. Moving on to the next slide. Deleveraging the business has been a priority for us since assuming Primes are beyond facility following the amalgamation. The balance was $750 million at completion. We have looked to approach this proactively and in a disciplined manner. At the end of Q3, our RBL balance stood at $360 million, reflecting $390 million in repayments since taking this facility on, contributing towards a meaningful reduction in interest costs. Post quarter, we paid down $430 million, bringing total repayments to $420 million year-to-date. At the end of the quarter, we had a net debt of $183 million and a net debt-to-EBITDA ratio of 0.4x, well below our onetime ceiling for the year, demonstrating our strong credit profile. We will continue to optimize our capital allocation strategy, strengthening Meren's financial profile and positioning us to deliver value for shareholders. I will now hand over to Oliver to take you through our business outlook. Oliver Quinn: Thanks, Aldo. Turning to Slide 10 on Nigeria. Following the break in the Akpo and Egina drilling campaign in Q3, work is underway to restart the campaign. The current drilling break has provided time to fully interpret the latest 4D seismic data and identify several future infill drilling opportunities. Operationally, progress is being made to secure a deepwater rig to drill the Akpo Far East nearfield prospect, followed by further development wells on both Akpo and Egina in late 2026. Akpo Far East is an infrastructure-led exploration opportunity with an unrisked best estimate of greater than 150 million barrels of gross oil equivalent. If successful, it will deliver a short-cycle, high-return investment, leveraging existing Akpo facilities and potentially adding significant near-term production and reserves. Turning to the Preowei development. Project optimization work continues with recent seismic data indicating an increase in recoverable resources and likely better connectivity in the reservoir that may lead to a reduction in the development well count. This optimization exercise is continuing and will conclude through 2026. At Agbami, interpretation of recent 4D seismic is ongoing alongside rig and long lead item contracting in preparation for a 2027 infill drilling campaign. In addition to the infill drilling an appraisal well is planned on the Ikija discovery, which in a success case will be tied back to the Agbami FPSO. Let's move to Slide 11 for an update on Namibia. Joint Venture continues to advance the Venus development, which remains on track for FID next year with first oil expected in 2030. The environmental and social impact assessment is continuing to progress, which is a key step towards regulatory approvals. The plan outlined includes 40 subsea wells tied back to an FPSO with a peak capacity of 160,000 barrels of oil per day and once online, Venus could produce for more than 20 years, generating significant and sustained cash flow for Meren. As we get closer to the final investment decision, there will be scope for us to report contingent resources and ultimately reserves as part of our annual Canadian NI 51-101 reporting process. On the exploration side, work continues to plan for drilling on several remaining prospects with Olympe remaining the key target and testing a different geological concept from Marula and with a significant potential resource base. And importantly, we retained full exposure to these high-impact opportunities with no upfront cost as all exploration and development spending is carried through to first commercial production. Moving to Slide 12 and staying in the Orange Basin. Let's turn to South Africa and Block 3B/4B. In September last year, we received an environmental authorization to drill up to 5 exploration wells. And whilst progress is being made to move through the legislative appeals process, this has now been temporarily suspended pending a Supreme Court judgment in relation to Block 5, 6 and 7. Despite this pause, the operator continues to prepare for drilling with the Nayla prospect remaining the likely first target and with sufficient potential in a success case to support stand-alone development. To remind you and important to note, the transaction completed with TotalEnergies and QatarEnergy last year will cover Meren's costs for 1 to 2 exploration wells, so there will be no demand on our capital as drilling commences. In summary, across the Orange Basin, we maintain a leading independent E&P position with exposure to multiple near-term development and exploration opportunities and all without any near-term capital requirements. Now turning to Equatorial Guinea on Slide 13. Meren holds 2 licenses offering differing opportunities. In board, Block EG-31 offers a compelling low-risk appraisal opportunity that could unlock a low CapEx, short-cycle brownfield LNG project with a cost of supply competitive with U.S. gas exports. The block lives and shallow water, close to the existing onshore EG LNG facility and contains several further gas prone prospects in areas where historic wells have proven the presence of gas. The second position, Block EG-18 is a deepwater exploration opportunity with billion barrel scale oil potential. Recent seismic reprocessing and technical evaluation has unlocked a large Cretaceous age basin floor fan system with several stacked prospects identified within the same play that has been actively pursued by several majors across the border in São Tomé. A farm-down process for both positions has attracted strong interest, and we are actively engaged in discussions with potential partners for both blocks with the aim of reaching a conclusion on the farm-out process by the end of this year. With the right partnerships in place, drilling activity could take place in late 2026 or 2027. I will now pass you back to Roger for his concluding comments. Roger Tucker: Thank you, Oliver. It's been a solid quarter for the company. We ended the period with a strong liquidity position and net debt to EBITDA of 0.4x and we have significantly reduced debt to optimize interest expenses, underscoring both the strength of our balance sheet and our disciplined approach to cash management. I'm pleased to have announced our fourth quarterly dividend, which will see the completion of our $100 million dividend plan, a clear reflection of our ongoing commitment to shareholders. Looking ahead, we see meaningful value across our portfolio with excellent catalysts in the pipeline, each providing strong long-term growth potential. Thank you. And with that, let's move to the Q&A. Operator: [Operator Instructions]. Our first question comes from Jeff Robertson with Water Tower Research. Jeffrey Robertson: However, can you give some insight into the production profile in 2026 in fields in Nigeria? And what you anticipate the lifting schedule might be for the first couple of quarters of the year? Roger Tucker: Yes. Jeff, thanks for the question. So as we go in to '26, we've got activity commencing again in the fields. We've got 3 wells, if you like, 3 infill well activities, Akpo and Egina. Now we've got an Akpo Far East exploration well, which is important and likely in the Ikija well over on Agbami, which is appraisal. So I think the key thing is on those wells, they'll be back end of the year. So we don't expect to see a meaningful production impact from them until early 2017. So they're important, but they're late in the year. So where that takes is we'll see some natural decline through the year. And I think we're currently working through the final work program and budget with the operators in the next couple of weeks here, but we do anticipate kind of seeing decline into the kind of high 20s in terms of production at working interest level before, again, that picking up again as we come through the end of the year and into '27. I think on the second part, the lifting schedule, I think we're anticipating around 10 cargoes it's a pretty evenly spaced throughout the year. I think you'll note this year, we've lifted all our cargoes for the calendar year as of November, so we don't have any in December. And then I think our next cargo is coming in 2 cargoes, I think in Q1 next year. Aldo Perracini: And just to remind everyone, we'll do our full year management guidance for 2026, early next year, potentially in sort of late January or February. So we'll have more detail on the outlook for the 2026 for our business. Jeffrey Robertson: And is it correct to think that the Akpo Far East prospect is -- if that's a success that can be handled by the existing field infrastructure without any significant capital upgrades? Roger Tucker: Yes, that's right. So it's kind of super interesting. It's only just single-digit kilometers east of Akpo in the facility. It's a large kind of target that could, for a first phase, come on within 18 months, 2 years tied back to the Akpo facility. So it's very reachable. The timing has really been around age and availability over Akpo. That's now with Akpo's natural decline there's time and space, if you like, could come together. And so yes, that will be tied back very, very quickly. Operator: Next question comes from David Round with Stifel. David Round: A couple for me guys. The break from drilling in Q3, are you able to elaborate how that break has helped improve your thinking around future targets? And then also just I guess, more generally, are you noticing any different approaches between the different operators you've got in Nigeria? And then the second one, separately, just on EG as a clarification. Are you looking at farming down those blocks individually or together? Aldo Perracini: Yes. David, thanks for the question. So look, a good point, you take a step back on actually on Egina and Akpo, which is where the drilling break occurred this year. So again, we said this a lot, but kind of world-class fields kind of textbook petroleum engineering with 4D seismic over them. So that allows us to shoot surveys at regular intervals, of course. And in those fields, in particular, we can see fluid movement, we can see oil, water, gas, and that allows us to kind of really hone in on the infill targets. So specific to the question, we took a drilling break in Q3. We've had new 4D come in over the deals and the reason then to have that break and go back kind of Q3 next year drilling has been to allow that new data to be incorporated. It looks very positive from us. So I think we'll see the 2 -- well, 2 targets on Egina, and one on Akpo, again, Q3, Q4 next year, and then we'd anticipate running into '27 that there'll be some more follow-on drilling on the back of that data. So yes, it's been useful. I mean there is obviously a short-term impact at these middle-age fields from not drilling, but I think it allows us to come back with a more focused kind of target campaign. Just to move to the EG question. So the simple answer is we see them as separate processes. Now they have run kind of on a time line in very close parallel almost on top of each other. So look, there are parties that are interested in both. There are parties that are interested in one or the other and again, we touched on it in the presentation, but they're very different in nature. So EG-31 is kind of gas brownfield LNG tie back through existing facilities, et cetera, 18 in the outboard multibillion barrel kind of oil target, so a kind of material kind of catalyst if that comes in. So yes, very different opportunities, and therefore, we run a parallel but separate process, if you like. David Round: Okay. Very clear. Just in terms of the operator's approach in Nigeria, any differences there? Or are they kind of getting on with things in a similar kind of fashion? Aldo Perracini: Yes. Look, good question. I didn't mean to skip over it. Yes, I think they're both very active, which from an operator perspective is what you look for, right? I mean the fields, as we know, they're heading to midlife, they're in that kind of natural decline. What they need is a bit of care and activity. And I think on both -- from both operators, that's what we're seeing. So we didn't talk about Agbami so much, but the plan is to come back. Chevron will drill kind of 6 infill production injector wells in 2027. So it's a pretty big campaign given the age of the field and kind of speaks to, a, their activity as an operator, which is very positive; and b, the nature of the resource base. I think Egina and Akpo, again, slightly different. We're seeing the same infield activity focus from TotalEnergies. There's lots of opportunities there to mature, but there's a wider set of tieback and kind of organic growth opportunities around those FPSOs as well. So we're seeing, obviously, the Preowei which is ongoing. But there are several other discovered resources within the license that we see TotalEnergies is taking quite an active view on at the moment. So yes, look, I think we're comfortable that they're both engaged and active, which again is a nonoperator, really important to see that. Operator: There are no further questions at this -- there are no further questions at this time. I will now hand back over to Shahin Amini to read through your written questions. Shahin Amini: Thank you very much, operator. We've got a number of questions submitted over the Q&A facility and a couple of questions who were e-mailed to us earlier today. So I'm actually going to start with an e-mail question from one of our long-standing shareholders in Sweden. And I'm going to put to Aldo, what are your expectations in the common quarters for further reductions in net debt? Aldo Perracini: Okay. Thank you, Shahin. In relation to debt reduction and the leverage in the balance sheet, I think we have done focus -- we focus a lot throughout 2025. You have seen the amount of reduction we did with the existing RBL as is natural in this kind of instruments, as we progress towards the maturity of the facility we get compressed by the loan life cover ratio, and therefore, we have to continue to make payments or we continue to have a reduction in our borrowing base, and that will continue to happen throughout 2026. So in terms of what we plan for the next year compared to 2025, I think the main difference is that we have already started the process to refinance our existing facility. And so far, we have been getting strong indications from the banking syndicate. And if we're able to achieve that target, which we expect for the beginning of 2026. We then should be in a position to keep our borrowing base higher for a longer period of time, which will give us additional liquidity for whatever reason. So organic growth, inorganic growth and et cetera. So that's the plan in relation to that as we get into 2026. Shahin Amini: Thank you, Aldo, and the same investor, a couple of follow-on questions. I'm actually going to address this myself because these questions are kind of detailed about our 2026 estimates and outlook. As I mentioned earlier, we will give a more detail -- well, we will give a detailed management guidance next year. And Oliver, I think it's fair to say that right now, the team are very busy with the JV partners in sort of setting the Board program on budgets for next year, correct? So there's still some what we need to get through before we ready to give the share management guidance. Oliver Quinn: That's right. We'll play that out through the end of the year. And as you said early next year, there will be a clear forward plan on production forward vision on that production. Shahin Amini: Okay. Very good. And going back to Aldo. This is a long-standing point of debate base. And that's -- the question is that as you're lowering net debt in 2026, what is your expectations or what is your outlook for one in terms of capital allocation and shareholder returns? Can you sustain the dividend? Aldo Perracini: Okay. Good question, and we get that question a lot. I think the sense in terms of capital allocation, again, the focus in 2025 was to reduce the RBL as we were not utilizing the whole liquidity we have available under that facility. And then we achieved significant interest expense reduction throughout the year, which I think it's an important way to generate equity value for our shareholders. Now when we look forward, I think we all -- the way we look through capital allocation and distributions, we look at mainly 4 things. First, we look at the short term or the cash generation coming from the Nigerian agent assets and then how short-term production behaves, that's the first bit. The second bit would be in relation to organic growth through the existing portfolio. As you know, in Nigeria, we fund organic growth with existing cash flow from operations. And outside of Nigeria, we fund organic growth through the carry arrangements which we have put in place with partners, for example, in Namibia with TotalEnergies' true impact. The third part that we look, we then look at the debt obligations. Again, as I mentioned, we would continue to have a reduction in the borrowing base through 2026. So to address that, we have restarted the refinancing exercise, which will give us additional liquidity to go through that. And then the fourth part, which is a little bit of our control or a lot of our control is the oil price movements, right? I think we are looking at oil price forecast for 2026, which are very -- and most of them on the bearish side, which we see also reflected on the forward curve. So we're going to take -- we're going to be very, very careful when we look at additional distributions in 2026 or elsewhere as we prepare for a year where we expect to have a lot of cash flow volatility given the oil price. So that's the mechanism. Those are the -- that's the process that we go through when evaluating dividend distribution. So when we go through all of that, as of this moment, we don't foresee any surprises into 2026. But again, keeping an eye on oil price, which should be the major variance. Shahin Amini: Thank you, Aldo. And there's a couple of questions on M&A. As always, we can't go into detail. So -- but perhaps from a more philosophical and high-level point of view, Roger, perhaps you want to -- first, how does Meren see M&A opportunities in the market and 2 specific jurisdictions have been mentioned, but 1 continent, South America and Nigeria in 2 different questions. How do we view opportunities? Roger Tucker: Thanks, Shahin. So we are looking at a whole series of opportunities. But as I've said before and as Oliver has said, we're in no rush. We have a balance sheet, which allows us the opportunity to wait and find the right opportunity. I think in the short term, it is likely if we do anything, it is likely to be within West Africa and we are reviewing a series of opportunities there. But all I can say at the moment is that we are in -- have the luxurious position of being able to wait until we find the exact right opportunity. So no rush. We are reviewing very, very carefully, and it will -- whatever we do will fit with our investment criteria. Shahin Amini: Thank you. That's really -- I don't have any other questions that we haven't already answered from the webcast. So I'm going to hand back to the operator to bring this presentation to a conclusion. Operator: This concludes today's call. Thank you very much for joining. You may now disconnect.