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Operator: Good morning, and welcome to the Alico Fourth Quarter and Fiscal Year Ended 2025 Earnings Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to your host, John Mills, Managing Partner at ICR. Please go ahead. John Mills: Thank you. Good morning, everyone, and thank you for joining us for Alico's Fourth Quarter and Fiscal Year 2025 Conference Call. On the call today are John Kiernan, President and Chief Executive Officer; and Brad Heine, Chief Financial Officer. By now, everyone should have access to the fourth quarter and fiscal year 2025 earnings release, which went out yesterday at approximately 4:15 p.m. Eastern Time. If you've not had a chance to view the release, it's available on the Investor Relations portion of the company's website at alicoinc.com. This call is being webcast, and a replay will be available on Alico's website as well. Before we begin, we'd like to remind everyone that the prepared remarks contain forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in these statements. Important factors that could cause or contribute to such differences include risks detailed in the company's quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K and any amendments thereto filed with the SEC and those mentioned in the earnings release. The company undertakes no obligation to subsequently update or revise the forward-looking statements made on today's call, except as required by law. During this call, the company may also discuss non-GAAP financial measures, including EBITDA, adjusted EBITDA and net debt. For more details on these measures, please refer to the company's press release issued yesterday. And with that, it is my pleasure to turn the call over to the company's President and CEO, Mr. John Kiernan. John Kiernan: Thank you, John. Good morning, everyone, and thank you for joining us for Alico's Fourth Quarter and Fiscal Year 2025 Earnings Call. This has been a truly transformational year for Alico. We successfully executed on our strategic pivot from a traditional citrus producer to a diversified land company, positioning ourselves for sustainable long-term value creation while maintaining our deep commitment to conservation and responsible stewardship. Fiscal year 2025 will be remembered as a milestone year in Alico's 125-plus year history. We delivered on the commitments we made to you, our shareholders, and demonstrated the disciplined execution that defines our approach to this transformation. Let me highlight our key accomplishments. First, we successfully completed our final major citrus harvest, officially concluding our capital-intensive citrus production operations. This achievement represents the culmination of a carefully planned 12-month transition that we executed while maintaining day-to-day agricultural operations. Second, we exceeded our financial guidance across key metrics. We achieved $22.5 million in adjusted EBITDA surpassing our $20 million target. Our land sales of $23.8 million also exceeded a $20 million guidance, demonstrating strong demand for our strategically located properties. Third, we strengthened our balance sheet significantly. We ended the year with $38.1 million in cash and reduced our net debt to $47.4 million providing us with the financial flexibility to fund operations through fiscal year 2027, while advancing our high-value development projects. The takeaway accomplishment for 2025 is that we have essentially lowered the financial risk for the company by reducing the volatility of weather-dependent and disease-affected citrus agricultural operations by leasing land to other agricultural crop growers while maintaining the stability of diversified land usage. Our development pipeline continues to advance on schedule with Corkscrew Grove Villages leading the way as the crown jewel of our portfolio. The establishment of the Corkscrew Grove Stewardship District represents a significant regulatory milestone that validates our development strategy and provides the framework for sustainable community focused growth. The Stewardship District approved unanimously by the Florida legislature positions us to effectively finance infrastructure, restore and manage natural areas and oversee the administration of our master planned communities. I'm particularly excited about our strategic partnership with the Florida Department of Transportation to design and construct a wildlife underpass as part of the State Road 82 expansion. This $5 million investment demonstrates our commitment to the Florida Wildlife Corridor and showcases the innovative conservation approach that sets Alico apart in the development community. We remain on track for the final decision from Collier County in 2026 with potential construction for Corkscrew beginning as early as 2028. The entitlement process -- I'm sorry, the entitlement progress with our Bonnett Lake property is also progressing well with our application moving through the review process as expected. Collectively, our 4 near-term real estate development projects Corkscrew Villages, Bonnett Lake, Saddlebag Grove and Plant World, totaling approximately 5,500 acres maintain their estimated present value of between $335 million and $380 million to be realized within the next 5 years. This represents significant value creation potential from just 10% of our land holdings, demonstrating the substantial embedded value within our diversified portfolio. Our conservation legacy continues to be a cornerstone of our strategy. Over the past 40 years, we've transferred lands that have become part of major conservation areas, including the CREW, Tiger Creek Preserve, and the Okaloacoochee Slough Wildlife Management Area. The Corkscrew Grove Villages project will continue that legacy by placing no less than 6,000 acres into permanent conservation, supporting the implementation of the Florida Wildlife Corridor and Collier Rural land stewardship program. We believe in responsible development that balances growth with conservation and believe it enhances the value and marketability of our development projects. Our approach creates the best of both worlds. With approximately 25% of our land identified for strategic development and 75% remaining for diversified agriculture, we've built a balanced platform for both near-term returns and long-term growth. We've successfully negotiated lease agreements for approximately 5,250 acres with third-party citrus growers and we're seeing strong interest from cattle operators, sugarcane growers and [ soy ] producers. This diversified approach generates revenue during our transition and also maintains productive use of our agricultural lands while preserving optionality for future development or continued agricultural use. Brad will provide detailed financial results in a moment. I want to emphasize our strong cash generation and disciplined capital allocation. The $20.4 million in crop insurance proceeds we received following Hurricane Milton, combined with our land sales, has created a robust liquidity position. We remain committed to returning capital to shareholders. We paid our fourth quarter dividend in October, maintaining our track record of consistent dividend payments. Since 2015, we've returned more than $190 million of capital through dividends, share repurchases and debt reduction. Management's comprehensive NPV analysis of our approximately 49,000 acres indicates a market value of assets between $650 million and $750 million. With our current market capitalization of approximately $240 million and net debt of $47.4 million, we believe Alico represents compelling value for investors seeking exposure to Florida's continued growth story. What differentiates Alico is our unique combination of strategic landholdings across 8 Florida counties, more than 125-plus years of local relationships and conservation credibility, a proven management team with deep expertise in both agriculture and real estate development and a balanced portfolio approach with 75% of our land remaining in agriculture. Looking ahead into fiscal 2026, we've already demonstrated continued execution of our land monetization strategy. Earlier this month, we completed the sale of 579 acres of citrus land for approximately $6.1 million and sold our office and shop in Frostproof, for approximately $1.7 million, further optimizing our real estate portfolio while generating additional cash flow. Our priorities for fiscal year 2026. To continue our transformation momentum, our first, to optimize our agricultural operations by maximizing revenue from our diversified leasing programs while maintaining rigorous cost controls across all properties. Second, to remain committed to advancing our residential and commercial development projects by continuing to progress through the entitlement process for our 4 priority projects with particular focus on securing final approvals for Corkscrew Grove Villages. Third, our capital allocation approach will balance required entitlement investments with shareholder returns while maintaining the financial flexibility necessary to execute our long-term strategy. And finally, to pursue operational excellence by leveraging our experienced management team and strong local relationships to execute efficiently across all of these initiatives. In closing, fiscal year 2025 was a year of successful transformation that positions Alico for sustainable long-term growth. We've derisked our business model, strengthened our balance sheet and created a clear path to unlock the significant value embedded in our land portfolio. Our approach of balancing specific high-value development projects with the diversified agricultural operations creates a business model that leverages our core strengths while adapting to market opportunities. We're well-capitalized, strategically focused and positioned to deliver sustainable value creation. The foundation is in place, and we're excited about the opportunities ahead. With that, I'll turn it over to Brad to walk through our detailed financial results, and then we'll be happy to take a few questions. Bradley Heine: Thank you, John, and good morning, everyone. I'll walk you through our fourth quarter and full fiscal year 2025 financial results, which demonstrate the successful completion of our strategic transformation. For the fourth quarter ended September 30, 2025, revenue was $802,000 compared to $935,000 in the prior year quarter, reflecting the substantial conclusion of our citrus operations. We reported a net loss attributable to legal common stockholders of $8.5 million or $1.11 per diluted share compared to a net loss of $18.1 million or $2.38 per diluted share in the prior year quarter. This improvement was driven by the completion of our transformation activities and reduced operational complexity. For the full fiscal year, revenue was $44.1 million compared to $46.6 million in fiscal 2024. While we reported a net loss of $147.3 million or $19.29 per diluted share, this was primarily due to noncash charges related to our strategic transformation including $162.7 million in accelerated depreciation and $25 million in asset impairments as we exited citrus operations. Importantly, our adjusted EBITDA for fiscal 2025 was $22.5 million, exceeding our $20 million guidance target. This demonstrates the underlying operational strength of our transformed business model. Our balance sheet transformation has been remarkable. We ended fiscal year 2025 with $38.1 million in cash and cash equivalents compared to just $3.2 million at the end of fiscal 2024. Our net debt decreased significantly to $47.4 million from $89 million, representing a $41.6 million improvement year-over-year. This strong liquidity position, combined with our $92.5 million available under our line of credit provides us with sufficient resources to fund operations through fiscal 2027, while advancing our development projects. Our working capital ratio improved to 9.56:1 demonstrating exceptional financial flexibility. We exceeded our land sales guidance, generating $23.8 million in proceeds from 96 acres sold during fiscal 2025, surpassing our $20 million target. These sales, combined with our operational improvements have created the financial foundation for our next phase of growth. Looking ahead, our financial position is strong, and we're well balanced to execute on our development pipeline while maintaining operational efficiency. Now I'd like to turn the call back to John for his closing remarks. John Kiernan: Thank you, Brad. Fiscal 2025 was truly transformational for Alico. We delivered on our commitments. We completed our final major citrus harvest, exceeded our financial guidance across key metrics and now have a balance sheet that provides the company with years of operational runway. Most importantly, we've eliminated citrus agricultural volatility while unlocking the value in our approximately 49,000 acre Florida portfolio. Our path forward has been set, and we believe it is compelling. We're optimizing agricultural leasing across our entire portfolio, advancing our high-value development projects through local, state and federal entitlement processes and maintaining our disciplined approach to capital allocation. With Corkscrew Grove Villages approaching the first set of approvals in 2026 and our other development projects advancing as well, we have multiple catalysts for value creation. The numbers tell the story. Our NPV analysis values our land portfolio between $650 million and $750 million, yet we trade at just $240 million today. We believe this represents a significant valuation disconnect that we expect will close as we execute. We remain committed to shareholder returns through our 50-year dividend legacy and multiple capital deployment options, including our authorized $50 million buyback program. As land sales accelerate, we have increasing flexibility to return more capital. Alico today is fundamentally transformed, well-capitalized, strategically focused and spread across Southwest Florida with more than 125 years of Florida heritage, proven conservation leadership, and a clear real estate development pipeline, we're very well positioned to deliver sustainable value creation. Mickey, we'll now open up the call for questions. Operator: [Operator Instructions] And we'll take our first question from [ George ] with [ Freedom Broadcast ]. Unknown Analyst: My only question, what is the expected current of the land sales in the next 12 months? Should we anticipate larger transactions similar to prior year disposals of more measured pace? John Kiernan: I'm sorry, are you asking if we're giving any sort of guidance or forecast on revenues for fiscal 2026? Unknown Analyst: Yes, if you have some guidance on land sales. John Kiernan: Right. So we have not provided any guidance on additional land sales at this time for fiscal year 2026. Operator: [Operator Instructions]. And we show no further questions in queue. At this time, I will turn the call back to John Kiernan for closing remarks. John Kiernan: Thank you. I want to thank all of our employees for their dedication during this transition. I'd like to thank our Board for their continued support of our strategic vision. And I'd like to thank you, our shareholders, for your patience and confidence as we execute this transformation. We look forward to updating you on our further progress in the new fiscal year. I wish everyone a happy holiday. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy. Wendy Sun: Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2025 earnings release was distributed earlier before this call and is available on our IR website at ir.baozun.com as well as on PR Newswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website where they are available for your download. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Ms. Catherine Zhu, our Chief Financial Officer; Mr. Junhua Wu, Director and Chief Strategy Officer of Baozun Group, and Mr. Ken Huang, Chief Financial Officer of Baozun Brand Management. Mr. Qiu will first share our business strategy and company highlights. Ms. Zhu will then discuss our financials and outlook, followed by Mr. Wu and Mr. Huang, who will share more about our e-commerce and brand management segment, respectively. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the U.S. Securities Act of 1933 as amended, the U.S. Securities Exchange Act of 1934 as amended, and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the United States Securities and Exchange Commission and its announcement notice or other documents published on the website of Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date hereof and is based on assumptions that the company believes to be reasonable as of this date, and the company does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this call are in RMB. You may now turn to Slide #2 for the executive highlights for the quarter. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead. Wenbin Qiu: Thank you, Wendy. Hello, everyone, and thank you all for your time. I'm pleased that Baozun is advancing its strategic transformation with steady momentum, delivering a strong quarter marked by 5% total revenue growth and a big improvement in profitability. Fueled by strong gross margin expansion, our non-GAAP operating loss narrowed to RMB 11 million from RMB 85 million a year ago. These results show that our transformation is effective and demonstrate the strength of our business model. Both of our 2 core engines are driving this success. BEC's solid execution and growing agility continue to deliver strong results this quarter. Building on the 56% year-over-year increase in adjusted operating profit from Q2, BEC achieved its most profitable third quarter in recent years with non-GAAP operating profit of RMB 28 million compared with operating loss of RMB 30 million a year ago. This significant improvement in profitability, along with 6% services revenue growth and strong gains in creative content and marketplace connectivity shows that BEC is now more agile and efficient. BBM continued with strong top line growth with revenue up to 20% year-over-year, driven by impactful merchandising and marketing initiatives. This quarter, we engaged our first Gap China brand ambassador, a top-tier actor with 30 million followers on Weibo and 8 million on Douyin. We also launched a series of marketing campaigns and themed products to deepen emotional connections with local consumers. Hunter continued its brand momentum and opened our new store in Qingdao, bringing Hunter's total offline stores to 8, including 5 in China and 3 in Southeast Asia. These efforts contribute to sales growth, stronger gross margin and improved overall profitability for BBM. In summary, we are firmly on track with our strategic transformation. With a resilient e-commerce foundation, accelerating brand management momentum and the technology as our catalyst, we believe 2025 is a highly productive building phase. We anticipate 2026 to mark our inflection point, shifting from transformation investment to sustained profitable growth. Now I will hand the call over to our team for a deeper dive into our financials and the business performances. Catherine Yanjie Zhu: Thanks, Vincent, and hello, everyone. Now let me provide a more detailed overview of financial results for the third quarter of 2025. Please turn to Slide #3. Baozun Group's total net revenues for the third quarter of 2025 increased by 5% year-over-year to RMB 2.2 billion. Of this total, E-Commerce revenue grew by 2.4% to RMB 1.8 billion, while Brand Management revenue rose by 20% to RMB 396 million. Breaking down E-Commerce revenue by business model, services revenue increased 6.3% year-over-year to RMB 1.4 billion. This increase was driven by revenue growth in online store operations and digital marketing and IT solutions. BEC product sales revenue decreased 8.9% year-over-year to RMB 413.4 million, mainly due to decline in Appliances, and Health and Nutrition categories. BBM product sales totaled RMB 395.2 million, representing a 20% year-over-year growth. This growth was mainly driven by the strong performance of the Gap brand. Please turn to Slide #4. From a profitability perspective, our blended gross margin for product sales at the group level was 34.3%, an expansion of 620 basis points year-over-year. Gross profit increased by 26.1% year-over-year to RMB 277.4 million for the quarter. Breaking this down by our key business lines. Gross margin for E-Commerce product sales expanded to 13.1%, reflecting a 300 basis point improvement compared to 10.2% a year ago. This margin expansion was primarily driven by product mix diversification consistent with our progress throughout the year. Gross margin for BBM was 56.5% compared with 52.8% a year ago, reflecting the success of merchandising and marketing initiatives of BBM. Now please turn to Slide #5 for a walk-through of our OpEx. Sales and marketing expenses increased by 10.7% to RMB 886.6 million. This included an increase of RMB 67.5 million for BEC, which was mainly due to higher spending on creative content on Douyin and RedNote, and more revenue contribution from digital marketing for BEC during the quarter. BBM sales and marketing expenses increased by RMB 18.8 million due to higher front-end expenses from expanded offline network and more marketing initiatives for BBM during the quarter. Fulfillment cost for the quarter was reduced by 4.5% to RMB 495.9 million, reflecting our ongoing efforts in cost optimization. Technology and content expenses decreased by 18.2% to RMB 115.2 million as we continue to enhance tech monetization efficiency. G&A expenses decreased by 4.4% to RMB 168.9 million, primarily attributable to our ongoing efforts in efficiency enhancement and cost optimization. Turning to bottom line items, please refer to Slide #6. During the quarter, our non-GAAP loss from operations was RMB 10.8 million, a sharp improvement from RMB 85.2 million in the same period of last year. BEC's adjusted non-GAAP income from operations was RMB 28.1 million, while non-GAAP loss from operations was RMB 29.8 million a year ago. BBM reported a non-GAAP operating loss of RMB 38.7 million, an improvement of 30% compared to the same period of last year. As of September 30, 2025, our cash and cash equivalents, restricted cash and short-term investments totaled RMB 2.7 billion. Lastly, I'd like to quickly address an accounting update on the balance sheet to reflect expiration of options related to the Cainiao minority investment in Baotong, our warehouse and logistics business. According to the agreement with Cainiao, if certain triggering events occur, Cainiao had the right to exercise a put option requiring Baotong to redeem Baotong's shares within 12 months starting from August 2024. As a result, this investment was originally recorded as redeemable noncontrolling interest, which is a complex financial instrument classified between liabilities and equity. With these options expiring during the third quarter, the investment has now been reclassified as noncontrolling interest and equity item. Following this accounting adjustment, our total equity increased to RMB 5.5 billion compared with RMB 4 billion in the previous quarter. Importantly, this adjustment has no impact on our warehouse and logistics operations. Let me now pass the call over to Junhua to update you on BEC, our E-Commerce business. Junhua Wu: Thanks, Catherine, and hello, everyone. I'm pleased to share our progress and achievements for the third quarter. Building on the momentum established in the first half of the year, we continued advancing our strategic priorities with a clear focus on sustainable profitability and growth. As previously outlined, our 2025 roadmap follows a clear progression, Q1 for adjustment, Q2 for stabilization, and the second half for acceleration. I'm pleased to report that Q3 delivered meaningful progress across key business segments. BEC posted solid performance with a stabilizing revenue based a significantly improved revenue mix and quality, leading to a notable improvement in profitability. On a non-GAAP basis, operating profit reached RMB 28 million, making the most profitable third quarter in the recent years for BEC. Please turn to Slide #7. BEC product sales declined by 9% this quarter, reflecting our transition strategy towards a quality-driven portfolio, optimizing selected clients in the Health and Nutrition category and shifting certain clients in Beauty and Cosmetics category from a DC mode to a service model. In the Appliances category, top line softness persisted as we prioritize profitability over volume. These adjustments followed a thorough review of each segment's market dynamics and have led to stronger profitability under a distribution model. As a result, BEC delivered a 300 basis point improvement in gross profit margin to 13.1% for product sales. Just as importantly, enhancements in procurement discipline and turnaround management drove nearly a 20% improvement in inventory turnover days, enabling us to maintain a healthy and efficient inventory levels. In addition, we remain focused on building a more sustainable and quality-driven distribution portfolio. During the quarter, we achieved healthy growth in Beauty and Cosmetics, Alcohol and Apparel categories. Notably, we are expanding our pipeline into nonstandard categories, including Apparel within distribution mode. By leveraging our Brand Management expertise in our core category, we are increasingly able to apply deeper expertise and a more brand owner-oriented mindset. Looking ahead, we expect BEC product sales to return to top line growth in 2026. Turning to Slide #8. Our services revenue grew by 6% in the third quarter, primarily driven by strong performance from online store operations, which saw 16% growth and a 6% growth in DM and IT solutions. Within online store operations, the core apparel and accessory category was a key driver with all key segments generating encouraging top line growth. The strong performance of our services mode reflects how we have advanced the brand empowerment by utilizing our data-driven insights and expertise, and capturing opportunities from ever-changing industry dynamics. We remain committed to leading innovation in creative content as these are critical for consumer engagement and traffic attraction. On RedNote, we plant content seeds to drive interest and brand awareness, which enhances emotional connection and refines the consumer shopping experience. Furthermore, by leveraging enhanced connectivity between marketplaces such as the Tmall Red Cat and JD R.E.D. Jean collaborations, we help brands to generate better marketing conversion and sales performance. This quarter, we were accredited as a premium service partner, further validating our leadership position on this viral live platform and building on our earlier designation as one of the first batch of Red partners in February. On Douyin, we continue to pioneer live stream content and formats, including scenario-based showcases and celebrity collaborations to drive quality business contribution to our brands. In mid-September, we successfully partnered with a leading international electronics brand to launch its flagship stores to further enhance the brand's cultural engagement and product promotion. This initiative was immediately effective. Within a month, we helped the brand gain 3 million consumer followers and achieved the #1 GMV ranking in its category. We are proud to continue setting new industry benchmarks for Douyin brand e-commerce. Overall, this quarter is another solid quarter for BEC, marked by a return to profitability in a lower seasonality quarter, which demonstrates the effectiveness of our strategic focus on sustainable and high-quality growth. We are actively driving the bottom line through efficiency enhancing measures, including the ongoing application of artificial intelligence and automation tools as well as our lean cost control initiatives. We are confident that the foundation built throughout 2025 will continue to accelerate our momentum and deliver long-term value. Now I'll pass to Ken for an update on BBM. Ken Huang: Thank you, team, and hello, everyone. Please turn to Slide #9 for BBM's performance in the third quarter of 2025. I'm pleased to share that BBM maintained its strong growth momentum this quarter with total revenue growing 20% year-over-year to RMB 396 million. The strong growth was driven by improvements across key operating metrics, including same-store sales, traffic, average transaction value and network expansion. Overall, Gap's same-store sales growth was 7% for the quarter. Gross profit for BBM totaled RMB 223 million, an increase of 28% year-over-year, with gross profit margin expanding to 56.5%, up 370 basis points from 52.8% a year ago. This margin expansion, along with strong top line growth, highlights the effectiveness of our merchandising and marketing initiatives. The higher gross profits, combined with improved operating efficiency, further enhanced our overall profitability. As a result, BBM's non-GAAP operating loss for the quarter improved by 30% to RMB 39 million from RMB 55 million in the same period of last year. Now let me expand on our key initiatives for Gap China in the third quarter. First, marketing, as we made a major leap forward in brand storytelling and culture engagement this quarter. On September 15, we announced the appointment of Cheng Yi, one of China's most acclaimed actors, as the inaugural brand ambassador for Gap China. In accordance, we launched Mind the Gap, Bridge the Gap campaign using music as a bridge to engage younger audiences and reintroduce Gap as a comfort, confident, modern lifestyle brand. We also introduced the Gap Club Capsule collection and upgraded the brand image in our offline stores to reflect stronger creative energy and local relevance. To provide immersive experiences, we hosted 2 pop-up experience stores, one in Shanghai's Anfu Road and one on Shenzhen COCO Park, both featuring live performance, vinyl shops and art collaborations, successfully merging lifestyle and fashion. In this campaign, we also introduced innovative interactions with social PGC and UGC content. These efforts helped us attract more customers, strengthen brand awareness and deliver meaningful business results. In total, the campaign had more than 1.2 billion impression, 9 million interactions and 176,000 new followers. These efforts also drove a 25% increase in young customers and strengthened Gap's position as an authentic and aspirational brand for China's younger generation. Meanwhile, we continue to work closely with Gap Inc. to capitalize on its global marketing assets and upward momentum. This August, Gap Inc. partnered with KATSEYE on the Better in Denim campaign, blending Gap's iconic timeless denim with KATSEYE's contemporary and education sensibilities. And China is one of the few countries that offer KATSEYE's exclusive products to the market, also achieved a very satisfying result. Second, merchandising, which remains the core engine of our growth. We continuously sharpened the product offerings and introduced a higher mix of online exclusive and segmented products across different marketplaces over the summer and fall. We also deepened the collaboration with major platforms through exclusive assortments and joint marketing programs such as Tmall Fashion Show and Douyin Super Brand Day. This tailored e-commerce strategy, coupled with our participation in platform promotional events, accelerated traffic and conversion growth. At the same time, our improved supply chain ensured fast and localized fulfillment. We believe that our agility and flexibility in shifting between online and offline channels has become an important competitive advantage. From a channel perspective, we continue to expand our physical presence. For Gap, we opened 11 new stores in Tier 1 and Tier 2 cities, including Guangzhou and Yichang, while closing 4 low productivity stores. We also started to remodel existing stores in Wuhan and Wuxi this quarter to upgrade our store image, visual merchandising and the customers' experience. This brought the total number of Gap stores to 163 by the end of this third quarter. Together with Hunter's network expansion, our Baozun brand management offline portfolio now stands at 171 stores. In addition, we hosted a National Partner Conference in September, convening a dozen top-tier business partners, which cover all important provinces. Notably, half of these partners were new with strong brand portfolio and operating expertise in their regions. Cooperations with these new partners also aligned with our expansion plan by enhancing our business in the key cities in North, Southwest and South China. This event allowed our partners to directly experience our ascending brand influence and our marketing product and channel strategy in the coming year. Their positive feedback reaffirmed the strong partners' confidence in our brand direction. In summary, BBM delivered another quarter of healthy growth and brand revitalization. Furthermore, our integrated marketing campaigns have laid a solid foundation for the Gap brand to further unlock market potential. This was evident in the big improvements in brand rankings across all key divisions, men's, women's and kids during the most recent Double 11 campaign. This success places us on track to achieve Gap's first breakeven quarter in the upcoming fourth quarter. With both Gap and Hunter building stronger emotional relevance and culture momentum, we are confident in sustaining our growth through year-end and beyond. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from Alicia Yap with Citigroup. Alicis a Yap: Congrats on the solid results. Two questions. First, can you provide some observations on the latest consumer sentiment? So have you seen any shift of the consumer spending behavior recently, especially with the recent Singles' Day promotions? Any change of the consumer preference in terms of the purchase willingness? And then categories that you have seen doing better than you previously expected, and also categories that performing worse than you anticipated? And then also, what are the brands -- how are the brands' willingness to spend on the marketing budget during this year's Singles' Day? How should we be thinking about the impact from the Singles' Day to the fourth quarter outlook? And then second question is, I know it's a little bit early, but then any comments on the 2026 outlook in terms of your different business segments? And also, what are your top strategic priorities? For example, is there any target for margin expansions or any of these brand expansions? And also, how AI will play a role in helping you to achieve some of your 2026 priorities? Junhua Wu: Okay. This is Junhua. So let me address your first question, and maybe Vincent can address the second one. So in terms of the latest consumer sentiment, from our perspective, according to the just finished Double 11, so we realize that the consumer sentiment is getting better. So you can see a lot of consumers, they are paying for value. So they are not just -- they are being very targeted. They know what they want and they wait until all those kind of the values and profitabilities from the brand and all those coupons are addressed. So especially with the recent promotion, we can definitely expect a very strong finish for the Double 11 this year. And from the preference, so as far as our observation, so it's still towards the sports category and apparel category and the FMCG category follows. So if you're talking about some kind of the categories performing worse than we anticipated, I would say, after the pullback of the subsidiaries of the home appliance category, so consumers rather to wait for another kind of benefit from the platform and from another support when their subsidiaries are supported. But the willingness of the consuming power is still getting stronger and the willingness of the brand in spending marketing budget and allocate our new inventory is getting stronger. So after 6/18 this year and after Double 11, we are saying that we definitely can expect a stronger support in terms of the marketing fee from the brand perspective and the inventory allocation for the new year. A lot of brands during this past Double 11, they are focused on their P&L rather than the GMV growth. So a lot of our brand partners, they have increased their P&L to several point percent and which maybe lead better results from their global strategy. So that's my answer for the first question. Wenbin Qiu: Okay. Thank you for the question. This is Vincent. And I think your second question about our strategies is a very important question. Basically, we have 2 business divisions or units, BEC and BBM. One by one, for BEC, I think next year, the most important job for them to do is to expand the margin, and in the meanwhile, to optimize the cost efficiency. I think these 2 are very important. So for the margin expansion part, we are doing more and more distribution model. We are taking more ownership in the process of the sales, trying to get better margin. That is one side. The other side is that we are initiating a lot of these kind of lean operation initiatives to help us to get a better cost. So it is to do more with less strategy for BEC. On the other hand, we have the BBM business, which the priorities are quite different. So firstly, for the existing brands like Gap, Hunter and others, we are trying to make every brand to be successful business operations. That is very important, not only for the quarter-to-quarter business performance, but also for the future potential of how many and how well we can work with the other brands. So the first priority for the BBM is doing well for each brand. The second thing is that we are trying to develop the synergy between BBM and the BEC, trying to convene more and more knowledge, experiences and mechanisms to BEC to enable them to have more ownership in the distribution business. More ownership always means more margin and puts more potential on profitability. So that is very important. Because in the past 3 years, we spent a lot of time and energy in BBM and we gained, as a group, a lot of solid experiences, how to do higher ownership business. So this kind of knowledge, experience and mechanisms can transfer to BEC to make them a better potential to do this kind of high-quality distribution business, especially in the softer goods sections categories. So in the past more than 1 year, we have some of the experiments. We have several projects, which is quite more, apparel, fashion products, distribution model. They are very successful. So next year, we're trying to expand this model into more brands. So we are expecting a huge potential of growth for this soft goods distribution model. So this gives us a huge potential space to grow the business, not only the top line, but more importantly on the margin expansion side. So that is basically our plan for 2026 and the years ahead. So for the -- of course, we are actively looking for brands for the BBM portfolio. But I think we'll be very careful in bringing new brands in to make sure we have a good chance to be successful each brand, as I mentioned, for the first priority. And also, we are investing in data warehouse, AI, all these kind of technology factors, and we are seeing yields from these efforts and investments. We are going to do this in the future as well. So all these kind of technology, AI capability and data warehouse can contribute in the future. So synergy between BBM and BEC is very important. Just like what Ken just said, Mind the Gap, Bridge the Gap, yes. So BEC and BBM are getting more and more as one. Operator: And the next question comes from Yin Jiawei with CITIC. Jiawei Yin: Congratulations on this quarter's strong performance. I have 2 questions regarding BEC. The first question is that, as we have seen recently, premium consumption has shown signs of stabilizing and recovering. Has the company's relevant categories benefited from this trend? And my second question is, in recent years, the growth gap between content e-commerce and traditional e-commerce has narrowed. Meanwhile, China's online traffic and sales channels has become more diversified. With emerging platforms like RedNote and Bilibili, how does the company view the strategic shift brands should make? And how is Baozun adapting to this change? Junhua Wu: Okay. Let me address your 2 questions. The first one is a very positive answer. So yes. So premium luxury category is still taking the lead of the result, especially after Double 11. So I can make one example about a leading American premium brand, which maintains a 60% Y-o-Y, and the pattern keeps going for the past 3 years. So in this category, if you want to drive a higher margin, a higher GMV, it's not relied on listing more products online, it relies on the content-driven, how do you want to just set up the emotion linkage before making transactions. So I cannot review a lot of details, but if you have the chance to go to our live stream studio for that brand, you can see that. They are scenario-based. They are building a lot of different scenes for selling total look instead of a single article for top or for bottom. So the luxury and premium category, they can provide a very big value for consumers to purchase, and they can provide a lot of history, the brand storytelling, a lot of things. So this is very much promising in the future. And we realize that the consumer shopping is pay for value. So they rather wait until the good momentum and a good window to shop in all those premium and luxury brands. And the second question is related to content e-commerce and traditional e-commerce. So I mean, for the past 2, 3 years, there's no such thing to separate the content with the traditional e-commerce. They are merging together. They are interweaved with each other. You need to just build up the content before making transactions, not just getting the traffic to your store and let them convert. So the RedNote, before they had the Red Cat initiative, they were the UGC platform. That was the pure content. And in the past 6/18, their initiatives, all those RedCat initiatives link all those content to the transaction, which makes that the brands are shifting their strategy, putting a lot of marketing fee and marketing spending into an ROI-driven kind of the initiatives. So more and more brands realize that investing in content and getting more investment into the content creation, set up the emotion linkage is the key, because we can trace all those content, how much ROI can be driven from those content to the transaction. So we are providing -- the platforms are also providing a lot of tools and mechanism to validate all those kind of investments from the marketing to EC operations. So if in the future we believe that in that marketing and EC operation they are going to be rebudgeting for the future growth, from the brand perspective, you need to just harmonize the marketing spending and the EC operation, not just inside performance marketing driving traffic, but also invest in the content to drive from the content to transactions. Yes, that's my answer for 2 questions. Operator: And the next question comes from Joanna Ma with CMBI. Joanna Ma: Congratulations on a strong quarter. So I have 2 questions. The first is regarding what can management share with us regarding your revenue and profitability outlook in the last quarter and also for the full year '26. While my second question is, can management share with us your development plan for BBM business in the full year '26, both regarding Gap, Hunter and other new initiatives? Wenbin Qiu: Okay. This is Vincent. Let me answer these questions. For the first one, right now, we are already in late November. So we can see that from day-to-day business management and updates, we are quite confident for both BEC and BBM results in the coming quarter. We are trying to deliver another solid quarter in the near future. So, so far, I think it is quite on track, and we are quite confident for the results. For the coming year, 2026, we are hoping that both business with its performance and also with the synergy in between to be developed, we are expecting a big improvement in profitability for the whole business. Separately, BEC, we are expecting big improvements and also BBM because we are developing synergy. So in general, we are expecting big improvements for profitability. For the BBM business, as I just mentioned, the priority is that we just make each of the single brand to achieve the expectations and plan we made for this year and next and in the coming 3 years. And also, we are developing a synergy between BEC and the BBM. Certainly, we'll be actively looking for new opportunities, but we'll be very careful in bringing in new brands. So that is about the BBM strategy. Yes. Operator: [Operator Instructions] Our next question comes from [ Tao Xiaoming ] with Huatai Securities. Unknown Analyst: I have 2 questions. The first question is about quick commerce. Driven by the traffic from Taobao's quick commerce on the main app, Taobao's DAU recorded a noticeable year-on-year increase in third quarter with further momentum continuing into 4Q. Have we observed any positive impact from the increase in Taobao main site traffic on our third quarter performance, and in which aspect is this mainly reflected? And looking ahead to fourth quarter, should we expect any sustained positive influence or some potential action on the quick commerce? And my second question is about the recent new regulation on advertising spend and tax. Some of our brands under our portfolio in the beauty category, the new tax policy introduced updated requirements on advertising spending. Have we seen any impact on our advertising operations so far? How should we assess the potential magnitude and extent of this policy's impact on revenue and profitability going forward? Junhua Wu: Okay. Thank you for the question. This is Junhua. Let me address your 2 questions. The first one is related to the instant shopping, quick commerce. So when you're talking about the instant shopping, you need to talk about the categories. The category really just have that business nature, like FMCG, food, wine, some kind of category, they are more related to the instant shopping. So this is not our majority battlefield in the Baozun BEC business growth. We are in the fashion business, in the luxury business, electronic devices. Some of our FMCG and wine brands, they are pilot run and they devote themselves into the quick commerce. But it's very hard for us to imagine a premium luxury brand listing their products next to, for example, like birth control products. So that scenario is not our majority part of the battlefield. And this is the second one. The second one is the traffic pool from the instant shopping to the Tmall and Taobao, they are very different. So they are personalized to a very targeted traffic into different brands. So we are not targeting all those instant shopping traffic rather than we just targeted the OAIPL. So we need to just spend our money wisely in the big pool. So we are focused on more the top tier, I mean, the 300 million among the 800 million traffic among all the Tmall, for example. So this is our target traffic, not the instant shopping traffic. That's the first one. The second one, you mentioned about especially the cosmetics category because we realize that in that category, the marketing spending is mostly bigger than the other categories. But after the pandemic, all the brands are spending their money wisely. So even in the cosmetics brand, the brand doesn't really just spend that much pie like years ago. So within the regulation and policy, we have not realized any kind of impact about the regulation to us. So the brands in that category, also the other categories also still maintain a decent and very logical investment proportion among their GMV. Operator: And the last question comes from Yin Jiawei with CITIC. Jiawei Yin: I have one question regarding BBM. In September, Gap has signed a top-tier brand ambassador, and the Brand Management business also delivered a strong growth this quarter. So what impact has this collaboration had on Gap's brand awareness and user profile? And has there been any synergetic sales growth in other business lines like children's wear? And what is the company's long-term view on Gap's profit potential and the development vision? Ken Huang: Thank you for the question. This is Ken. I will answer your question. Firstly, as I mentioned before, in this campaign, we attracted more customers from the younger generations, 25% increase. It's not only increase in the young generation, but in the whole customer base, we see a big increase in all the AIPL customer base. And more importantly, we see a lot of new UGC content in the social media. Our brand and our products are discussed within the young generations and our consumers. And this campaign also helped us to promote our key category products, especially denim and sweatshirt. Our ambassador wears different colors, different fit, style, logo sweatshirts during the campaign. It helped us further strengthen the brand awareness and the key product awareness to the market. And second, for the kids and baby business, we do see that synergy, because kids and baby is a very strong division of Gap brand. And it's also our advantage because nearly all our stores sell both adult and kids and baby products. So this can be proved from our increase of our units per transaction. So we see more family customers also shop both adult and kids products at the same time. And for your last question about Gap's future profit potential, I think by capitalizing this marketing asset of this full campaign, we will continue using our winning formula to continue to expand our customer base, brand and sales in the coming quarters and the coming year. So we expect to continue our double-digit growth in Q4, around 20% increase. And for next year, we also expect a continuous double-digit increase in our sales. In Q4, we will also introduce our new store image. So with this new store image, we expect a bigger store sales productivity in our new store format in next year. So we will further accelerate our store expansion, keep the momentum of sales growth in both scale and unit stores, which in total, I think, will help us to improve the profit. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Wendy Sun for any closing remarks. Wendy Sun: Thank you, operator. On behalf of the Baozun management team, we'd like to thank you again for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone, and thank you for joining us today for Caledonia Investments Plc Half Year Results Presentation. [Operator Instructions] Please note that this call is being live streamed to a webcast for a wider audience and will be recorded. I would now like to hand over to Mat Masters, Chief Executive Officer, to open the presentation. Please go ahead. Mat Masters: Hello. I'm Mat Masters, CEO of Caledonia Investments, and welcome to our results presentation for our half year to 30th September 2025. You will also hear from Tom Leader, who leads our private capital strategy; and Rob Memmott, our Chief Financial Officer. Before we go through these results, a short reminder about Caledonia. We are long-term stewards of our shareholders' capital, including the Cayzer family who have entrusted us with theirs for generations. Looking after multigenerational capital shapes everything we do. We need to make returns, but do so whilst limiting the risk of losing capital. We target absolute returns of inflation plus 3% to 6%, and this influences the level of risk we're prepared to take. Over time, our approach to investing has delivered results at the top end of this target range at 9.8% per annum, outperforming inflation by 6.5% per annum, and we have consistently increased our dividend for over half a century. Our approach to investing is straightforward. We invest in high-quality businesses and hold them for the long term. Our maximum time well invested captures the essence of our approach perfectly. Our in-house investment team is fully aligned with shareholders. We do not manage anyone else's money, and there is no fundraising. Performance is measured against NAV per share over time and rewarded in Caledonia shares. So our incentives are directly tied to long-term value creation. Our investment strategy is perfectly encapsulated by time well invested. We use our strong balance sheet, long-term approach and in-house investment team to underpin our focus on long-term results and be robust during downturns and in fact, aim to use these to our advantage. We're organized across 3 main strategies, providing access to private and public companies across different sectors and geographies. We're looking for the same 3 key ingredients, which are attractive markets to operate in, resilient businesses with strong fundamentals and return characteristics and that are well managed and aligned with shareholders. The strategies have together generated Caledonia's overall performance, which is shown in the chart. Over 5 and 10 years, we have delivered at or beyond the top end of our targets and across all periods, both NAV per share total return and share price total return have kept ahead of inflation, which is our core aim. In the last 3 years, share price total return has been stronger than NAV per share total return as the discount has reduced from 37% to 33%. Moving on to the highlights for the half year. We're pleased to report another positive performance with NAV total return of 4.4% and total shareholder return of 8.5%. This was driven by strong public companies and private capital performance, partially offset by funds and including the impact of the pound strengthening against the dollar, reducing NAV by approximately 2%. Today, we are announcing our interim dividend of 3.68p per share, which reflects the change in dividend payment profile to 50% of the prior year's annual total dividend. This dividend will be paid on 8th of January 2026. Moving on to public companies. This comprises 2 portfolios, each taking a concentrated approach to making long-term investments in high-quality companies. We're looking for high-quality, durable businesses, which we think have got great futures ahead of them. We aim to buy well and hold for the long term. The overall public company strategy delivered 9.9%, driven by a capital portfolio and within that, primarily Oracle, Microsoft and Alibaba who are benefiting from continuing demand for cloud-based services, including AI. We initiated a new position in Charles Schwab, the U.S.-listed brokerage business that we've been tracking since 2017. We like Schwab because of its massive scale with just over $10 trillion in client assets and market-leading focus on driving down costs for its clients. Its track record speaks for itself with annualized total shareholder return of 17% since it listed in 1987. It's well managed with good continuity of leadership with the eponymous Charles Schwab still on the board. We deployed GBP 35 million, mostly on 7th of April, shortly after President Trump's Liberation Day, which was followed by a downturn in the equity markets and presented the lowest price that Schwab and the market traded in the last year. This derisked our point of entry and is a good demonstration of our time well invested approach. We purposely set ourselves up to buy shares in wonderful companies when they become more attractively priced. On the same theme, Oracle delivered a standout performance for us, and we were able to realize gains, selling 3/4 of the value of our holding at the start of the period as its share price doubled and its risk characteristics changed. We first invested in Oracle in 2014 when it was rated as legacy tech and judged late to the cloud and as a service. We look closer and saw a business with a good market position in an attractive market, excellent business fundamentals with high levels of recurring revenue and plans to increase this and excellent returns metrics, run by a management team that was certainly aligned with shareholders and very well proven. Our analysis helped us establish that long-term ownership was very likely to be rewarded. And as you can see from the chart, Oracle took a little while to get going, but we could see that they were doing what great long-term businesses do, which is accept some short-term pain as they invested in a comprehensive move to the cloud and as-a-service offering, whilst using their low rating to undertake a massive share buyback with them buying back $120 billion of their shares and the share count reduced by 38%. As their transition to the cloud and as a service became better understood by the market, share price performance improved. And more recently, Oracle's cloud offering and incumbent position in corporate and governmental data places them very well for AI, and this has driven the doubling of its share price during the first half of our year. Our overall investment performance from only Oracle has been good with GBP 35 million invested, delivering GBP 101 million in cash returns through top slicing and dividends with the position worth GBP 89 million at the end of the period, so 5.4x our money. I will now hand over to Tom to talk about private capital. Tom Leader: Thank you, Mat. Today, I'll walk you through our performance, portfolio highlights and recent developments, focusing on how we continue to support private companies in creating enduring value. As a reminder, Caledonia Private Capital is focused on making direct investments, usually on a majority basis into high-quality mid-market U.K.-centric businesses. Our model is built on permanent capital, genuine partnership, a patient long-term perspective with moderate use of leverage. Unlike private equity firms whose funds have limited life spans, restricting the time when investments must be made, grown and sold, we have no time limitations on our investments. We can build genuine partnerships with strong management teams and help them create enduring value without the constraints of short-term capital. Our current portfolio has a net asset value of GBP 907 million, invested across 8 companies and represents approximately 30% of the NAV of Caledonia as a whole. For the half year, we delivered a total return of 7.7%. This result was primarily driven by the agreed sale of our minority stake in Stonehage Fleming to Corient Wealth, on which we exchanged contracts in September, along with continued good operating performance from AIR-serv. I will cover Stonehage Fleming in a bit more detail on the next slide. But clearly, the sale, when it completes, will deliver an excellent result for Caledonia. AIR-serv was another strong performer, valued at GBP 193 million as at 30th of September. In the half year, it delivered an 11% return, driven by strong revenue and profit growth. The business paid Caledonia a dividend of GBP 24.5 million in the period. The other companies in the portfolio continue to make progress in executing their value creation plans. Looking at our long-term performance, Private capital has delivered annualized returns of 8.5% over 3 years, 20.7% over 5 years and 12.5% over 10 years, all versus our 14% target. Stonehage Fleming is a full-service multifamily office, helping discerning clients address the challenges of creating and preserving wealth. It is focused on the ultra-high net worth market, which is the fastest-growing segment of the wealth market. The firm's clients have entrusted it with the management, fiduciary oversight and administration of assets in excess of USD 175 billion. Stonehage Fleming provides its services from 20 offices in 14 geographies. With an initial investment of approximately GBP 90 million in July 2019, we acquired a minority stake alongside Giuseppe Ciucci and the other founder partners. The management were not looking for a conventional private equity investor, but instead for a capital provider, which shared their long-term perspective and multigenerational approach to preserving and growing capital. Together, we restructured the balance sheet and the shareholder base of the group to position it for the next phase of growth. Over the following 6 years, we have worked in close partnership with the leadership team to deliver upon our original investment thesis, which entailed, first, streamlining the governance structure by financing and supporting succession management; second, investing in technology, which improved margins and allowed Stonehage Fleming to internalize services that were previously outsourced; third, enhancing business development, which delivered strong organic growth; and fourth, completing 4 strategic acquisitions, which have expanded the firm's geographic reach and diversified its product and service offering. The business has been a consistent performer, a true compounder. Strong cash generation and disciplined reinvestment have driven returns steadily upward through our ownership. This investment is a hallmark example of our unique approach, long-term partnership-driven and unconstrained by fixed fund life and has delivered exceptional value for all stakeholders. We expect the deal to close in mid-2026, subject to the required regulatory consents at which point it should deliver cash proceeds of approximately GBP 288 million, representing including dividends received along the way, a 3.2x multiple on cost of investment. As of 30th September, Stonehage Fleming was valued in the portfolio at GBP 259.7 million, net of approximately 10% discount to reflect the transaction execution risk and the time value of money. The bubble chart here illustrates for all our major realizations since 2012 on the X-axis, the realized IRR and on the Y-axis, the NAV uplift at exit compared to the carrying value 12 months prior to exit. For Stonehage Fleming, the expected exit proceeds of GBP 288 million represent a 30% uplift to its carrying value as at the 31st of March 2025. This result is comparable with a 37% uplift relative to the carrying value when we sold 7iM in January 2024. Overall, across the portfolio, we have a strong track record of realizations. Since 2012, we've generated GBP 1.4 billion in proceeds, returning around GBP 700 million in net cash to Caledonia. Our realized investments have delivered a 17% IRR and a 2x multiple on cost, which, given the low appetite for and use of leverage, compares very favorably with the returns delivered by U.K. mid-market private equity. Let me finish by saying we continue to deliver strong and consistent returns, underpinned by our disciplined approach and the strength of our partnerships. The success of Stonehage Fleming exemplifies the power of our permanent capital model, enabling us to back exceptional businesses and management teams, support their long-term growth and realize substantial value for our shareholders. Thank you, and I'll now hand over to Rob. Rob Memmott: Thank you, Tom. Our funds pool has been running for more than 15 years. The opportunity is significant. These funds tend not to market in Europe, meaning that we are often the only European investor, a real differentiator. The pool NAV of GBP 884 million is a diverse portfolio invested in some 82 funds by 46 managers and in more than 600 underlying businesses. 64% of the NAV is focused on the North America lower mid-market buyouts. The funds are typically the first institutional investment into relatively small often owner-managed businesses. The playbook is to transform the companies by strengthening the management team, improving operational efficiency, growing sales by product and geography, both organically and through bolt-on acquisitions. These improved companies with greater scale provide feedstock to mid-market private equity. It's a very pure form of capitalism. Of the North American companies, 2/3 are providing services with the balance having very little exposure to international trade flows. 36% of the pool NAV is invested in Asian buyout, growth and venture. The buyout assets are focused on domestic consumption and supply chains, fueled by the aging population, growing middle class and tech adoption. The venture and growth funds are invested in government supported new technologies and health. Whilst there is very limited exposure to the direct impact of trade tariffs, as expected, economic uncertainty has reduced investment and realization activity in the short term. The pool has delivered solid returns of 13.3% over 5- and 10-year periods. Performance over the 6 months reflects the continuation of trends experienced for the last 3 years. During that period, the North American pool delivered local currency returns of 8.9%, driven by the trading performance of the underlying companies. In Asia, the companies are making progress. However, the continued reduction in capital market flows has impacted on fundraising and exits suppressing our returns. Overall, the pool NAV grew by 4.3% in local currency, but reduced by 1.8% in sterling. Our capital commitments are GBP 394 million, 75% of which is to North America. GBP 52 million was invested in the 6-month period and $55 million of new commitments were made to 2 North American managers. Looking at the cash flows in a bit more detail. The chart shows the realization and investment activity over recent 6-month periods. As I mentioned earlier and as expected, economic uncertainty has reduced investment activity in the last 6 months, which can be seen on the graph. The pie chart details the weighted average life of the primary portfolio. For North America, the weighted average life is 4.3 years. For Asia, it's 5.5 years. We expect a longer hold period in Asia given that the assets are weighted towards venture growth and fund of fund investments. And so to the numbers. During the 6-month period, our NAV total return was 4.4%, growing our NAV to just over GBP 3 billion, of which GBP 2.9 billion is invested in a diversified portfolio of listed and privately held companies and funds that have got global reach. Cash on balance sheet was GBP 105 million. This, combined with our undrawn revolving credit facility of GBP 325 million, enables us to act quickly to invest in companies and funds that we find attractive. This was demonstrated in April when we deployed approximately GBP 50 million into the public company strategy, taking advantage of opportunities provided by the market volatility around Liberation Day. We have reprofiled the interim dividend such that it is 50% of the prior year total. This equates to 3.68p, which will be paid to shareholders on the 8th of January 2026. And now to my beloved waterfall chart. This chart shows the movement in NAV over the period. We started the year at GBP 2.9 billion. The portfolio return of GBP 145 million includes the negative impact of foreign exchange. We then deduct management expenses of GBP 17 million. There is then the cash returned to shareholders, GBP 14 million allocated to share buybacks and GBP 28 million for the final dividend from the prior year. That results in a closing NAV of just over GBP 3 billion. Our OCR is 87 basis points, slightly up on the prior year, reflecting some investment in our teams. I expect this to increase slightly over the next 12 months, taking account of full year effects. 54% of our assets are domiciled in U.S. dollars and 37% in sterling. Movements in the sterling-dollar exchange rate will, therefore, impact our in-period results. In the last 6 months, we suffered an FX loss of GBP 59 million, reducing our NAV by approximately 2%. We have a robust balance sheet with no structural leverage. Walking you through the cash movements, we started the year with GBP 151 million, and net GBP 27 million has been invested. The investment income from our assets was GBP 47 million, higher than in previous periods as it includes the GBP 25 million dividend from AIR-serv. We have consumed GBP 24 million in the cash cost of management expenses and working capital. And next, there is the payment of the prior year final dividend, GBP 28 million and GBP 14 million allocated to share buybacks, resulting in a closing cash position of GBP 105 million. This, combined with our undrawn revolving credit facility of GBP 325 million means that we have liquidity of GBP 430 million. Of the revolving credit facility, GBP 150 million has just under 4 years remaining duration and GBP 175 million just under 2 years. We expect to complete the sale of Stonehage Fleming in Q2 2026 once all the regulatory approvals are obtained. GBP 251 million will be received on completion with 2 further amounts of GBP 18 million being due 6 and 12 months following. These amounts will come back on to the balance sheet. We feel no pressure to invest, and we will continue to appraise investment opportunities on their merits and as they arise. The discount at the end of the period was 33%. We believe this fundamentally undervalues the quality of the portfolio, our track record and prospects. We are taking actions over the things that we can control, including share buybacks, which remain an attractive investment for us. We have a prudent capital allocation policy to investments, our dividend and when appropriate, share buybacks. During the 6 months, we allocated GBP 14 million to share buybacks, increasing the total since March '24 to GBP 78 million, delivering a 7.44p NAV per share accretion. We continue to evolve our IR and communications to ensure that the Caledonia investment proposition is understood and rated. We held capital market spotlight events in January and June, focused on private capital and public companies. If you've not had the opportunity, I would encourage you to visit the website and watch the presentations. They provide a great insight into how the pools operate, what differentiates us and how we add value. When you visit the website, you will see that this has been significantly improved with new content. A date for your diaries, the 27th of January 2026, we will be holding the third spotlight session focused on the funds pool. We believe Caledonia is a great home for long-term investors. Following shareholder approval, we have completed the 10 for 1 share split. In addition, we have rebalanced the profile of the dividend, increasing the interim to 50% of the prior year total rather than the historic rate of approximately 25%. These measures will improve visibility of income, make payments more balanced, and I expect will improve accessibility for all shareholders. I'll now pass back to Mat. Mat Masters: Thanks, Rob. We're pleased with our 6-month performance, which supports our track record of delivering NAV total return of 9.8% per annum over the last 10 years, which is at the top end of our target range. Across both public and private markets, our portfolio is high quality, diversified and deliberately positioned to withstand short-term market volatility while compounding value over time. And none of this would be possible without our strong balance sheet, exceptional team fully aligned with shareholders and focused on long-term value creation. Thank you very much for joining us today, and we will now take questions. Operator: [Operator Instructions] Our first question comes from Iain Scouller with Stifel. Iain Scouller: I just wanted to ask about the valuation of Stonehage. I think in the statement, you're saying it's at a 5% discount to the expected proceeds. But in the presentation, you're talking about a 10% discount. So I just wondering if you could clarify that. Tom Leader: Certainly, the total discount relative to the expected proceeds is approximately 10%, comprising 2 separate adjustments: one, approximately 5% discount for execution risk and a 5% discount for the time value of money. The total discount relative to the expected proceeds is 10%. Iain Scouller: Okay. And when do you expect to receive the proceeds? Tom Leader: We expect to receive the proceeds on completion of all the regulatory approvals. But there are, in fact, slightly more than 20 regulatory approvals required in multiple jurisdictions. That process will take several months. So we expect the deal to complete towards the back end of the first half of calendar 2026. Operator: Our next question comes from Anthony Leatham with Peel Hunt. Anthony Leatham: A couple of questions, if I may. You were particularly active kind of April, that liberation day volatility on the public company side. How are you feeling about the environment and the positioning of the portfolio today? And then I had a couple of questions on the private equity side. Maybe a comment on the maturity profile of the funds portfolio. And then we're hearing from private equity trusts and managers that realization activity is actually improving. And I didn't know whether you had seen the same trend within your holdings. Mat Masters: Anthony, thanks for the question. Mat here. So yes, we did. So following President Trump's what's been Liberation Day sort of announcements and things, the stock markets sold off. And we added -- very pleased to add Charles Schwab to the portfolio. And that is absolutely sort of the playbook when we sort of invest in the quoted markets is to keep our powder dry until opportunities present themselves. And we also topped up other holdings in the wake of that, and that's all thus far performed very well for us. The portfolio is a long-term portfolio. We try not to judge precisely where it is on any particular day, but we do feel as we risk manage the portfolio as we go forward, we obviously talk about the fact that we to Oracle as that went up in value and loss rating went up, we did that across the whole portfolio. So we feel good about the medium and long-term prospects of the portfolio. Obviously, impossible to predict what share prices do on a day-to-day basis, I'm sure you'll appreciate. Maybe Rob could tackle the funds questions. Rob Memmott: Yes. Thanks, Anthony. Just in terms of the fund’s activity, as we mentioned in the presentation, the level of realization and investment activity in the last 6 months has reduced quite significantly. And what we're seeing is that start to increase the weighted average life of the portfolio compared to where we were a year ago. In terms of recent activity in the market, certainly, there is sort of noise of increased activity taking place. We're yet to see that sort of flow through into sort of real pound notes coming back through to us. And certainly, from a sort of planning and thinking about sort of liquidity, we're sort of still quite cautious in terms of the speed of that recovery getting back up to the norms, which I guess we were experiencing in the prior financial year. Operator: [Operator Instructions] There are no further questions on the webinar. I will now hand over to [Beck Hughes] to read out the written questions. Please go ahead. Unknown Executive: So the first question is about Oracle. What is your view and future prospects for your Oracle holding? And have you sold any more since the period end? Mat Masters: Thanks for the question. Mat here again. So we think Oracle has a fantastic future ahead of it. Most of its current trading is still sort of legacy type business. And what's really happened is its forward order book, it's grown a lot and a lot of that is sort of AI related. So actually, that's reflecting the opportunity expanding ahead of it. So we're quite excited about the future for Oracle. Nevertheless, the rating has changed materially during the period. And so we do sort of respond to that. And so we have also the size of the position during the we talked about the money we've had it over the course of our investment period. But over the year -- over the half year rather, we've taken GBP 54 million of it. So we have trimmed the holding according to the change in risk -- really around rating risk with it. We remain pretty excited about its medium and long-term future. Unknown Executive: A question on Stonehage. Are the proceeds contingent on anything or just deferred? And what are the most attractive areas for new investment? Tom Leader: So dealing with the Stonehage completion mechanism first. As I alluded to earlier, completion is conditional on reg approval in multiple jurisdictions. That will crystallize payment of the bulk of the proceeds, just over GBP 250 million. There is a deferred element, which is payable in 2 tranches 6 and 12 months post completion. Those deferred proceeds are interest-bearing, and they are subject to adjustment depending on the finalization of a closing balance sheet audit, which includes a true-up mechanism. So that could go either up or down, positive or negative against the estimated closing balance sheet just prior to closing. So there is bound to be a small difference between the 2, but we do not expect it to be material. In terms of the second part of the question, future opportunities, we scan somewhere between 300 and 350 new opportunities a year across a very broad range of sectors. Our historic strengths have been in financial services and business services and technology-driven industrial businesses. And there is a regular flow of opportunities in all of those sectors. But I would add that it is a difficult market in which to deploy capital. Good quality assets are still transacting at very high prices, and less good quality assets are either taking longer to sell or not selling at all. So we will remain selective and we have the liquidity to finance new acquisitions if and when we can find the right opportunity. Unknown Executive: Thanks, Tom. A question around discount. What plans do you have to reduce the very large discount now the buyback may have marginal benefits, but does not seem to benefit? And why have you only bought back GBP 13 million worth of stock given the discount is just over 30% and you have a lot of liquidity. Rob Memmott: Yes. Thank you, Beck. So as you rightly point out, the discount of around 33%, we certainly feel undervalues the value of the portfolio, our track record and our prospects. I guess the buybacks, we sort of see those as an investment opportunity for us. We don't see that -- we don't have a discount control mechanism. The things that we are doing to influence the discount are the things that we can control, which is continue to invest in a good quality, high-quality portfolio, make sure that we communicate with as large an investor base as possible to make sure that we -- the proposition is properly understood and rated. And then there are some smaller sort of tactical things that we've done around the share split, rebalancing the dividend payment to make sure that the shares are as attractive to a broader investor base as possible. Unknown Executive: Another question here about hedging. You mentioned return in sterling is diminished by your U.S. dollar weakness. Do you hedge? Rob Memmott: And the answer to that is that we do not hedge. We're a long-term investor. And if you like, the short-term volatility coming from exchange rates, we sort of understand those and sort of monitor them, but it is about sort of long-term sort of value sort of creation. And generally, if you sort of hedge the balance sheet position, you pay a premium in order to end up in the same place. So we don't hedge unless there are specific cash flows that we would do so for. And I think that the weighting of the portfolio is more dollar denominated reflects the fact that the size and the quality of the companies which we're investing in, a lot of those are based in North America or headquartered in North America. Unknown Executive: Another question here on special dividend. In the past, there was a loose policy of providing a special dividend every 3 years or so. Is this policy still operative? Mat Masters: So we have -- thanks for the question. We have a track record of occasionally paying special dividends. I don't think we've ever sort of announced a policy about when we would do it. And we've not made any announcement about paying a special dividend. So that is the case at the moment. Unknown Executive: Another question here about equity market valuations. What do you think of them. Mat Masters: Well, thanks for the question. So equity market valuations vary around the globe, and there'll be one market up and one market not quite so far up. And actually, it's a really difficult question to address and actually respond to in your portfolio. And so what we do is to try and keep it very simple. We invest in good quality companies and hold them for the longer term and try not to worry too much about what's going in the macro and make sure we invest in things where we don't have to worry too much about the macro. Okay. Well, we have gone through the questions now, and we're very grateful for everyone joining us on the call today and for the questions, and we look forward to connecting with you next time. Operator: Thank you for joining today's call. We are no longer live. Have a nice day.
Conversation: Justin Platt: Good morning, everybody. Thank you for joining us today. Welcome to the Marston's preliminary results for financial year '25. My name is Justin Platt, CEO. And with me, I have Stephen Hopson, our new Chief Financial Officer. We'll take you through our results today, and we'll do that with the following running order. I'll start with the headlines. Stephen will then share the financial results, and I'll then give some insight into the strategic progress we've been making through the year before wrapping up and taking any questions you might have. So the headlines, 2025 has been a very strong year for Marston's. It's been a year when we've been very focused on delivery, delivery of the strategy we outlined a year or so ago at the Capital Markets Day. And the results bear out that the strategy is working and driving real progress for us as a business, with profit before tax of GBP 72 million, that's year-on-year growth of 71%, and that's on top of the 65% growth we delivered a year ago. And that profit delivery has helped us drive cash flow. So cash flow at GBP 53 million. That's ahead of our GBP 50 million target, and it's also earlier than planned. Alongside that, it's really pleasing we've made great progress with our new pub formats, 31 launches this year. They're performing very strongly for us and driving big revenue uplifts. It's very clear now that these formats can be a significant growth engine for us in the future. And we've been doing all of that while giving our guests a great time. So record satisfaction scores with a reputation score at 816. So overall, a really good set of results, and it's a set of results that leave us feeling very positive in our outlook going forward. So that's the summary. I'll now hand over to Stephen, and he'll take you through the financials. Stephen Hopson: Thanks, Justin, and good morning, everyone. As Justin said, this is my first set of full year results at Marston's, and I joined the business at what is clearly an exciting time for Marston's. As these numbers show, we're making great progress and delivering against our goals with lots more to come. On my first slide, I'd like to begin by looking at some of the key group financial metrics. Total revenue was GBP 898 million, which showed growth of 1.6% on a like-for-like basis. EBITDA was up 7% to GBP 205 million, with the margin expanding by 140 basis points to 22.8%. That's been driven by good operational discipline, particularly on labor and controlling input costs alongside the revenue growth. As a result of the EBITDA growth and lower finance costs, PBT stepped on significantly. Underlying profit before tax was GBP 72 million, nearly 3x where we were just 2 years ago. And importantly, this has translated into stronger cash generation. Recurring free cash flow was GBP 53 million, which is up 22% year-on-year and ahead of our GBP 50 million recurring free cash flow target. Finally, we've made real progress on the balance sheet. Net debt has reduced from 5.2x, to 4.6x EBITDA as we continue to delever. So overall, excellent progress on both profit and cash. Turning now to look at our income statement in a bit more detail on the next slide. As I mentioned, FY '25 marked another year of substantial profit growth for Marston's with PBT up 71%. Reported revenue was flat, although this masks the impact of the FY 2024 disposal program, which I'll show on the next slide. I've already mentioned that EBITDA was up 6.5%, and that GBP 12.6 million of EBITDA improvement basically flowed through to operating profit, which was up 8.6% to GBP 159.9 million. Net finance costs were significantly lower year-on-year as a result of ongoing delevering and last year's CMBC disposal, leading to that very significant jump upwards in PBT. And whilst our effective tax rate increased, this simply reflects a return to the U.K.'s headline rate of corporation tax after a period of a lower rate. Together, this income statement shows a stronger and more profitable business with improved earnings quality and stronger margins. Turning to revenue performance. As I've already touched on, revenue for 2025 was GBP 898 million and was broadly flat year-on-year, but I would like to pick out 2 points on this chart. First, that the revenue includes a negative movement of about GBP 40 million in relation to the disposal of pubs over FY 2024 and 2025. To put the disposals into context, about GBP 50 million of assets were sold as part of the disposal program. So it's important to consider that impact when assessing year-on-year revenue progression. And the second point is that our like-for-like performance continues to be ahead of the market, which grew by 0.7% in the year, with positive contributions across all key categories of drink, food and machines. Turning now to look at margin. A key target for the group outlined at the CMD was to grow our underlying EBITDA margin by 200 to 300 basis points from FY '24 levels, giving a target range of 23.4% to 24.4%. And I'm pleased to say that this year, we've delivered 140 basis points of margin expansion, achieving total EBITDA margin of 22.8% in the year. Labor productivity gains were the single biggest contributor, supported by the rollout of improved scheduling tools, which Justin will cover in a bit more detail later on. The labor productivity benefits in the year were enough to fully offset the increases in the National Living Wage and National Insurance contributions, which came in from April 2025. We also saw benefits from improved food and drink margins, energy savings and other operational efficiencies. These gains were partially offset by inflationary pressures, including those employment cost increases that I mentioned and some investment in key areas, including more marketing. But overall, we've made real progress embedding cost discipline and delivering margin expansion across the business, and we feel that our EBITDA margins really do benchmark very well across the whole pub sector. We view ourselves as a high-margin local pub company, and we see further opportunity to increase the EBITDA margin in FY '26 as we move towards our CMD target. Turning now to look at capital expenditure. Total CapEx for the year was GBP 61.2 million, which is equivalent to 6.8% of revenue, and we're now approaching the 7% to 8% of revenue range that we talked about in the CMD. This is an increase from GBP 46.2 million last year, with the main driver being our pub format conversions, which I'll come back to shortly. Of this total, GBP 53.2 million was in maintenance and other CapEx deployed across our 1,300-strong pub estate. This includes works such as maintenance, estate management, investment in new IT platforms and other items. But I also want to pull out a bit more granular information on our pub format conversions, which are very important to our overall growth plans and which Justin will cover in more detail. In the year, we covered 31 conversions to our differentiated formats, which are delivering strong results. Average revenue uplifts were 23% year-on-year, and EBITDA returns are over 30% to date, in line with our CMD targets. At an average cost of GBP 260,000 a site, we believe these conversions represent excellent value for money. And of course, we've only completed a small number so far in comparison to our estate. So there's a lot more to go at in this space. Clearly, the driver of increasing our capital expenditure is to improve the quality of our estate. So let's turn to that now. On this slide, we show that we ended the year with 1,328 pubs following the continuation of our estate optimization strategy. This included a small number of disposals in the T&L estate as well as conversion of some pubs to the partner model. As a result, the managed and partnership estate consisted of 1,182 pubs and the T&L estate had 146 sites at the year-end. EBITDA per pub increased to GBP 154,000, which, as you can see, is a 28% improvement over the last 2 years. This uplift reflects both operational improvements and tighter estate management with gains in both, our managed and partnership estate and the remaining T&L pubs. The result is a higher-quality, better-performing pub estate that's delivering stronger returns at a site level. I think this is a really important slide as it shows how the improvements being made to the business model are feeding through at pub level. Turning now to our cash performance in the year, which was another highlight. The takeout from this slide is that we delivered and, in fact, exceeded our CMD target of GBP 50 million of recurring free cash flow ahead of schedule, with GBP 53.2 million delivered in the period. And how was that delivered? Well, cash from ops increased year-on-year by GBP 5.6 million, which included the improvements in EBITDA I described earlier. Within that number, we also had a GBP 6 million saving from lower contributions to our DB pension scheme. And offsetting that, we had a small working capital gain, but it wasn't as large as last year's gain. Finally, we started making cash tax payments again of GBP 5.3 million as our profits improved. And as a smaller side, investors and analysts should note that in FY '26, we expect to move into the very large company corporation tax regime, which will accelerate our cash tax payments this year. And then in the second line on the chart, we had a GBP 15 million saving on interest, offset by GBP 15 million more CapEx year-on-year, as I just described, together with lower banking fees. So recurring cash was strong and now over GBP 50 million, which we expect to be able to exceed again this year. I also wanted to draw out on this slide that this strong free cash flow is fully absorbed by scheduled debt repayments, GBP 43.8 million of securitized debt repayments and GBP 8.6 million of lease liabilities. Clearly, this does mean that the group is delevering, as I'll show on the next slide, but also that our cash generation is currently fully utilized. And then just to complete the chart, after other movements in borrowing and disposals, there was a cash outflow of GBP 9.6 million in the year. And I'm now going to return to that progress about delevering in the group. This slide shows the different elements of the group's financing structures and the overall movement in net debt year-on-year. So starting at the bottom, net debt, excluding lease liabilities, reduced by GBP 46.2 million, to GBP 837.5 million. This takes our net debt-to-EBITDA multiple, excluding leases, down to 4.6x from 5.2x last year. That continues the recent downward trend and reflects the group's stronger cash generation and disciplined approach to capital investment. And then to briefly cover what makes up our financing structures, the largest element shown at the top is the securitization, which provides long-term predictable financing for the group. It does also impose some restrictions, both in terms of the assets that are tied up in the securitization structure and in our ability to move assets and cash around the group. However, these restrictions are manageable at present. Swaps are in place to fix the interest that we pay on the securitized debt. Other lease-related borrowings are essentially loans that were raised against other properties in the group outside the securitization. They were legally structured as sale and leasebacks, but where we have the option to buy back the properties at the end of the period for a nominal fee. Therefore, we treat these properties as effective freehold. And as noted in the slide, we're currently paying interest only on those borrowings. And I've put a new slide in the appendices showing investors how those structures will work over coming years. Our GBP 200 million bank facility was renewed in the year and now extends to July 2027 with relatively low drawings at the year-end, and cash balances ended the year at GBP 35.9 million. So in summary, we're continuing to delever at pace while preserving the secure long-term funding arrangements in the group. If I then broaden this to look at the group's whole balance sheet rather than just the net debt elements, this slide shows the evolution of our balance sheet and our net asset value per share, which increased to GBP 1.25 this year. And actually, the movements year-on-year are pretty straightforward. Our balance sheet is underpinned by GBP 2.2 billion of property assets, of which 81% of the estate by number of pubs are effective freeholds. The net book value of those assets increased by over GBP 100 million in the year, reflecting our annual estate reval and also our ongoing investment into the business. Net debt, as I've just described, reduced GBP 837.5 million, excluding lease liabilities, and lease liabilities were GBP 5.5 million lower. So total net debt was GBP 51.7 million lower year-on-year. Other liabilities increased by GBP 28.4 million, almost entirely due to an increase of GBP 28.5 million in deferred tax liabilities relating to the upward property revaluation. So overall, the property reval with its associated tax movements as well as the net cash generation of the group, drove GBP 136 million increase in net assets, which was a 21% increase year-on-year, to GBP 791 million, which equates to GBP 1.25 per share. Given the progress made on the balance sheet, I want to finish by looking at our capital allocation framework. And if I start by saying that this is not a change to our capital allocation policy, which remains consistent with what we laid out at the CMD, we remain focused on delivering sustainable shareholder value through a disciplined balance of investment in the business, delevering and ultimately, shareholder returns. That said, there are a couple of updates we wanted to share this morning. On the right-hand side of the chart, you'll see our continued progress on leverage, which, as I mentioned, has reduced substantially. We are pleased with that progress, but would like to see leverage continue to decrease. And today, we're committing to reduce leverage to below 4x on a pre-IFRS 16 basis. When we get to that level, we anticipate the start of capital returns to shareholders through dividends, share buybacks or a combination of both. What that looks like will depend on circumstances at the time, including the share price and investor preferences. To be clear, we also expect to see the group continue to delever below 4x even after the recommencement of shareholder returns. We believe this disciplined approach continues to be the right strategy to create and sustain long-term value. So to conclude, we've delivered a strong financial performance this year with clear progress on margin, profit and cash flow, and we expect further progress this year. And before I hand back to Justin, I'll briefly touch on 5 forward-looking points. First, we remain confident in the trading outlook for FY '26 with like-for-like sales currently tracking in line with last year and Christmas bookings up 11%. Second, we expect further progress towards our margin target of 200 to 300 basis points of growth versus 2024 following the 140 basis point gain this year. Our format growth engine will be accelerated this year with at least a further 50 refurbishments and our CapEx is expected to be within the target range of 7% to 8% of total revenue. And after achieving our CMD target ahead of schedule this year, we expect to deliver another year of GBP 50 million in recurring free cash flow in FY '26. And lastly, we've significantly reduced our debt profile over the past couple of years and expect to continue to do so with leverage now at 4.6x and progressing well towards our sub-4x target. So overall, we're delivering against our targets, and we remain firmly on track to drive further financial and strategic progress in the year ahead. Thanks very much, and I'll now hand back to Justin. Justin Platt: Thank you, Stephen. So I'll now take you through the progress we've been making as we've implemented our strategy through the year. You will remember from the Capital Markets Day, we're very focused on being a high-margin, highly cash-generative local pub company. And we'll do that with a portfolio of brands that appeal across a range of consumer segments. 5 key value drivers that get us there: executing a market-leading operating model; using CapEx to deliver differentiated formats; unlocking value with digital transformation; expanding our excellent managed and partnership management models; and in time, supporting that with targeted acquisitions. So I'll now deep dive on each of those value drivers to give you a flavor of some of the work that we've been doing. The first one I will spend some time on is the operating model. Really, this is the bread and butter of running a great pub business. It's the balance of revenue growth, cost efficiency and guest satisfaction. So first of all, I'll talk to revenue. Really good momentum this year. We've continued to do well, especially in our peak trading periods. Across our peak trading periods, we're up almost 6% on the year. And that's enabled us to grow our like-for-likes ahead of the market at 1.6%. And a lot of what's behind that is our event plan. Our event plan has been a key thing for us this year. In 2025, Marston's Pubs have been home to a darts tournament led by Luke Humphries, the world #1. Paddington and his new movie joined us from Peru. We had a national Trivial Pursuit quiz event. And through the summer, when Oasis Mania was sweeping the U.K., we had a series of '90s throwback events with tribute bands and the like in our pub life. So all of these are designed to give people reasons to visit our pubs, a range of guest demographics. I think that's essential at any time of year, but especially so in the summer when, of course, this year, we had no big football tournament. So events are big success for us and an important driver in supporting our revenue growth. So secondly, on costs. As Stephen has shown you, we've made excellent progress during '25 on our journey to being a high-margin business in adding 140 basis points to our margin despite significant and well-known headwinds. And we've done this with a relentless drive for efficiency across all areas of our cost base. The biggest area of our cost base is labor, where we've saved almost GBP 10 million, a little bit more than 1 percentage point on our margin. And this has been about continually getting smarter with the way we use our technology to enhance and optimize our labor teams and our labor schedules, all about getting the right people in the right place at the right time. I think probably the best way to bring to life for you the work we've done on labor is to pick a case study of one of our pubs. The lady pictured on the right is Kati. She's one of our fantastic general managers. She runs the King Charles pub in Chesham, a lot of work with our labor planning this year. They've actually reduced their labor costs through the year by 8%. And despite doing that, they've grown their revenue by 19% and also grown their guest satisfaction well ahead of our company average. So a good example in the way labor is playing out for us in one of our pubs, but it also represents our approach across the company. So secondly, in terms of food and drink, our formats allow us to simplify the ranges we offer because we're a lot clearer about the demographic by format. And so that allows you to be clear which food offer and which drink offer you need by pub. So that's allowed us to simplify our range. That's helped us with efficiencies. But alongside that, we've also renegotiated our key food and drink contracts to drive efficiencies where we can. So that's labor and food and drink. Finally, energy and estates. Every pound counts on energy. We've been that way for a number of years now, whether it be the usage that we manage, but also the contracts, there's a relentless focus on attempting to drive efficiencies there. But as Stephen said, we take a very judicious approach to estates more broadly with our CapEx, looking at our maintenance cycles, spending strictly in maintenance cycles, and that helps us on efficiencies with our repairs budget. So overall, really good progress on the cost side of things. And then finally, on the operating model, guest satisfaction. I mean this is all about ensuring that when our guests come and see us, they have a great time. And it's very pleasing in the context of the efficiency gains I've just talked to that we're still delivering better and better experiences through our guests. So from a score of 766 in '23 to 800 last year, 816 this year is a very pleasing performance. And this really is a combination of many of the initiatives coming together, whether it be our events program, and the visual there is of our Oktoberfest event that we run during September, whether it be through digital ordering or some of the menu enhancements we've made. All of these things together add up to make a difference to the guest experience. It's worth saying, though, that the #1 factor that dominates, that really drives a great guest experience is, really strong guest service. That requires almost an obsession, a relentless obsession with getting that right day in, day out. And the work on that is never done. Our teams are very focused on delivering that experience all the way through the year. And as I say, it's pleasing that this year, we've been able to continually improve on that. So that's the operating model. When you take revenue, cost, satisfaction together, it's good that we've made strong progress across the piece. And this has been complemented with the work we've done on the digital transformation value driver. I think a key example of this would be the new order and pay app that we launched in March. Really well received. It's paying dividends with our guests in terms of both revenue and reputation, and it's complementing the personal service for those guests who want it. So we've got a 10% revenue uplift when using the app. And those pubs with a higher mix of order and pay usage do significantly better on reputation. What's also good about the app is it can work hand-in-hand with our events. So the Trivial Pursuit: Win a Wedge event drove a big uptake in the use of the app. So good progress overall on this area, digital, but a lot more opportunity here in the future as digital transformation can help us both on revenue and on cost. The third value driver I want to focus on is our new pub formats. So against 5 core consumer target segments across the market, we've designed 5 pub formats that are specifically designed to meet the needs of those target audiences. And through a series of test and learn launches in '25, we've been assessing the potential of these pubs to drive appeal and importantly, drive powerful CapEx returns. Now in May, I did a deep dive on the Two-Door format. So I thought this time around, we'd share some more information on the Grandstand brand. Grandstand is a local sports pub. So it targets adults who want an entertainment experience when they go to their local pub. I mean this is an absolute sports lover's dream. It's similar to a city center sports bar environment, but in the local community pub. Number of constituent parts to it. At its heart, state-of-the-art technology ensures that we've got 3-meter stadium screens, amazing sound systems. Alongside that, there's great match-day food suited to watching the big game. And these pubs will always be run by sports enthusiast general managers who know what their guests want and can work with them to give them a great experience. It's an absolute must visit for the big game, the atmosphere that we create. But more than that, because it's a local pub and it's a great environment, it's a place that you would want to go to on any night of the week, and we support that with a program of sports events through the week to give people reasons to come every night. So Grandstand has done really well this year. The guest reaction and the returns that we've had have been very, very impressive, and it's been a key part of our test and learn year. And test and learn overall this year has exceeded our expectations. We've done 31 launches through the year. So we did 21 Two Doors, 5 Grandstand and 5 Woodie's. Woodie's is our new family pub. All have done well. Guests love them. They've driven strong uplifts in revenue of 23% and all of that off relatively modest levels of CapEx. We've been driving ROIC of more than 30% on only GBP 260,000 per pub. So the test and learn phase really has proven the potential of this stream for us, real growth opportunity as we roll out across the estate. And all of our pubs have been mapped to the format opportunity they can play to over time. So over time, this really does give us an opportunity as a significant driver of growth. So great progress across our value drivers in '25, and this leaves us feeling very positive as we look towards 2026. Through this year, we'll have a big program of exciting events, all designed to encourage guests to come and visit us, not least with a big football tournament on the horizon that everybody will be very much focused on in the summer. And we'll complement that with our revenue management and order and pay disciplines to drive spend per guest. But alongside the demand drive, as I've just said, our new formats will play an increasingly important role in driving growth through the year. Given our success in '25, we're now accelerating the rollout plan. We'll have 50 or so launches focused on Two Door and Grandstand, and all of these will make a meaningful difference to both revenue and EBITDA performance through the year. So to summarize, another year of strong delivery in '25, significant growth in both profit and cash flow. We're very excited by the growth potential of our new formats, and we see a very promising outlook for the year ahead as we continue to deliver as a reliable growth company. And with that, we can now take some time for questions. Operator: [Operator Instructions]. The first question we have comes from Douglas Jack of Peel Hunt. Harold Jack: So I've got 2 questions, if that's okay. In terms of the new formats in 2026, is the choice of Grandstand and Two Door largely because they're the ones that have the greatest uplift potentially, adding to the number of reasons to visit, I think, obviously, they've got quite a lot of opportunity there. And then the second one was about margins. In 2026, what are the best margin opportunities do you see over this year? Justin Platt: Thanks for your questions. I'll take the first one on formats and then, Stephen, if you want to come to margins. In terms of choices, as you know, we were very clear to have the plank of a test and learn phase first to guide our implementation. So the primary choice is certainty of return in the sense that Two Door and Grandstand both launched earlier in the year last year than Woodie's, which allowed us to get more data on those through the year. Most of the Woodie's launches came sort of the summer onwards. So whilst all are performing well, we've just got longer data on the other 2. The other attraction, of course, with Grandstand is you absolutely want a bigger footprint of those pubs in the market in a year with the World Cup, which we've certainly got an eye on. But really, it's about certainty of returns, Doug. Stephen Hopson: And Doug, on your question on margins, I mean, yes, look, we've made really good progress in 2025. I think we do expect EBITDA margins to increase in 2026, but not to the same extent as 140 basis points we did in 2025. I mean I think the best opportunities for me, so there's a bit of flow-through stuff. So we made really good progress on labor. And Some of those things didn't come through until the second half last year. And so I think some of them will help H1 2026. And also, that is a continuing journey for us. So matching right people, right place, matching demand with supply of labor is something that we're going to be relentlessly focused on going forward. That may come through in terms of reduced cost. It may come through in terms of better customer service and therefore, improved sales, but I think there will be some upside from that. And then I think on gross margins, I mean, we've got pretty good visibility of both food and drink cost prices moving into next year. We're lock in quite a few contracts on that quite early. And I think, therefore, that gives us certainty on those lines. We'll continue the journey on things like revenue management and upselling and so on, and it should be an opportunity to move that further forward as well. Operator: The next question we have comes from Karan Puri of JPMorgan. Karan Puri: I've got 2 quick ones. One, on the 1.6% like-for-like momentum in '25. Just wondering if you could provide a split between pricing and volumes, number one. And number two, just coming back on the cash tax payment in '26. I know it's going to be higher than 2025, but in terms of magnitude, if you could share a bit more on that front would be helpful. Justin Platt: So I'll start with the like-for-likes. As we said in the release, food, drink and machines were all in growth, and that's a mix across them. As you'd expect in that, revenue management has played an important part for us and will continue to do so, particularly actually the premiumization as consumers are upgrading to more premium beers and also adding and upgrading on the menu. And then the second one, Stephen? Stephen Hopson: Yes, the cash tax. So yes, you're right. We flagged that it would increase. Last year, the cash tax payments were GBP 5.3 million. That will approximately double next year, to about GBP 10 million, Karan. So that's about the extent of it. We are still using some losses from previous trading period. So the cash tax is still relatively low, but it will be about GBP 10 million in FY '26. Karan Puri: Perfect. And then just a quick follow-up on that one. So do we -- can we expect it to be sort of normalized cash tax starting in 2027? Or will you still benefit from some loss in the previous period there as well? Stephen Hopson: Yes. 2027 will still be a little bit low. And then from 2028, it will go back to normalized levels. So it will be a step-up in 2027, but it won't be up to normalized levels, yes. And then from 2028, you should expect normalized levels of cash tax. Operator: [Operator Instructions]. The next question we have comes from Anna Barnfather of Panmure Liberum. Anna Barnfather: Just a couple of questions. Firstly, on the reformats, you've mentioned sort of acceleration sort of 50. Could you update us on your thinking of what proportion of the estate at this stage you think could benefit from a reallocation into 1 of the 5 formats? So how many of your sort of 1,300 pubs? And have you only done managed or have you done partnership ones as well? The second question, I was just thinking about the sort of peak trading. Obviously, you're doing really well in those big events, with peak trading periods up 5.8%. Are you tempted to sort of reduce opening hours on the sort of nonevent days? Or is there any sort of thinking on that as a way to cut down on overheads? And then just third question on the revenue mix. I think obviously, higher margins and gross margins, can you just give us a bit more color on perhaps some of the shifts in your sales mix? Justin Platt: Thanks, Anna. I'll take the first 2 and then Stephen, if you could take the third one. Let me start on peak trading, and then I'll come back to formats. We do look at our hours on a regular basis, but there's not a massive need to start big closure periods by any means. I mean one of the things that's most notable in pub trading today certainly versus 5 years ago is the growth of the early evening at the expense of the late evening. So if you look at booking patterns now, peak time for a table, the busiest time to get a table is 6:30 to 7:00. You go back 5 years, that was more like 8:00. So there's definitely an earlier day point to your business. And we do look at hours, but I don't think there's anything significant there in cost, particularly the local community environment where people are around the corner from their houses quite a lot. On the formats. So first of all, yes, we've actively launched formats across our managed and our partner estate, and they're performing equally well in each, neither is a differentiator actually in terms of performance, but they do work across both managed and partner. And then in terms of the numbers, as we showed earlier, 5 formats. The 2 that we didn't deep dive on were locals pubs and adult dining, signature pubs. Both of those, we have some of them in market already. I would say in terms of the opportunity, it's probably the locals pubs is the only bit that we wouldn't see as a sort of significant ROIC north of 30% opportunity, which probably takes you to 75% or so of our estate with the opportunity for those new formats. Stephen Hopson: And then, Anna, on the revenue mix, I mean, we're about 35% food in our business overall, but there is a big variation in that, as you'd expect between format and some of those local pubs versus, for example, our adult dining business, which is very, very different. And that has been growing. I mean, clearly, food across the market really has been growing quicker than drink over a period of time, but it's not huge. I mean that number has probably changed by 0.5% year-on-year. So it's not a huge mix. So hopefully, it gives you some idea about the sort of the food and drink pub. Operator: [Operator Instructions]. The next question we have comes from Fintan Ryan of Goodbody. Fintan Ryan: Two questions from me, please. Firstly, can you give us a sense of what your sort of base case expectations are for the budget tomorrow in terms of, I guess, labor costs, anything that you might be expecting or hoping for business rates. Just to sort of get a sense of what the base case is for the outlook currently and maybe what can change within the next 24-odd hours. And then secondly, could you give some color on like like-for-like trading in Q4 and over the last 8 weeks, obviously, you reported flat like-for-likes. How much -- what's been sort of the volume versus pricing split in that? Can you give some color on the visibility for the Christmas trading? Obviously, you've got bookings up 11% year-on-year, but like typically how much of bookings are -- of your Christmas trading are bookings? And what you'd be at this point, assuming for incremental pricing for FY -- for the calendar '26, would be great. Stephen Hopson: Thanks, Fintan. If I start on, I guess, the hot topic of the day and tomorrow, which is the budget and expectations for that. I mean, our base expectations and sort of what's embedded into the guidance that we've given to the market is that we expect National Living Wage to increase, obviously. Our expectations are about a 4% increase in the headline rate of National Living Wage, and we're expecting the differential for under 21-year-olds to close slightly compared to where it is at the moment. We're not expecting any further changes to things like National Insurance. And then really, I know there have been lots of stories in the press, but at the moment, we're not making any expectations on changes for things like machine, gaming duty or business rates either. I mean the Chancellor has flagged that there'll be a review of the way business rates is levied. So that will be interesting to see. But we're not making any assumption on that because simply, we just don't have the information available to us at this point. Justin Platt: And before I answer the like-for-like, Fintan, if you've got any assumptions on the budget tomorrow, please share them with the group. In terms of the like-for-likes, look, as you know, quarter 1 is all about Christmas. October and November are relatively small months in the grand scheme of things. December performance is really what matters. And within that, it's the key 2 weeks from kind of 19th of December until 2nd of January, quite time, tight time. And bookings pace, as we've said, is very good at 11%, and that's off the back of last year. I think we grew Christmas at about 11% last year in like-for-like terms. So it's pleasing the stage we're at. But to your point, walk-ins are also important at Christmas. So we've still got a lot of work to do in order to land that. And that's both in encouraging people to spend their Christmas with us but also then in managing spend per guest, so we drive the revenue return as well. Fintan Ryan: Great. And just in terms of the pricing and current expectations? Justin Platt: Well, again, we -- as you know, we don't -- we kind of manage price through the year in a broader revenue basis. So in terms of our revenue management initiatives around booking density, around premiumization. And yes, lead price is part of that mix, but we don't have like a hard and fast target. It's overall spend per that we look at. Operator: Ladies and gentlemen, at this stage, there are no further questions. I would now like to hand back to the management team for closing comments. Justin Platt: Well, just to say, thanks, everybody, for joining us. Really good engagement. Obviously, we'll all see what comes tomorrow. And I'll wish you an early best wishes for the festive season. Thank you. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines. Justin Platt: Good morning, everybody. Thank you for joining us today. Welcome to the Marston's preliminary results for financial year '25. My name is Justin Platt, CEO. And with me, I have Stephen Hopson, our new Chief Financial Officer. We'll take you through our results today, and we'll do that with the following running order. I'll start with the headlines. Stephen will then share the financial results, and I'll then give some insight into the strategic progress we've been making through the year before wrapping up and taking any questions you might have. So the headlines. 2025 has been a very strong year for Marston's. It's been a year when we've been very focused on delivery, delivery of the strategy we outlined a year or so ago at the Capital Markets Day. And the results bear out that the strategy is working and driving real progress for us as a business, with profit before tax of GBP 72 million, that's year-on-year growth of 71%, and that's on top of the 65% growth we delivered a year ago. And that profit delivery has helped us drive cash flow. So cash flow at GBP 53 million. That's ahead of our GBP 50 million target, and it's also earlier than planned. Alongside that, it's really pleasing we've made great progress with our new pub formats, 31 launches this year. They're performing very strongly for us and driving big revenue uplifts. It's very clear now that these formats can be a significant growth engine for us in the future. And we've been doing all of that while giving our guests a great time. So record satisfaction scores with a reputation score at 816. So overall, a really good set of results, and it's a set of results that leave us feeling very positive in our outlook going forward. So that's the summary. I'll now hand over to Stephen, and he'll take you through the financials. Stephen Hopson: Thanks, Justin, and good morning, everyone. As Justin said, this is my first set of full year results at Marston's, and I joined the business at what is clearly an exciting time for Marston's. As these numbers show, we're making great progress and delivering against our goals with lots more to come. On my first slide, I'd like to begin by looking at some of the key group financial metrics. Total revenue was GBP 898 million, which showed growth of 1.6% on a like-for-like basis. EBITDA was up 7% to GBP 205 million, with the margin expanding by 140 basis points to 22.8%. That's been driven by good operational discipline, particularly on labor and controlling input costs alongside the revenue growth. As a result of the EBITDA growth and lower finance costs, PBT stepped on significantly. Underlying profit before tax was GBP 72 million, nearly 3x where we were just 2 years ago. And importantly, this has translated into stronger cash generation. Recurring free cash flow was GBP 53 million, which is up 22% year-on-year and ahead of our GBP 50 million recurring free cash flow target. Finally, we've made real progress on the balance sheet. Net debt has reduced from 5.2x to 4.6x EBITDA as we continue to delever. So overall, excellent progress on both profit and cash. Turning now to look at our income statement in a bit more detail on the next slide. As I mentioned, FY '25 marked another year of substantial profit growth for Marston's with PBT up 71%. Reported revenue was flat, although this masks the impact of the FY 2024 disposal program, which I'll show on the next slide. I've already mentioned that EBITDA was up 6.5%, and that GBP 12.6 million of EBITDA improvement basically flowed through to operating profit, which was up 8.6% to GBP 159.9 million. Net finance costs were significantly lower year-on-year as a result of ongoing delevering and last year's CMBC disposal, leading to that very significant jump upwards in PBT. And whilst our effective tax rate increased, this simply reflects a return to the U.K.'s headline rate of corporation tax after a period of a lower rate. Together, this income statement shows a stronger and more profitable business with improved earnings quality and stronger margins. Turning to revenue performance. As I've already touched on, revenue for 2025 was GBP 898 million and was broadly flat year-on-year, but I would like to pick out 2 points on this chart. First, that the revenue includes a negative movement of about GBP 40 million in relation to the disposal of pubs over FY 2024 and 2025. To put the disposals into context, about GBP 50 million of assets were sold as part of the disposal program. So it's important to consider that impact when assessing year-on-year revenue progression. And the second point is that our like-for-like performance continues to be ahead of the market, which grew by 0.7% in the year, with positive contributions across all key categories of drink, food and machines. Turning now to look at margin. A key target for the group outlined at the CMD was to grow our underlying EBITDA margin by 200 to 300 basis points from FY '24 levels, giving a target range of 23.4% to 24.4%. And I'm pleased to say that this year, we've delivered 140 basis points of margin expansion, achieving total EBITDA margin of 22.8% in the year. Labor productivity gains were the single biggest contributor, supported by the rollout of improved scheduling tools, which Justin will cover in a bit more detail later on. The labor productivity benefits in the year were enough to fully offset the increases in the National Living Wage and National Insurance contributions, which came in from April 2025. We also saw benefits from improved food and drink margins, energy savings and other operational efficiencies. These gains were partially offset by inflationary pressures, including those employment cost increases that I mentioned and some investment in key areas, including more marketing. But overall, we've made real progress embedding cost discipline and delivering margin expansion across the business, and we feel that our EBITDA margins really do benchmark very well across the whole pub sector. We view ourselves as a high-margin local pub company, and we see further opportunity to increase the EBITDA margin in FY '26 as we move towards our CMD target. Turning now to look at capital expenditure. Total CapEx for the year was GBP 61.2 million, which is equivalent to 6.8% of revenue, and we're now approaching the 7% to 8% of revenue range that we talked about in the CMD. This is an increase from GBP 46.2 million last year, with the main driver being our pub format conversions, which I'll come back to shortly. Of this total, GBP 53.2 million was in maintenance and other CapEx deployed across our 1,300 strong pub estate. This includes works such as maintenance, estate management, investment in new IT platforms and other items. But I also want to pull out a bit more granular information on our pub format conversions, which are very important to our overall growth plans and which Justin will cover in more detail. In the year, we covered 31 conversions to our differentiated formats, which are delivering strong results. Average revenue uplifts were 23% year-on-year and EBITDA returns are over 30% to date, in line with our CMD targets. At an average cost of GBP 260,000 a site, we believe these conversions represent excellent value for money. And of course, we've only completed a small number so far in comparison to our estate. So there's a lot more to go at in this space. Clearly, the driver of increasing our capital expenditure is to improve the quality of our estate. So let's turn to that now. On this slide, we show that we ended the year with 1,328 pubs following the continuation of our estate optimization strategy. This included a small number of disposals in the T&L estate as well as conversion of some pubs to the partner model. As a result, the managed and partnership estate consisted of 1,182 pubs and the T&L estate had 146 sites at the year-end. EBITDA per pub increased to GBP 154,000, which, as you can see, is a 28% improvement over the last 2 years. This uplift reflects both operational improvements and tighter estate management with gains in both, our managed and partnership estate and the remaining T&L pubs. The result is a higher-quality, better-performing pub estate that's delivering stronger returns at a site level. I think this is a really important slide as it shows how the improvements being made to the business model are feeding through at pub level. Turning now to our cash performance in the year, which was another highlight. The takeout from this slide is that we delivered and, in fact, exceeded our CMD target of GBP 50 million of recurring free cash flow ahead of schedule, with GBP 53.2 million delivered in the period. And how was that delivered? Well, cash from ops increased year-on-year by GBP 5.6 million, which included the improvements in EBITDA I described earlier. Within that number, we also had a GBP 6 million saving from lower contributions to our DB pension scheme. And offsetting that, we had a small working capital gain, but it wasn't as large as last year's gain. Finally, we started making cash tax payments again of GBP 5.3 million as our profits improved. And as a smaller side, investors and analysts should note that in FY '26, we expect to move into the very large company corporation tax regime, which will accelerate our cash tax payments this year. And then in the second line on the chart, we had a GBP 15 million saving on interest, offset by GBP 15 million more CapEx year-on-year, as I just described, together with lower banking fees. So recurring cash was strong and now over GBP 50 million, which we expect to be able to exceed again this year. I also wanted to draw out on this slide that this strong free cash flow is fully absorbed by scheduled debt repayments, GBP 43.8 million of securitized debt repayments and GBP 8.6 million of lease liabilities. Clearly, this does mean that the group is delevering, as I'll show on the next slide, but also that our cash generation is currently fully utilized. And then just to complete the chart, after other movements in borrowing and disposals, there was a cash outflow of GBP 9.6 million in the year. And I'm now going to return to that progress about delevering in the group. This slide shows the different elements of the group's financing structures and the overall movement in net debt year-on-year. So starting at the bottom, net debt, excluding lease liabilities, reduced by GBP 46.2 million, to GBP 837.5 million. This takes our net debt-to-EBITDA multiple, excluding leases, down to 4.6x from 5.2x last year. That continues the recent downward trend and reflects the group's stronger cash generation and disciplined approach to capital investment. And then to briefly cover what makes up our financing structures, the largest element shown at the top is the securitization, which provides long-term predictable financing for the group. It does also impose some restrictions, both in terms of the assets that are tied up in the securitization structure and in our ability to move assets and cash around the group. However, these restrictions are manageable at present. Swaps are in place to fix the interest that we pay on the securitized debt. Other lease-related borrowings are essentially loans that were raised against other properties in the group outside the securitization. They were legally structured as sale and leasebacks, but where we have the option to buy back the properties at the end of the period for a nominal fee. Therefore, we treat these properties as effective freehold. And as noted in the slide, we're currently paying interest only on those borrowings. And I've put a new slide in the appendices showing investors how those structures will work over coming years. Our GBP 200 million bank facility was renewed in the year and now extends to July 2027 with relatively low drawings at the year-end, and cash balances ended the year at GBP 35.9 million. So in summary, we're continuing to delever at pace while preserving the secure long-term funding arrangements in the group. If I then broaden this to look at the group's whole balance sheet rather than just the net debt elements, this slide shows the evolution of our balance sheet and our net asset value per share, which increased to GBP 1.25 this year. And actually, the movements year-on-year are pretty straightforward. Our balance sheet is underpinned by GBP 2.2 billion of property assets, of which 81% of the estate by number of pubs are effective freeholds. The net book value of those assets increased by over GBP 100 million in the year, reflecting our annual estate reval and also our ongoing investment into the business. Net debt, as I've just described, reduced GBP 837.5 million, excluding lease liabilities, and lease liabilities were GBP 5.5 million lower. So total net debt was GBP 51.7 million lower year-on-year. Other liabilities increased by GBP 28.4 million, almost entirely due to an increase of GBP 28.5 million in deferred tax liabilities relating to the upward property revaluation. So overall, the property reval with its associated tax movements as well as the net cash generation of the group drove GBP 136 million increase in net assets, which was a 21% increase year-on-year, to GBP 791 million, which equates to GBP 1.25 per share. Given the progress made on the balance sheet, I want to finish by looking at our capital allocation framework. And if I start by saying that this is not a change to our capital allocation policy, which remains consistent with what we laid out at the CMD, we remain focused on delivering sustainable shareholder value through a disciplined balance of investment in the business, delevering and ultimately, shareholder returns. That said, there are a couple of updates we wanted to share this morning. On the right-hand side of the chart, you'll see our continued progress on leverage, which, as I mentioned, has reduced substantially. We are pleased with that progress, but would like to see leverage continue to decrease. And today, we're committing to reduce leverage to below 4x on a pre-IFRS 16 basis. When we get to that level, we anticipate the start of capital returns to shareholders through dividends, share buybacks or a combination of both. What that looks like will depend on circumstances at the time, including the share price and investor preferences. To be clear, we also expect to see the group continue to delever below 4x even after the recommencement of shareholder returns. We believe this disciplined approach continues to be the right strategy to create and sustain long-term value. So to conclude, we've delivered a strong financial performance this year with clear progress on margin, profit and cash flow, and we expect further progress this year. And before I hand back to Justin, I'll briefly touch on 5 forward-looking points. First, we remain confident in the trading outlook for FY '26 with like-for-like sales currently tracking in line with last year and Christmas bookings up 11%. Second, we expect further progress towards our margin target of 200 to 300 basis points of growth versus 2024 following the 140 basis point gain this year. Our format growth engine will be accelerated this year with at least a further 50 refurbishments and our CapEx is expected to be within the target range of 7% to 8% of total revenue. And after achieving our CMD target ahead of schedule this year, we expect to deliver another year of GBP 50 million in recurring free cash flow in FY '26. And lastly, we've significantly reduced our debt profile over the past couple of years and expect to continue to do so with leverage now at 4.6x and progressing well towards our sub-4x target. So overall, we're delivering against our targets, and we remain firmly on track to drive further financial and strategic progress in the year ahead. Thanks very much, and I'll now hand back to Justin. Justin Platt: Thank you, Stephen. So I'll now take you through the progress we've been making as we've implemented our strategy through the year. You will remember from the Capital Markets Day, we're very focused on being a high-margin highly cash-generative local pub company. And we'll do that with a portfolio of brands that appeal across a range of consumer segments. 5 key value drivers that get us there: executing a market-leading operating model; using CapEx to deliver differentiated formats; unlocking value with digital transformation; expanding our excellent managed and partnership management models; and in time, supporting that with targeted acquisitions. So I'll now deep dive on each of those value drivers to give you a flavor of some of the work that we've been doing. The first one I will spend some time on is the operating model. Really, this is the bread and butter of running a great pub business. It's the balance of revenue growth, cost efficiency and guest satisfaction. So first of all, I'll talk to revenue. Really good momentum this year. We've continued to do well, especially in our peak trading periods. Across our peak trading periods, we're up almost 6% on the year. And that's enabled us to grow our like-for-likes ahead of the market at 1.6%. And a lot of what's behind that is our event plan. Our event plan has been a key thing for us this year. In 2025, Marston's Pubs have been home to a darts tournament led by Luke Humphries, the world #1. Paddington and his new movie joined us from Peru. We had a national Trivial Pursuit quiz event. And through the summer, when Oasis Mania was sweeping the U.K., we had a series of '90s throwback events with tribute [ bans/bands ] and the like in our pub life. So all of these are designed to give people reasons to visit our pubs, a range of guest demographics. I think that's essential at any time of year, but especially so in the summer when, of course, this year, we had no big football tournament. So events are big success for us and an important driver in supporting our revenue growth. So secondly, on costs. As Stephen has shown you, we've made excellent progress during '25 on our journey to being a high-margin business in adding 140 basis points to our margin despite significant and well-known headwinds. And we've done this with a relentless drive for efficiency across all areas of our cost base. The biggest area of our cost base is labor, where we've saved almost GBP 10 million, a little bit more than 1 percentage point on our margin. And this has been about continually getting smarter with the way we use our technology to enhance and optimize our labor teams and our labor schedules, all about getting the right people in the right place at the right time. I think probably the best way to bring to life for you the work we've done on labor is to pick a case study of one of our pubs. The lady pictured on the right is Kati. She's one of our fantastic general managers. She runs the King Charles pub in Chesham, a lot of work with our labor planning this year. They've actually reduced their labor costs through the year by 8%. And despite doing that, they've grown their revenue by 19% and also grown their guest satisfaction well ahead of our company average. So a good example in the way labor is playing out for us in one of our pubs, but it also represents our approach across the company. So secondly, in terms of food and drink, our formats allow us to simplify the ranges we offer because we're a lot clearer about the demographic by format. And so that allows you to be clear which food offer and which drink offer you need by pub. So that's allowed us to simplify our range. That's helped us with efficiencies. But alongside that, we've also renegotiated our key food and drink contracts to drive efficiencies where we can. So that's labor and food and drink. Finally, energy and states. Every pound counts on energy. We've been that way for a number of years now, whether it be the usage that we manage, but also the contracts, there's a relentless focus on attempting to drive efficiencies there. But as Stephen said, we take a very judicious approach to estates more broadly with our CapEx, looking at our maintenance cycles, spending strictly in maintenance cycles, and that helps us on efficiencies with our repairs budget. So overall, really good progress on the cost side of things. And then finally, on the operating model, guest satisfaction. I mean this is all about ensuring that when our guests come and see us, they have a great time. And it's very pleasing in the context of the efficiency gains I've just talked to that we're still delivering better and better experiences through our guests. So from a score of 766 in '23 to 800 last year, 816 this year is a very pleasing performance. And this really is a combination of many of the initiatives coming together, whether it be our events program, and the visual there is of our October Fest event that we run during September, whether it be through digital ordering or some of the menu enhancements we've made. All of these things together add up to make a difference to the guest experience. It's worth saying, though, that the #1 factor that dominates, that really drives a great guest experience is, really strong guest service. That requires almost an obsession, a relentless obsession with getting that right day in, day out. And the work on that is never done. Our teams are very focused on delivering that experience all the way through the year. And as I say, it's pleasing that this year, we've been able to continually improve on that. So that's the operating model. When you take revenue, cost, satisfaction together, it's good that we've made strong progress across the piece. And this has been complemented with the work we've done on the digital transformation value driver. I think a key example of this would be the new order and pay app that we launched in March. Really well received. It's paying dividends with our guests in terms of both revenue and reputation, and it's complementing the personal service for those guests who want it. So we've got a 10% revenue uplift when using the app. And those pubs with a higher mix of order and pay usage do significantly better on reputation. What's also good about the app is it can work hand-in-hand with our events. So the Trivial Pursuit: Win a Wedge event drove a big uptake in the use of the app. So good progress overall on this area, digital, but a lot more opportunity here in the future as digital transformation can help us both on revenue and on cost. The third value driver I want to focus on is our new pub formats. So against 5 core consumer target segments across the market, we've designed 5 pub formats that are specifically designed to meet the needs of those target audiences. And through a series of test and learn launches in '25, we've been assessing the potential of these pubs to drive appeal and importantly, drive powerful CapEx returns. Now in May, I did a deep dive on the Two-Door format. So I thought this time around, we'd share some more information on the Grandstand brand. Grandstand is a local sports pub. So it targets adults who want an entertainment experience when they go to their local pub. I mean this is an absolute sports lover's dream. It's similar to a city center sports bar environment, but in the local community pub. Number of constituent parts to it. At its heart, state-of-the-art technology ensures that we've got 3-meter stadium screens, amazing sound systems. Alongside that, there's great match-day food suited to watching the big game. And these pubs will always be run by sports enthusiast general managers who know what their guests want and can work with them to give them a great experience. It's an absolute must visit for the big game, the atmosphere that we create. But more than that, because it's a local pub and it's a great environment, it's a place that you would want to go to on any night of the week, and we support that with a program of sports events through the week to give people reasons to come every night. So Grandstand has done really well this year. The guest reaction and the returns that we've had have been very, very impressive, and it's been a key part of our test and learn year. And test and learn overall this year has exceeded our expectations. We've done 31 launches through the year. So we did 21 Two Doors, 5 Grandstand and 5 Woodie's. Woodie's is our new family pub. All have done well. Guests love them. They've driven strong uplifts in revenue of 23% and all of that off relatively modest levels of CapEx. We've been driving ROIC of more than 30% of only GBP 260,000 per pub. So the test and learn phase really has proven the potential of this stream for us, real growth opportunity as we roll out across the estate. And all of our pubs have been mapped to the format opportunity they can play to over time. So over time, this really does give us an opportunity as a significant driver of growth. So great progress across our value drivers in '25, and this leaves us feeling very positive as we look towards 2026. Through this year, we'll have a big program of exciting events, all designed to encourage guests to come and visit us, not least with a big football tournament on the horizon that everybody will be very much focused on in the summer. And we'll complement that with our revenue management and order and pay disciplines to drive spend per guest. But alongside the demand drive, as I've just said, our new formats will play an increasingly important role in driving growth through the year. Given our success in '25, we're now accelerating the rollout plan. We'll have 50 or so launches focused on Two Door and Grandstand, and all of these will make a meaningful difference to both revenue and EBITDA performance through the year. So to summarize, another year of strong delivery in '25, significant growth in both profit and cash flow. We're very excited by the growth potential of our new formats, and we see a very promising outlook for the year ahead as we continue to deliver as a reliable growth company. And with that, we can now take some time for questions. Operator: [Operator Instructions]. The first question we have comes from Douglas Jack of Peel Hunt. Harold Jack: So I've got 2 questions, if that's okay. In terms of the new formats in 2026, is the choice of Grandstand and Two Door largely because they're the ones that have the greatest uplift potentially, adding to the number of reasons to visit, I think, obviously, they've got quite a lot of opportunity there. And then the second one was about margins. In 2026, what are the best margin opportunities do you see over this year? Justin Platt: Thanks for your questions. I'll take the first one on formats and then, Stephen, if you want to come to margins. In terms of choices, as you know, we were very clear to have the plank of a test and learn phase first to guide our implementation. So the primary choice is certainty of return in the sense that Two Door and Grandstand both launched earlier in the year last year than Woodie's, which allowed us to get more data on those through the year. Most of the Woodie's launches came sort of the summer onwards. So whilst all are performing well, we've just got longer data on the other 2. The other attraction, of course, with Grandstand is you absolutely want a bigger footprint of those pubs in the market in a year with the World Cup, which we've certainly got an eye on. But really, it's about certainty of returns, Doug. Stephen Hopson: And Doug, on your question on margins, I mean, yes, look, we've made really good progress in 2025. I think we do expect EBITDA margins to increase in 2026, but not to the same extent as 140 basis points we did in 2025. I mean I think the best opportunities for me, so there's a bit of flow-through stuff. So we made really good progress on labor. And Some of those things didn't come through until the second half last year. And so I think some of them will help H1 2026. And also, that is a continuing journey for us. So matching right people, right place, matching demand with supply of labor is something that we're going to be relentlessly focused on going forward. That may come through in terms of reduced cost. It may come through in terms of better customer service and therefore, improved sales, but I think there will be some upside from that. And then I think on gross margins, I mean, we've got pretty good visibility of both food and drink cost prices moving into next year. We're lock in quite a few contracts on that quite early. And I think, therefore, that gives us certainty on those lines. We'll continue the journey on things like revenue management and upselling and so on, and it should be an opportunity to move that further forward as well. Operator: The next question we have comes from Karan Puri of JPMorgan. Karan Puri: I've got 2 quick ones. One, on the 1.6% like-for-like momentum in '25. Just wondering if you could provide a split between pricing and volumes, number one. And number two, just coming back on the cash tax payment in '26. I know it's going to be higher than 2025, but in terms of magnitude, if you could share a bit more on that front would be helpful. Justin Platt: So I'll start with the like-for-likes. As we said in the release, food, drink and machines were all in growth, and that's a mix across them. As you'd expect in that, revenue management has played an important part for us and will continue to do so, particularly actually the premiumization as consumers are upgrading to more premium beers and also adding and upgrading on the menu. And then the second one, Stephen? Stephen Hopson: Yes, the cash tax. So yes, you're right. We flagged that it would increase. Last year, the cash tax payments were GBP 5.3 million. That will approximately double next year, to about GBP 10 million, Karan. So that's about the extent of it. We are still using some losses from previous trading period. So the cash tax is still relatively low, but it will be about GBP 10 million in FY '26. Karan Puri: Perfect. And then just a quick follow-up on that one. So do we -- can we expect it to be sort of normalized cash tax starting in 2027? Or will you still benefit from some loss in the previous period there as well? Stephen Hopson: Yes. 2027 will still be a little bit low. And then from 2028, it will go back to normalized levels. So it will be a step-up in 2027, but it won't be up to normalized levels, yes. And then from 2028, you should expect normalized levels of cash tax. Operator: [Operator Instructions]. The next question we have comes from Anna Barnfather of Panmure Librium. Anna Barnfather: Just a couple of questions. Firstly, on the reformats, you've mentioned sort of acceleration sort of 50. Could you update us on your thinking of what proportion of the estate at this stage you think could benefit from a reallocation into 1 of the 5 formats? So how many of your sort of 1,300 pubs? And have you only done managed or have you done partnership ones as well? The second question, I was just thinking about the sort of peak trading. Obviously, you're doing really well in those big events, with peak trading periods up 5.8%. Are you tempted to sort of reduce opening hours on the sort of nonevent days? Or is there any sort of thinking on that as a way to cut down on overheads? And then just third question on the revenue mix. I think obviously, higher margins and gross margins, can you just give us a bit more color on perhaps some of the shifts in your sales mix? Justin Platt: Thanks, Anna. I'll take the first 2 and then Stephen, if you could take the third one. Let me start on peak trading, and then I'll come back to formats. We do look at our hours on a regular basis, but there's not a massive need to start big closure periods by any means. I mean one of the things that's most notable in pub trading today certainly versus 5 years ago is the growth of the early evening at the expense of the late evening. So if you look at booking patterns now, peak time for a table, the busiest time to get a table is 6:30 to 7:00. You go back 5 years, that was more like 8:00. So there's definitely an earlier day point to your business. And we do look at hours, but I don't think there's anything significant there in cost, particularly the local community environment where people are around the corner from their houses quite a lot. On the formats. So first of all, yes, we've actively launched formats across our managed and our partner estate, and they're performing equally well in each, neither is a differentiator actually in terms of performance, but they do work across both managed and partner. And then in terms of the numbers, as we showed earlier, 5 formats. The 2 that we didn't deep dive on were locals pubs and adult dining, signature pubs. Both of those, we have some of them in market already. I would say in terms of the opportunity, it's probably the locals pubs is the only bit that we wouldn't see as a sort of significant ROIC north of 30% opportunity, which probably takes you to 75% or so of our estate with the opportunity for those new formats. Stephen Hopson: And then, Anna, on the revenue mix, I mean, we're about 35% food in our business overall, but there is a big variation in that, as you'd expect between format and some of those local pubs versus, for example, our adult dining business, which is very, very different. And that has been growing. I mean, clearly, food across the market really has been growing quicker than drink over a period of time, but it's not huge. I mean that number has probably changed by 0.5% year-on-year. So it's not a huge mix. So hopefully, it gives you some idea about the sort of the food and drink [ pub/part ]. Operator: [Operator Instructions]. The next question we have comes from Fintan Ryan of Goodbody. Fintan Ryan: Two questions from me, please. Firstly, can you give us a sense of what your sort of base case expectations are for the budget tomorrow in terms of, I guess, labor costs, anything that you might be expecting or hoping for business rates. Just to sort of get a sense of what the base case is for the outlook currently and maybe what can change within the next 24-odd hours. And then secondly, could you give some color on like like-for-like trading in Q4 and over the last 8 weeks, obviously, you reported flat like-for-likes. How much -- what's been sort of the volume versus pricing split in that? Can you give some color on the visibility for the Christmas trading? Obviously, you've got bookings up 11% year-on-year, but like typically how much of bookings are -- of your Christmas trading are bookings? And what you'd be at this point, assuming for incremental pricing for FY -- for the calendar '26, would be great. Stephen Hopson: Thanks, Fintan. If I start on, I guess, the hot topic of the day and tomorrow, which is the budget and expectations for that. I mean, our base expectations and sort of what's embedded into the guidance that we've given to the market is that we expect National Living Wage to increase, obviously. Our expectations are about a 4% increase in the headline rate of National Living Wage, and we're expecting the differential for under 21-year-olds to close slightly compared to where it is at the moment. We're not expecting any further changes to things like National Insurance. And then really, I know there have been lots of stories in the press, but at the moment, we're not making any expectations on changes for things like machine, gaming duty or business rates either. I mean the Chancellor has flagged that there'll be a review of the way business rates is levied. So that will be interesting to see. But we're not making any assumption on that because simply, we just don't have the information available to us at this point. Justin Platt: And before I answer the like-for-like, Fintan, if you've got any assumptions on the budget tomorrow, please share them with the group. In terms of the like-for-likes, look, as you know, quarter 1 is all about Christmas. October and November are relatively small months in the grand scheme of things. December performance is really what matters. And within that, it's the key 2 weeks from kind of 19th of December until 2nd of January, quite time, tight time. And bookings pace, as we've said, is very good at 11%, and that's off the back of last year. I think we grew Christmas at about 11% last year in like-for-like terms. So it's pleasing the stage we're at. But to your point, walk-ins are also important at Christmas. So we've still got a lot of work to do in order to land that. And that's both in encouraging people to spend their Christmas with us but also then in managing spend per guest, so we drive the revenue return as well. Fintan Ryan: Great. And just in terms of the pricing and current expectations? Justin Platt: Well, again, we -- as you know, we don't -- we kind of manage price through the year in a broader revenue basis. So in terms of our revenue management initiatives around booking density, around premiumization. And yes, lead price is part of that mix, but we don't have like a hard and fast target. It's overall spend [ per ] that we look at. Operator: Ladies and gentlemen, at this stage, there are no further questions. I would now like to hand back to the management team for closing comments. Justin Platt: Well, just to say, thanks, everybody, for joining us. Really good engagement. Obviously, we'll all see what comes tomorrow. And I'll wish you an early best wishes for the festive season. Thank you. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Welcome, everyone, to Accsys Technologies plc Interim Results Presentation for the 6 months ended September 30, 2025. Today's speakers are Dr. Jelena Arsic van Os, Chief Executive Officer of Accsys Technologies; and Sameet Vohra, the company's Chief Financial Officer. Jelena and Sam will take you through an overview of the business and financial performance for the year before we open the floor to questions. Please note that we will prioritizing questions from analysts. [Operator Instructions] With this, I would like to pass over to our speakers. Jelena Arsic Os: Good morning, everybody, and welcome to Accsys' interim results presentation for the 6 months ended September 30, 2025. I am very pleased to report that we have delivered an excellent first half with a significant improvement in profitability. Our growth across all regions is beating the underlying market trends, showing our FOCUS strategy is effective and that the company is delivering on its promises. Accoya has seen strong growth across its sales regions with a 22% increase in total sales volumes, gaining market share from competitive and alternative materials. Our premium market positioning is proving resilient against continuing macroeconomic challenges. Group revenues increased by 23% on a like-for-like basis compared to the prior year. This comparison adjusts for the transfer of North American sales from the group to Accoya USA, our joint venture with Eastman Chemicals after it commenced operations toward the end of H1 last year. Accoya USA has had an excellent H1 performance. It has shown rapid volume growth with North American sales up 61% and positive momentum throughout the period. This demonstrates the strength of our technology, the Accoya brand and our customer relationships in the sizable North American market. Joint venture reported close to breakeven EBITDA for H1. This translates to Accsys joint venture equity accounted a modest EBITDA loss of EUR 0.3 million. This marks substantial progress compared to the equity accounted losses of EUR 4.3 million last year, and we are all excited about what's to come. Accsys maintained gross margin above our target of 30%, maintaining pricing discipline. We also continue to maintain cost discipline and have retained EUR 2.3 million in benefits from the business transformation program that we began in FY '24. We increased adjusted EBITDA for the half year by 160% to EUR 10.4 million. This is just slightly lower than the EUR 10.8 million we reported for the full financial year 2025. With our EBITDA margin at 11.6%, Accsys is almost at the level of our Phase 1 FOCUS strategy target. Crucially, we have made solid progress on deleveraging the balance sheet, a key strategic priority. Net debt has decreased by EUR 2.8 million since 31st March 2025, driven by improved operating cash flow, and we have improved our leverage ratio from 2.5x to 2.1x at September 30, 2025. During the period, we achieved operating cash flow of EUR 8 million. In October 2025, outside of this reporting period, we successfully negotiated new improved terms for financing our debt with ABN AMRO and HSBC. This refinancing strengthens our capital structure and further derisks our profile, positioning us to execute our strategy with greater confidence. Our good performance is a clear signal of our continuous progress. Accsys is delivering on its commitments and is laying a solid foundation for further growth. I want to take this opportunity to sincerely thank the entire team across Accsys and Accoya USA as well as our customers and partners. Thank you for your dedication. Your efforts continue to drive our success and position us very well for the future. We are progressing our FOCUS strategy, transforming Accsys into a fundamentally strong operationally efficient, customer-centric united, safe and sustainable business. Together, these efforts are creating a strong and lasting platform for growth. Compared to the first half last year, we have significantly derisked the company, having no exposure to large unfinished CapEx projects and significantly improved financial performance. The company now operates 3 production sites, Arnhem, Barry and the Accoya USA and has secured future growth funding on improved terms with the extended maturity to October 2029. We are operationally more efficient with like-for-like gross margin improvement of 1.1% compared to the prior period, driven by efficiency measures, amongst them, improved utilization of acetic anhydride in production. In addition, we have retained EUR 2.3 million of benefits from the business transformation program. As a growth company, we nevertheless continue to invest in volume expansion. We are investing in a new acetyl storage in Arnhem and have more than doubled our Accoya Color capacity in Barry from 6,000 to 14,000 cubic meters. Accsys aligns all its initiatives, investments and growth plans around maximizing customer value. With our fantastic products, we have customer centricity at our core and we continue expanding Accoya availability, adding 3 new distribution partners in the period, and Accoya projects continue winning awards, like a recent DNA Paris Design 2025 award for Casa Angra coastal home in Brazil. Accoya is gaining market share globally despite relatively soft overall market sentiment in the building material industry. An organization is only as strong as its talent. We are strengthening our workforce across sites through ongoing investments in revenue-generating commercial head count and strengthening our site teams. Last, but certainly not least, in the first half, we invested in health and safety and environment, improving working conditions in our Stacker hall in Arnhem. We also established our sustainability strategy, staying true to our purpose and values, and reaffirmed our commitment to building a better, more sustainable future. Accsys Cares sustainability plan introduced our first decarbonization commitments and targets, enhancing the already strong sustainability credentials of our products and our business. Before I hand over to Sam to discuss our financials, I wanted to share a short video of one of our projects highlights from this period, Accoya being used for the new roof and public space at a landmark NEMO Museum building in Amsterdam. [Presentation] Sameet Vohra: A truly remarkable project. Thank you, Jelena. Over the next few slides, I'm going to talk you through the financial results for the half year in more detail. This slide summarizes the strong financial performance for the first half of the financial year. I'll go into more detail on the financial performance in the next couple of slides by highlighting some of them now. Group sales volumes were up 1% to 30,575 cubic meters compared to the prior period. However, when you exclude the 3,802 cubic meters of sales made by the group to North America in the prior period before the Accoya USA joint venture commenced operations, the group sales volumes were up by 15%, with strong demand in all regions. Total sales volumes, which includes all of the sales volumes from the JV and more clearly shows global demand for Accoya increased by 22% to 38,618 cubic meters with 8,043 cubic meters coming from the JV. Group revenue increased by 5% to EUR 76.1 million for the first half of the year. However, like-for-like revenue, which adjusts for the group North America sales made in the prior periods increased by 23% year-on-year. Aggregated revenue, which includes 60% of the revenue of the JV was up 21% to EUR 89.9 million. Gross profit was EUR 1 million higher than the prior period at EUR 23.2 million, and the gross profit margin remains above our target level of 30%. Underlying EBITDA, which excludes the results of the joint venture increased by 29% to EUR 10.7 million compared to EUR 8.3 million in the prior period with a 260 basis point increase in the underlying EBITDA margin to 14.1%. This reflects a strong sales volume and revenue growth, maintaining a gross margin above 30% and the tight cost control discipline we have over operating costs. It was really pleasing to see that the Accoya USA JV was close to EBITDA breakeven for the first half of the year compared to a loss of EUR 4.3 million in the prior period. Sales are accelerating in North America, and we expect the joint venture to be EBITDA positive for the financial year. Adjusted EBITDA on a profitability performance measure was up by 160% to EUR 10.4 million, with an impressive 620 basis points increase in the margin to 11.6%, which is just below the target that we set for the end of Phase 1 of our strategy. The EUR 10.4 million adjusted EBITDA is also slightly lower than the EUR 10.8 million that we reported for the whole of the last financial year. Net debt at 30th of September 2025 stood at EUR 39.8 million, lower than the prior period and the figure at the end of March 2025. The leverage ratio improved to 2.1x. I'll discuss the changes in revenue, profitability and net debt in more detail in the coming slides. Going into more detail on our revenue performance for the year. As I previously mentioned, group revenue increased by 5% to EUR 76.1 million in the prior period, excluding the EUR 10.3 million of revenue from sales made to North America before the joint venture starts operations, like-for-like revenue growth was 23%. The sales growth we've seen in H1 across all regions has fully replaced the North America volumes transferred to the JV. Despite the challenging macroeconomic environment, we have maintained strong pricing discipline with a 1.7% increase in average Accoya sales price for the period. As Jelena previously mentioned, we doubled capacity in our Barry Color facility during the period due to increased demand for our color product. We saw a favorable product mix effect for this with the Accoya Color now making up a high proportion of group sales volumes through the prior period. Accoya Color also undertakes tolling for the JV and sales in the period increased by EUR 2.8 million from this. License fee and royalty income from the JV was EUR 1.6 million higher than the prior period as the group receives a royalty based on sales made by the JV. The final license fee payment was also received during the period, following successful completion of the performance test of the Kingsport plant, thereby granting exclusivity for the North American market to the joint venture. Other represents Tricoya panel sales and sales of acetic acid which are broadly in line with the prior period. Aggregated revenue, which includes 60% of the joint venture's revenue, increased by 21% to EUR 89.9 million. On a constant currency basis, aggregated revenue grew by 23%, given the weakness of U.S. dollar against the euro. On the face of it, the gross margin decreased by 20 basis points to 30.5% for the period. However, the prior period includes sales that were made to North America prior to the joint venture commencing operations. These sales amounted to 3,802 cubic meters, which represented 13% of group sales volume in the prior period. They contributed EUR 4 million of gross margin in the prior period and EUR 2.9 million of EBITDA as the average sales price in North America is higher than all other regions. Therefore, a more representative way to look at gross margin progression in the first half of this financial year is to exclude the EUR 4 million from the comparator, resulting in the like-for-like gross margin improving by EUR 5 million to EUR 23.2 million and 110 basis points to 30.5%. This EUR 4 million gross margin reduction has been offset by sales volume growth, favorable sales mix and higher average sales price from other regions, together with the receipt of royalties and license fees from the joint venture. Our main production costs related to raw material spend on raw wood and net acetyls. Raw wood costs are in line with the prior period as higher appearance grade raw wood costs have been offset by lower wood chip grade costs. We saw an improvement in gross margin arising on net acetyls from improved utilization of acetic anhydride in the production process, change in the supply mix and favorable FX as the U.S. dollar weakened against the euro. The increase in other costs reflects the investment in talent and headcount in operations to support sales growth, the effect of the annual salary increase and higher inventory handling costs. The gross margin at 30.5% continues to remain above our strategic level of 30%. This slide shows the adjusted EBITDA progression during the year, reflecting the strong financial performance. From an overall perspective, we saw a 160% increase in adjusted EBITDA from EUR 4 million to EUR 10.4 million and a 620 basis point increase in the adjusted EBITDA margin to 11.6%. This is already very close to the 12% target that we set for the end of Phase 1 of our FOCUS strategy, and it's very encouraging to see. The gross margin benefit to EBITDA amounted to EUR 1 million or EUR 5 million on a like-for-like basis, and we tightly controlled operating costs, which only increased by EUR 0.2 million compared to the prior period. EUR 2.3 million of the benefits from the business transformation program in FY '24 have been retained even after the investments we've made in sales and marketing and operational headcount and strengthening local management teams in key areas. There are no further costs associated with Hull after the business was placed into liquidation in December 2024. The joint venture is close to EBITDA breakeven for the period with our 60% share of the EBITDA loss amounting to only EUR 0.3 million as the Kingsport plant ramps up with accelerating North American sales growth. This is an improvement of EUR 4 million compared to the EUR 4.3 million loss recorded in the prior period. From a segmental perspective, EBITDA from our Accoya segment increased from EUR 10.7 million to EUR 12.7 million with healthy margin of 16.7%, up from 14.8% in the prior period. This growth is primarily due to the strong sales growth, the improvement in gross margin and tight cost control discipline on operating costs. Corporate costs amounted to EUR 2 million and were EUR 0.4 million lower than the prior period. Therefore, underlying EBITDA, excluding the joint venture increased by 28% from EUR 8.3 million to EUR 10.7 million. The margin improved by 260 basis points to 14.1%, reflecting the strong underlying profitability of the group. As I mentioned before, adjusted EBITDA increased by 160% from EUR 4 million to EUR 10.4 million. This slide shows the evolution of net debt during the year. Net debt at the end of September 2025 stood at EUR 39.8 million, a decrease of EUR 2.8 million compared to the start of the financial year. Debt reduction and deleveraging the balance sheet remains a key priority for us, and net leverage reduced from 2.5x to 2.1x at the end of September 2025. We experienced an increase in net working capital of EUR 4.2 million in the period, which is primarily related to higher inventory levels. This increase in inventory was planned to ensure product availability to support strong demand and customer service as well as building up inventory ahead of the annual maintenance stock, which took place in Arnhem in October. Accordingly, operating cash flow conversion was 75%, in line with our Phase 1 target. Tight working capital management remains a key area of focus for us. CapEx is EUR 2.9 million during the period, and this included expansionary growth CapEx on increasing our acetyl storage and making health safety and environmental improvements in the Stacker hall in Arnhem. Interest paid and accrued amounted to EUR 2.3 million, of which EUR 1.1 million related to accrued interest on the convertible loan notes. Tax received was EUR 0.7 million in respect to previous tax years. We recently completed the refinancing of our debt facility with a new EUR 55 million facility with ABN AMRO and HSBC on improved financial terms. The refinancing strengthens our capital structure, enhance its financial flexibility and further derisks our profile, positioning us to execute our FOCUS strategy and growth plans with greater confidence and resilience. The refinancing demonstrates continued strong support from ABN AMRO, and we are delighted to partner with HSBC, a bank of significant strength and reputation. So in summary, we've had an excellent first half of the year with a significant improvement in profitability. We saw strong total sales volume growth of 22%, with accelerating sales in North America, which increased by 61%. The joint venture was close to breakeven EBITDA in H1. Adjusted EBITDA was EUR 10.4 million, with a 11.6% margin, close to our Phase 1 target of 12%. We have continued to focus on deleveraging the balance sheet with net leverage decreasing to 2.1x and the recently completed refinancing strengthens our capital structure and enhances financial flexibility on improved terms. I'd like to now hand you back to Jelena, who will take you through the business review. Jelena Arsic Os: Thank you, Sam. In January 2025, we set out our FOCUS strategy, which will be delivered in 3 phases. The first phase to FY '27 focuses on resetting operationally, maximizing returns and cash flow from our existing operations and reinforcing the fundamentals, including reducing the debt and optimizing our capital structure. Our half year results demonstrate good progress against our Phase 1 targets. Our strong sales growth put us on a good trajectory to meet run rate target of 100,000 cubic meters by the end of FY '27. We have also significantly improved profitability moving from 5.4% in adjusted EBITDA margin from last year to 11.6%. We are very close to our adjusted EBITDA margin target of 12%. We are also in line with our operating cash flow conversion at 75%. Importantly, we are deleveraging and derisking the business, placing the company in a stronger position for growth. Our successful October refinancing gives us more favorable payment terms with a reduction in quarterly repayments going forward. Global demand for our products has been strong. We had outstanding growth in the U.S., which I will provide more details on in the coming slides. We saw very good growth in our key European markets despite continued macroeconomic uncertainty. The European market landscape reflects a mix of cautious recovery signals and ongoing challenges across key regions, shaped by economic pressures, regulatory changes, and involving demand in the construction and timber industries. Europe grew 22% in the reporting period. We saw growth in Germany, driven primarily by strong demand in the outdoor living market, high energy costs and slowing housing permits weigh on German outlook, but commercial and renovation segments remain more resilient. European growth was also supported by a good performance in Benelux where we had positive momentum in Belgium after onboarding a recent distributor. Government initiatives for energy-efficient building materials continues to favor sustainable timber products. We achieved 14% growth in the U.K. and Ireland, our most established market as we continue to build a strong reputation for joinery applications and gain more facade specifications. The softwood market in the U.K. remains weak with subdued import volumes and merchants limiting stock positions, pending market clarity with the U.K. budget approaching. The U.K. budget is being announced tomorrow with uncertainty of governmental measures to address the fiscal gap that is estimated between GBP 20 billion and GBP 50 billion. Across the rest of the world, we saw 28% growth with bright spots in Australia and New Zealand, as our partnerships with our distributors continue to develop and expand our presence. Accoya for Tricoya sales grew at a more moderate pace, with sales weighting towards the start of the period. Finally, we will be launching a new finished decking products in the second half with a phased market rollout. This will be the first time that we offer a finished product to the market and is an exciting new development for Accsys. We also continue to see Accoya specified for incredible projects worldwide. The start-up of Accoya USA last year was a significant milestone for Accsys. And I am very proud to share that it has got off to an excellent start. In North America, the joint venture grew sales volumes by an impressive 61% with sales acceleration across the period, driven predominantly by our existing distributors, many of whom we have a long-standing relationship with. The local availability and production provide them with the confidence to run faster. While a 10% tariff was announced in October on imported lumber, we have taken proactive steps to manage the impact of this going forward. So let's look at the more detail at the U.S. market developments. Our sales in the U.S. are outpacing overall market growth, allowing us to gain share from competitors. With forecast indicating strong and sustained demand for modified wood over alternative materials, we are confident that Accoya USA will continue to expand its presence in the growing market. Our main drivers in the U.S. are cladding and decking. These markets both have strong growth rates for modified wood with double-digit growth forecast for decking. Traditional timber products are seeing sharp declines in demand as customers opt for higher performance modified and engineered solutions. Furthermore, increased regulation on the import of hardwoods ipê and cumaru from Brazil has had a positive benefit for Accoya in the U.S.A., and it has limited the supply of these woods. As you can see in the table, the hardwood market for decking is expected to contract. Our growth in the U.S. predominantly came from our existing distributors. In addition, we have added 3 new distributors in the period, including one of the largest in the U.S. hardwood specialty products, GMX Group, a wholesale distributor with a focus on retail customer, and our first Mexican direct distributor, Klinai and expect to see these new channels contribute strongly in H2. We continue to strengthen our relationship, both with the direct distributors and our approved manufacturing partners. Our products are extremely well regarded in the marketplace, that this testimonial from Delta Millworks featuring the owner and CEO, Robbie Davis, and Baker Donnelly, regional sales manager, one of our long-standing Accoya manufacturing customers testifies. [Presentation] Jelena Arsic Os: This fantastic Delta video highlights value that resonates strongly with us: quality, performance and the long-term reliability. These principles are at the core of how we strive to build and maintain our customer relationship, and they are something I'm incredibly proud of. A big part of our FOCUS strategy is to maximize returns from our existing assets, driving sustainable profitable growth from our core sites in Arnhem and Barry. During this period, we have invested EUR 2.5 million in Arnhem to expand our acetyl storage capacity. From December 2025 onwards, we will gain improved logistical flexibility and increased uptime, enabling us to complete more batches per month. Furthermore, our logistical costs will reduce as we can now unload more acetyls during the week rather than in the weekend. On top of that, we are less vulnerable to interruptions in the chemical supply chain. In Barry, in response to strong demand for Accoya Color globally, we have taken steps to double our capacity. This includes introducing the second shift, expanding our own storage capacity and outsourcing some external drying. This builds on the planning facilities we added last December to be able to produce finished decking boards. We expect Accoya Color and finished decking boards to continue to be important demand drivers. Growth for this product range, including volumes sold out to the joint venture showed an increase of 56% year-on-year. We are very proud today to launch Accsys Cares, our first sustainability plan, which aims to deliver long-term value from all of our stakeholders. The plan highlights our commitments across 4 key pillars: people, planet, profit and governance. It introduces our first decarbonization commitments and targets, further enhancing the already strong sustainability credentials of our products and our business. Finally, wrapping up today's messaging, we have delivered a strong H1 and we entered the second half of the year from a position of strength. Our trading remains robust going into H2, supported by sustained global demand for our premium differentiated products. We expect continued sales acceleration in North America, and notwithstanding the impact of the recently announced tariffs, we expect the joint venture to be EBITDA positive for the financial year. While noting continuous macroeconomic challenges, the Board is confident the company will continue to deliver further growth and profitability improvements for the year ahead, consistent with expectations and to make further progress towards our strategic targets. Looking ahead, we remain confident in the long-term potential of our technology and strategy. We have a clear road map, market-leading products in attractive growth markets and a fully funded manufacturing base that position us to deliver significant shareholder value. I continue to be very excited by the prospects for our business. We are transforming we are delivering, and we are growing. Thank you all for your attention. With this, I will hand over to our operator now for the Q&A session. Operator: [Operator Instructions] We will now take the first question from the line of Martijn den Drijver from ABN AMRO. Martijn den Drijver: I have 4 questions, and I'll take them one by one, if I may. To start off on the U.S., just to give us a bit of a sense on where the existing -- so not the 3 new ones that you mentioned, but the existing distributors, can you give some color on where they stand in terms of ordering levels versus assumed potential? Just give us a sense of what -- with the existing distributors, what type of growth lays ahead? Jelena Arsic Os: Well, Martijn, our existing distributors are already active in the U.S. for a very long time. And as we know, the Accoya sales are pretty technical sales. You need to pursue the market that you do have, by far, the best product in terms of performance, stability and the long-term durability. We are seeing in this period significant growth. Most of the U.S. growth that you are seeing in this result is actually coming from our existing distribution partners. They are today placed on the East Coast of the U.S., West Coast and in Texas. We are working on increasing our presence in the Texas area because there, we do have big OEMs like Delta Millworks that you just saw the video about, they are located in Texas. But we do believe that, that area could provide us some more opportunity to grow. So new distributors that we put in place in this half of the year, they are all starting to take the inventories and to push the market predominantly gaining the market share and not fighting for the same business that our existing distributors are already having. So there is a lot of efforts from our side going into education, specification selling and helping the new distributors predominantly to actually focus on the new business generated and creating the Accoya pie to be bigger in this very sizable and profitable North American market. Martijn den Drijver: Just 1 follow-up, Jelena. The total distributors now, how much do you think you need more in terms of distributors to have a full national coverage, perhaps both in the U.S. and in Mexico? Jelena Arsic Os: I think in Mexico, this Klinai is quite a large player. So I believe we are going to give them an opportunity to deliver what we think that they can deliver. In the U.S., we do believe that today, we have a quite good mix of large regional players, and they have also quite a good network of secondary distributors that are working with them. So we do not expect that we will be adding a large amount of new distributors in the U.S. We would like the distributors that we already now appointed to actually prove that they can deliver on the expectations. And so we have a quite defined KPIs in place that we follow very, very clearly. So for the next half of the year, we are going to give the existing and the new ones chance to fully deliver. Martijn den Drijver: Got it. Got it. Then the second question on the U.S. for Sam. The breakeven has been achieved faster than expected. You're now guiding for profitable EBITDA levels for the full year. Does this have an impact on the planned/forecast equity injections from the group into the JV? I seem to remember that where guidance was still for EUR 4 million in fiscal 2026. Does that still stand? Or should we assume a different amount now? Sameet Vohra: Yes. Thanks, Martijn. Good question. So yes, I mean, as you saw the JV was very close to breakeven for the first half of the year, and we do fully expect it to be profitable for the full year. Our initial expectations were and in terms of what your modeling has in terms of capital injections going into the JV, that's all to do with growth. We -- the business needs wood and it effectively needs a high level of working capital to meet that significant level of growth that we're seeing, not just for this financial year, but also coming financial year because really, our strategy is about filling up that plant, and having it operating at full capacity within the 5 years of our strategy, so by the end of Phase 2. So any additional capital injections that we may need to put into the business will be all to do with providing it with additional working capital to fund growth. Martijn den Drijver: So it might actually end up a little bit higher than the initial guidance. Sameet Vohra: No, I don't think it will be any more than EUR 4 million that you've already got factored in. Martijn den Drijver: All right. Then moving on to Europe. I was just wondering, you mentioned good developments in the Benelux, Germany, already very strong in U.K. and Ireland. But you mentioned plans to support France. Can you elaborate a little bit on your plans in France? And perhaps on Germany, what type of -- where does Germany stand relative to prior sales levels? Are they approaching it? Or are they still far away from it? Jelena Arsic Os: Well, we saw -- as I told you, the levels in Germany are increasing. Of course, if you look from the period of a couple of years ago, we still have a space to develop. But if you look at the previous year, we do have quite a significant growth, and this is coming predominantly from the demand coming from outdoor living markets and with the outdoor living market, that is really decking, what we are seeing that it is taking off with our Accoya Color range being available in Germany. So we are continuing to work with our existing -- we have a very large distributor in Germany. We are continuing to work with them, but we are also working on expanding that distribution network as we go into H2. Looking at France, we are predominantly now looking to strengthen our team in France, and we need to add commercial headcount to help us to cover this quite large and still unexplored market for Accoya. We had a couple of very nice projects that we deliver in the country, but certainly with the size of France, there is quite a large opportunity to grow there. So we have good distributors in place, but we are adding a headcount -- commercial headcount in the region to help us grow this market share. Martijn den Drijver: Great. Then one final question on Color. Can you shed some light on what you produced in H1 in Color, given the capacity expansions that would probably help us to understand what could be expected going forward? Jelena Arsic Os: Well, what we said, we actually increased almost more than a double capacity of Color in Barry, starting from 6,000, what we had last year, and now we should be having certainly capacity of -- we could be able to produce up to 14,000. We do believe that in the -- given the good strong demand for Accoya Color, we certainly could be doubling what we actually produce, so 6,000 to up to 12,000 in this financial year. Of course, decking season is a seasonal -- so demand is quite seasonal. We do see that the season starts in spring and our distributors are starting to build inventories starting from beginning of our Q4. So that's why also our Q4 is one of the larger quarters that we have as a company due to this specific effect. Martijn den Drijver: All right. And my really final question is on your EBITDA -- adjusted EBITDA margin, close to your FOCUS one target already. If I look at Bloomberg consensus, it's considerably higher for fiscal '26, '27, around the 16% level. Is that something you feel comfortable with given these very positive developments, both in Europe and the U.S.? Sameet Vohra: Sorry, can you just repeat that percentage that Bloomberg is showing? Martijn den Drijver: Yes. Bloomberg is -- I think it says it's not quite clear whether that is now group or adjusted, but it's 16% level. Sameet Vohra: Yes. I mean, that's probably around group. I mean, we're already at group level. We are already -- I mean, as you saw for H1 at 14% underlying margin with the group at what adjusted being just over 12% target. So I mean, we're very confident, and we firmly believe that we're on track to deliver the margin targets that we laid out in our Investor Strategy Day earlier this year by the end of Phase 1 of our strategy. Operator: We will now take the next question from the line of Johan van den Hooven from Edison Group. Johan van den Hooven: Only 3 questions is for me for now. If you look at the volume growth was, of course, strong. We already talked about U.S.A Looking at the volume growth of Accoya for Tricoya that is, well, only 6%. Is there a special reason that there's a bit of a slowdown or is it just a mix effect or a different focus on the U.S.? That's the first question, and we'll do the others later. Jelena Arsic Os: Yes, you're absolutely right, Johan. As we reported, Accoya for Tricoya volume grew 6.4%. This is also lower than percentage-wise, what we also put in our market update in September, where we saw at the time, 25% growth of Accoya for Tricoya. The reason for it is basically slower demand from our customers for Tricoya that is also linked to the season, but also overall subdued soft market sentiment in the -- they all operate in that MDF space. So we are seeing this demand increasing and starting to pick up as of December this year. So they were really running through the inventory reduction going towards the end of the calendar year. And now we are seeing the order book for Tricoya starting to fill in as we go into December. Johan van den Hooven: Okay. That's clear. Another question about your sort of guidance for EBITDA. EBITDA for the full year is in line with your expectations. But I seem to remember that previously, sometimes we refer to consensus or in different words, is it too simple to just double the EBITDA of the first half -- for the full year, I mean? Sameet Vohra: So I think when you look at seasonality in terms of our business, quarter 4 is our largest quarter by sales volumes really because from a decking and cladding perspective, a lot of sales take place ahead of that spring season. So quarter 4 being our largest by volume, quarter 3 ultimately being our smallest because you've got the effect of December, our customers effectively stop ordering and taking collections just after mid-December, the Christmas shutdown. And then obviously in October, we have the annual maintenance stop in Arnhem, where we're selling out our finished goods. So you could think -- despite that revenue and volume seasonality, I mean, profitability is going to be very similar to 50-50 between H1 and H2, and that's why we're seeing it in line with our expectations. Johan van den Hooven: Okay. But then -- okay. So we can look at the doubling. But in the first half, of course, you had EUR 2 million license income, which might not reoccur in the second half, which also then not helps EBITDA? Sameet Vohra: No. I mean, you've got -- I mean, it's not just license income. You also get the royalty. The largest part of that EUR 2 million is actually the royalty that we get from Accoya USA sales. So we get a fixed percentage on their revenue. So as you've seen, as their sales are accelerating, we're getting a higher royalty fee from them. Johan van den Hooven: Yes. Last question for now, just about the import tariffs. It's only 10%, and you've said you've taken some actions, but can you tell us a bit more? Is it just raising prices, lowering costs or a mix? Jelena Arsic Os: Well, it is predominantly raising the prices, Johan. We already put it in place and we didn't receive too much of the pushbacks from our customers. I think everybody in the U.S. market is now getting accommodated to the tariffs having impact on the price inflation of overall materials, if you like. So we put a price increase in place starting from 1st of November. And we also have, of course, an ongoing dialogue with the sawmills where we are actively tracking what is the sentiment in the U.S. market and also looking with them how we can, if you like, share the pain, if that pain become larger. But so far with the 10%, we do believe that we can manage this quite well. Operator: [Operator Instructions] Our next question comes from the line of Alastair Stewart from Progressive Equity Research. Alastair Stewart: Two or three questions. First on the U.S.A., given that you've now got what tends to be a very solid distributor base and enthusiastic uptake by customers, have you any sort of -- can you give us any sort of guidance when you could be looking at further reactors from the U.S. facility? So that's the first question. Secondly, interested to see a new distributor in Mexico. But what sort of size do you think that -- what proportion of U.S. output could Mexico be? And is that -- is it in a similar sort of mainly decking and cladding markets? And looking above the bar, are there any plans for Canada or any indications of how Canadian uptake could develop? Jelena Arsic Os: Yes. Thank you, Alastair. Thank you very much. Good questions. So if you look at our distribution base in the U.S., we do believe that with capacity of the plant today at 43,000 cubic meters, we do have enough capacity for at least next 2 years to feed demand and growth in this region. So we are focusing the organization, and we are focusing basically everybody to get more returns from the existing assets in the next year or 2. So this is -- this was a part of our Phase 1 of the FOCUS strategy. So we just continue working on it. Now we are going to see in next -- in the next half of the financial year and also in the beginning of the financial year '27, which is a key year for the company because this marks end of our Phase 1 FOCUS strategy, how things are developing. And in order to start talking about second reactor, you need at least 12 to 16 or 18 months from the design to basically ordering the equipment and putting it in place. Today, we have enough space in the U.S. and already a foundation put in place for the next reactors. So that should speed up that process when the time comes. So we do have enough space in the U.S. to put additional 6 reactors if that is necessary but I would like to really spend next year, 1.5 years, next 18 months, utilizing what we already have. And we do believe that we have enough capacity to meet the demand from a broader North American market, not only U.S. but also talking about Canada and Mexico as well. Now your comment on -- does this answer your question? Alastair Stewart: Sorry, I would just add -- I was asking about Mexico again, sort of potential growth there. Is it the same sort of end market that decking and cladding -- and while I'm on also, it was interesting to hear about France as well. They seem to be slightly late to the party as it were. What's driving the uptick in demand from France? And that will be all my questions. Jelena Arsic Os: Okay. So let me go back to Mexico and Canada because I think that those were the other 2 questions. So the Klinai is a quite a large distributor that also have significant milling capacity. So they are also capable of making some of the end products. So they will be focusing on cladding and decking predominantly. And the market in Mexico is large. We also are supporting the Caribbean region from the U.S. So -- and we do have already a couple of very nice projects that are happening there. Is Mexico going to be bigger than the U.S.? I don't so. Alastair Stewart: No, I don't think I was suggesting that, but how big could it be as part of the U.S. output? Jelena Arsic Os: Well, we do have a quite ambitious expectations from them, but we just signed off that agreement with Klinai. I would like to give them at least half a year to see what they can deliver in order to start shaping an expectations and certainly communicating those expectations internally. They are quite capable professional company with the milling capacity that could be important for us. But for us, our U.S. market, is by far the fastest growing, the most profitable and certainly more than 90% of the Accoya USA sales should come from the U.S. itself. Looking at the Canada, we do have one of our largest -- well, actually, the largest distributor we have in the U.S. is a U.S. Canadian company with the roots in Canada. So we do sell Accoya in Canada already for some years. With the tariffs, import tariffs from Canada and between Canada and the U.S., some of the trade is being slowing down. But nevertheless, we also have an opportunity, if necessary, to ship smaller amount from Europe directly to Canada, if that is going to serve customers better. So as said, we do expect U.S. plant predominantly to serve U.S. market, but we do have now today established partners in Canada, Mexico and Caribbean as well. So in France, also decking and cladding market, we had a couple of good projects that were done in the country. And we also have a good collaboration with the architects in France. But you know, it is a huge country and with Accoya Color now being more available, also coming with the new decking collection, we do need more feet on the ground to educate and push growth to the faster pace. So predominantly, cladding and decking and Accoya Color is one of the most wanted products we see in France. Operator: We will now take the next question from the line of Adrian Kearsey from Panmure Liberum. Adrian Kearsey: Well done on a good set of results, guys. A couple of questions for me, although I have some more, but most of them have been asked already. Could you perhaps give us sort of a bit some more color in terms of the pricing environment across different territories? Are we seeing greater pricing in certain territories rather than the others? And then to go back to the question on distributor relationships. Would you be able to sort of give some indication about how conversations are progressing in certain territories with signing additional distributor clients? Jelena Arsic Os: Yes. So pricing, as we already reported today, the average sales price in the reporting period went up with 1.7%. We are not reporting specifically per country or per region. But in average, this was the good, I would say, marker for you to look across -- both across Europe and the U.S., very, very similar price increase. We do -- of course, we are very careful, and we know that what we are selling is the value. So we are very careful of keeping that premium place in the building materials. So we are reacting on the tariffs in the U.S. We are reacting on the inflationary pressures in Europe and U.K., and we will continue to do that. And it looks to us that market is actually accepting that as well. Looking at the distributors, adding new distributors across the region. As I already mentioned, we are talking with the distribution partners in Germany. We are also talking with the new distribution partners in Central and Eastern Europe. I'm not ready to announce anything yet but we do expect that we will be expanding our distribution base predominantly in the next half year in the markets where Accsys is providing Accoya and we do believe that as of today, the number of distributors and coverage in the U.S. is good, and we want to give our new distribution partners chance to actually deliver on the expectations that we have for them. I hope this answers your question, Adrian. Operator: I would now like to turn the conference back to Dr. Jelena Arsic van Os for closing remarks. Jelena Arsic Os: So thank you very much. As I said in the last page of our presentation, we are remaining confident in the long-term potential of our technology and strategy. Company is transforming. We are growing, and we are delivering, and we have a very clear road map in front of us with a market-leading product in very attractive growth markets. So we will continue to do what we are doing and then hopefully, next half year when we hear each other, we will just confirm the expectations that we all have. So thank you very much. And with this, we will close our results call for today. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the DICK'S Sporting Goods Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Nate Gilch, Investor Relations. Nate, please go ahead. Nathaniel Gilch: Good morning, everyone, and thank you for joining us to discuss our third quarter 2025 results. On today's call will be Ed Stack, our Executive Chairman; Lauren Hobart, our President and Chief Executive Officer; and Matthew Gupta, our Chief Financial Officer. A playback of today's call will be archived on our Investor Relations website located at investors.dicks.com for approximately 12 months. As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K and our quarterly report on Form 10-Q for the first fiscal quarter as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAAP financial measures referenced in today's call. And finally, a couple of admin items. First, a quick note on our comparable sales reporting. Foot Locker will be included in our comp base beginning in Q4 of next year, which will mark the start of their 14th full month of operations post acquisition. As such, all reported comp sales for this quarter and for the upcoming year pertains to the DICK'S business only. Second, I want to provide clarity on certain terminology we'll use throughout today's call and going forward. First, when we refer to the DICK'S business, we mean our existing DICK'S Sporting Goods operations, including the DICK'S Sporting Goods, Golf Galaxy, Going, Going, Gone! and Public Lands banners as well as GameChanger. Earnings per diluted share results for the DICK'S business excludes the dilutive effect of the 9.6 million shares issued as part of the Foot Locker acquisition. Second, the Foot Locker business refers to our newly acquired operations, including the Foot Locker, Kids Foot Locker, Champs Sports, WSS and Atmos banners. And finally, for future scheduling purposes, we are tentatively planning to publish our fourth quarter 2025 earnings results on March 10, 2026. With that, I'll now turn the call over to Ed. Edward Stack: Thanks, Nate. Good morning, everyone. Thanks for joining us today. This is an important call. It's our first earnings call as a combined company with Foot Locker. We have a lot to share. There's a lot of detail and a lot of numbers. We want to make it clear, we're doing all that our shareholders would expect us to do to make the Foot Locker business accretive in 2026. And I have to tell you, as the largest shareholder, I couldn't be more excited about the progress we're making and the opportunities ahead. As announced earlier this morning, we delivered another great quarter with comps of 5.7% for the DICK'S business and we continue to operate from a position of strength. Our momentum in the DICK'S business remains strong as we execute against the key priorities that have fueled our success: a differentiated on-trend product assortment in an industry-leading omnichannel ethlete experience. This is the flywheel of our success as a company, and it's driving consistent growth and performance. Now I will discuss the tremendous opportunity we see with Foot Locker. Completing this acquisition on September 8 marks a bold and transformative moment for DICK'S. Together, we're building a global platform that is at the intersection of sport and culture, one that we believe will redefine sports retailing. This powerful combination will allow us to serve a broader consumer base, deepen our partnerships with the world's leading sports brands and significantly expand our total addressable market. When we announced this acquisition, we knew that business was going to need work. Let me be candid. Foot Locker strayed from Retail 101 and did not execute the fundamentals. Post-COVID, Foot Locker did not react quickly enough when its largest brand pivoted toward a direct-to-consumer model, leaving Foot Locker with the wrong inventory. Too much of what didn't sell and not enough of what did sell. Consequently, as we enter this transitional phase, the Foot Locker business, as expected, comped negatively with pro forma comp sales for the full third quarter declining 4.7%, including a 10.2% decline internationally. Now after looking even deeper under the hood as the owners of Foot Locker, our conviction that we can turn this business around has only grown. We will bring our operational excellence, our supplier relationships and our merchandise expertise to return Foot Locker to its rightful place as a top player in the specialty athletic channel. Today, we're even more excited about the long-term value we believe this acquisition will deliver to our shareholders. We're committed to investing in Foot Locker's business to return it to profitable growth. We've assembled a world-class management team to lead the Foot Locker business, and I'm personally excited to guide this next chapter. As previously announced, Ann Freeman a long-time former Nike executive, is now serving as Foot Locker North America President. Ann brings deep industry expertise and leadership experience, and she is supported by a high-caliber team of senior leaders, a combination of key executives from Foot Locker, all of whom are well respected by the Stripers, Blue Shirts and our brand partners, experienced leaders from DICK'S and talent from other world-class companies. This team was handpicked to return Foot Locker to its rightful place in our industry, and we're already moving quickly in North America to build momentum. In addition, we're thrilled to have just announced that Matthew Barnes, former CEO of Aldi, will be joining our team next month as President of the Foot Locker International business. Matthew has nearly 3 decades of experience in global retail and a track record of transforming brands. We look forward to working to stabilize and ultimately accelerate that business with targeted turnaround strategies to meet the evolving needs of consumers globally. There's a lot happening to position the business for the short term and build for the long term. Our first priority is clear. We need to clean out the garage of underperforming assets. This means clearing out unproductive inventory, closing underperforming stores and rightsizing assets that don't align with our go-forward vision for the Foot Locker business. This is the groundwork for the transformation. We began this work shortly after the closing on September 8. We have identified an initial number of underperforming assets around the globe, including inventory that needs to be marked down and liquidated along with a preliminary number of stores that need to be impaired or closed. We initiated certain pricing actions in late Q3 and will be more aggressive in Q4 to clean up unproductive inventory. Our intent is to get the vast majority of the inventory charges behind us by the end of the year, so we can start 2026 fresh and position Foot Locker for an inflection point during the back-to-school season in 2026. As a result, we expect Q4 margin rates for the Foot Locker business to be down between 1,000 and 1,500 basis points with pro forma Q4 comp sales being down mid- to high single digits. We believe this aggressive purging of underperforming assets is what needs to be done to return Foot Locker to its rightful position as a key leader in this industry. Navdeep will share more details in his remarks about the charges we anticipate as part of this important cleanup effort. Importantly, we've met with all of our key vendor partners, and they are fully aligned with our vision and are eager to support a thriving growing Foot Locker. They indicated they are committed to investing alongside us to reignite the Foot Locker business. We're moving with urgency and have already kicked off an 11 store pilot to begin testing changes in product and the in-store presentation. It's early, but we're encouraged by what we're seeing and learning. Looking ahead, we expect back-to-school next year to be an inflection point as our new strategies, assortments and processes align to drive meaningful progress in the Foot Locker business. all supported by the work we're doing now by cleaning out the garage to position Foot Locker for future success. With these actions, we continue to expect Foot Locker to be accretive to our EPS in fiscal '26, excluding onetime costs. What amplifies our confidence are the talented people we found inside the Foot Locker business. Over the past 2 months, we spent time in Foot Locker stores, offices and distribution centers. Our teammates' passion is real, especially among the stripers and blue shirts along with the rest of the team members. They love sneakers, they're hungry for leadership, and they want to get back to playing offense. That energy is validating our excitement and building focus for what's ahead. In closing, at DICK'S, we've built a business that leads our industry in performance, innovation and customer loyalty. DICK'S has generated consistent growth and strong margins with a relentless focus on delivering shareholder value. While we're just getting started on Foot Locker's transformation, our deep expertise and our track record of growth and success fuel our conviction that we can turn this business around, and we are confident that Foot Locker will reemerge as a stronger, more resilient and more dynamic business. We will do this with the same grit vision and execution that got DICK'S to where it is today. Before turning it to Lauren, I want to take a moment to thank our more than 100,000 teammates across all of our banners for their passion and commitment during this exciting chapter for our company and wish everyone a happy Thanksgiving. With that, I'll turn it over to Lauren to share more on the continued momentum across the DICK'S business. Lauren Hobart: Thank you, Ed, and good morning, everyone. We're very pleased with our strong third quarter results for the DICK'S business which continue to demonstrate the strength of our operating model and our team's disciplined execution. We are entirely focused on delivering on our strategies and sustaining our strong momentum. As always, our performance is powered by our compelling omnichannel athlete experience, differentiated product assortment, best-in-class teammate experience and our ability to create deep engagement with the DICK'S brand. Today, we are raising our full year outlook for the DICK'S business. This updated guidance reflects our strong Q3 results and the ongoing confidence we have in our business, grounded in our team's execution of the 4 strategic pillars I just mentioned. We now expect comp sales growth of 3.5% to 4% for the year and EPS to be in the range of $14.25 to $14.55 for the DICK'S business. Now moving to our third quarter results for the DICK'S business. Our Q3 comps increased 5.7% with growth in average ticket and transactions. These strong comps were on top of a 4.3% increase last year and a 1.9% increase in 2023 as we continue to gain market share. Our gross margin expanded 27 basis points in line with our expectations, and we delivered non-GAAP EPS of $2.78 for the DICK'S business, up from $2.75 in the prior year's quarter. As we continue to execute through our strategic pillars, we're seeing strong momentum across the 3 growth areas for the DICK'S business that we are focused on for 2025. First, we're incredibly proud of the progress we're making in repositioning our real estate and store portfolio. In Q3, we opened 13 new House of Sport locations, the most we've ever opened in a single quarter, bringing our year-to-date total to 16 openings. This achievement reflects the outstanding work of our team whose focus and execution made this ambitious rollout a reality. We now have 35 House of Sport locations nationwide, a major milestone in the growth of this transformative concept. We also opened 6 new Field House locations in Q3 and opened another just last week, completing our 15 planned openings for the year and bringing us to a total of 42 Field House locations across the U.S. These innovative formats are delivering powerful financial results, deepening engagement with our athletes, brand partners and landlords and laying the foundation for long-term profitable growth for the DICK'S business. The second of our 3 major focus areas is driving growth across key categories. Our unparalleled access to top-tier products from both national and emerging brand partners continues to fuel athlete demand and excitement, driving strong growth across the DICK'S business. At the same time, our vertical brands are resonating incredibly well with our athletes, further contributing to this momentum. For Q3, this growth came from having more athletes purchased from us with more frequent purchases and more spending each trip. We feel great about the product pipeline from our brand partners, and our inventory is well positioned to meet athlete demand this holiday season. I also want to highlight our ongoing expansion into trading cards and collectibles. In partnership with Fanatics, we've launched the Collectors Club House in 20 Health of Sport locations with plans to include it in every new location going forward. These spaces feature trading cards, autograph memorabilia and more and the athlete response has exceeded our expectations. It's a unique and fast-growing category that's a great complement to everything we do, and we're very excited about the opportunity ahead. And our third major focus area, our multibillion-dollar, highly profitable e-commerce business continues to stand out as a growth driver, once again growing faster than the DICK'S business overall. I'd like to highlight 3 examples of ways we're building strength and differentiation in e-commerce. First, we're really leaning into our app experience, including app-exclusive reservations that are establishing us as a leader in launch culture across many key categories. Second, we're continuing to invest in capabilities to deliver more personalized experiences, content, product recommendations and search results. An example of this is how we're targeting NFL fans with personalized creative messaging and product recommendations for their favorite team. Third, for the holiday season, we're making it easier than ever to find the perfect gift with a new capability for athletes to build and share their wish list with family and friends. Lastly, as part of our broader digital strategy, we're harnessing the power of our athlete data and continue to be enthusiastic about the long-term growth opportunities we see with GameChanger and the DICK'S Media Network. Our GameChanger platform keeps expanding with new features, partnerships and content that enriches the whole youth sports experience and reinforces our leadership in the multibillion-dollar youth sports tech ecosystem. Great example is our new game insights feature, which gives coaches fast, actionable takeaways after every game, further elevating the value we provide to athletes, coaches and families. We're also seeing great momentum with our DICK'S Media Network, which is deepening engagement with consumers and key brand partners while expanding across new ad platforms. In addition to our collection of owned and our full spectrum of off-site channels, we're ramping up our in-store capabilities like our interactive digital experiences and programmable spaces that are driving impactful brand activations in our House of Sport location. In closing, we're very pleased with our strong third quarter results and remain highly confident in our long-term strategies to drive sustained sales and profit growth for the DICK'S business. We believe the power of our omnichannel athlete experience and our compelling differentiated product offering will resonate with our athletes this holiday season, supported by our fantastic holiday brand campaign, which launched a few weeks ago. I'd like to thank all of our teammates for their hard work and commitment and for their focus on delivering great experiences for our athletes throughout the season. And also a warm welcome to all Stripers, Blue Shirts and team members from the Foot Locker business. We're excited to have you as part of the DICK'S family and to achieve great things together. I share Ed's excitement about how we will bring our operational excellence, our supplier relationships and our merchandise expertise to return Foot Locker to its rightful place as a top player in the specialty athletic channel. With that, I'll turn it over to Navdeep to share more detail on our financial results and 2025 outlook. Navdeep, over to you. Navdeep Gupta: Thank you, Lauren, and good morning, everyone. Before I begin my review of our third quarter results, I would like to take a moment to provide important context for Foot Locker's performance included in our consolidated financial results. As noted in this morning's release, our acquisition of Foot Locker closed on September 8. As a result, our third quarter consolidated financials do not include the peak back-to-school selling season in August for the Foot Locker business. They reflect just 8 weeks of post-acquisition results in September and October, historically an unprofitable time period for the Foot locker business. Let's now move to a brief review of our third quarter results for the consolidated company, including continued strong performance for the DICK'S business. Consolidated net sales increased 36.3% to $4.17 billion, driven by an approximate $931 million sales contribution from a partial quarter of owning the Foot Locker business and a 5.7% comp increase for the DICK'S business as we continue to gain market share. On a 2-year and a 3-year stack basis, comps for the DICK'S business increased 10% and 11.9%, respectively. These strong comps were driven by a 4.4% increase in average ticket and a 1.3% increase in transactions. We also saw broad-based strength across our 3 primary categories of footwear, apparel and hardlines. As Nate said Foot Locker will be included in the comp base beginning in Q4 of next year, which is when they will commence their 14th full month of operation following the closing of the acquisition. For reference, pro forma comp sales for the Foot Locker business in Q3 in its entirety decreased 4.7% with the comparable sales in North America decreasing by 2.6% and the comparable sales in Foot Locker International decreasing by 10.2%, primarily driven by softness in Europe. Consolidated gross profit for the quarter was $1.38 billion or 33.13% of net sales, down 264 basis points from last year. For the DICK'S business, gross margin increased by 27 basis points and was in line with our expectations. Notably, the year-over-year decline in consolidated gross margin was driven entirely by the mix impact from the lower gross margin Foot Locker business. On a non-GAAP basis, consolidated SG&A expenses increased 40.8% or $320.9 million to $1.11 billion and deleveraged 84 basis points compared to last year's non-GAAP results. $259.9 million of this consolidated increase was driven by Foot Locker business. For the DICK'S business, expense dollar increased by 7.7% and deleveraged 45 basis points, which was in line with our expectation and driven by strategic investments digitally, in-store and in marketing to better position DICK'S business over the long term. Consolidated preopening expenses were $30.6 million, an increase of $13.8 million compared to the prior year. As Lauren mentioned, this supported the opening of 13 new House of Sport locations in Q3 our highest numbers opened in a single quarter to date, plus another 6 Field House locations we opened in the quarter. Consolidated non-GAAP operating income was $242.2 million or 5.81% of net sales compared to $289.5 million or 9.47% of net sales last year. For the DICK'S business, non-GAAP operating income was $288.6 million or 8.92% of net sales. This year's consolidated results included a $46.3 million operating loss in the quarter from the Foot Locker business which was primarily driven by the gross margin decline as we initiated certain pricing actions in late Q3. Importantly, since the acquisition of Foot Locker are closed on September 8, these results exclude a profitable back-to-school season for the Foot Locker business in August and through Labor Day. For reference, pro forma non-GAAP operating income for the Foot Locker business in Q3 in its entirety was approximately $6.8 million. On a non-GAAP basis, other income comprised primarily of interest income was $12.7 million, down $7.8 million from prior year. This decline was from lower cash on hand and a lower interest rate environment. Consolidated non-GAAP EBT was $239.9 million or 5.76% of net sales, including the Foot Locker business. This compares to an EBT of $297.1 million or 9.7% of net sales in Q3 of last year. Moving down the P&L. Consolidated non-GAAP income tax expense was $59.4 million or a rate of 24.7% -- while the income for the DICK'S business was taxed at a low 20% rate, the combined company was subject to a higher tax rate, primarily driven by the Foot Locker's EMEA business, where full valuation allowance remains in place. In total, we delivered a consolidated non-GAAP earnings per diluted share of $2.07 for the quarter. These results included non-GAAP earnings per diluted share of $2.78 for the DICK'S business based on a share count of 81.2 million, which excludes the dilutive effect of the shares issued in connection with the acquisition of Foot Locker. This is up from the earnings per diluted share of $2.75 last year. The DICK'S business results were partially offset by the effects of the partial quarter of contribution from the Foot Locker business, which include a $0.52 negative impact from Foot Locker operations, including the gross margin decline as well as the higher tax rate, a $0.19 negative impact from the increased share count, which was up $5.9 million prorated for the 8 weeks of the Foot Locker ownership. On a GAAP basis, our earnings per diluted shares were $0.86. This includes the noncash gains from our nonoperating investment in Foot Locker stock as well as $141.9 million of pretax Foot Locker acquisition-related costs. For additional details on this, you can refer to the non-GAAP reconciliation table of our press release that we issued this morning. Now turning to our balance sheet. We ended Q3 with approximately $821 million of cash and cash equivalents and no borrowings on our $2 billion unsecured credit facility. Our quarter end inventory levels increased 51% compared to Q3 of last year. Excluding the Foot Locker business, inventory levels for DICK'S business increased 2% compared to Q3 of last year. We believe the inventory in DICK'S business is well positioned to continue fueling our sales momentum. For reference, on a pro forma basis, inventory levels for the Foot Locker business increased approximately 5% as compared to the same period last year. And as Ed mentioned, the work is underway to clear out the unproductive inventory at the Foot Locker business. Turning to our third quarter capital allocation. Net capital expenditures were $218 million, which included $201 million for the DICK'S business and $17 million for the Foot Locker business. We also paid $109 million in quarterly dividends. Before I move to our outlook, I want to address a few key expectations surrounding the Foot Locker acquisition. First, as Ed discussed, our immediate priority is to clean out the garage of unproductive assets as we look to optimize the inventory assortment and store portfolio of the Foot Locker business. We expect these actions, along with other merger and integration costs to result in a future pretax charge of between $500 million and $750 million. Importantly, these future pretax charges are excluded from today's outlook. Second, we remain confident in achieving the previously announced $100 million to $125 million in cost synergies over the medium term, primarily from procurement and direct sourcing efficiencies. Third, as Ed said, we continue to expect the acquisition to be accretive to EPS in fiscal 2026, excluding onetime costs. Now moving to our outlook for 2025. Today, we are providing an updated outlook that is specific to DICK'S business and does not include the Foot Locker business, which we will address separately. We are taking this approach to ensure comparability of our performance across the quarters and to provide ongoing visibility into the DICK'S business. This outlook also excludes the investment gains as well as the merger and integration costs related to the Foot Locker acquisition. As Lauren said, we are raising our expectation for comp sales and EPS for the DICK'S business. Our updated guidance reflects our strong Q3 performance and includes the expected impact from all tariffs currently in effect. This outlook balances our confidence in the outcomes we are driving through our strategic initiatives and our operational strength against the ongoing dynamic macroeconomic environment. We now expect full year comp sales growth for the DICK'S business in the range of 3.5% to 4% compared to our prior growth expectation of 2% to 3.5%. Total sales for the DICK'S business are expected to be in the range of $13.95 billion to $14 billion compared to our prior expectation of $13.75 billion to $13.95 billion. Driven by the quality of our assortment, we continue to expect to drive gross margin expansion for the full year. We anticipate this expansion will be offset by SG&A deleverage as we are making strategic investments digitally, in-store and in marketing to better position ourselves over the long term. We still expect operating margins to be approximately 11.1% at the midpoint. At the high end of the expectations, we continue to expect to drive approximately 10 basis points of operating margin expansion. We now expect EPS for DICK'S business in the range of $14.25 to $14.55 compared to our prior expectation of $13.90 to $14.50. Our earnings guidance for DICK'S business is based on approximately 81 million average diluted shares outstanding and excludes the dilutive impact of the 9.6 million shares issued in connection with the acquisition. This outlook for DICK'S business also assumes an effective tax rate of approximately 24% compared to our prior expectation of approximately 25%. We continue to expect net capital expenditures of approximately $1 billion for the full year for the DICK'S business. Turning now to the Foot Locker business. We want to provide some perspective on our expectations for the fourth quarter. As Ed discussed, our priority is to position Foot Locker for a fresh start in 2026 and reset the business for long-term success. This includes taking strategic actions to address unproductive assets, including the optimization of inventory and the closure of underperforming stores. As a result of our actions to optimize Foot Locker's inventory, we expect Q4 gross margins for Foot Locker business will be down between 1,000 to 1,500 basis points as compared to Foot Locker's reported results in the same period last year, with the pro forma comp sales being down mid- to high single digits. Excluding the onetime costs associated with our actions to address unproductive assets, we expect Q4 operating income for the Foot Locker business to be slightly negative. Looking ahead, we expect next year's back-to-school season to be an inflection point to drive meaningful progress in the Foot Locker business. As a reminder, we continue to expect the Foot Locker acquisition to be accretive to our EPS in fiscal 2026, excluding the onetime costs. Before we wrap up, I want to provide a couple of consolidated company assumptions to provide clarity for your models. For the fourth quarter, we expect approximately 91 million average diluted shares outstanding, which includes the dilutive impact of the 9.6 million shares issued in connection with the Foot Locker acquisition. We also anticipate a consolidated company effective tax rate of approximately 29% for Q4, impacted by the expected Foot Locker losses in EMEA, where no corresponding tax benefit is anticipated. As Ed and Lauren said at the top of the call, we are proud that we continue to operate from a position of strength with robust momentum in DICK'S business and a significant effort underway to return the Foot Locker business to growth. We are doing all that our shareholders would expect to make the Foot Locker business accretive in 2026. We could not be more excited about our future together. This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Robbie Ohmes with Bank of America. Robert Ohmes: My first question is, I know we're going to be talking a lot about Foot Locker today. But on the DICK'S business, it looked like a really, really great quarter, comps up 5.7%, et cetera, and you raised guidance. But just how are you driving that? And how are you guys thinking about your confidence going into holiday here? Lauren Hobart: Thanks, Robbie. We are so proud of the team for 5.7% comp. And importantly, we are comping strong comps, so a 2-year stack of 10%. And as you know, it's been several quarters -- 7 quarters in a row actually where we've had an over 4% comp. That really speaks to the fact that our long-term strategies are working. And I would point to the differentiated product assortment that we've been able to bring in, everything from newness from our strategic partners to emerging brands, our vertical brands, consumers, athletes are really resonating with the products that we are providing. And at the same time, our entire team is fully focused on delivering an engaging athlete experience. And that's in our stores, that's our digital environment. We are really focused on excelling and getting people the product that will give them the confidence, the excitement to do their absolute best. So our strategies are working. If you look at Q3, one of the great things we saw was that we had growth across all of our key categories. And when you think of back-to-school, you think of back-to-sport, you think of footwear and apparel and team sports, we knocked it out of the park with those categories, but also golf and as well as our license business and our trading card business really doing well. So as it flip to holiday, all of those themes are the reasons why we are so excited and confident as we look to Q4 and then we just raised our guidance. We've got an incredible product assortment for athletes. The consumer is fully focused on sport, and we are right sitting at the middle of the intersection of sport and culture. And we've got great gifts across our entire portfolio. So we're really pleased going into Q4. Robert Ohmes: That's really helpful. And then just my follow-up, just on Foot Locker, what kind of assumptions did you make about Foot Locker's cleanup of inventory in the fourth quarter having on DICK'S Sporting Goods? And also how many stores are you guys planning to close? And what would the timing be there? Edward Stack: Thanks, Robbie. As we take a look at store closings, we're still addressing that. We've got some stores that we think we're going to close. We're also looking to address just the upside that we think we have in these stores and how many really need to be closed and how many can we make more profitable. So we'll give you some more guidance on that at the end of our fourth quarter call. Navdeep Gupta: Robbie, let me quickly add on to the Foot Locker cleanup of the inventory in the fourth quarter. So what Ed said in his prepared remarks as well as what I said that we expect the gross margins in the Foot Locker business in the fourth quarter to be down between 1,000 to 1,500 basis points. As you can imagine, that is primarily driven by us quickly addressing the unproductive inventory that is in the system right now and have the room available to bring the excitement assortment that will position the business really well for 2026. Operator: Your next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: My first question on Foot Locker. So it looks like the business may have been a bit softer than -- the Street was expecting in Q3, and you're anticipating a slightly negative operating income in Q4, yet you're expecting the acquisition to be accretive to EPS in '26. Can you walk through the building blocks to achieve it? And then what gives you confidence? Edward Stack: Sure. Thanks, Simeon. I can't tell you we really couldn't be more excited about Foot Locker and the opportunity of Foot Locker. But there's some work that needs to be done to get it ready to -- for '26 and for it to be accretive to our business. So one of the things that we're doing, and we gave the Foot Locker team kind of a visual that we need to clean out the garage. So we're cleaning out the garage. We're cleaning out old unproductive inventory. We're going to be impairing underperforming assets. And from a confidence standpoint, those are all part of the building blocks that we need to put together to be ready for 2026. We have tremendous confidence in this management team that we've assembled in North America, as we talked about, it's being led by Ann Freeman, a long-time Nike executive that we've got a tremendous amount of respect for, and the brands have a tremendous amount of respect for. We just announced today that Matthew Barnes is going to run our international business, and he's a Brit, and we think that EMEA truly needs to be run by a European. We're making some real changes on how we are approaching the international business, which we think is going to be very positive. And one of the things we love about Foot Locker and one of the reasons we bought it when we went out and did our due diligence before is the men and women in the stores, the stripers and the blue shirts. These young men and women, they love sneakers. They love Foot Locker. They love to be around this product. And they're really our -- we really think they're our secret weapon as we go forward. And the other thing that gives us a tremendous amount of confidence is we've talked with every brand. And every brand has a renewed interest in being supportive to Foot Locker, and they've all talked that they want a stable and growing Foot Locker. And to be honest with you, it's great for our business, but it's also great for the brands business. And we've got complete alignment with the brands. And we are confident that in 2026, we do put all these building blocks together, we're confident that Foot Locker will be accretive to our earnings in 2026. Simeon Gutman: So my follow-up, I guess I'll make it 2 parts. First, just to that point on '26 accretion. That's Foot Locker stand-alone, including synergy. That's not, let's say, DICK'S Sporting Goods electing to buy stock back. That's Foot Locker math adding to DICK'S earnings base. That's part one of the follow-up. And then part 2, you don't tell us what your footwear gross margin is inside of core DKS. But if you look at Foot Locker, they've been on a steady decline for the last several years, and a lot of it does track with one of your major suppliers' proliferation of product. Is it feasible once you're done with your cleanup that you can get gross margins at parity with DICK'S Sporting Goods? Or is there something about the mix and the selection that you can't get it quite to that level? Meaning how much quick repair could there be once you clean up the assortment? Edward Stack: Well, we're not going to guide right now, and we'll give you some more guidance at the end of Q4. But we're not going to give you -- we're not going to tell you where it's going to be compared to DICK'S Sporting Goods, but we do know that it can be meaningfully different than it is right now. There's a huge opportunity. One of the reasons it struggled is they haven't had access to some of the key product. They haven't had allocation of some of the product. There's a number of stores that are out of stock in product that they don't have. I was just in a store in New York yesterday, as a matter of fact, and talking to the gentleman who runs the store, and he said, we're a great running store. We just got Nike's running construct in last week. And when you take a look at some things like that, there's just a huge opportunity. That product is being sold at full price. So yes, we're really confident that there'll be a meaningful increase in their gross margin. And we'll give you some more color on that at the end of the fourth quarter. Simeon Gutman: And then I don't know, Ed, sorry, it was a follow-up to the accretion comment, if you can comment any more on that, whether that included buyback or that's just core Foot Locker? Edward Stack: That's core Foot Locker. That's not to say we might not -- as we've said, we've been -- we'll be opportunistic based on what happens with the stock. We may buy back some stock. But we think from a core Foot Locker standpoint, it can be accretive to our earnings in '26. Operator: Your next question comes from the line of Kate McShane with Goldman Sachs. Katharine McShane: We were curious about how you're going to manage the markdowns at Foot Locker. I guess the concern is, is that if you do discount aggressively in the fourth quarter, do you think you'll be in a position where you can go back to full price selling and the customer be ready for that as new product comes into the store? And our second question on the discounting is, do you feel like the market is going to be heavy with discounts now in Q4? And how much do you expect that to impact the market and DICK'S own footwear sales? Edward Stack: Sure. Thanks for the -- thanks, Kate. I don't really think that that's going to be an issue with these markdowns and then going back to full price because the product that we're marking down is older product that hasn't sold product that's been sitting around for a while. So when we get the new fresh product, we'll sell -- we're confident we'll sell that at full price. And the consumer out there is looking for a new fresh product that is innovative in the marketplace. And that's what Foot Locker for the most part, doesn't have right now, and we'll be bringing that product in as we get into '26. From a discounting standpoint, right now and who knows things could change. But right now, we don't think that the discounting is going to be meaningfully different than it was last year. We do feel that we've got -- as Lauren said in her remarks, we've got different and innovative products, more premium product that you'll see product that's not as fully distributed in the marketplace, and we don't see that -- the promotional activity impacting our business a whole lot. Operator: Your next question comes from the line of Adrienne Yih with Barclays. Adrienne Yih-Tennant: Great. It's great to see the continued momentum at the DICK'S brand. I guess, Lauren and Ed, obviously, I'm going to talk a question from about Foot Locker. Is this a case of kind of just historically underperforming operations and with some closures and inventory management that you can control the controllables to kind of turn the business? Or are there more infrastructure investments and some longer-tailed structural things about the business? Secondarily, are there banners within Foot Locker that no longer perhaps make sense? And if you could talk about that. And then finally, my follow-up is on inventory. 1,000 to 1,500 basis points is quite a bit. Is there a write-off reserve within that? And -- is it just the depth of the promo? Or are you using third-party channels? Just trying to understand the magnitude of that and the quickness of trying to get through that in the next couple of months. Edward Stack: That's a lot, Adrienne. Let me start -- that's okay. So the idea of this is historically underperforming operations. I think that's a big part of this. So Foot Locker really didn't -- they kind of got away from retail 101 of trying to have the right product in the right store and having those -- I think turning this around, we don't think there's going to be some capital involved, and we're going to invest in the stores. But we've just done an 11-store test, and it was pretty capital light. And what we really did is we took the inventory -- most of the inventory out of the store, and we relaid out the wall. And one of the things that the DICK'S team is really good at, and we're bringing that expertise to Foot Locker is from a merchandising standpoint and how those visual merchandising really can help drive the store. We took the inventory out of the store and we redid the walls. And no real infrastructure back in there. But if you had walked into a Foot Locker store and still walk into a lot of Foot Locker stores other than these 11 and look at the wall, it's kind of merely a run-on sentence of shoes. And what we've done is we've taken and tried to segment it and show the consumer what's important in the stores. And we've got these 11 store test, and now it's only 11 stores, but the results have been -- we're pretty enthusiastic about the results. So we think that we can definitely turn this around. As far as the inventory being down 1,000 to 1,500 basis points, we are going to -- we're going to take markdowns to get this out of the store of older underperforming SKUs. And we do expect at the end of the year, there will be a program that we will sell some of this off to a jobber and just clean out what's left from the inventory and be able to get a fresh start in 2026. So that's why we're moving as quickly as we can to get a fresh start in 2026. Lauren Hobart: Yes. I want to just add to what Ed is saying from my perspective. If you look at the core challenges that we're facing with the business, it really is -- as you said, it's underperforming operations, it's inventory management. It's core Retail 101. And one of the things that's been so amazing to see if the team is coming together and Ed is spending a ton of time with them is that the core expertise in DICK'S, be it merchandising and the balance of art and science or the visual presentation, you can hear in his remarks, just talking about that, the fact that our -- we are a marketing-driven company and that we believe in brand. And so those plans are being worked on for next year. And the brand relationships, this is a heavy operational focus. All of those things are being transferred by osmosis coaching mentorship, all of that. And that's what gives me the confidence that we are moving in the right direction. Adrienne Yih-Tennant: Okay. And just to be very crystal clear, the markdowns of the inventory are on lifestyle and will have kind of no competitive impact with the performance -- premium performance at DKS. So there's no crossover there. Edward Stack: The product that we're marking down is not a key product at DICK'S Sporting Goods. It's an older product that quite frankly, and with the visual we used with the Foot Locker team and it is kind of caught on globally is we just got to clean out the garage. We've got to clean out all the inventory that's kind of in the corner that's not selling that we need to have out of our system. Adrienne Yih-Tennant: Fantastic. Makes 100% sense. Good luck. Operator: Your next question comes from the line of Michael Lasser with UBS. Michael Lasser: The first one is relatively straightforward. The expectation that Foot Locker will be accretive next year is based on the $14.25 million to $14.55 million for this year. Is that correct? And how dependent is the accretion expectation on inflecting the sales that you would anticipate by back-to-school for next year? Navdeep Gupta: Michael, thanks for that question. Yes, let me clarify on exactly like you said. Yes, the basis is on the $14.25 million to $14.55 million as the basis for 2025 results, and the kind of the dependency, I think it starts with what Ed said about the building blocks. It starts out with cleaning out the garage, positioning the inventory and having that excitement assortment and the newness that is resonating so well at DICK'S Sporting Goods with the gross margin expansion and the merch margin expansion that you are seeing is going to be the first and foremost priority as we look to the building blocks for how can this business be accretive. And keep in mind, we talked about as part of the cleaning out of the garage that there are other unproductive assets. We are looking into the store portfolio, where there are some unprofitable stores. But the opportunity we are looking at that is not only deciding if the store should be closed, but actually, the opportunity is the reverse to say if those stores had access to the right product and the right innovation and the newness can those stores be turned around and made profitable. So we are looking into that. We are absolutely looking into some of the unproductive assets that won't be part of the core business going forward. But to your point, it starts with sales and margin. And in addition to that, we'll look into cleaning up to the garage to position the business for a profitable growth into 2026, especially in the -- from the back-to-school season of next year. Michael Lasser: Got you. And my follow-up question is one of the key debates on the combined enterprise story right now is how do you ring-fence the core DICK'S business in order to ensure that the integration of Foot Locker does not become a distraction to slow the momentum of the core business. It does look like in the fourth quarter, you are anticipating a significant slowdown guiding to a flat to slightly positive comp for the core business. So a, what is fostering that expectation? And b, given you have owned this business for a matter of months now, give us a sense of how you anticipate that they won't be -- it won't become a distraction such as the core business can accelerate into next year and drive some growth on top of the accretion that you're anticipating for Foot Locker. Sorry, there was a lot of words in that question. Lauren Hobart: Got it. Thank you, Michael. One of the absolute prerequisites for us to do this acquisition was exactly what you're saying. We needed to ring-fence the DICK'S team and DICK'S needs to stay completely focused on driving our growth and our strategic priorities. And that is exactly what we are doing. I mean 8, 10 weeks in now, I'm even more confident that, that is how we're doing it. We've set up the team at Foot Locker. Ed is very much spending time over there. The DICK'S team is fully focused on the DICK'S priorities. And we're going to continue to just keep the teams sharing learnings, but not remotely working -- not distracting each other from what their core priorities are. When we look at Q4, you mentioned the deceleration, I want to be really clear about this. We just came off of a 5.7% comp, and we're up against a 6.4% comp last year. So the fact that you see our comp slightly moderating in Q4, we actually just raised the comp and the high end of our previous guidance now is the low end of our guidance. So we are really bullish on the holiday. We are just balancing that with an appropriate level of caution as we always do. We don't ever guide to the best possible outcome. But we are pumped and ready to go on the DICK'S side for Q4. Operator: Your next question comes from the line of Mike Baker with D.A. Davidson. Michael Baker: Great. A couple to start on. First, a little bit more detail on that 11 store test. Maybe any initial results or pop in sales? And I mean, is it just as simple as relaying a back wall or there's got to be more to what you're doing. So if you could address that, please. Edward Stack: Sure. So we're not going to lay out kind of the results. As I said, they're early, but we're really very encouraged on them. And it's not just as simple as laying out the wall as we've kind of taken some of the older product out of that -- those stores, put in some newer, fresher product that we were able to get our hands on. And one of the things we've also done is we're bringing the apparel business back to Foot Locker. They had really kind of walked away from the apparel business. And if you walk into these stores, you can see the apparel in there and the apparel is selling really quite well, too. So -- we think that there's an increase from a footwear standpoint, from an apparel standpoint going forward. And we'll -- we'll more than likely give you a little bit more color on this test at the end of the fourth quarter as we give guidance going into 2026. But there's a lot of just basic retail 101 that if Foot Locker gets back to that or when as Foot Locker gets back to it will have a meaningful impact on their business. Michael Baker: Great. Fair enough. One more follow-up, if I could. You're talking about a fresh start and getting everything cleared by the end of the fourth quarter, but back-to-school is the inflection point, not to put too much pressure on you or try to accelerate it, but why not spring as an example, as the inflection point? Why should the FERC, presumably, the first half not be as strong? Edward Stack: I think that's a really good question. And the main reason for that is our merchandising philosophy and how we're buying the product, we didn't buy that. It was bought by the previous management team. And we think that there's some -- and we're going to talk to the brands about trying to plug some holes. But the third quarter or the back-to-school time frame is the first time we will have had complete control over the assortment going forward. Operator: Your next question comes from the line of Christopher Horvers with JPMorgan. Jolie Wasserman: This is Jolie Wasserman on for Chris. Just following up with DICK's ability to affect inventory orders for Foot Locker. So just confirming that you're saying that you won't be able to fully affect it until the start of the third quarter, but are you able to have any sort of impact even if it's lighter in the first half? And just specifically on the percent of spring ordered since the acquisition, how much of that have you been able to order thus far? And how do you see that flowing into the fall? Edward Stack: We can have some impact on Q1 and Q2, probably hopefully a little bit more on Q2 than Q1, but we're working through that and working with the brands and they are being as helpful as they can to try to get product to us that we need. But it's really going to be in that third quarter that you'll see the big difference that our team will have fully bought that product and merchandise that product. Jolie Wasserman: That makes sense. And our follow-up question was just on gross margin with the third quarter. Just more broadly, if you could speak to what's going on there in terms of promotional environment -- this is all for DICK'S promotional environment tariff costs and the other inputs we discussed last quarter, like the GameChanger business? Navdeep Gupta: Yes. So we reported today a 27 basis points expansion in our gross margin. Keep in mind that, that 27 basis points of gross margin expansion is on top of 70 basis points of expansion that we saw. In terms of the promotionality within the quarter, the promotionality, as you can imagine, the overall marketplace continues to remain dynamic. We participated in select promotions, which we always do during the important back-to-school season. The tariff impact was within that quarter, our results as well within the merchandising margin. But keep in mind, we still delivered a merchandising margin expansion of 5 basis points on top of almost about 60 basis points of impact -- from a positive impact last year. And there was a slight unfavorable impact from the mix, like Lauren talked about the license business performed really well, which is a fantastic growth opportunity but has a slightly lower margin. So that -- we had a little bit of an unfavorable impact from the mix as well. And just to kind of round out that answer, I would say that if you look at it, we have guided that we expect our gross margin to expand -- on a full year basis, we expect gross margin to expand in our -- on the back half as well as within the fourth quarter. So overall, we feel great about the merchandising capability. The work that the GameChanger team is doing and the DICK'S Media network. Those ingredients continue to remain in place that drive our confidence in the gross margin expansion for this year and into the future. Operator: Your next question comes from the line of Paul Lejuez with Citi. Paul Lejuez: Can you talk about the $500 million to $750 million in charges that might be coming? How much of that is cash versus just write-offs? And how many stores are actually being reviewed when you think about that range of $500 million to $750 million? And any split that you can share in U.S., international or banner? Navdeep Gupta: Yes, Paul, we'll share much more of the detailed assumptions. As you can imagine, we are 10 weeks into this acquisition. And like I said before, we are balancing the evaluation that we are doing with the opportunity that we see in terms of driving growth and profitability expansion on a store basis. So on stores, we'll share much more of the detailed plans during our Q4 call. In terms of the makeup of the $500 million to $750 million, I would say there are 3 main buckets. The first and foremost, as Ed talked about, is the unproductive inventory, which makes up quite a decent chunk of that, that we will be addressing -- vast majority of that will be addressed here in Q4. That does include some of the store portfolio evaluation. And then we are looking deeper into the assets that we have in place, some of the technology assets, some of the legacy contracts that we will evaluate as part of the fourth quarter and clean that also have to position the business and the profitability of the business for 2026. In terms of the cash versus noncash, I would say it will be a combination of both things. Inventory definitely would be cash, but if there are some existing assets on the balance sheet that we'll be cleaning up, those will obviously be noncash. So we'll share more detailed assumptions behind all of this during our fourth quarter call. Paul Lejuez: Great. And then just on the synergy number, the $1 million to $1.25 million, how much of that are you assuming you can capture in F '26 to get to those accretion numbers? I'm curious if you're thinking that you might be actually playing for a bigger number than that $100 million to $125 million in longer term. Navdeep Gupta: Yes. Well, the $100 million to $125 million, I would say we have -- there's a lot of work that has already been done. What we are working through, as you can imagine, is just conversations with the brands, conversations with the nonmerchandising vendors, and those conversations are happening right now. So to now have a better line of sight, call it, 12 weeks from now as part of the fourth quarter. And in terms of looking for additional opportunity, you know us, we'll continue to focus on driving the top line and the bottom line results for the collective business now. So absolutely, that's a focus within the organization. Operator: Your next question comes from the line of Cristina Fernández with Telsey Advisory Group. Cristina Fernandez: I wanted to ask a question on the vision for the merchandising and Foot Locker. That business historically was heavy on basketball, sneaker culture and kids. So as you look at where there can be improvement, do you see that mix materially changing on the apparel side? Are you looking to lean more into private label? Or do you also see national brands playing a big role in their apparel expansion? Edward Stack: Yes. Foot Locker has always been steeped in basketball culture, and it will -- basketball will still be a very important part of that. The basketball construct that we see in the product coming forward from a basketball standpoint, we are really enthusiastic about across a couple of brands. And the apparel business, we do see the apparel business -- the national brands is where they had kind of stepped away from and leaned into their private brands, which we think the private brands certainly have a place there, but we feel that the national brands will have a meaningful increase in the apparel business in Foot Locker, which will help drive the AURs, and we think it will be very profitable. Cristina Fernandez: And then my second question is on Foot Locker also have been on a pretty significant remodel and refresh program. Have you continued with those Foot Locker reimagined stores? Or have you paused that program and looking to make changes in that real estate strategy that they have been on? Edward Stack: I think the Foot Locker reimagined stores has been an interesting test. As we've kind of gone through there, there's parts of the reimagined store that are very good and other parts that need to be rethought, and we're in the process of rethinking those right now. So as an example, what they characterize as the [ Kicket ] Club and the drop zone when you first walk into a Foot Locker store in the middle of the store, we're going to take that out, reimagine that, give better sight lines to the balance of the store and repurpose some of that place, which -- that area of the store, which was not very productive at all. It was more of a social place and turn that into giving the apparel presentation more space and really focusing from an apparel standpoint, which we think will drive the sales even better than they are. Operator: We have time for one more question, and that question comes from the line of Steve Forbes with Guggenheim. Steven Forbes: Ed, I was curious maybe to just explore like any demographic differences we should be aware of as we think about the performance spread between the 2 businesses. I think one of the thoughts out there is maybe more exposure to lower income, but I'd be curious to maybe just hear you summarize how we should think about the demographic exposure and how that sort of impacts your merchandising plans on a go-forward basis here? Edward Stack: Well, we'll merchandise Foot Locker for Foot Locker, which is going to be a bit more basketball inspired, a bit more trend inspired, definitely more urban than the DICK'S business. The DICK'S business will be more sport-led along with the lifestyle product. We think DICK'S is really kind of at the center of sport and culture and it's a more suburban concept. With that being said, all categories of consumer, if you will, are looking for a product that is new, innovative and different than what's out there in the marketplace right now. And Foot Locker didn't have that new and innovative product. As we get into the 2026, we'll start to have more of that product. And by the third quarter, we think we'll be fully invested in that newer -- the newer innovative product that the consumer across all income levels is looking for. Steven Forbes: And then just a quick follow-up for Navdeep. Maybe just so we're on the same page here, a slightly negative adjusted EBIT for Foot Locker on a pro forma basis, that compares to the $118 million last year. Just, I guess, confirm that. And then is there any way to sort of think through how you sort of view like a normalized 4Q or how you would speak to just where that LTM adjusted EBITDA profile is for the business relative to the $395 million that's in the presentation? Navdeep Gupta: Yes. So the comparison, you're right, it's comparing to a normalized on a non-GAAP basis, the results that the Foot Locker posted in fourth quarter of last year. And keep in mind, the connection point between the 1,000 or the 1,500 basis points of the margin decline versus the slightly negative operating income expectation for Foot Locker is the part of the cleanup of the garage inventory. And that's the piece that we have threaded between the 2, the numbers and the estimates that we gave out for the Foot Locker business. Operator: And that concludes the question-and-answer session. I will now turn the conference back over to Lauren Hobart, President and Chief Executive Officer, for closing comments. Lauren Hobart: Okay. Well, thank you all for your interest in the DICK'S story. We will see you next quarter. Have a wonderful Thanksgiving and a huge thank you to our entire teams of over 100,000 people around the globe. Thank you. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to today's VIG Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Hartwig Loger. Please go ahead. Hartwig Loger: Yes. Very warm welcome from Ringturm in Vienna, and thanks for joining our call with information to the main topics we have prepared for you. So we already last week announced the outstanding performance of our group for Q1 to Q3. So today, we have the chance to deepen the information about this very successful first 3 quarters of this year and which was also announced that we already raised the outlook for our profit before taxes for this year 2025 to EUR 1.1 billion to EUR 1.15 billion. And Liane Hirner, our CFO, will then give more details to the topic of the results of the first 3 quarters. The second big topic, and we know that there is big expectation also from your side that we today are ready to give you first information about our interest in Nurnberger, and we also released the information that the public purchase offer, which ended on the 21st of November this year at an acceptance rate of 98.38%. So out of that, Gerhard Lahner, he is responsible Board member of VIG for this project. He also will give some information in detail about this topic. Myself, I will then follow with information about the new strategic program in the name of Evolve '28, which will be the new strategy for '26 to '28, and which will not only further strengthen our group, but mainly will focus also on the long-term profitable growth. Today, I will offer you the structure, the main topics. And I have to excuse that the targets to this strategic program will be approved by the Supervisory Board next week. So we will come to the detailed targets back to you as soon as possible after the approval of next week. We also are happy and glad that Peter Hofinger, Deputy CEO of Vienna Insurance Group is also attending this meeting and is also ready for questions from your side after our presentation. Saying this, I hand over now for the first topic about the performance to our CFRO, Liane Hirner. Please go onward. Liane Hirner: Thank you, Hartwig. Let's start on Slide 4 with the key figures over the first 3 quarters this year, which highlights the ongoing strong performance of VIG. Insurance service revenue of EUR 9.7 billion is up by 8.6%. Here, both P&C and Life & Health showed top line growth of more than 8% each, and I will go into more detail on that on Slide 6 in terms of the individual market development. Profit before taxes as preannounced last week and despite the goodwill impairment taken already at half year for Hungary increased by 31% to EUR 872.8 million. Main driver for this outstanding profit before taxes growth in the third quarter was an excellent technical result in P&C supported by low net combined ratio. The biggest contributor to this more than EUR 200 million additional pretax profit in absolute terms was Czech Republic, followed by Austria in the Special Markets segment. VIG's P&C net combined ratio improved to 92.1%, driven by favorable weather conditions. Our strong capitalization is reflected in a solvency ratio of 286% compared to the solvency ratio at half year of 278%, the SCR of roughly EUR 4.1 billion remained fairly stable, mainly due to the slightly higher capital requirements for non-life, life and health insurance, reflecting the increased business volume. The own funds of VIG of about EUR 11.7 billion increased by almost 4% or more than EUR 400 million in the third quarter. This is driven by operating earnings and the positive development also on the capital markets, resulting in higher market values of our investments. The solvency ratio, excluding transitional measures, stands at equally very strong 267% and increase also compared to the half year. It is clearly above our solvency target range of 150% to 200%, which does not consider transitional measures, and this also underpins the capital strength and the resilience of our group. Now on the next slide, we show the gross written premium development by segment. Premiums overall increased by 8.6% to EUR 12.5 billion. Double-digit growth rates were recorded in Poland, plus 13.5% and the Special Markets segment, plus 18.4%. The strongest contribution in absolute terms is coming from the Extended CEE segment, plus EUR 314 million, where especially Romania, Hungary, Slovakia and the Baltics made up for close to 3/4 of the additional premium. Special Markets, mainly driven by Turkiye as well as Austria, Poland and the Czech Republic, all increased their premium volumes by more than EUR 130 million each. In IFRS terms, this relates or translates into a very solid insurance service revenue development, which is shown on Slide 6. Here, in line with gross written premiums, the insurance service revenue also increased by 8.6% to EUR 9.7 billion. I would like to draw your attention to the Extended CEE segment. Insurance service revenues of overall EUR 2.87 billion already exceeds the level of Austria. Again, it's the market in the Extended CEE segment, for example, Baltics, Slovakia, Romania and Bulgaria, performing extremely well. In the Special Markets segment, it's a dynamic business in Turkiye despite hyperinflation, which accounts for the significant increase. This segment also includes Germany, Georgia and Liechtenstein with Germany and our Life and Non-Life companies InterRisk, they are contributing EUR 140 million in insurance service revenue. Last but not least, Austria, Czech Republic and Poland, all 3 with solid growth rates and a strong performance also in the first 3 quarters this year. The dynamic top line development of our group supported by weather-related claims translated in the third quarter into an exceptionally strong increase of our profit before taxes. On Slide 7, you will find a short summary of the results development and the figure for the net weather-related claims recorded in the first 3 quarters. Compared to about EUR 338 million in last year in the first 9 months last year, which were related to storm Boris, we recorded only EUR 160 million of weather-related claims so far this year, thanks really to the absence of the severe nat cat events. As already mentioned by Hartwig, the strong performance of our group so far this year provides us with the confidence to raise the target range for the group profit before taxes between EUR 1.1 billion to EUR 1.15 billion for the whole year 2025. Finally, I would also like to highlight the rating upgrade by Standard & Poor's, confirming VIG's excellent A+ rating and raising the outlook to positive. This was driven by our progress in broader diversification and followed the announcement of our intention to acquire a controlling stake in NURNBERGER, which was very positively received by Standard & Poor's. With this, I hand over to Gerhard, who will now share his insight to NURNBERGER with you. Gerhard, please go ahead. Gerhard Lahner: Thank you, Liane. Let me provide you with some background and also my personal take on the NURNBERGER transaction to explain you the strategic rationale and why we are highly confident that this is an excellent fit and will increase shareholders' value over the mid and long term. The following slides in this presentation will substantiate my top-down view and provide you with further details on German market and NURNBERGER. Let me draw your attention to the disclaimer on Page #8 and specify that we are still in the nondisclosure phase of the due diligence. And let me stress out that any figures published by NURNBERGER are seen in -- are to be seen as National GAAP German accounting principles, which are not comparable to IFRS 17/9. Well, earlier this year, VIG was approached by NURNBERGER management whether we would be interested to start talks about potential strategic partnership. Given the attractiveness of the German insurance market for VIG as a Special Market, with a high insurance density and penetration while being one of Europe's largest and most mature markets, well governed by BaFin, we entered into these discussions with a clear aim to increase our exposure in Germany in combination with our local company just recently mentioned by Liane, InterRisk Life and Non-life. So it should be clearly stated that this is not a market entry, but this is an expansion on an existing market that is with the VIG portfolio for 35 years plus. After first talks, both sides quickly realized that joining forces and simplifying the shareholder structure would be the most efficient way to return NURNBERGER back to a profitable and stable company. With a state-of-the-art IT landscape to best leverage on the strong brand and the sales footprint in across Germany. From our perspective, it became clear right away that NURNBERGER management has a clear strategic vision for the company to become a profitable player in the German market with a clear focus on prevention, occupational disability and a restructured Non-Life portfolio. Well, against this backdrop of the strong commitment of NURNBERGER's management, the cost efficiency program started by them Back to Black for the Non-Life part, but also the further diversification potential through the partially complementary life insurance portfolio and the experience in turnaround and IT transformation that VIG would bring to the table, we intensified our discussion. We strongly prepared for the nonbinding offer phase and we were finally granted exclusivity for a detailed due diligence. And in this due diligence, we clearly found ourselves confirmed in our basic assumption, which was further supported by the publication of NURNBERGER half year's result that the management is well on track to deliver. Right from the beginning, it became clear that the solid solvency position of NURNBERGER is, of course, combined with the attractive brand, the countrywide operating sales force and the strong determination of the local team to get back to the historic level of profitability, a very attractive asset. The unrestricted Tier 1 of EUR 1.9 billion will strengthen VIG's resilient foundation for further expansion in CEE, which clearly remains the strategic focus of our group. Through this transaction, right after closing the deal, all Tier 1, Tier 2 and 3 limits will increase as NURNBERGER has become part of VIG Group and therefore, provides the potential for further growth in CEE without diluting existing shareholders. At the same time, the risk profile of the SCR of NURNBERGER will provide a buffer when it comes to VIG's sensitivity of shifting interest rates downward out of the Austrian life back book. Most importantly, the investment can be financed from VIG's own liquid funds, providing us with the flexibility to optimize our funding structure in a more opportunistic way and taking benefit of deleveraging the last period. In addition to VIG's own funds, there is also a EUR 500 million revolving credit facility in place. So given the spirit of local entrepreneurship at NURNBERGER, the multichannel distribution system across Germany and a conservative reinsurance policy, we are very confident that the multi-brand approach with a strong NURNBERGER brand, combined with the additional scope for further diversification is going to support our operations in Germany in a profitable way, providing a resilient internal financing structure source when it comes to the future expansion in CEE region. As we are convinced that biometric risk in connection with occupational disability is a core competence that will be increasingly relevant to support our business in different Central and Eastern European countries, the addition with NURNBERGER team and their know-how in this field is just a perfect fit for VIG. In terms of cultural fit, with NURNBERGER being an independent insurance group for the last 140 years, the entrepreneurial management style as well as the historical proximity for Germany and Austria will provide a good foundation for NURNBERGER to become a strong member of VIG. In summary, we had a chance to look into the books of NURNBERGER and are confident that the company's turnaround will be successful. And through the acquisition from VIG truly supported by our involvement. So given, first, VIG's experience in turnaround non-life portfolios in challenging market environment; second, VIG's experience in IT transformation, especially in Austria, where the digital landscape is very similar to the ones at NURNBERGER and was successfully completed in 2023, a strong NURNBERGER management with a clear vision how to generate consistent cash streams for VIG's further growth in Central and Eastern Europe and VIG to leverage on the know-how of NURNBERGER in biometrics and occupational disability, VIG will benefit from the NURNBERGER's strong solvency position from day 1, enhancing its internal financing capacities over the midterm. Please note that after the announcement, intention to acquire NURNBERGER, Standard & Poor's, as mentioned by Liane, upgraded our rating A+ with a positive outlook with a particular focus on our financial strength and diversification potential for further growth in Central and Eastern Europe. If you allow me now, I would like to go -- to hand over to Hartwig Loger, CEO, for the presentation about the strategy. Hartwig Loger: Thank you, Gerhard. I will now give you the first insight about the structure of the new strategic program for '26 to '28. As you all know, we are still in the end spirt of the group-wide strategic program, VIG '25 ending this year. And I think with the expected performance, we raised, as we already said, to EUR 1.1 billion to EUR 1.15 billion, we see also the success of the activities of our running strategic program. With Evolve '28, as you can see also on the Slide #16, we used also a name which gives the first intention what we are looking for. It is not the big revolution, but a dynamic evolution, which is built up on the success of the last years and also the current performance we can show as VIG. The frame, which is shown here is in our understanding of the, I would say, USB model we are living as VIG. Our understanding is not being a big tanker in a centralized form, but being a dynamic fleet with responsible ships and this framing, which is shown here in these 4 parts will secure that this fleet has a common direction and the strategic performance also in the upcoming years. To start, maybe also in the description, you see on the bottom Values and Principles. I will go deeper afterwards, but we already were sure that it is the need maybe also to evaluate and also to a little bit, yes, renew the values and principles for the upcoming years and the challenges we are seeing in front. On the left side, with country portfolio and company strategies, this is more or less the backbone of this strategic part for the next years. What is meant, and I will also show afterwards, there are 50 individual company strategies. So over the last year, we developed under a common structure and on the basis of deep analysis of each market, a common strategic implication for each market of our group. And then the CEOs of the companies in the markets developed their company strategies for the next 3 years, and they were following a common structure of 5 strategic fields. This means that this framework for the next 3 years already has a detailed definition for each company of our group in targeting and action plans for their activities to improve the performance also for the next years. You see the group programs. We defined also 5 group-wide programs. These programs are not initiatives as we have defined it in VIG '25 because initiatives have been the offer to the companies in our group if they will also join these initiatives, the 5 group programs now we are focusing are really for group-wide activities seen, and they are coordinated by the holding or also competence centers out of our group. On the right side, you see also the fourth part, which is ongoing in CO3. Here, we define our activities in communication, collaboration, which is needed to really bring added value out of the best practice and the innovation and creative projects in between the group and cooperation, which is focusing also to find the synergies in between the companies working on one market. On the next slide, you get the overview. I will not now present in detail, but we clearly define the 5 values for our group. Plurality, which is the basis for our fleet. We have not only 50 companies in 30 countries, we also have a very high diversification in between also the different markets, the different brands, also the different sales channels. We are active all over our brands and companies. We have the basis of our 33 million customers already, which will be improved and increased also by incoming NURNBERGER customers in Germany soon. And this is the Plurality basis, which is also our understanding that this Plurality in the activity of the fleet is the added value of our model. Entrepreneurship following this Plurality idea means that especially the local entrepreneurship, the self-responsibility in between the management of the ships in our fleet and the companies, it is the strength and the motivation and identification of all our managers and leaders. Responsibility on one side, of course, to the society, but also as we know, out of the challenges of climate change, there is a broad basis in our understanding that we want to make sure that our economic value today is not in any form destroying the future of our society. Excellence, which is clear in the focus of our company activities on the customer basis to make sure that in all our services, products, processes, we are focusing also to deliver excellent services and products, and that's the base of our performance. And passion, it is needed also to create and find out the right form that we are clear for our 33 million customers, yes, I would say, best partner in all our solutions. The Principles on the next slide, we also evaluated to make sure that the description in the way how we work together in this group. And I'm open to say that the interest also in the partnership, which was developed now also in the purchase of NURNBERGER that NURNBERGER, as it was also said by Gerhard Lahner, it will be a perfect strategic fit also in the understanding of a group-wide common activity also in the future. Now a little bit deeper in the content on Slide #19. You see here the 5 strategic fields. This is the common structure of each individual strategy of each company of our group. The one field, the most important and the first one is the expand of the customer base and also the enrichment in the activities that there, we will focus in all the companies in also cross-selling and upselling potential out of this base we already have and this base, we also want to increase in the number of customers. The second topic in line is to enhance the distribution footprint. As you know, we have a very strong diversified sales channel activity. And including also bank and direct sales, it will be the basis to improve on a better way and also to use also the challenges and advantages which will come up in the development also on digital basis. And also, we will come further on to that in artificial intelligence solutions in services which are provided in this form. Next part is Products. We enlarge also the product offerings. It was mentioned that here, we use the collaboration in between the group really to improve also the broad Plurality of offerings we have. And also besides this, there will be added services also as basis to strengthen our customer experience. Next is Operation. This field, the strategic field in each of the strategies of the companies is focusing on the effectiveness and effectivity of processes in our operations and also with improving the automation in between these processes in best practice forms in between the group. And last but not least, the fifth and very important basis employees to foster the people who are already active and to find also the best experts in our companies, which are needed for the innovation transformation we see all over our base. On the next slide, here, you see the 5 already mentioned group programs. which were developed also on a broad discussion basis in between the CEOs of our group. Here, we build on the relevant trends. We also discussed on broad basis, the trends already existing and upcoming for the next years and the challenges. And out of that, we clearly defined the main programs on one side, sustainability, which is an ongoing program, which has already been started 3 years ago. But there will be, again, a strong focus in delivering also solutions on the basis of underwriting as our key activity, but also in the asset management and operations field and which is important also for VIG to not only focus on the ecological part, but also on the social part, which includes society, our customers and also our employees. Capital management. In the understanding of the group, it's very important also for the efficiency in between the capital management of our companies in the group. And Gerhard Lahner is leading this capital management program starting in a pilot last year, and we will work out for the next 3 years that we have a very professional also management of the upstream of dividends out of the performance of our companies. Banking cooperation, which is mainly driven by the backbone, which we have in the strategic partnership with Erste Group, but we will not only work on the improvement of this strategic partnership with Erste, where we are active already in 7 markets together. And we also see the opportunity all over the group in all the other markets to expand with additional partners beside the 7 markets of Erste. Artificial intelligence, I think it's clear for all of us that there has to be a focus in the activities, which already is on a broad basis. I sometimes already mentioned that in the activities of our VIG Accelerate program, more than 50% of the projects which are brought in by the companies in this kind of platform of project for digital solutions, we have more than 50% already on the basis of AI. But it is needed, and this is what we will focus in the next 3 years to optimize also the efficiency in the use of the use cases in between the group and all over the group. And the fifth program, focusing on health, which we see in all the markets in different forms as a high potential for developing not only on product, but especially on service basis, and there, we also will have a focus in analyzing and then also supporting our companies in a group-wide form on these solutions. The next slide, evolve28, CO3, I already mentioned, I will not go deeper. Just repeat, collaboration here shown in the symbol of Spider-Net. This is really supporting the added value created out of the broad innovation and creative basis of all our companies. This is really, I would say, a boost in the way of creating new solutions in all forms in between our business. Cooperation, yes, inside, we say ensures independence in the way that there is a clear focus in the optimization of the cooperation in between our companies in one market. For example, in the back office optimization between Wiener Stadtische and Donau in Austria, also other companies in Czech, Slovakia, Poland, and there is a big range where we can deepen also the optimization, partly also automization of common activities. Communication already mentioned, we have as information already provided more than 40 communities, which are active in between our experts and specialists in between the group. So there is also a very strong interlink between our fleet. Last but not least, on the Slide #22, I offer to you also knowing your expectation. And we already mentioned by myself and also Gerhard Lahner, there is still a little need of patience from your side. Why? We have now the performance of Q1 to Q3 for this year, and we also raised our outlook for the result of '25. Regarding now the program evolve28, which I shortly presented in its structure and content, there will be the next week, our Supervisory Board meeting where we will approve the targets for the next 3 years, including also the targets coming up from evolve28 strategic program. What we can offer is then next week after the Supervisory Board meeting, there, we will also then comment and declare the targets and the figures for the next 3 years to you. And Peter Hofinger and me, we will join also in a dance program, all bank conferences, which are offered in London, in Frankfurt, in Hamburg and also the others, where we then hope that we will have the chance also to present to you maybe also in personal talks then not only the program, but also the targets and some interesting discussions. The closing of NURNBERGER. And I know that there is a big expectation also regarding the detailed KPIs and targets from the inclusion from NURNBERGER, but we still have the need that the closing, which we expect until the second half -- beginning of second half of '26, there will be then the start of the financial integration, which cannot be done before. But immediately after this financial integration phase, we will also have the chance then to integrate the targets of NURNBERGER also in the strategic targets of this evolve28 program. And then we really can not only opens, but give a deep insight in also the calculations and also the valuation of all this influence of integration of NURNBERGER. So I know that there might be a bigger expectation, but there are also the legal frameworks we have to declare. And out of that, we are also open now to answer your question, and we are looking forward to the first questions you have. Operator: [Operator Instructions] Thank you very much. The first question comes from the line of August Marcan from UBS. August Marcan: I have too many, but let's start with 3. First one on the combined ratio. This year, the 9-month combined ratio benefited a lot from benign weather. And last year, we had worries. So in the last 2 years, we kind of had the opposite extremes. So I was wondering if you could tell us what you see as a normalized combined ratio level for the group going forward? Then the second question, a rather simple one, apologies for that on your new strategic plan. I'm not sure I fully understood the time line. You said that next week, you're going to have the approval from the Board. Are you then immediately going to have an event or publish this? Or what exactly is the time line? And if -- again, on the CMD, you said that the financial targets are going to be published there. Could you just tell us now if -- what the KPIs are, not the numbers, but what the metrics are that we're going to be looking at because I think your last strategic plan didn't have a lot of financial KPIs. So I'm not sure what this one will include. Peter Höfinger: Thank you for the question to the combined ratio. Yes, you are quite right that the comparison of last year to this year is quite difficult as having Boris, which was a gross claim of but you know and we have presented this that we do have a quite conservative reinsurance policy. We are still able also over the last years in the hardening of the reinsurance market, keeping low self-retention. So also last year, for the first 9 months, we had a combined ratio of 94.3%. This year, it is considerably better with 92.1%. But you also see that the difference, if you compare the amount of the events is not so significant as we have as a mitigation element, reinsurance, which we are willing to buy in quite in a bigger amount. What was beneficial this year to our results, and this is outstanding is the phenomenon of having less frequency of small- to medium-sized events. So this has had quite an impact on our improvement of our loss ratio. The mild climate and the absence of this frequency of small to medium events, we are not impacted in a year by the big events due to our reinsurance. So therefore, I think you see the limited volatility of our combined ratio from last year to this year, having a very big event and having this year an outstanding event. So I think between 92% and 94% is what is our combined ratio to be expected going forward. Hartwig Loger: Okay. Thank you, August, for your question. I will take question 2 and 3 from my side. First, yes, there will be also an information immediately next week when we have the approval from the Supervisory Board to the targets 26 to 28 next week. And what you can expect, there will be a very transparent basis also in the information about these targets. It will be a target about the growth a target about profits. It will also include combined ratio, which you asked before to Peter Hofinger. And there will be also a target clear on return on equity as an operative return on equity, and there will be also targeting the solvency ratio. So these are the targets which will be discussed in the Supervisory Board, and then we will clearly make it transparent to the capital market about the targets we have for the next 3 years out of our program. Operator: Next question comes from the line of Rok Stibric from ODDO BHF. Rok Stibric: Yes, I would have just one question and it's -- forgive me if I'm being a bit impatient. Usually, you disclose these things with half year and full year results, but I would still like to hear your view on future investment income expectations. So the question is, do you expect future investment income to be roughly at the same level as this year? Or do you expect this line of your P&L to improve in the future or maybe given the changing interest rate environment to even decrease? I was just wondering what your thought is on developments in the future. Liane Hirner: Liane, I'm happy to take your question regarding the investment income. What I can say is that we have a very positive development in the investment income in the first 3 quarters. So this year, so no impairments, no one-offs. Also, we have a positive development of the interest rates, especially in CEE also, for example, including Turkiye. And due to the increased business volume, also interest income or financial income is increasing. So I would expect a positive development also on this side in the upcoming quarters. I hope this answers your question. Operator: We now have a question from the line of Youdish Chicooree from Autonomous Research. Youdish Chicooree: I've got 2 questions. The first one is on the top line development. I was wondering whether you could provide a split between Life and the main lines in Non-life, like [indiscernible] other property, et cetera? And then secondly, on NURNBERGER, could you tell us, I mean, how long will the turnaround of this business take? And are you able to share what your view is of the sustainable earnings power of that company, please? Peter Höfinger: Okay. I'm happy to take the question about the development of the business lines. If you look on our non-life portfolio, so we are growing all over the group in health business. And what is very positive to see, we are growing by 12% in health. What is very positive to see that we have a quite very good dynamic in health business in Central Eastern Europe. We see a growing demand by our clients and by our markets getting health insurance, and we are having quite innovative concepts and also offering this market-to-market depending on result. On the framework of the social security laws there. We do have a growth in property and casualty of around 5.6% all over the group. Also here, you will see a stronger growth dynamic in Central Eastern Europe as this is also linked to the overall GDP growth and the economic dynamic. And as you know, there is a quite positive GDP growth in Central Eastern Europe, where we are benefiting with our property business. When we come to the motor business, we have to differentiate between motor TPL and motor own damage. In motor TPL, it is around 11%. And in motor own damage, it's more than 6%. The background here is over the last years, we have seen in Central Eastern Europe quite an overproportional salary inflation. Differently to maybe Western Europe, increased salaries more or less go immediately into consumption and not just on the savings book. Part of this consumption also goes in cars and buying new cars. This is the growth driver for motor own damage, but also in motor TPL. If you look on the Life business, I think you also asked, overall, the life business is growing by more than 8%. Here, it is the classical life business, which is growing, but also in unit-linked, we are closer to 6% of the performance. So also here, we have, I think, a quite attractive dynamic. The same true, what I said for the other business lines. The driver of this growth is Central Eastern Europe, where the demand for old age savings is growing, and we also see this as one of our further future potentials of growth in the years to come. I hope I have answered your question. Gerhard Lahner: Let me take the second one on NURNBERGER. I will -- in my first part of the answer, I will refer to publicly available information. NURNBERGER itself has announced that the turnaround for the non-life part will last until 2027. We have seen quite a strong development this year, supported, of course, also by favorable claims development as well as a positive market cycle on the German insurance market when it comes to non-life profitability. So we trust the management to be well on track with the turnaround of the non-life part. The IT part will take probably a little longer. Nevertheless, given the status as which -- in which we are as of today, I think that we will have the chance to have more deep dive with NURNBERGER management on that issue when the closing has been done. Nevertheless, we are aware of that this will, of course, also long term decrease the cost base. So I think that from our point of view, we are -- I think that the NURNBERGER management is well aware of that we are expecting them when you ask me to return to historical profitability levels. As you know, not only you are impatient, but we as well -- I guess this is also well known to the NURNBERGER management. Youdish Chicooree: And can I ask a follow-up question, please? Gerhard Lahner: Yes. Youdish Chicooree: So you're expecting the closing in the second half of next year. So do we have to wait till then to get, let's say, IFRS 17 numbers for NURNBERGER basically? Gerhard Lahner: I would like to give you a different answer, but the answer is clearly yes. Operator: [Operator Instructions] The next question comes from the line of Thomas Unger from Erste Group. Thomas Unger: I'll connect to the last question and answer on. NURNBERGER. What can VIG do here to advance and accelerate the transformation process for NURNBERGER? And you already said that the time line remains about the same as what NURNBERGER guided. But when do you expect the first dividends from NURNBERGER to VIG? That will be my first set of questions. And upon closing, do you expect any significant one-offs to be incurred or immediate major investments that you anticipate for the second half of 2026? And then also, I'd like to ask you now that you're in the process of this takeover, how does that affect your growth strategy in Central and Eastern Europe? Are you able to take advantage of any M&A opportunities or other growth opportunities that may arise in the next 1 to 2 years? I don't know you haven't said anything or any details given any details on the capital hit that you'll be taking as you attractive opportunities in Central and Eastern Europe in the next 1 or 2 years? And if you allow me to also ask you on the dividend, the upcoming dividend from 2025 earnings. Will the NURNBERGER acquisition in any way affect the management Board's decision process leading up to the dividend proposal from 2025 earnings? Gerhard Lahner: On what can VIG bring to the table? I think that in different markets and especially in challenging market circumstances, I guess that VIG has shown that we know what it means to turn around, especially non-life portfolios. But I think that what we see is that the NURNBERGER management is very well in place and know what they do on the restructuring and turning around the non-life portfolio. Nevertheless, I guess that we can bring some know-how. In addition, I think that I'm not sure if everybody is aware of, but VIG has taken advantage of IT transformation program executed by Wiener Stadtische and Donau [Insurance] the last years ended in 2023. And what VIG can bring to the table is that given the fact that the IT landscape is very, very comparable to -- between VIG in Austria and NURNBERGER IT landscape, we are very confident that we know what needs to be done, first point. Second point is when it comes to talent, we have the team that was successfully doing this transformation in the DACH region still on board. You just should probably know that we decommissioned a lot of all systems in Austria which finally gives you also going forward, quite some flexibility on the digital journey that, of course, you need sooner or later. Second of all, dividend expected. I think that, in general, our intention is that NURNBERGER will keep on paying dividends in general. Nevertheless, of course, we -- and this leads to, I guess, your third question, one-off investment, we will need to judge what is the best way to finance the long-term IT transformation program of NURNBERGER. Nevertheless, we don't expect this to be a big upfront amount, but probably be spent over several years. And then we would probably judge on what is the most efficient way to deploy capital in NURNBERGER or within the entire group. I guess the fourth question is twofold. One is the financial part of the flexibility for further -- taking further advantages of inorganic growth or M&A transactions in Central and Eastern Europe. And the second one is the managerial question. I would take the first part. So definitely, given the deleveraging that VIG has gone through the last periods and the financial flexibility that we have from our balance sheet, I do not see any immediate restriction out of either the transaction nor anything upcoming. The managerial part of the answer, I would ask probably Hartwig Loger to give you the answer. Hartwig Loger: Okay. Thank you, Gerhard. I will take also the question about our possibility also to invest and go on in the growth of Central Eastern Europe. This is clear the target, and we also including our investment in NURNBERGER, we are ready and also in part of the program of evolve28, we are still interested in possible profitable growth and also investment in the enlargement of our activities in Central Eastern Europe. And as we expect maybe coming up soon also with some targets, we have also already on our radar. I think the most important thanks also for that question, our investment in NURNBERGER will not have any impact to the dividend payment out of the outperformance of '25, which is expected. So we have the clear definition of our policy to dividends. So there is the floor, and we are clear that with the performance on the operative side, there will be also the definition and the increase on the dividend payment for this year. I hope this gives security to you. Operator: We have a follow-up question from the line of August Marcan from UBS. August Marcan: Two quick questions on NURNBERGER. One is with this acquisition, you're getting some businesses that maybe are not core for Vienna like the banking business. Have you considered what you want to do? Do you want to keep the business, keep NURNBERGER as a whole? Or are you looking to dispose of the non-insurance asset that NURNBERGER has? And then the second question, you're also bringing from NURNBERGER a sizable investment portfolio and their asset allocation is quite different from yours. They have much more equities and a bit more real estate than you do and much less bonds. Have you considered what the plan is here? Are you going to move them to your strategic asset allocation? Or are you going to leave it as is? Gerhard Lahner: Thank you very much for those questions. The first one is it's probably still too early. Definitely, the focus of the acquisition for us is the core business, which is the entire insurance business of NURNBERGER. So this is the focus. The rest we will see further down the road when we are able to judge immediately after closing. The second one is on the asset allocation. VIG will not move away from the conservative asset principles that we have in place. Of course, there is an interlink between the asset portfolio of NURNBERGER. So we will first very thoroughly analyze what are impacts. But definitely, we are supposing to continue VIG's conservative investment approach in the long run. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Nina, Head of Investor Relations, for any closing remarks. Higatzberger-Schwarz Nina: Thank you for your participation in today's call and your questions and interest. As mentioned by Hartwig Loger, our CEO, our evolve28 targets will be announced next week. Investor Relations is available to provide support and assistance with any further questions or requests for meetings. And I hope to be in touch soon. In the meantime, goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.
Operator: Thank you for standing by, and welcome to the Web Travel Group Limited First Half FY '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. John Guscic, Managing Director. Please go ahead. John Guscic: Thank you, Harmony. Good morning, everyone. Welcome to the Web Travel Group results for the first half of FY '26. Joining me today is our CFO, Tony Ristevski. Grab your ticket and your suitcase, thunders rolling down the tracks. Web knows where it's going, and we know we'll never go back. Investors, if you're weary, lay your head upon my chest. We'll take what we can carry, and we'll leave the rest. Big Web rolling through fields where sunlight streams, meet me in the land of hope and dreams. Welcome, guys. We said that we would deliver world-class growth in FY '26, and we said that margins would stabilize. And we've done both things. If you go to Slide 3, you'll see that our TTV is up 22%. Our margin is at 6.5%. We'll talk about how we get there and the construct in a second. EBITDA for the group is up 17%. If we break it down to the underlying performance of WebBeds, TTV of $3.2 billion, up 22% on the first half of '25, revenue of $204.6 million, up 20%, EBITDA of $94 million, up 21% on the corresponding period. We've maintained market-leading TTV growth rates while maintaining margins. Revenue is a reflection virtually identical with TTV and EBITDA is up almost exactly the same. We'll go through the construct of how that all transpired in a second. If we get to the overall group performance, underlying EBITDA is up $81.7 million after corporate costs of $12.3 million. NPAT is $48.6 million, and we continue to skew out cash at a rate well above our contemporaries where we're up circa $120 million in the year. CapEx is in line with our expectation at $18.6 million. And our cash position is exceptionally strong, notwithstanding that we spent $150 million on buying back shares in the second half of the last financial year. What we have done is to provide greater flexibility is increased our undrawn revolver credit facility from $40 million to $200 million. Moving through to our key metrics. I've covered most of these, but bookings at 5.70 million, TTV at $3.17 million. In both cases, we're seeing strong organic growth in all regions. And our bookings and TTV combination reflects the expansion of the network in which -- or the distribution network in which we participate in both various geographies and various channels that have all expanded during the first half of '26. Record revenue at $204.6 million and record EBITDA at $94 million, obviously, reflecting our revenue growth as well as our planned increase in operating expenses as we future-proof our business to maintain the margin levels that we are currently delivering and expect to deliver for the foreseeable future. Let's go through the highlights. Bookings up 18% across all regions. TTV up 22%. Revenue, 20%, expenses up 19%. That's reflecting CPI increases, the reintroduction of the bonus scheme, which we didn't get paid in FY '25, as well as the previously flagged investment in hotel contracting. In functional currency, we expect expenses to go up in high single digits. We'll talk a little bit about the functional currency in a little while as we go through what has transpired. EBIT is up 21%. We said at the start of the year, we reaffirmed during the AGM that EBITDA margins will be between 44% and 47%, and we are at 45.9%. So let's get into a little bit more of the detail of what we've been able to deliver. As those who are familiar with the business are aware that we carve out our superior growth rate in 3 separate buckets. One is what does the market growth or system growth look like. What are we adding to the pile through new customers and through improved supply arrangements or entering into new markets. And the third is same-store sales, which we call conversion, what are we doing to increase the sales that we make from our existing customer base. So if you look at systems growth, so if you're not growing at 5%, you're going backwards against the market. We think our estimates are the overall hotel supply and distribution market grew circa 5%. We looked at our business and what's different between the first half in specific inventory that we've sold and/or specific clients that we've sold to. That accounted for about 5% of our growth. And all the rest is the singular focus of an organization of circa 1,900 employees looking to ensure that we provide the right product at the right price at the right time for our customer base and enhancing the value of our supply partners by giving them global distribution. And again, we had another standout result where we improved our conversion by another 12% in the first half of '26. All right. Let's get a little bit technical here, and we're going to have to talk about the vagaries of the FX market and how that played out for us over the year and talk specifically about the regional performance of our respective markets and how that's been translated to our functional currency. So as you can see, in aggregate, globally, our bookings are up 18%, but in the functional euro currency, we're only up 14%. This is an anomaly from this perspective. What we have seen in FY '26, as we compare the exchange rates of the euro, in particular, against FY '25 is the euro has appreciated considerably, in particular, against the U.S. dollar. The net effect of that is that at a functional currency level, we're only up 14%. At a bookings level, which is activity, we're up 18%. At Aussie dollar level, we're up 22%, and 22% is circa normal. If you had a bookings growth rate of 18%, then you would expect average booking values to go up circa 3% to 4%. So 22% is the expected outcome of bookings of 18%. How we got there is a little bit unusual. So let's go through the individual markets and call out what's actually happened. So Americans had clearly, the standout performance in the half, up 36%, a factor of, again, some great client wins and massive market share gains from existing clients driving a massive outperformance in that particular market. And yet when you translate that to euros, it's only up 27%. The vast majority of that delta is the previously mentioned exchange rate between the U.S. dollar and euro. Let's go to Europe. Europe, very strong results at a bookings level, up 14% in the most mature distribution market in the B2B landscape. That is a superior result. And perversely, TTV in euros is down 12%. And that's because there are not just the euro that we sell in Europe, we're selling GBP pounds. We're selling Scandinavian currencies, we're selling Eastern European currencies. The way we account, we've got Turkish lira in there, and all of those currencies have depreciated against the euro, which shows the 14% bookings translating to 12% at a TTV level. Okay. Let's go to APAC and strong growth, double-digit growth in APAC and TTV growing faster than bookings. That's purely a function of average booking value increasing quite significantly in APAC because there was an FX drag on many of those currencies against the euro. So we saw ABV rates of circa 5%, driving a 2% net TTV to euro improvement. And the starkest example is the Middle East, where solid bookings, 6%. They were up massively in April and May, as you will have at our full year highlights as we -- of FY '25 when we called out our respective results, they were up significantly. There's been a significant softening in the Middle East market as a consequence of the war in Israel and Gaza and the bombing in particular, of Iran and Qatar saw a significant slowdown in region of that particular, in market, and that resulted in the subdued growth. We have high conviction that our Middle East business will continue to grow at above market rates. And as we'll talk about in the forward-looking element of our presentation, as the FX exchange rate delta ameliorates over time, that will translate to double-digit TTV growth in the market. So overall, really strong performance and that's how we landed in our respective marketplaces. Moving on to Slide 9. Again, for those who have been on us for this particular journey, in particular, in the post-COVID world, you've seen a significantly streamlined business doing significantly more volume, significantly more profit with lower resources invested in that effort. So the time scale to the right shows you the history of our business. In particular, it's a proud moment for our entire organization to see that growth rate continuing at our expectation of delivering towards our $10 billion TTV target. We're on track for that particular effort. We spoke about our margin where -- we said that we would be circa a year ago, I said that we would be at least 6.5% over the next 3 half reporting periods, which is an 18-month period. We continue to be on track to deliver 6.5% not only for FY '26, but with all the things that we've done in our business for FY '27, and I'll talk about those when we get to the forward-looking statements about our business. How we get to improve margins when clearly 6.5% is less than 6.6% is during the course of the year, we sold our DMC business, which is a high-margin business, low volume. That accounts for circa 20 basis points, and we actually improved our margin across the board to deliver 6.5%. So the most simple way of looking at it is the -- we're on a run rate to circa $6 billion in TTV this year. We delivered circa $5 billion last year. And what we've done is deliver the exact same TTV plus the incremental circa $1 billion over the full year, and we've maintained margins across the entire pool of business that we've sold to, which is in line with our overarching strategy over the last 12 months of ensuring that we solidify that margin and anchor it to the 6.5% and continue to deliver superior revenue and TTV growth as we deliver across the 3 piles that I talked about, systems growth, new customer supply and markets and improved conversion. So moving on to Slide 10. We're expanding our customer base. I've had opportunities through various presentations internally over the last few weeks to reflect upon the journey that we've undertaken from a customer base. And in essence, we started as a business where we sold Dubai as a destination to the Middle East. We made a small acquisition in Sunhotels in which we sold Mediterranean beach holidays to Scandinavians, and it was predominantly through a retail channel and predominantly through a narrow focus of customers. What we've done exceptionally well over the post-pandemic recovery period is broaden out that customer mix, in particular, looking at where are the fastest-growing customers globally and how can we tap into meeting their needs as a wholesale bedbank provider. And we've done that very well, and you see the superior results, in particular, in the Americas where we're partnered with the most innovative OTAs in the region to maintain our superior growth rates. Our customer diversification extends to what I've just described in America versus the tour operator business that we provide the same offering to and the same level of success in Europe, let alone the super apps in Asia or the corporate clients that we deal with in the Middle East. So we've got a really broad portfolio of customers that we continue to expand, and we have a strong pipeline for the balance of FY '26 and into FY '27. The next element is our supply mix in which we have a renewed sense of focus over the course of the last 12 months, and it's the most important strategic focus -- sorry, most important operational focus of our business going forward. So we were unhappy with our performance in FY '25, where there was the wrong inventory being sold at the wrong prices to some of our clients. We are addressing that, in particular, with our efforts to improve directly contracting sales in Americas, in particular, where we are significantly underweight. There's an enormous opportunity for us as we play out that particular strand of our tactical initiatives, and that will continue into FY '27. The second thing that has been, again, a credit to the hybrid business model we have of directly contracted inventory and partnering with the major third-party suppliers is we've seen an increase in supply of last-minute accommodation over the course of this half. Our average booking window has compressed by circa 5%, which is material in as someone who's been in this industry for 20-odd years. So it's the most significant compression of the booking window because of the broad range of supply that we have, we're able to tap into that particular compressed booking window and our percentage of last-minute bookings is up significantly against the same period of last year. And as we continue to grow, we have increased our relevance and presence with the major hotel chains. And we've got to the -- we've got into now the consideration set of being a viable distribution partner on a semi-exclusive basis to some of the largest hotel chains in the world, and we couldn't make that claim 2 to 3 years ago. As we were a business of circa $2 billion to $3 billion, we're a long way from having the global reach and presence that we now do have. And that dialogue is changing, and there will be some considerable success stories as we roll out our chain strategy over the course of the next 2 to 3 years. Moving on to geographic mix. In a Utopian world, we think we'll have 3 equal regions of roughly 30% each between Europe, America and APAC. We're getting pretty close to that. Middle East will be circa 10% of our overall business. We will continue to grow in all regions. We are not underinvesting in any. We have high-quality individuals who are running our sourcing and sales organizations in all those regions. And that's why we continue to outperform our competitors at both the TTV and EBITDA level. One of the significant contributors, and those who have followed our story will know that Europe is our highest margin region. We have improved margins in our highest margin region. And as we've grown faster in some of those regions, it's more than compensated for that TTV margin geographic mix that would have been down with pressure on us, and it's one of the reasons why we're so confident about delivering 6.5% for the balance of this year but also into FY '27. Finally, if we talk a little bit about scalability in the biggest hat tip I can give to the operational element of our organization and the people responsible for efficiency across the entire organization. It's an incredible achievement that we're now delivering bookings at circa triple what we were doing per FTE pre-pandemic. We're up 174%, and that number will continue to expand as we deliver the multitude of initiatives that we have within our organization that enable us to leverage technology to become more relevant and embedded in our business and to drive greater efficiency. And that's, as I said, a credit to, in particular, the operations teams within our business, which are all in-house. If we move to AI, there are a number of things that we have done. In particular, we have delivered margin optimization over the last number of years through a significant investment that we have made in that particular space. We think that we have market-leading solutions there. We also have a number of other AI initiatives undertaken within the business to improve how we surface inventory, the quality of the inventory we surface and how we service that inventory once it's been sold. There's been a little bit of a conversation about most particularly in the last week or so from industry commentary about the impact of what AI tools by some of the large language models will have on our business. The short answer is that will be another growth engine for us. The most recent example is Google announced their new travel initiative. And as I've shared previously with my colleagues on this particular call, there's only one team -- one time in the history of my 14 years, I generally thought -- apart from COVID, of course, but what I generally thought we faced an existential threat was when Google Flights was launched at the top of the funnel on all Google Search to displace the existing meta providers and take and capture demand before it fell to people like Webjet back in the day. The new Google -- and if that had been -- if that had played out, you wouldn't see the success of the large OTAs globally and Webjet's continued success over that intervening 10-year period. Now there are many reasons for that because at the end of the day, in this Google AI initiative and the various others that are coming down the track that we are aware of, what they all are is fixing a specific problem. And it's a problem that we have discussed many times internally when we were Webjet is how do you improve the search experience for customers, and we now have the answer: AI makes it infinitely better than typing in a date range, number of packs and a location and hoping that the 1,000 properties in Paris come to in the sequence that you would like. So it's an incredible fill up for those businesses that have -- that will -- sorry, for consumers that will enable them to derive superior results faster and have it tracked and be able to keep a log of everything that you're looking at before you make your booking decision. But the booking decision will not be made by the AI. The booking decision, and this is straight from Google last week, the booking decision will be -- they will not be the merchant of record. They'll pass that through to their partners. They will not service the customer. They will not go through all the things that we go through to enable that to happen. And where we fit in and why this is going to be a sustainable growth channel within our organization is we feed the people who are the consumer-facing level. We feed the OTAs that are going to be partnering with them. We feed any of the other channels that they choose to partner with. So rather than being a displacement for us, we think this will continue to enable us to grow faster as we have because we have a very broad range of inventory as demonstrated by the fact that we're on track to sell $6 billion of it. And it's not going to become less attractive in an AI world. What AI will do is deliver these incredible insights to get to our inventory faster. So we're very excited about that particular initiative. Finishing off the scalability, investment in contracting staff, we think will have a meaningful impact, in particular, in Americas, where we believe our margins will go up on the back of that. And in light of the fact that 5 or 6 years ago, we were the only publicly listed company that had publicly declared data about this industry, you'll see that with new people coming into the public markets, it still remains a significantly fragmented market, which continues to create opportunities, and we will look to take advantage of those opportunities over the course of this and the next financial year. So with that, I will now hand over to Tony to go through the finances. Tony Ristevski: Thank you, John. Good morning, everyone. Can you turn to Slide 12, which is our first financial summary, the P&L. Consistent now for the better part of 7 years, we've presented the P&L in the statutory format, which is to the left and the one that's more relevant, which is the underlying format to the right. John has already gone through the key operational results as it relates to review and EBITDA for the WebBeds business. Corporate cost is the next idea there in line, and that is pretty much consistent to what I said 6 months ago, where we're on track to do circa $24 million, but I'll talk a bit a bit about that in the next slide. And our operating expenses, which we do exclude from underlying of $5.5 million for the half is really predominantly a function of a mark-to-market to the equity-linked instrument that is a function of share price. Our share price obviously at 30 September is lower than what it was at 31 March, and that resulted in a revaluation downwards, which we do exclude from the result. The other key item there to call out is our effective tax rate at an underlying level. It is on track to be around 17% for the year. But this time last year, when we were part of the enlarged Webjet Group, we had the benefit of Australian earnings to offset the corporate losses, which were incurred in root, which for this half, we don't get that benefit. So consistent with what I said 6 months ago, our effective tax rate going forward will be in the vicinity of around 17%. The other key thing to call out on the slide is, as you can see, there at an underlying NPAT level, despite the record earnings for the half. But at an NPAT level, we are down versus last year, and that is really a function of the demerger, which I'll take you through the next slide, which is quite important. So if you then turn to Slide 13. What our NPAT represents in the first half of '26 is really the stand-alone business in its post-demerger format. So if you then look to the left there of corporate expenses, being $12.3 million, if you go back 6 months ago, second half '25, the exit run rate for corporate cost was $11.1 million. So when you then look at it in the context of the $12.3 million, it's the natural progression as we stand into an individual corporate function post demerger. Then if you then go to the next item, which is depreciation and amortization, the compare is a function of the demerger allocation. But then if you look at the second half of '25, that was $13 million approximately in D&A, and that did grow up 20% into the first half into $15.5 million and on track to be around $31 million for the full year. And then if you then go to the right there with net interest and finance costs, 12 months ago, at the half, we were in a positive situation, $600,000. Then in the second half of '25, we went to a negative $4.3 million, resulting in a $3.7 million for the full year of a net expense. Obviously, in the first half, we're at $7.4 million of net expense. And that's really a function of a couple of items there. Firstly, we did upsize our revolver, which does have a cost. Secondly, we did effectively reduce our cash balance by approximately $300 million, which we're getting the benefit for, firstly, through the demerger, handing $143 million over to Webjet. And then in the second half, $150 million through the buyback. And obviously, as has been the case over the last 7 or 8 years, our option premium costs are pretty much growing in line with our TTV numbers. So all in all, we're expecting net finance costs to be around $15 million for the full year. Going on to the next slide, which is our balance sheet. Strong healthy cash number, which John talked to earlier. Our working capital, which is our debtors and creditors is consistent now as we normalize after last year, where we did have a contraction around creditor days. Debtor days are sort of around 20 days going forward and creditor days are around the mid-30s going forward. So overall, quite pleased to see that both have stabilized. And I'll talk about the cash consequences of that on the next slide. Turning to the next item of substance, which is probably borrowing costs. You would see in our statutory accounts with the convertible notes due to mature April of '26, the borrowing cost has now been classified as current as opposed to noncurrent. But equally, as you would have seen 6 months ago during the April period of '25, we did upsize our revolver from $40 million to effectively $200 million, plus we've got an undrawn facility there of another $18 million. So all in all, we currently sit around $700 million of liquidity. So to the extent that we will be looking at a potential redemption event, we are well capitalized and have a well amount of liquidity to deal with that eventuality. Lastly, on capital efficiency, the key thing there is that it has grown materially from where we were at this time last year as our earnings grow organically through the generation of cash and earnings, it has now grown to almost 22%. And when I look back over the previous slide, it is now sitting in record territory, ROIC. And that will only continue to expand as we organic grow our business into the financial year. Then I'll turn to the next slide, on Slide 15, which is talk about cash. As always, our cash comes from our profits. And then the other key element to consider here is obviously working capital. We are working capital positive in the first half, which is consistent with the trading over that summer shoulder period. You got to recall, when we look at our TTV numbers being record levels across that August, September period, we do collect that cash. And then there's an unwind of payables that typically occurs across October and November. So what you'll see consistent with past years is in the second half, we'll have negative working capital, and that will result in approximately a cash conversion number of about circa 100%. Looking down to the next items there from a financing dividend perspective. Obviously, we'll continue to invest in our business and the prospects around growth. So no dividend has been declared. Talked about cash conversion being approximately 100%. And in terms of capital management, we talked about this 6 months ago. We obviously completed the buyback in the second half, which did address 88% of the potential dilution that could come from the node. We upsized the revolver, and coupled with the cash from operations, we are well equipped from a liquidity perspective to deal with whether it's commercial or redemption come April of '26. But come May of '26, we'll be a bit more explicit around how we think about capital management going forward once that event is behind us. And lastly, on the last slide being CapEx. No surprise there. We did churn spend half-on-half as a result of the point-of-sale solution being accelerated this time last year, which is why we ended up being smaller in spend this half. Going forward, we do see CapEx to be effectively like-for-like in terms of underlying functional currency versus '26 versus '25. And then from an outlook perspective, we do see that it will grow in line with inflation. So on that note, I'll hand over to John. John Guscic: Thank you, Tony. For those who have seen the ASX announcement this morning, you'll note that Tony has resigned from our business. It's bittersweet to make that announcement. We have sat across the table from each other for 15 of these half year results and full year results update. We will, in turn, spend plenty of time celebrating everything that Tony has done with us during the next 6 months. Tony will still be with us at the full year results, and we'll give him a proper sendoff there. And in between times, he will get his regular torture from me. So thank you for everything you've done for us, Tony. Tony Ristevski: Looking forward to it. John Guscic: So let's go on Slide 18 reconfirming the financial outlook statements. As you'll see on the left-hand side, in relation to WebBeds in functional currency, we made the following promises at the AGM in August that our TTV margin would be at least 6.5%. We are on track. Expenses to grow in high single digits. We are on track. EBITDA margin is expected to be between 44% and 47%. We delivered that in the first half, and we are on track. CapEx to be in line with FY '25, as Tony just covered, on track. If we get to the mothership at Web Travel Group, corporate cost is $24 million. We're consistent with what we said in August, D&A at $31 million. That's consistent with what we said in August. Net financing costs are at $15 million, that's circa $1 million lower than what we said in August, underlying effective tax rate, 17%, full year cash conversion, 100%. So everything we said in August, we have ticked and bashed. So now I spoke earlier about the impact of the euro to USD headwinds and the AUD to euro tailwinds. As we roll forward another 6 months, we expect that to be less pronounced based on existing exchange rates. And therefore, the results in FY -- in the second half of FY '26 will be less impacted by currency fluctuations based on what has happened today. I make no forward-looking statement about what might happen with those exchange rates. Moving on to FY '26 trading update and guidance. So second half TTV up until the 21st of November, we are up 23% versus the same time this last year. So strong growth in the second half, remarkably consistent with the growth in the first half. First half was skewed to first quarter outperforming second quarter being a little bit below that number. And now we're seeing a nice rebound into the third quarter, and we expect that to continue for the full year. Our EBITDA guidance is between $147 million to $155 million. That is an increase of circa the bottom range, 22% to the top 29%, which means basically that we are delivering significantly superior EBITDA in the second half because we delivered 17% in the first half. So to get to 22% means the second half at a minimum is going to be high 20s, 27-odd, and it could be as high as mid-30s in second half performance, which goes to the conviction and the confidence of all the things I spoke about of why the business has delivered against the promise of superior TTV growth and stabilized take rate, delivering increased and superior EBITDA, notwithstanding the continued investment that we make in our business. If we move to the final slide, and we start to think of what's next year going to look like. We continue to build out our marketplace. Our marketplace continues to be more relevant for all of our major players and all of our major partners. So we see no reason that we won't be able to deliver on our TTV growth rates that enable us to get to 30 -- sorry, $10 billion by FY '30. This time last year, I said that we just delivered circa 6.5% TTV margin we would for the next 12 months. I mean in the same position today, we will deliver it for the back half of this year. We'll deliver that number again in FY '27. I've spoken a couple of times about this, but I just want to make the point that the investment that we've made this year is in our OpEx this year around contracting staff, we believe will make a meaningful impact to our results in FY '27. And WebBeds remains a highly scalable business, and we expect to deliver circa 50% EBITDA margins in FY '27. So information, Web will provide for you and will stand by your side. You'll need a good companion for this part of the ride. Leave behind your sorrows, let this day be the last. Tomorrow, there'll be sunshine and all this darkness past. Big Web roll through fields where sunlight streams. Meet me in the land of hope and dreams. With that, Harmony, we will take questions. Operator: Your first question comes from Sam Seow from Citi. Samuel Seow: Congrats on the results. Just if I could just quickly ask on that 10 basis points of improvement in the revenue margin. You called out that optimization initiatives driving the growth. Could you possibly present some color on that? Is it direct contracting? Is it something you've done in Europe there looks like? Or yes, just any color on that would be greatly appreciated? And then maybe a question for Tony. What kind of uptick do you expect purely from the accounting change in the second half? John Guscic: Thanks for the question, Sam. We have increased the proportion of directly contracted sales during the half. So that's contributed to it. We have increased pricing in some jurisdictions. And as you will have noted from previous conversations where we've been very explicit, the other 3 regions beyond Europe, operate at a lower margin. And notwithstanding that they've grown in aggregate faster, we've still been able to increase the margin because of those activities. So that sharpening of focus around who we're selling -- what we're selling to who is what's contributed to that outcome. Tony Ristevski: And on the second part there, Sam, that uptick in trading is effectively offsetting less than pronounced delta half-on-half around the accounting change. I would describe probably 6 to 12 months ago. The underlying business performance is actually improving as a result. What we're seeing is less what I would call, variability half-on-half around that retrospective approach to the error rates that I would describe 12 months ago, landing on a margin for the year at least 6.5%. Samuel Seow: Got it. Got it. And just quickly, I noticed when you break down your TTV, your underlying market growth there at 5%, normally, that's pretty standard. But just of interest to me, obviously, particularly in the first half of your year, the market appeared to be quite volatile. So just kind of wondering how you put that 5% together? Is that your market specifically? Is it just more domestic focused? Because obviously, inbound in the U.S. was quite soft and some of your peers talking about channel changes, et cetera, and percentage of last minute bookings. But yes, just kind of that color on the 5%, it seems quite robust. John Guscic: Your question is very relevant, and it's one of the things that we've tried over the course of the last 4 to 5 years to talk about our geographic spread. We talk about our channel mix and in that portfolio of businesses, you have winners and losers. And even with the market up 5%, I'll be hazarding a guess that 15% of our customers went backwards. 10% of our geographies went backwards. You've called out the one that everyone can call out, which is inbound to America is down circa 15%. Americans going to Canada or Canadians go to America is down, I don't know, 20-odd percent. So all those things play out. I tend not to get overly focused on the individual travel corridors. I have lots of people in our organization who spend an infinite amount of time looking at these travel corridors. But when we roll them all up to a business that's up at $6 billion, there are winners and losers, and we end up with more winners than losers and that's why we continue to outperform the market. The second thing I'll touch on, which you, again, I think, was implicit in your question, and I didn't call it out, even though I spoke about it, even though it was written down in the deck somewhere that the macro events do impact us, but they impact us for a very short period because unless you're into a global issue, the markets are growing at, say, the underlying GDP growth is 2%, for example, and it goes to 1.5%, it has an outsized influence on businesses that are directly correlated to the underlying growth rate of their individual market. We're not in that state. So I called out in August that for the 2-week period, when Israel bombed Iran, all markets went backwards, and we still delivered 22% TTV growth and 18% bookings growth. At a transactional level, all of that, we had massive cancellations during that period that exceeded creative bookings, and we still delivered 18% bookings over the half. We had a phenomenal first 7 weeks, which we called out, that was significantly impacted, and we've recovered nicely into the second half of FY '26. So giving you more color is not going to help you is the short answer. It's in the aggregate. Does our business continue to grow faster than market? Checked. Where is it coming from? We've given you all of the regions. Within each of those regions, there's still winners and losers. There's still customers that win and lose. There's still geographies that win and lose. That's just the nature of having a global business in which we sell in more than 100 countries, and we sell to thousands of endpoints, and we sell thousands of destinations. Samuel Seow: That is actually very helpful. Just to kind of get an understanding of that diversification, but I might just jump back in line and appreciate some of your commentary. Operator: Your next question comes from Tim Plumbe from UBS. Tim Plumbe: Just 2 questions from me, if possible, please. John, just the first one around the directly contracted hotel strategy. Can you give us a sense in terms of how far progressed you are with the hiring? Do you still need to put on incremental heads? And in terms of getting full momentum of contracted hotels, where are we currently? And when would you expect to see full momentum? Is that kind of first half of '27 or second half of '26? John Guscic: Thanks, Tim. Look, we have -- depending on how you count it, we have circa 1/4 of our employees involved somehow in getting inventory onto the system through contracts or through negotiating contracts or through loading contracts through the myriad of solutions that we provide all of our partners to get those contracts for sale at any point in time. What I've called out in the -- at the end of last year's financial results is, well, I'll call it out here, we are well over 60% directly contracted in all regions except the Americas. And what we are doing is addressing that specifically in the Americas. So in aggregate, we're over 50% directly contracted but we're under 50% in the Americas, and we want to lift the Americas closer to what we're doing in the other 3 regions. There are some unique elements of that, which suggests that if we got to 50%, that would be an optimal structure for us. I don't think it will get to the circa 2/3 that we do in some of the other regions. For the large domestic market that we're servicing in America and the broad geographic spread of that, it just becomes inefficient to have more contractors. So our focus beyond our existing circa 500 people is adding contracting in America, and we expect that to -- it will start to improve our overall margins and our -- the surface ability of that inventory in FY '27. Tim Plumbe: Great. And then just the second question was a bit of a follow-on from Sam and for Tony. So just thinking about that seasonal skew, you mentioned less pronounced than before, like if you back solve the guidance that you guys put out previously, it kind of implied a 20 to 60 basis point half-on-half seasonal tailwind in the second half. Are you saying that there will still be a seasonal tailwind but less pronounced than previously expected? Or there is no seasonal tailwind? John Guscic: Correct. Tony Ristevski: Less than pronounced than, Tim. So as I said, you can do the math to back off the 6.5% is less pronounced than what we anticipated because of the portfolio growth in the business and the way it has. Operator: Your next question comes from Ben Gilbert from Jarden. Ben Gilbert: Just the first one for me. Just in terms of sort of the 3 pillars of growth as you look forward, it's been pretty consistent in terms of the composition. Do you envisage the composition changing much moving forward? I'm just interested in the comment around the change strategy that you talked over next 2 to 3 years. Is that more an opportunity around conversion? Or is that going to provide new supply in markets around the world? John Guscic: Supply will -- look, customers, we're slowing down in the rate of new substantial customers that can be added. That is slowing down, but supply is actually increasing. Not only for the direct customer conversation we had with regard to the incremental investment that we are making, but in particular to some of the larger chain hotels in getting greater access to the various rate plans that those hotels have on offer. So it's not unusual for a hotel to have 20 rate plans depending on your geography, the channel, the period, the season, et cetera. So we're getting -- as we become more relevant and more deeply entrenched as a reliable supply partner with those partners, we're getting access to more rate plans. So we see supply continuing to grow, customers are at a more moderate level. And the consequence of that will be that our conversion rate will continue to grow. And if I was to take a prediction 3 to 4 years out, the conversion factor would still be at least 3x the underlying new customer new supply mix because we are getting -- the data analytics in our business now has is remarkable compared to where we were 2 to 3 years ago. The sophistication of our conversations with our distribution partners and our supplier partners is predicated on that data. So we're not just saying, give us a deal, we're good guys. We're saying this is what we can do for you. This is how we will do it, and this is the benefit that you'll get. So that's why the conversion number ultimately continue to outperform the other 2 metrics. Ben Gilbert: So this is a lot of that work you did around the consolidation of the tech stack, right, when you sort of put the hotels, the DOTW in. So you're giving your customers also client or your supply partners confidence around your pricing deck, which is what's then allowing you to get the exclusives, little bit of that moat, if you like, so that you can then sell on to your customers. Is that fair? John Guscic: Correct. Ben Gilbert: Yes. So in terms of the competitive pressure you're seeing out there, it doesn't seem like there's any escalation in the competitive threat out there's. There's chatter previously that some of the bigger global OTAs might be trying to push into your space, but it doesn't really seem like there's much evidence of them having any impact at all based on the strength of those numbers. Is that fair? John Guscic: The simplest -- the way I can put your mind at rest, Ben, is that our sales to the largest global OTAs is greater than our underlying bookings growth of 18%. Operator: Your next question comes from Andrew Hodge from Canaccord Genuity. Andrew Hodge: Just a question sort of extending on that idea around the contracted increase, if you like, with the business development that you're putting in. When you think about the impact to the business, does it have a greater impact on your revenue margin or on your TTV growth? John Guscic: Thank you for the question, Andrew. I'll take a step back and see, just doing -- let's just do simple math. This is a hypothetical example. So last year, we're doing -- and I'll say, completely hypothetical, so don't take it literally. Last year, we did $5 billion of TTV. Let's say we did 50% directly contracted at that $5 billion. So we go back to our hotel partners and say we're selling you at a rate of $2.5 billion, and we're selling now from other people at $2.5 billion. And then I go to this year, and we're run rate of $6 billion. So we're selling, let's say, 60%, and again it's hypothetical. I'm not suggesting the delta is that great. Just the math works easier in my mind, and we deliver $3.6 billion of directly contracted hotels and only $2.4 billion of third party. So our $2.5 billion has gone to $3.6 billion. Our hotel partners see that. Then they're going, s***, these guys are delivering. And then our guys going, of course, we are. We always told you we would. It's only the investment analysts who didn't believe that we would deliver. But the rest of us, we believe we would deliver. So how do we fix -- how do we continue to show that we are a great partner, and we can get you sales from around the world. And then, as I said, go back to the previous question, what's the data analytic tools that we have that we arm our guys with, it gives them insights in where they're performing against their peers, where they're not performing against their peers, where their price is too high, where their price is too low. We're having that conversation. When you have that conversation, getting access to inventory, is a hell of a lot easier because, one, you're demonstrably better than you were a year ago. Two, you're giving them insights that they don't have. At the end of the day, a hotelier has an OTA as a booking engine to compare themselves but doesn't have the demand pattern that we do. So we can show them. Yes, this is what your price. You're $10 more expensive here, but it's costing you 10 basis points of occupancy or you're $10 cheaper, you can go up and still get the same occupancy that you're getting, et cetera. These are the conversations that we have, which are very different to the conversations we had when we just went in there and said, we promised to do good by you by selling your stuff. Andrew Hodge: And then just a clarification on the second half '26 trading update. I just want to make sure that, that's your report, that the numbers that you provided there are in your reporting currency rather than the functional currency? John Guscic: Correct. Aussie dollars. Operator: Your next question comes from Wei-Weng Chen from RBC Capital Markets. Wei-Weng Chen: So I appreciate your comments before about the consumer AI tools and I guess, downplaying the threat. But is there an opportunity for you guys to go maybe for a lack of better term, B2B2C kind of via partnering with these AI companies like Google and supplying them with inventory? John Guscic: I'll answer it that over the course of the last 2 years, in particular, as we're seeing this coming down the pipe, we have had many, many conversations about how we will take advantage of this and how we will -- how we think we can mitigate the risk to our business. So we have no confirmed plans about B2B2C, but it's certainly something that we focus on internally of how do we maximize the growth rate of our business and having a business like that potentially gets you there. I'm not saying we're going to do it, but it's one of the ones -- and there are a myriad of others, Wei-Weng, that we're also considering, but there are other opportunities as well that are in our consideration set as well. Wei-Weng Chen: Yes. Okay. And then I guess, speaking about opportunities. I mean your name is Web Travel Group, but in terms of operating businesses, you're still a group of one. So I guess what's the thinking in terms of building out more operating pillars? What are some of the organic opportunities you're looking into and maybe some of the inorganic options that might be available? John Guscic: I just came from a Board meeting yesterday where we perhaps made a more derisory comment about Web Travel Group versus WebBeds as the naming convention. We're still ambitious to be a travel group. We spend a little bit of time in the presentation talking about liquidity, and we spent a little bit of time talking about the fragmented nature of the industry. All of those things remain relevant to our thinking about what we do on an inorganic side. And on the organic side, you touched on it with your question. Are there other adjacencies to what we do, white labels, B2B2C, et cetera, how do they fit into the strategy? They're all things that we are currently contemplating. Wei-Weng Chen: Yes. Cool. And then just last question for me. I guess noting the comments about the business being increasingly Northern Hemisphere based and the challenges of managing out of Australia. Do you have a preference for where your next CEO -- CFO, sorry, is going to be based, balancing, I guess, management considerations with the fact that you've got a predominantly Australian investor base? John Guscic: The new CFO will be based in Australia. Operator: Your next question is from Abraham Akra from Shaw and Partners. Abraham Akra: Two questions from me. I suppose some of the concerns related to Google's agentic AI push into travel is increase in direct bookings to hotels and away from some of your customers like OTAs. What do you think about this assessment? John Guscic: It's a little bit muted. If the question was, are they going to be using OTAs more or less than currently? Abraham Akra: Using OTAs less given Google is going to partner with some of the hotel chains and hotel partners. John Guscic: Well, yes, that will be dilutive to everybody if they do that, clearly, but that would be an outcome that would be suboptimal to getting the overall results because the whole thing about what they're trying to do is they are the most sophisticated meta search in the world and the most sophisticated booking engine -- I'm sorry, the most anticipated results delivered agent in the world focused around your needs, you're not going to be just getting -- serving up chain hotels, you're going to be serving up everything. And if it is chains that they go through and chains bypass OTAs, yes, that will be a potential downside risk. I would hazard to guess that if we looked at what our performance would be in circa 3 years after this has launched, and let's pretend there's been a 10% dislocation to this market, 20%, pick a number, doesn't really matter. It's all conjecture at this point. Pick a number, 20% improvement -- sorry, this channel becomes 20% of the overall market, it will be a net contributor to Web Travel Group's business. Abraham Akra: Understood. John Guscic: Let me give you just one bit of color just so to put your minds at rest about why this is -- this is a threat, don't get me wrong, but it needs to be put into the context of what the threat actually is. So go to a market like Italy, massive destination for many people as an inbound market. I don't have the number off the top of my head, but I think it's circa 80 million or 90 million tourists go to Italy a year. And in Italy, they have 94% independent hotels. So as we have said previously, when we set this business up more than 10 years ago, we said we would be the distribution arm for independent hotels. That would be one of the strengths of our business, still remains one of the strengths, notwithstanding chain hotels. Chain hotels are massively important. They're our biggest supply partner and increasingly a bigger supply partner. And I don't have the time on this call to explain it to you, but if you go through the travel ecosystem and the legacy technology that sits within that travel ecosystem, you will know that there is nobody who ever can do everything for all people, whether you're an agentic AI or not. Just from a fundamental element of having a PMS, they are so old and clunky and putting booking engines on them has improved their direct conversion, but they still have significantly more supply from third-party distribution as a hotel chain than they do from direct. That's after 20 years of trying. So that's inevitable. Abraham Akra: Very helpful. And I suppose your comment earlier around the average booking window compression by 5%. Is that a function of your booking mix or customer booking trends? John Guscic: It's impossible for me to answer that with any certainty. All I can tell you is what's happened. It's a little bit like someone -- usually on one of these calls, some will say, who are you winning share from? How do I know? I just know we are. So I just know it is. I'm not sure why it's happening. It might be geographic mix, it might be the fact that -- but it's happening in 3 regions out of 4. So that's just unusual. That's all I'd point out. Just been a lot of last -- shorter booking window, last-minute bookings are less, the length of stays, moderately down, et cetera. Abraham Akra: Got it. And last one for me -- just a quick one. John Guscic: You've outplayed your hands. You have to cover the questions, Wei-Weng. Tony Ristevski: No, it's Abe. John Guscic: Apologies, Abe. I'm apologizing you. I apologize to Wei-Weng. Abraham Akra: He's a good analyst. And lastly, the 23% year-on-year TTV growth year-to-date in the second half. Do you mind providing a regional breakdown? John Guscic: We've given you in the first half. All 4 regions are up. They're not massively different to where they were so that's where we're at. Operator: Your next question comes from Mitch Sonogan from Macquarie. Mitchell Sonogan: Just a quick one on the EBITDA margin target in '27, guiding to around that 50% range. I guess can you maybe just talk to the key swing factors on how you're balancing that, just noting, obviously, given the 44% to 47% range for FY '26. So yes, just trying to understand the specific target around 50% and how you're thinking about it? John Guscic: Yes. We're seeing revenue growth faster than EBITDA -- sorry, expenses, and it doesn't require a big tick to go from somewhere between 44% and 47% to get to 50%. So it's not a stretch target in that sense. If we keep the revenue margin consistent and added the expected TTV increase, and we still had low single-digit expenses, it gets us there. So they're the sort of guardrails for you to think about. Mitchell Sonogan: Yes. And just noting you talked to potential impacts from macro events that have occurred over the last 6 to 12 months. Can you maybe just talk to what percentage of bookings in the different regions are domestic versus international, whether you can give that by the major regions? Because obviously, lots of people have looked at softer Australia into U.S. international travel, but the U.S. is a pretty domestic market. So yes, just keen to understand if you can give us some color on how we should think about that looking at future events that may come our way. John Guscic: There's always a sense of amusement when I see some travel-related data being announced publicly and all the travel stocks fall in unison in relation to it, in particular, in our case, less than 2% of our TTV is Australia. So in the game earlier of swings and roundabouts, if the entire Australian market was eliminated for some reason, we would have grown at 20% instead of 22%. So as I said, just -- I chuckle when I see investor response to news that's not relevant to what's happening to us as a global business. So to go to it, I'll just explain it as I have historically. Our biggest domestic market is clearly the U.S. And in most of our other markets, the domestic component is substantially less than half and what our sweet spot is, is interregional travel, Asians going to Asia, Americans going to America, Europeans going to Europe, Middle East going to the Middle East. That's where the vast majority of what we tap into which is, as you would expect, it's more frequent travel. It's short-haul travel. It's not your once-a-year Aussie going to Europe or going to New York and doing that. That's part of -- obviously part of our business, but it's not the main part of our business because that's -- you're once in a multi-generation trip. Our efforts on people going for 3 nights from Italy to Switzerland as going 6 nights from Paris to Majorca. There's a myriad of combinations. And literally, we have a dashboard that goes through them, and we look at the ups and the downs. But in the end, overall, the vast majority of our business is what we consider short-haul international travel, less than 6 hours. Most of it's around 3 hours flight time and you see what our average booking value is. All right. Have we lost everyone? Operator: Your next question comes from Patrick Cockerill from Ord Minnett. Patrick Cockerill: On behalf of John O'Shea. Just 2 very quickly from me. Firstly, on the revenue margin, noting that 6.5% now seems to be going longer than the initial 18 months or 3 reporting periods. Can you just give us a little bit of color around the factors at play there that has made that continue into your expectations for FY '27? John Guscic: I won't go through all the things I've said previously, Patrick, other than we have seen and will continue to see a noticeable shift towards directly contracted hotels operating at higher margins. And we continue to focus on geographic expansion, but it's sort of offset by some of the channel expansion, which gives us greater confidence in our ability to maintain that beyond -- into the next 3 reporting periods. So that's the major reason, and I've covered off that a few times already. So that's the key driver, Patrick. Patrick Cockerill: And then very quickly, just on your EBITDA guidance and the more pronounced 1H skew. Is this something we should expect going forward? John Guscic: More pronounced in what sense? The EBITDA number or the gross number? Patrick Cockerill: Skewed to 1H? John Guscic: But what's skewed? Sorry, I don't understand. Tony Ristevski: Look, I think, Patrick, we've always had a skew to first half. If you look at our reporting over the last so many years, that's why we changed our year-end from 30 June to 31 March to capture in the first half ending September, the contribution of the higher TTV that we get from Europe, which continues to be the trend in this reporting period. Operator: Your next question comes from Brian Han from Morningstar. Brian Han: John, in terms of future proofing the business to sustain growth, is it possible for cost growth to stay elevated in that high single-digit regions for the next couple of years? John Guscic: I wouldn't say that would be elevated if we're growing revenue at a multiple of it. So our focus -- whilst our public commentary is around things that investors can latch on to $10 billion TTV, 6.5% take rate, 50% EBITDA margin, our internal focus is on growing revenues at a rate faster than expenses with the exception of the markets in which we invest, and we've called it out in the presentation and in the Q&A about our investment in North American contracting. But if you strip that out and strip out the things that we are doing to maintain our overall competitiveness, our underlying growth rate is -- our expense growth rate is barely above CPI. Brian Han: Yes. I wasn't suggesting that that's actually a bad thing to grow your costs if it means, as you say, future-proofing the business to sustain the current growth rate? John Guscic: Yes. Look, look, the journey is an incredible journey that WebBeds as a business has been on, and you just need to go to slide -- we'll call it up, Slide 9 to see that. So over that journey, we've done things to enable us to continue to grow at the rate that we have. So whether it's building out specific tech for an individual region, building out analytics tools to support our sales initiative, building out efficiency tools to get better imaging, get better rates into the system faster, et cetera. We will continue to do that. We're not playing this game so that we can eke out system growth and defend our share. We are a disruptor in the overall industry and our growth rate reflects that. We have a clear vision about the value we add and how we can accentuate the difference between our competitors, and we've clearly demonstrated that over the last 15 years or 13 years. And there's no reason to suggest that, that run rate expires over the course of the next 2 to 3 years. There are lots of things for us to do, and we know what they are. Brian Han: It can't be clearer than $10 billion. Operator: Thank you. There are no further questions at this time. I'll now hand back to Mr. Guscic for closing remarks. John Guscic: Thank you, Harmony, and thank you to everyone who asked the questions. I'll just summarize that to all of our employees who have delivered this result, I'd like to give them a heartfelt thank you for their contribution to everything that we've been able to do in this year. We continue to have a highly engaged workforce, and none of this would be possible without them. So I'm delighted that they continue to provide the bulwark of what we need to enable us to continue to be the market leaders. And with that, I'll say, as I've said in the forward-looking statements, we've had a really strong first half. We will have an even stronger second half. With that, thank you very much. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's Third Quarter Fiscal '26 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available by approximately 1:00 p.m. Eastern time today. [Operator Instructions] I will now turn the conference call over to Mollie O'Brien, Head of Investor Relations. Mollie O'Brien: Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO; Matt Bilunas, our Chief Financial and Strategy Officer; and Jason Bonfig, our Chief Customer Product and Fulfillment Officer. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release, which is available on our website, investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current earnings release and our most recent Form 10-K and subsequent Form 10-Q for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of the call. And now I will turn the call over to Corie. Corie Barry: Good morning, everyone, and thank you for joining us. Today, we are very pleased to report strong results for the third quarter. On revenue of $9.7 billion, we delivered an adjusted operating income rate of 4% and increased our adjusted earnings per share 11% year-over-year to $1.40. We delivered better-than-expected comparable sales growth of 2.7%. Our better-than-expected profitability was due to the higher revenue and lower-than-expected SG&A expenses. We continue to drive strong sales performance across computing, gaming and mobile phones. We also saw growth in other categories, including wearables and headphones. This growth was partially offset by declines in the home theater, appliance and drone categories. In computing, we delivered our seventh consecutive quarter of positive comps with sales growth coming from across the assortment and price points. This is due to continued momentum driven by customers' need to replace and upgrade products, combined with our unique blend of broad assortment and expert advice, service and support. We were there for students and their families no matter their budget, and we're pleased with our back-to-school sales performance. We were also focused on helping customers get what they needed to transition to Windows 11 as Microsoft ended support for the Windows 10 operating system mid-October. This contributed to our comparable sales performance evidenced by strong Windows-based sales overall and almost 30% year-over-year growth in desktop computers. In gaming, we continue to see strong demand for the Nintendo Switch 2, as expected, the growth rate slowed from the more material Q2 launch time frame. We also continue to see healthy demand for handheld gaming and augmented reality glasses. In mobile phones, we leveraged our expanded partnerships and in-store operating model improvements with the largest carriers to drive strong sales growth across phones. Our Q3 Enterprise comparable sales were driven by growth across both our online assets and our stores. Online sales were up for the fourth consecutive quarter due to higher traffic and increased customer adoption of our highly rated app. We also drove our fastest shipping fulfillment speed ever, coupled with our highest on-time rate for a third quarter. According to our 5 Star surveys, our store customer experience ratings for product availability, store appearance and associate availability all improved year-over-year. We were also pleased to see continued year-over-year growth in our overall relationship Net Promoter Score, reflecting improved customer perception on all relationship attributes with the largest gain in meeting my tech needs for the second straight quarter. For the most part, customer shopping behavior in Q3 did not change materially from the commentary we have shared for the past several quarters. Customers remain resilient, but deal focused and attracted to more predictable sales moments including back-to-school sales events and our Techtober sales held in close proximity to the October Prime Day event. September, which was relatively quiet outside of the Labor Day sales event, has lowest growth of the quarter. Importantly, while customers continue to be thoughtful about big ticket purchases in the current environment, they are willing to spend on high price point products when they need to or when there is technology innovation. To summarize our Q3 performance, we are flexing the unique strength of our model as customers need to upgrade or replace their CE and new products are coming to market. I want to thank our amazing employees for their dedication to our customers and their strong execution in delivering these Q3 results and setting us up well for an exciting holiday quarter. I would like to provide a few updates on the progress we are making on our fiscal '26 strategy. As a reminder, our strategy is to continue to strengthen our position in retail as a leading omnichannel destination for technology, while at the same time, building and scaling new profit streams that we believe will drive returns in the future. Our first fiscal '26 strategic priority is to drive omnichannel experiences that resonate with our customers. Last quarter, we provided multiple examples of store refreshes and upgrades planned for the back half of the year, many of which were in partnership with our vendors. A few updates. We launched the latest AI glasses from Meta across all stores. In more than 50 locations, we now have immersive showcase areas staffed by Meta experts to help customers discover and try the technology hands on. The strong customer demand for in-person demos continues to outpace available appointments. We introduced new experiences with Breville and SharkNinja that feature expanded assortments for at-home baristas and chefs and innovative health and beauty solutions. Very early reads are positive and we are excited to monitor customer response during the holidays as many of these new experiences will be staffed with expert sales associates to bring this innovation to life for our customers. We expanded the merchandising areas featuring TVs from TCL, Hisense and LG, which are staffed by dedicated experts to address questions and help customers get what they need. These were not all live for the whole quarter, but very early reads are showing positive results. And earlier this month, we implemented most of the new IKEA pilots we announced last quarter. These 1,000 square foot areas are staffed by IKEA coworkers and showcase kitchen and laundry room settings from IKEA and appliances from Best Buy. While there are only 10 pilot locations, this is the first time IKEA products and services are available through another U.S. retailer, creating innovative ways for both of us to meet customer needs in a changing environment. We continue to drive the digital experience forward as well. Usage of our app is growing every quarter, which helps us recognize more customers as they shop with us and gives us the opportunity to provide better personalization and product recommendations. In addition to launching our marketplace, we continue to make online customer enhancements, a few specific examples. We improved the online TV shopping experience by both lowering the price for our delivery and installation services and improving the digital flow to make it even easier for customers to add the services to their online TV purchase. For shippable products across categories, customers in all our markets can now pick a 2-hour window for delivery up to 7 days out. This capability was only available in about 1/3 of our markets last year. This is a great option for customers, especially those who may want more security around their high price point purchases. As always, we have a relentless focus on the employee experience and being the best place to work, which is driving engagement, historically low turnover and healthy applicant pools. This, in turn, allows us to provide our customers the expert service that Best Buy is known for across stores, online and in homes. On top of that, our vendors have grown their investment in our specialized labor programs to augment our staff. We continue to expect vendor labor investment to be approximately 20% higher than last year in the second half of the year. Our second strategic priority for fiscal '26 is focused on incremental profitability streams. We are excited about our new Best Buy marketplace. We are about 3 months into the launch and have more than 1,000 sellers and 11x more SKUs available online for customers than we did before. Now we have more tech options than ever for our customers, both from big names like Samsung, Dell, HP and Intel and new vendors that help us level up our tech assortment across categories. We also have hundreds of new brands and new categories like licensed sporting goods, seasonal decor and much more. For our sellers, our marketplace provides an additional avenue to increase their reach and build their brands, leveraging our qualified traffic. I will share some early results and learnings. As expected and an important goal of Marketplace, we are seeing high unit sales in categories like accessories and small appliances. The 5 Star customer reviews for 3P experiences are similar to those we see for our first-party business. Customer return rates for marketplace items have been running lower than our first-party return rates. And for customers who do have a return, they are taking advantage of the convenient return to store option for more than 80% of product returns. Marketplace ramped through Q3 in terms of sellers, SKUs, traffic conversion rate and sales. We expect to continue to ramp through Q4. Our marketplace results had a positive impact on our Q3 gross profit rate, and we expect it to positively impact our Q4 gross profit rate as well, and it is already providing opportunities for Best Buy ads through new advertisers. Speaking of Best Buy ads during the quarter, we hosted our first-ever client showcase in September called We Got Next. It spotlighted our scale, performance and innovation to key decision-makers across agencies, brands, partners and press. We were encouraged by the reception. Advertisers are particularly excited about our new in-store takeover product, unique to Best Buy. This high-impact program features both large-format signage across the store and screens across the TV wall and computer monitors. It begins running in January with Meta and ESPN. We continue to invest in strengthening and advancing the technology platform we need to capitalize on the opportunity we see ahead. During the quarter, we launched our self-serve platform, My Ads, which is particularly important for our new marketplace sellers. We also enabled on-site programmatic buying, augmented our reporting capabilities and expanded our on-site ad supply. We are successfully expanding into new opportunity areas like agencies and demand-side platforms or DSPs. We are also gaining traction in non-endemic categories, with several partners testing the platform in differentiated ways. Financial services is emerging as a standout vertical with PayPal, Klarna and Capital One shopping, all activating campaigns. Other new non-endemic categories include quick-serve restaurants and sports entertainment. Our retail media network is already highly profitable and our Q3 growth in ad collections had a positive impact on our gross profit rate, and we expect it to positively impact our Q4 gross profit rate as well. We expect a neutral impact on this year's operating income rate compared to last year due to the investments we are making in technology and talent. This brings us to our third strategic priority for fiscal '26, which is a long-standing strategic imperative, driving efficiencies and identifying cost reductions are crucial to help fund investment capacity for new and existing initiatives and offset pressures in our business. There are many ways we realize these efficiencies, with technology and analytics, through ongoing vendor partnerships and vendor selections throughout the enterprise and by modifying existing processes or customer offerings. In our customer support capability, we are leveraging AI to streamline interactions and provide new experiences that empower customers with more self-serve content and options. As a result, we drove a 17% decline in the number of customer contacts in Q3 and improved our customer experience scores. By leveraging our new data-driven sourcing solution to choose the most efficient location to fulfill more than 70% of our online orders, we are seeing faster delivery times, better on-time delivery and lower costs. Going forward, we will continue to use AI augmented optimization across multiple areas of our business, from scan detection to customer support to personalized e-mail marketing. And we are increasingly using AI for product search, product recommendations and enriching product content as well as expanding into conversational AI and agentic commerce. We have officially kicked off the holiday season we feel well positioned with compelling deals on hot products, strong marketing and competitive fulfillment options. From a timing perspective, our promotional plans for the most part, line up with last year, doorbusters drop every Friday through the holiday and our Black Friday sales started the week before Thanksgiving. We have something for every budget with deals across a wide range of price points. Because of our unique position, we can also offer customers great prices for the latest innovation and premium products and assortment that not everyone has. This includes limited quantity hardware, games and toys that drive traffic and excitement to our stores and digital properties through invitation-only and other exciting launch events. We expect gaming to be a hot holiday gift category with products like the Nintendo Switch 2, the ASUS Rog Xbox Ally handheld gaming system, gaming laptops and gaming monitors. Other exciting gifts for holiday include AI glasses from Ray-Ban and Oakley, 3D printers, OLED TVs, the new Hyperboot by Nike, limited quantity Pokemon cards and LEGO toys and JBL PartyBox speakers. For those looking for gifts that can be used every day, we have great deals on the new remarkable Paper Pro and Copilot+ laptops, small appliances like Ninja SLUSHi machines and Breville Barista espresso machines, health products like the new Oura Ring 4 and much more. In stores, you can interact with our immersive experiences and demos and get advice from our blue shirts and vendor experts. And every year ahead of holiday, we, like many vendors, hired thousands of seasonal flex employees. This year, we tried something new and brought all the new associates together for a full weekend earlier this month. The event was a resounding success, not only in training the new employees on products, tools and transacting, but immersing new team members in the values, energy and collaboration that define Best Buy's culture. Of course, all the in-store products and more are available for customers who prefer to shop from home. We have our holiday gift ideas page with curated gift list based on interest and a personalized discover page designed to help customers discover new technology. In addition to great price points, we have our comprehensive trade-in program that we will highlight throughout the holiday to help customers more easily get new technology. For example, customers can save up to $1,200 by trading in their tablets or up to $1,100 trading in their phones. We also have great no-interest programs available on the credit card in addition to buy now pay later options to help customers complete their holiday shopping list. We are excited about our holiday marketing campaign that meets people where they already are across sports, streaming and social. We're teaming up with more than 200 influencers and Best Buy creators as they highlight the tech that's topping their gift list. And this year, we are going even deeper with sports. We continue to be the official home entertainment retailer of the NFL, and our holiday campaign will have an increased in-game presence across NBC, Peacock, CBS, Fox and Netflix. We will also have presence on cbssports.com and across streaming sports content on ESPN. In summary, we are pleased with our Q3 financial results and execution, which included improved share positions. We expect to deliver sales growth for the year. The high end of our Q4 outlook assumes growth in computing, gaming and mobile. It also reflects trend improvements in TVs driven by a blend of sharp pricing, increased marketing, specialty labor and improved delivery and install offerings. Our results demonstrate an important aspect of our thesis. Our model really shines when there is innovation. This is because we are the trusted source for the latest and greatest new technology. We have a broad range of assortments and price points for every budget in addition to unique in-store and digital experiences. We also have Geek Squad services to help our customers, and we are a true partner to our vendors, working with them from early in the product development cycle, all the way to launching products on our sales. And now I would like to turn the call over to Matt for more details on our Q3 performance and Q4 outlook. Matthew Bilunas: Good morning. Let me start with an overview of how the third quarter performed versus expectations we shared with you last quarter. Enterprise comparable sales growth of 2.7% exceeded our outlook of being similar to our second quarter growth of 1.6%. Our adjusted operating income rate of 4% was 30 basis points better than expected, which was largely driven by lower-than-planned SG&A expense. I will now talk about our third quarter results versus last year. Enterprise revenue of $9.7 billion increased 2.4% versus last year. Our adjusted operating income rate increased 30 basis points compared to last year, and our adjusted diluted earnings per share increased 11% to $1.40. By month, our Enterprise comparable sales were up approximately 3% in August, 1% in September and 5% in October. In our Domestic segment, revenue increased 2.1% to $8.9 billion, driven by comparable sales growth of 2.4%. Our online revenue of $2.8 billion increased 3.5% on a comparable basis and represented 31.8% of our domestic revenue. Our online comparable sales growth includes net commission revenue earned from our third-party marketplace sellers. From an organic standpoint, the blended average sales price of our products was approximately flat to last year, with the unit growth being the primary driver of our sales growth. International revenue of $794 million increased 6.1% versus last year. The revenue increase was primarily driven by comparable sales growth of 6.3% and revenue from Best Buy's Express locations that are not yet included in comparable sales. The previous items were partially offset by the negative impact from foreign exchange rates. From a category standpoint, the largest drivers of international comparable sales growth were computing and mobile phones. Our domestic gross profit rate decreased by 30 basis points to 23.3%. This was primarily due to lower product margin rates partially offset by rate improvement within the services category. The lower product margin rates were primarily driven by an unfavorable sales mix and increased personalized promotional offers. Our international gross profit rate increased 30 basis points to 22.8%. The higher gross profit rate was primarily due to favorable supply chain costs. Moving to SG&A, where our domestic adjusted SG&A decreased $4 million, which included lower Best Buy Health expenses that were largely offset by higher incentive compensation expense. During the third quarter, we recorded pretax noncash asset impairments of $192 million related to Best Buy Health, which were excluded from our adjusted results. The impairments were prompted by a change in Best Buy Health's customer base during the quarter and reflect downward revisions in our long-term projections in part due to pressures in the Medicaid and Medicare Advantage markets. Year-to-date, we have returned a total of $802 million to shareholders through dividends of $602 million and share repurchases of $200 million. For the year, we still expect to spend approximately $300 million on repurchases. Let me next share color on fourth quarter guidance. From a top line perspective, we expect our fourth quarter comparable sales to be in the range of down 1% to up 1%. In addition, our fourth quarter comparable sales outlook for Canada more closely aligns with our expectations for the domestic segment. On the profitability side, we expect our fourth quarter adjusted operating income rate of 4.8% to 4.9%, which compares to 4.9% last year. Moving to gross profit. We expect our fourth quarter gross profit rate to decline versus last year due to a lower product margin rate, which is primarily due to increased promotional investments. Other notable drivers that are expected to benefit our gross profit rate include growth from Best Buy ads, our recently launched online marketplace and improved profitability from our services category. Moving next to SG&A, where the most notable planned puts and takes are the following: increased SG&A in support of our Best Buy ads and marketplace initiatives, which include advertising, technology and employee compensation expense. Offsetting these items are lower Best Buy Health and incentive compensation expense. Lastly, the low end of our guidance reflects our plans to further reduce our variable expenses, including incentive compensation to align with sales trends. Let me provide more details on our updated full year fiscal '26 guidance, which incorporates the color I just shared on the fourth quarter and is the following: revenue in the range of $41.65 billion to $41.95 billion; comparable sales growth of 0.5% to 1.2%; adjusted operating income rate of approximately 4.2%; an adjusted effective income tax rate of approximately 25.4%; adjusted diluted earnings per share of $6.25 to $6.35 and capital expenditures of approximately $700 million. Our full year gross profit and SG&A working assumptions are still very similar to what we shared last quarter, and some of the key callouts are the following: we believe our fiscal '26 gross profit rate will now decline approximately 15 basis points compared to last year. The high end of our guidance continues to reflect incentive compensation that is approximately flat to last year. As I noted, we now expect our adjusted effective income tax rate to be approximately 25.4%, which compares to our prior guidance of 25%. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] Your first question comes from Simeon Gutman with Morgan Stanley. Simeon Gutman: Nice third quarter. I wanted to ask about the puts and takes on Q4. It looks like the comp maybe be light from what we were expecting standing from the second quarter, meaning once you guided the prior quarter, but a little bit better on profit. So can you talk about -- I guess there's a lot of scenarios what could amount, but how you set up your fourth quarter guide? And any difference in thinking from when we talked about it 3 months ago? Matthew Bilunas: Yes. Overall, the high end of our Q4 guide from a sales perspective is pretty similar to what we guided the last time, maybe just a little bit lower. We did raise the bottom end of that sales guide from something that was implied to down 4% or maybe more to the number we talked about here today of down 1%. So feeling good about where sales are effectively similar to where we expect them to be on the August call. On the EBIT side, we actually slightly lower the EBIT expectations from what we would have implied last Q4 of closer to 5%. So most of that was on the low end. We did have a little bit more rate pressure on the low end because we have adjusted the revenue expectations, and therefore, the incentive compensation changed a little bit. So overall, at the high end, not a very big difference from what we would have implied in the guide on the August call. Simeon Gutman: Okay. And then the follow-up, based on the adoption of either Switch 2 or other things in entertainment as well as iPhone. What do the curves look like? Meaning, does it portend that you have another year's worth of good momentum? Like is a lot of demand pent-up? How do you think about it as you go into fourth quarter and into next year? Matthew Bilunas: Sure. I mean, I think for -- to support the fourth quarter guide, we are still expecting growth on the computing side and mobile phones. Computing is still going to be fueled by the need to replace and upgrade and plus all the ongoing innovation around AI. That will continue into Q4 and likely continue into next year as we still see that there are millions of people who have yet to upgrade the Win 10 device and there's further opportunities even on the Mac side of the business, who haven't upgraded to the newest chip technology. You think about mobile phones is expected to continue to grow as we get into Q4 likely as we get into next year as well. We are seeing continued benefit from the in-store improvements with the carriers. On the entertainment side, as again in Q4, we still expect to see Switch help us grow in Q4, but on the other console side, that will likely slow as you get into -- they're just later stages of the replacement cycle of those 2 other consoles, plus, there's been some pretty transparent price increases that are obviously probably having a little bit of an impact. As you get into next year, likely still a little opportunity before we lap the Switch 2 launch midway through the year. We are expecting to see improved trends on the TV side as we get into Q4. We have very competitive pricing. We've put more marketing into the business, and with additional labor and just some changes to the service offers, we feel like that's going to help us improve the trends on the TV side as well. We are seeing already some improvements on the unit -- actually saw units grow a little bit in Q3 on the TV. So that is helpful. And plus, we have a lot of other initiatives. We have the marketplace that's continuing to ramp and scale as we get into Q4. So we feel really great about that, especially as we get into marketplace next year and being able to scale even more along with the ads business. Operator: The next question comes from Peter Keith with Piper Sandler. Peter Keith: Nice quarter. I'd like to just follow up, Matt, on that last response on the Q4 outlook for comp because it does seem like you have quite a bit of momentum coming out of Q3 and some product momentum for the holiday. So what's driving the decel in the overall outlook vis-a-vis Q3? Matthew Bilunas: Yes. Let me just start at a high level for Q3. Like I said, we were expecting a pretty similar Q4 guide overall from a sales perspective. Q3, if I start back in Q3, it did come in a bit better than we expected. We saw a strong back-to-school period. We saw a strong October with Techtober in the early part of the year. So we are seeing a positive growth as we go into Q4, although the Q4 did see some growth last year versus Q3 that saw a little bit of more -- saw some sales pressure. So the comparisons get a little bit tougher as you get into Q4. Obviously, the holiday is never easy to predict. What we do believe is the -- we have a range of scenarios and the range we've provided gives us a great place to plan our business operationally. Some of the categories that changed a little bit in terms of sales growth momentum as you get in from Q3 to Q4. Gaming, we are expecting it to grow overall, but maybe not at the same pace that we saw in Q3 and Q4. Wearables will be another category. I would say probably aren't going to see the same type of growth that we had saw in Q3. Peter Keith: Okay. Helpful. And then maybe another question for Corie on marketplace. How is it going now that it's rolled out? Do you still expect it will have a positive impact on EBIT this year? It sounds like you've shared some helpful KPIs. Are there any challenges now that it's out live? Just kind of give some of the puts and takes that you're seeing on that launch? Corie Barry: Yes. I'm incredibly proud of the work the team has done to launch the marketplace in a very omni-channel way. We mentioned now more than 1,000 sellers that we onboarded in a quarter and 11x more SKUs. So right away, we can see customers looking for that broader assortment. We can see them leaning into some of the unit growth that we were looking for in places like accessories where you can have a much deeper assortment or small appliances where again, you have that ability to have more breadth across what we're doing. So we're really happy with that. We did hit a few of those points on the call where we're seeing that high unit sales in categories, we're seeing return rates be actually a little bit less than what we're seeing in first party and 80% of those returns coming back to stores. We really like the customer experience metrics we're seeing. And so in general, those kind of early indicators really feel healthy and good to us, but it still is really early in the ramp. And we want to make sure we give ourselves enough time to create the kind of scale that we're going to see throughout Q4. But we're excited with the progress that we're making and how quickly we've been able to broaden that assortment how much our customers are leaning into that broader assortment for us. Matthew Bilunas: Yes. Regarding the OI rate impact for the year, I think we had previously said we thought maybe it would be a little bit of a rate improvement for the enterprise for the year. We're now expecting that to be a bit more neutral. Nothing super material has changed in our outlook. There's been just a little bit of a different product mix and a little bit slower ramp than we would have had originally modeled. So again, we never really expected it to have a really huge impact to the rate this year, but more neutral this time at this quarter end. Corie Barry: The last thing I'd say, Peter, I think the great part about having this, especially as we head into Q4, is it just really extends the amount of giftable items that we have for our customers. And the teams are finding really interesting ways to highlight these new extended assortments. So as you look on our global homepage or as you look at search, we're finding new ways to kind of pull the depth of this assortment up. So people really realize there's a lot more out there that our customers can find to be the perfect gift giver. Operator: The next question comes from Joe Feldman with Telsey Advisory Group. Joseph Feldman: So I wanted to touch on the loyalty program a bit. And just if you could share some more details on how that's been performing. It seems like it's been a good driver for much of the year. I don't recall hearing too much this morning on it. So I was just curious if you could share some thoughts. Corie Barry: Yes. I mean, obviously, our membership program remains a really important part of our customer experience and the way in which we engage with our customers. We have more than 100 million members across our 3 tiers, obviously, the free -- my Best Buy membership is the one that has the greatest reach. But on the paid membership side, which is Best Buy Plus, Best Buy Total, we ended the year with nearly 8 million paid members, and that was up from 7 million the year before. And what our focus is right now is how can we continue to drive real value and unique offers for those members. And so one of the things that we have found to be really working well for us is the strategic use of some very personalized promotions. And it's where we can use the breadth of our data to really try to reengage maybe some of those customers who haven't been engaged with us. You can use this data we have about our customers plus the signals we're seeing from customers in the way that they're shopping and really target them carefully with offers, which we're finding is a very unique way for us to reengage those customers who maybe would have lapsed or wouldn't have been shopping with us this holiday season. And another piece that we tried and we have talked about is a deep discount on the NFL Sunday ticket for Plus and Total members, so more of that idea of because you're a member with us, are there other ancillary, especially services and subscriptions that might really resonate. And we're going to continue to test and try and build on those learnings across our membership. The goal no matter what is consistent. We want to drive engagement. We want to increase the share of wallet and we want to use this as another tool that helps us fuel our ads business. And so I think the evolutions that you'll continue to see from here will all be based in continuing to fulfill that goal for our customers. Joseph Feldman: That's great. And then just maybe shifting gears a little bit and may be early, but I did want to ask about how are you thinking about stores and store investment for the coming year? You've done a lot of things to keep tweaking the model and trying different things inside the stores. And I'm just curious how your initial thoughts for next year would look. Corie Barry: Yes, I'm going to start where I always start, which is our stores are incredibly crucial assets. They provide not only differentiated experiences, not only differentiated services but also amazing multichannel fulfillment options. We still are running at 46% in-store pickup no matter what all of the advancements that we made in terms of shipping speed are. So this is a really important asset base for us. And we've been very consistent, and this is true for this year and it will bleed into next year. Our focus right now is on great store look and feel. And so a lot of our capital investments this year have been about ensuring that we're really investing in that look and feel. We've listed a number of the ways we're doing that both ourselves and in partnership with our vendors. And that will continue as we think into next year as we continue to refresh and make sure that we feel like our store updates reflect those great immersive experience in places like AR and gaming and TVs, small appliances, many of the categories that we've talked about, including the experiences that we're driving in mobile in partnership with some of our vendors. We do have some cohort of stores where they're a little bit larger than what we need. And so we've been working on several different ways. And this, again, will move into next year, including relocations, resizing some of the existing formats, now we're looking at some of the new and more innovative ways where maybe we can consolidate the space and bring partners like the IKEA pilot is a great example of that. But you can imagine there's a multitude of partners who might be interested in having some of that shop-in-shop space. And then finally, we've talked about some of the smaller format stores. We now have 3 new small format stores open, testing kind of a couple of different concepts. One is somewhere like Bozeman, where maybe we can enter a market, we wouldn't otherwise enter in other areas, it's closing a larger store and opening a small one. We like what we're seeing in those small format stores, and I would expect us to lean into those a bit as we head into next year as well. So I think all in all, what we're really focused on is making sure that if someone makes the trip to the store. And here's the fascinating small data point. When we look at our demographics, interesting, our youngest cohort, Gen Z is really leaning into the store experience. We can see it in their visits, and we can see it in where they choose to interact, and we can see it in our ability to start to grow share with this cohort, and it's a cohort who is starting to see our brand as updated, refreshed and more relevant. So this -- I think this idea of leaning in here, both ourselves and with our vendor partners, augmenting maybe with the fewer smaller locations. I think that's what you're going to see us focus on as we head forward. Operator: The next question comes from Greg Melich with Evercore. Gregory Melich: Two questions. First, on tariffs. Could you just update us on how much of that do you think has actually flowed through to on the shelf AUR at this point? Is it all in the numbers now or the base? Matthew Bilunas: Yes. Overall, like we talked about in the prepared remarks, our ASP at an enterprise level is essentially pretty flat year-over-year. And most of the growth is coming from the unit side of the business. So that would infer that all of the tariff changes that we would have made on select portions of our assortment would be flowing through in the price. Again, that those -- any tariff increases we would have had were only on small portions of the assortment overall. The effective tariff rate is probably still in the mid-teens, if you will. But that is not what the actual price increases on those portions of assortment that the rate is they were close to that number. So all of that would be implied in the ASP generally being flat year-over-year. What's different about our industry in that is that it's a very -- as you know, very promotional industry. And so even though their tariffs we have to be competitively priced all the time to be competitive. And so that sometimes will mute the overall impact to ASPs. Also we have product at every part of someone's budget, whether you're in computing or TVs. And so any product mix changes, assortment changes can also have an impact on ASPs as well. So overall, they are included, but we're all seeing pretty competitively priced industry and our ASPs, like I said, are not necessarily the one that's not driving our business overall. It's more on the unit side. Corie Barry: I just want to lift up one thing that Matt said. Our #1 focus is on our customer and ensuring we have every price point and every budget available. And one of the interesting things when we looked at our price bands, you can imagine we're looking at how many SKUs we have in each price band in a couple of our largest categories year-over-year, very similar amount of SKUs by price band. And so I think the team is doing an amazing job staying focused on having that breadth of assortment regardless of, to Matt's point, whether or not we have a few small price adjustments coming through so that whatever the budget is, we're there for them, and that will be the goal through the holiday. Gregory Melich: Got it. Makes a lot of sense. I'd love to follow up on labor and working with vendors. Could you just level set us on how much of the store has some vendor support into labor? I think you said that you're adding TVs recently. And just -- I'd love to hear how that really helps engagement score with customers when you have vendors funding some of the labor in the store? Corie Barry: The amount of vendor labor is not a static answer. It flexes and kind of depends on both time of year and, of course, launches or innovation as different vendors choose to lean in and lead out at various points in time. I think one of the differences in our model when it comes to labor is we actually have a number of different ways in which we interact with customers from a labor perspective. We have everything from kind of that adviser who can flex over the whole store all the way into our own specialized category labor or something like an appliance pro who really understands appliances, all the way into vendor labor, which the team, again, I give them a lot of credit, has done a great job. That is a very close partnership between us and our vendors. And in most cases, that is our labor that we are training and deploying that is, of course, more trained against that particular vendor assortment, but is part of our broader umbrella of labor here at Best Buy. And then sometimes, we have a few examples where we also have just flat out vendor-provided labor that's in our stores. And what I think we've gotten good at is the operating model amongst all of those different types of labor. So you know when to hand off to a specialist who might have more experience in a certain product. And those specialists also understand when it's time to maybe hand back off to someone who might be more of a generalist because they want to go shop a different department. And so that when we concentrate on how does the operating model work at Best Buy, it is embracing that vendor partnership labor, but also ensuring it stays consistent with the culture, the values, the way that we think about serving the customer here at Best Buy. Operator: The next question comes from Jonathan Matuszewski with Jefferies. Jonathan Matuszewski: Corie, you referenced Agentic Commerce. I was curious if you could expand there how you think about the top line and potential margin benefits from the prospects of something like instant checkout? And if you have any time line slated for integration, that would be great. Corie Barry: My time line is fast. How's that? But at the same time, joking aside, you really have to prioritize not just where is the incremental margin flow through, but what does the customer experience really look like, and particularly in a business like ours that often includes maybe scheduled delivery, maybe installation, maybe services or membership. You really need to think about in instant checkout. How do you want those experiences to translate for the customer. And that's just when we're talking about the actual transaction point. More broadly, we want to make sure we're thinking about how does our brand, how does our specific knowledge of our customers show up and how is it helpful to customers as they're using a variety at this point of agentic tools. So we're obviously working quickly to make sure that we are relevant and showing up in the right places. But most important for us is protecting the customer experience, so that, that stays consistent with how we would want them to experience our own digital assets. Jonathan Matuszewski: That's helpful. And then, Matt, how should we think about the magnitude of hiring and technology spend for retail media maybe next year versus what took place in 2025, trying to understand maybe how much of the neutral operating margin impact for this business is being constrained by elevated investments this year? Matthew Bilunas: Yes, thanks. We're not obviously going to guide next year, but I do think as it relates to how we're thinking about next year at a high level, we're clearly seeing some sales momentum this year, and we would hope to be able to continue to drive continued momentum on the sales side as we get into next year and obviously, higher sales helps from a rate leverage perspective. It is likely true that as we get into next year for some of our initiatives, we're going to need to continue to invest in those marketplace and the ads business, exactly how much and how much flows through still haven't completed the math on that quite yet. But that is something we want to do because over the long period of time, it's going to help us drive more rate and fuel our other parts of our business over the long term, and we think that it's a good trade-off. So exactly how much that looks next year, hard to say, but we do think it's an accretive thing for us over the 1- to 3- to 5-year period. Operator: The next question comes from Seth Sigman with Barclays. Seth Sigman: I wanted to ask about SG&A. You were able to manage that down quite a bit this quarter despite the best sales growth in more than 4 years. So just curious, was there anything unique this quarter you could unpack that, that would be helpful. And then I'm just curious, does SG&A need to come back more as you think about a scenario where comps remain positive, what does the normal operating leverage in the business look like? Matthew Bilunas: Yes. I mean, for Q3, I think we did see a rate favorability on the SG&A side. A lot of that came from the higher-than-expected sales expectation and higher sales year-over-year. We did see a combination of a few things coming better than we expected, like lower technology spend, a little bit lower labor spend in the quarter. Again, nothing -- we also had a few smaller settlements that also helped us in the quarter as well. Those things -- none of them were dramatic, but a lot of that SG&A favorability on the rate is just coming from the leverage we get on the sales in terms of our performance. So as we get into next year, again, not guiding, but there's places where we're obviously always have a little bit of inflation as we go year-to-year in terms of wages and whatnot, we'll factor those in. And there's some places where we feel like we're going to need to continue to invest to drive long-term growth. We just talked about a couple of marketplace in the ads business. So -- but that would be our goal to be able to drive sales over the long term and get rate leverage as we grow that sales exactly how much. We're still -- like I said, we're still doing the math on that next year. But we have been really good about finding operational efficiencies and cost reductions to kind of help offset the pressures that we have. We've been doing that for years. We would continue to expect to be able to do that. We've talked a lot about those places in the past where and we're using kind of new data-driven sourcing around our supply chain. We have a primary relationship with FedEx as a partial carrier. We've talked about the automated guided vehicles in our warehouses, which we continue to test and roll out. And then there's just a lot of efficiencies through technology and analytics that we can help with our partners, drive more efficiencies around customer supporting capabilities and just future AI opportunities as it relates to a lot of our business areas overall. So there are places for us to kind of offset some of those pressures that do come every year like we've been doing. And so we feel like over the long term, that would be our intent is to try to drive more profitability in our business as we grow the sales. Seth Sigman: Okay. That's helpful. And then, obviously, great to see comps positive, but I want to ask about the categories that are not performing as well, what needs to happen for the CE category and the appliance category to get back to growth? Matthew Bilunas: Thanks for the question. The appliance category is probably the most difficult one that we have in the market today, the vast majority of the appliance market is duress customers, meaning that they're replacing a product that is broken in some way. We're also seeing a very high amount of single unit purchases, meaning a washer breaks, they're not replacing the washer and dryer repair, they're just replacing the washer, which is just very different than what generally happens in the market, and that is a very high percentage in total, which means that promos are not as effective as they are in total because you're dealing with a fixed customer base. We also don't have a Pro business. And really, our sweet spot is primarily premium and packages in historic years. Really, what we have to do is shift our model a little bit. So we're looking at increasing our labor coverage in the department, also looking at focusing on delivery and speed of delivery in particular, which is critical in a duress market, and then also looking at even having opportunities in some of our stores for a customer to be able to take the product with them that day, which is also something that is emphasized more in the market that we're in. So looking to adjust our model until it flips back a little bit more towards our sweet spot, which is, again, that premium in packages, but we really need to meet the customer where they're at in a very duress market. And hopefully, as housing and different things change, then the market starts to swing back to something that might be a little bit more normal. Corie Barry: On the TV side, I would just make a couple of comments there. Our revenue performance did improve sequentially, even though it was still down year-over-year. What's interesting is that our unit performance really accelerated and moved to slight growth in the quarter. And so you can see some of the industry-wide ASP compression there, which we've talked about. Our share trends have improved materially on the unit side, and we believe that we're up slightly year-over-year on TV. And a lot of that is because we have invested in some of the things that we've been talking about, the sharp pricing, the increased marketing that expanded specialty labor and those expanded merchandising experiences in the stores with TCL and Hisense and LG and then augmenting that with the expanded services offerings and working on how that experience works digitally. All of that, I think the team is doing a great job putting together a more fulsome assortment and more -- even more price point options for our customers, which is at least moving that business in the right trajectory. Operator: The next question comes from Christopher Horvers with JPMorgan. Christopher Horvers: So my first question, I'm going to try to go at the marketplace and the ads margin and accretion a little bit differently. I know that others have asked. So can you talk about what you're seeing in terms of like the benefit of both businesses to the gross margin line in the second half? And then as you think about in 2026, one would expect the revenue growth there to accelerate, is it your expectation that as the business scales, the margin rate of those businesses also accelerate? I think on our side, we think about that as strong double-digit margin rates for both businesses. Matthew Bilunas: Yes. I'll break down a little bit for both the different parts of the P&L here. First, if I think about gross profit rate for both ads and marketplace, they have both helped the gross profit rate in the back half of this year. So obviously, on the marketplace side, we're scaling that business. If you think about the rate is helpful there. As we get into next year, we would continue to expect the marketplace to scale, we're clearly going to lap the launch in midway through next year, which might have an impact. But generally speaking, the more you grow it, the more GMV, the more net commissions should be helpful to the gross margin rate, not exactly not linear every quarter, depending on the scaling and when we lap. On the ad side, from a gross profit rate perspective, again, we're continuing to explore and expand into new parts of the ads business and to the extent that we are successful in driving incremental revenue and profitability from that, which we're planning to do. That would also be helpful to the gross profit rate into the future. Now again exactly how much and how it laps every quarter might not be exactly the same, but those would be the intent. On the OI rate side, I think it's going to come down to, as we talked a little bit earlier, like how much do we feel like we need to invest and what the opportunity for that investment in return looks like. And so as we get into next year, that's something we're still evaluating in terms of the technology, the people and other things that we might need to drive those 2 initiatives. We think those are the right decisions overall over time for us to drive more rate opportunities from those 2 initiatives, exactly how much flows through to OI, we're not quite ready to commit to at this point, but we do believe it's a good return for us. Corie Barry: And Chris, the last thing that I would add, and I know you know this, but I feel compelled. Our goal here is really to stay more relevant with the customer. And our goal is to drive more units to be there more often in consideration and to make sure that we are leveraging like partnerships. We mentioned a few on the call to stay relevant with that consumer who has so many choices. And so that part we're starting to see early green shoots on, and that becomes really the flywheel that we've been talking about that helps feed all parts of the business. And that's as much what we're focused on building and expanding next year as anything. Christopher Horvers: Got it. And then how are you planning the holiday? You mentioned a largely similar promotional calendar in an event-driven consumer, but November was tough last year, and you had a government shutdown to stop -- to start the month, as we look at monthly 2-year trends are all over the place, but the business is bending upwards. So can you talk about what you're seeing here in November, if there was any impact early in the month on the shutdown and how you're thinking about sort of the cadence over the quarter given the comparison dynamics last year? Matthew Bilunas: Yes. I mean as we start Q4, we are lapping strong sales last year. As we noted on the call last year, we were running at about 5% growth for the first 3 weeks of November. I'm not sure how much the government -- we haven't done the math on specifically the government shutdown probably doesn't help. Certain geographies, obviously, are more impacted than others. But we are comping a pretty larger amount of growth through the first 3 weeks of November. So the shape of the quarter is likely going to be a little bit different this year compared to last year. November was up 4% last year. December was down 2%. So as we get into December, the compares get a little easier, and we are seeing people gravitate towards those big events that, obviously, this week and as the weeks before Christmas are the biggest events in the holidays. So we do feel like there's an opportunity there for us. So still feel like there's an opportunity for us to grow our sales. The shape will look a little different, even though the timing is pretty similar to how we saw it last year. Operator: Your next question comes from Anthony Chukumba with Loop Capital Markets. Anthony Chukumba: I know this is always kind of tough because all the different product categories that you're in, but how do you feel just at a high level in terms of market share, I mean, particularly given the fact that your sales have accelerated and you did have the best comps in several years. So how do you think about that at a high level? Corie Barry: I appreciate where you started, Anthony, which is it is really difficult in this industry. There just isn't a single source of share information, and there are multiple cuts. That being said, when we try to pull and triangulate all the data sources, we believe we have improved our share position over the last 2 quarters. And in Q3, we estimate that our share was flattish to slightly up. Obviously, we've always said share is a long game conversation for us and all the initiatives that we're talking about are driving toward more of the sustainability to at the highest level, drive shares. And in that, you're going to constantly be making trade-offs, promotion decisions, trade-off pricing decisions. We feel like we're strong right now, particularly in computing and gaming. I talked about our TV unit share position, which now we feel like is erring on the positive side, and there's a lot of these kind of newer categories or the expanded assortment that we're seeing in marketplace that is bolstering our point of view about how we feel like we're sitting for share. So again, always a conversation, longer game, but feel like the trajectory is headed the direction that we want. Anthony Chukumba: Got it. That's helpful context. And then just real quickly on the Switch 2, obviously, that's been selling quite well and Nintendo just hiked their unit estimate for their fiscal year. How have you felt about your Switch 2 allocations relative to your initial expectations? I know you historically have over-indexed on Nintendo products, particularly relative to PlayStation and Xbox. But just love to hear your thoughts just in terms of how you feel you guys are doing from an allocation perspective. Jason Bonfig: Yes. Thank you for the question. We've actually been very happy with Switch 2 obviously, the launch was outstanding. It drove growth last quarter, and we do expect gaming to continue to grow as we lead into Q4. It's been highly publicized at the amount of Switch 2 units in the market is a lot higher than what Switch 1 was in the same time frame. So we have actually been happy with the ability to come closer to meeting customer demand. We do think demand over holiday will continue to still be very strong. And then in gaming, in general, it's not just Switch. There are other aspects of that business that are diving growth. We're just seeing a handheld in general, whether it be the new product from Asus that is a partnership with them in Xbox or other products from companies like Lenovo with their Legion Go. Just handheld gaming is a driver across the entire gaming segment. We're really excited that we think we have the best assortment there and can really meet customers' needs across anything they want to do, whether it be Switch all the way up to any aspect of handheld gaming in total. And that's really making up for some of the slowing sales that you see in just the traditional PS5 and Xbox as those get to the end of their life cycle. Corie Barry: And one of the things, Anthony, that's interesting about all the devices that Jason just talked about, these are pretty high price point devices. And especially considering their gaming, they tend toward kind of a younger cohort, so we really like our position here, and we're kind of doubling down both physically and digitally to make sure we offer the best possible experience. I give our teams a ton of credit as part of the reason that we're able to get the kind of allocations we can is because we can deliver these amazing experiences, especially at retail. So with that, I think that's our last question. Thanks, Anthony. Appreciate it. So I think that's our last question. Thank you all so much for joining us. We hope you all have a lovely holiday season, and we look forward to speaking with you all at the end of our year. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good morning, everyone, and thank you for joining us today for Caledonia Investments Plc Half Year Results Presentation. [Operator Instructions] Please note that this call is being live streamed to a webcast for a wider audience and will be recorded. I would now like to hand over to Mat Masters, Chief Executive Officer, to open the presentation. Please go ahead. Mat Masters: Hello. I'm Mat Masters, CEO of Caledonia Investments, and welcome to our results presentation for our half year to 30th September 2025. You will also hear from Tom Leader, who leads our private capital strategy; and Rob Memmott, our Chief Financial Officer. Before we go through these results, a short reminder about Caledonia. We are long-term stewards of our shareholders' capital, including the Cayzer family who have entrusted us with theirs for generations. Looking after multigenerational capital shapes everything we do. We need to make returns, but do so whilst limiting the risk of losing capital. We target absolute returns of inflation plus 3% to 6%, and this influences the level of risk we're prepared to take. Over time, our approach to investing has delivered results at the top end of this target range at 9.8% per annum, outperforming inflation by 6.5% per annum, and we have consistently increased our dividend for over half a century. Our approach to investing is straightforward. We invest in high-quality businesses and hold them for the long term. Our maximum time well invested captures the essence of our approach perfectly. Our in-house investment team is fully aligned with shareholders. We do not manage anyone else's money, and there is no fundraising. Performance is measured against NAV per share over time and rewarded in Caledonia shares. So our incentives are directly tied to long-term value creation. Our investment strategy is perfectly encapsulated by time well invested. We use our strong balance sheet, long-term approach and in-house investment team to underpin our focus on long-term results and be robust during downturns and in fact, aim to use these to our advantage. We're organized across 3 main strategies, providing access to private and public companies across different sectors and geographies. We're looking for the same 3 key ingredients, which are attractive markets to operate in, resilient businesses with strong fundamentals and return characteristics and that are well managed and aligned with shareholders. The strategies have together generated Caledonia's overall performance, which is shown in the chart. Over 5 and 10 years, we have delivered at or beyond the top end of our targets and across all periods, both NAV per share total return and share price total return have kept ahead of inflation, which is our core aim. In the last 3 years, share price total return has been stronger than NAV per share total return as the discount has reduced from 37% to 33%. Moving on to the highlights for the half year. We're pleased to report another positive performance with NAV total return of 4.4% and total shareholder return of 8.5%. This was driven by strong public companies and private capital performance, partially offset by funds and including the impact of the pound strengthening against the dollar, reducing NAV by approximately 2%. Today, we are announcing our interim dividend of 3.68p per share, which reflects the change in dividend payment profile to 50% of the prior year's annual total dividend. This dividend will be paid on 8th of January 2026. Moving on to public companies. This comprises 2 portfolios, each taking a concentrated approach to making long-term investments in high-quality companies. We're looking for high-quality, durable businesses, which we think have got great futures ahead of them. We aim to buy well and hold for the long term. The overall public company strategy delivered 9.9%, driven by a capital portfolio and within that, primarily Oracle, Microsoft and Alibaba who are benefiting from continuing demand for cloud-based services, including AI. We initiated a new position in Charles Schwab, the U.S.-listed brokerage business that we've been tracking since 2017. We like Schwab because of its massive scale with just over $10 trillion in client assets and market-leading focus on driving down costs for its clients. Its track record speaks for itself with annualized total shareholder return of 17% since it listed in 1987. It's well managed with good continuity of leadership with the eponymous Charles Schwab still on the board. We deployed GBP 35 million, mostly on 7th of April, shortly after President Trump's Liberation Day, which was followed by a downturn in the equity markets and presented the lowest price that Schwab and the market traded in the last year. This derisked our point of entry and is a good demonstration of our time well invested approach. We purposely set ourselves up to buy shares in wonderful companies when they become more attractively priced. On the same theme, Oracle delivered a standout performance for us, and we were able to realize gains, selling 3/4 of the value of our holding at the start of the period as its share price doubled and its risk characteristics changed. We first invested in Oracle in 2014 when it was rated as legacy tech and judged late to the cloud and as a service. We look closer and saw a business with a good market position in an attractive market, excellent business fundamentals with high levels of recurring revenue and plans to increase this and excellent returns metrics, run by a management team that was certainly aligned with shareholders and very well proven. Our analysis helped us establish that long-term ownership was very likely to be rewarded. And as you can see from the chart, Oracle took a little while to get going, but we could see that they were doing what great long-term businesses do, which is accept some short-term pain as they invested in a comprehensive move to the cloud and as-a-service offering, whilst using their low rating to undertake a massive share buyback with them buying back $120 billion of their shares and the share count reduced by 38%. As their transition to the cloud and as a service became better understood by the market, share price performance improved. And more recently, Oracle's cloud offering and incumbent position in corporate and governmental data places them very well for AI, and this has driven the doubling of its share price during the first half of our year. Our overall investment performance from only Oracle has been good with GBP 35 million invested, delivering GBP 101 million in cash returns through top slicing and dividends with the position worth GBP 89 million at the end of the period, so 5.4x our money. I will now hand over to Tom to talk about private capital. Tom Leader: Thank you, Mat. Today, I'll walk you through our performance, portfolio highlights and recent developments, focusing on how we continue to support private companies in creating enduring value. As a reminder, Caledonia Private Capital is focused on making direct investments, usually on a majority basis into high-quality mid-market U.K.-centric businesses. Our model is built on permanent capital, genuine partnership, a patient long-term perspective with moderate use of leverage. Unlike private equity firms whose funds have limited life spans, restricting the time when investments must be made, grown and sold, we have no time limitations on our investments. We can build genuine partnerships with strong management teams and help them create enduring value without the constraints of short-term capital. Our current portfolio has a net asset value of GBP 907 million, invested across 8 companies and represents approximately 30% of the NAV of Caledonia as a whole. For the half year, we delivered a total return of 7.7%. This result was primarily driven by the agreed sale of our minority stake in Stonehage Fleming to Corient Wealth, on which we exchanged contracts in September, along with continued good operating performance from AIR-serv. I will cover Stonehage Fleming in a bit more detail on the next slide. But clearly, the sale, when it completes, will deliver an excellent result for Caledonia. AIR-serv was another strong performer, valued at GBP 193 million as at 30th of September. In the half year, it delivered an 11% return, driven by strong revenue and profit growth. The business paid Caledonia a dividend of GBP 24.5 million in the period. The other companies in the portfolio continue to make progress in executing their value creation plans. Looking at our long-term performance, Private capital has delivered annualized returns of 8.5% over 3 years, 20.7% over 5 years and 12.5% over 10 years, all versus our 14% target. Stonehage Fleming is a full-service multifamily office, helping discerning clients address the challenges of creating and preserving wealth. It is focused on the ultra-high net worth market, which is the fastest-growing segment of the wealth market. The firm's clients have entrusted it with the management, fiduciary oversight and administration of assets in excess of USD 175 billion. Stonehage Fleming provides its services from 20 offices in 14 geographies. With an initial investment of approximately GBP 90 million in July 2019, we acquired a minority stake alongside Giuseppe Ciucci and the other founder partners. The management were not looking for a conventional private equity investor, but instead for a capital provider, which shared their long-term perspective and multigenerational approach to preserving and growing capital. Together, we restructured the balance sheet and the shareholder base of the group to position it for the next phase of growth. Over the following 6 years, we have worked in close partnership with the leadership team to deliver upon our original investment thesis, which entailed, first, streamlining the governance structure by financing and supporting succession management; second, investing in technology, which improved margins and allowed Stonehage Fleming to internalize services that were previously outsourced; third, enhancing business development, which delivered strong organic growth; and fourth, completing 4 strategic acquisitions, which have expanded the firm's geographic reach and diversified its product and service offering. The business has been a consistent performer, a true compounder. Strong cash generation and disciplined reinvestment have driven returns steadily upward through our ownership. This investment is a hallmark example of our unique approach, long-term partnership-driven and unconstrained by fixed fund life and has delivered exceptional value for all stakeholders. We expect the deal to close in mid-2026, subject to the required regulatory consents at which point it should deliver cash proceeds of approximately GBP 288 million, representing including dividends received along the way, a 3.2x multiple on cost of investment. As of 30th September, Stonehage Fleming was valued in the portfolio at GBP 259.7 million, net of approximately 10% discount to reflect the transaction execution risk and the time value of money. The bubble chart here illustrates for all our major realizations since 2012 on the X-axis, the realized IRR and on the Y-axis, the NAV uplift at exit compared to the carrying value 12 months prior to exit. For Stonehage Fleming, the expected exit proceeds of GBP 288 million represent a 30% uplift to its carrying value as at the 31st of March 2025. This result is comparable with a 37% uplift relative to the carrying value when we sold 7iM in January 2024. Overall, across the portfolio, we have a strong track record of realizations. Since 2012, we've generated GBP 1.4 billion in proceeds, returning around GBP 700 million in net cash to Caledonia. Our realized investments have delivered a 17% IRR and a 2x multiple on cost, which, given the low appetite for and use of leverage, compares very favorably with the returns delivered by U.K. mid-market private equity. Let me finish by saying we continue to deliver strong and consistent returns, underpinned by our disciplined approach and the strength of our partnerships. The success of Stonehage Fleming exemplifies the power of our permanent capital model, enabling us to back exceptional businesses and management teams, support their long-term growth and realize substantial value for our shareholders. Thank you, and I'll now hand over to Rob. Rob Memmott: Thank you, Tom. Our funds pool has been running for more than 15 years. The opportunity is significant. These funds tend not to market in Europe, meaning that we are often the only European investor, a real differentiator. The pool NAV of GBP 884 million is a diverse portfolio invested in some 82 funds by 46 managers and in more than 600 underlying businesses. 64% of the NAV is focused on the North America lower mid-market buyouts. The funds are typically the first institutional investment into relatively small often owner-managed businesses. The playbook is to transform the companies by strengthening the management team, improving operational efficiency, growing sales by product and geography, both organically and through bolt-on acquisitions. These improved companies with greater scale provide feedstock to mid-market private equity. It's a very pure form of capitalism. Of the North American companies, 2/3 are providing services with the balance having very little exposure to international trade flows. 36% of the pool NAV is invested in Asian buyout, growth and venture. The buyout assets are focused on domestic consumption and supply chains, fueled by the aging population, growing middle class and tech adoption. The venture and growth funds are invested in government supported new technologies and health. Whilst there is very limited exposure to the direct impact of trade tariffs, as expected, economic uncertainty has reduced investment and realization activity in the short term. The pool has delivered solid returns of 13.3% over 5- and 10-year periods. Performance over the 6 months reflects the continuation of trends experienced for the last 3 years. During that period, the North American pool delivered local currency returns of 8.9%, driven by the trading performance of the underlying companies. In Asia, the companies are making progress. However, the continued reduction in capital market flows has impacted on fundraising and exits suppressing our returns. Overall, the pool NAV grew by 4.3% in local currency, but reduced by 1.8% in sterling. Our capital commitments are GBP 394 million, 75% of which is to North America. GBP 52 million was invested in the 6-month period and $55 million of new commitments were made to 2 North American managers. Looking at the cash flows in a bit more detail. The chart shows the realization and investment activity over recent 6-month periods. As I mentioned earlier and as expected, economic uncertainty has reduced investment activity in the last 6 months, which can be seen on the graph. The pie chart details the weighted average life of the primary portfolio. For North America, the weighted average life is 4.3 years. For Asia, it's 5.5 years. We expect a longer hold period in Asia given that the assets are weighted towards venture growth and fund of fund investments. And so to the numbers. During the 6-month period, our NAV total return was 4.4%, growing our NAV to just over GBP 3 billion, of which GBP 2.9 billion is invested in a diversified portfolio of listed and privately held companies and funds that have got global reach. Cash on balance sheet was GBP 105 million. This, combined with our undrawn revolving credit facility of GBP 325 million, enables us to act quickly to invest in companies and funds that we find attractive. This was demonstrated in April when we deployed approximately GBP 50 million into the public company strategy, taking advantage of opportunities provided by the market volatility around Liberation Day. We have reprofiled the interim dividend such that it is 50% of the prior year total. This equates to 3.68p, which will be paid to shareholders on the 8th of January 2026. And now to my beloved waterfall chart. This chart shows the movement in NAV over the period. We started the year at GBP 2.9 billion. The portfolio return of GBP 145 million includes the negative impact of foreign exchange. We then deduct management expenses of GBP 17 million. There is then the cash returned to shareholders, GBP 14 million allocated to share buybacks and GBP 28 million for the final dividend from the prior year. That results in a closing NAV of just over GBP 3 billion. Our OCR is 87 basis points, slightly up on the prior year, reflecting some investment in our teams. I expect this to increase slightly over the next 12 months, taking account of full year effects. 54% of our assets are domiciled in U.S. dollars and 37% in sterling. Movements in the sterling-dollar exchange rate will, therefore, impact our in-period results. In the last 6 months, we suffered an FX loss of GBP 59 million, reducing our NAV by approximately 2%. We have a robust balance sheet with no structural leverage. Walking you through the cash movements, we started the year with GBP 151 million, and net GBP 27 million has been invested. The investment income from our assets was GBP 47 million, higher than in previous periods as it includes the GBP 25 million dividend from AIR-serv. We have consumed GBP 24 million in the cash cost of management expenses and working capital. And next, there is the payment of the prior year final dividend, GBP 28 million and GBP 14 million allocated to share buybacks, resulting in a closing cash position of GBP 105 million. This, combined with our undrawn revolving credit facility of GBP 325 million means that we have liquidity of GBP 430 million. Of the revolving credit facility, GBP 150 million has just under 4 years remaining duration and GBP 175 million just under 2 years. We expect to complete the sale of Stonehage Fleming in Q2 2026 once all the regulatory approvals are obtained. GBP 251 million will be received on completion with 2 further amounts of GBP 18 million being due 6 and 12 months following. These amounts will come back on to the balance sheet. We feel no pressure to invest, and we will continue to appraise investment opportunities on their merits and as they arise. The discount at the end of the period was 33%. We believe this fundamentally undervalues the quality of the portfolio, our track record and prospects. We are taking actions over the things that we can control, including share buybacks, which remain an attractive investment for us. We have a prudent capital allocation policy to investments, our dividend and when appropriate, share buybacks. During the 6 months, we allocated GBP 14 million to share buybacks, increasing the total since March '24 to GBP 78 million, delivering a 7.44p NAV per share accretion. We continue to evolve our IR and communications to ensure that the Caledonia investment proposition is understood and rated. We held capital market spotlight events in January and June, focused on private capital and public companies. If you've not had the opportunity, I would encourage you to visit the website and watch the presentations. They provide a great insight into how the pools operate, what differentiates us and how we add value. When you visit the website, you will see that this has been significantly improved with new content. A date for your diaries, the 27th of January 2026, we will be holding the third spotlight session focused on the funds pool. We believe Caledonia is a great home for long-term investors. Following shareholder approval, we have completed the 10 for 1 share split. In addition, we have rebalanced the profile of the dividend, increasing the interim to 50% of the prior year total rather than the historic rate of approximately 25%. These measures will improve visibility of income, make payments more balanced, and I expect will improve accessibility for all shareholders. I'll now pass back to Mat. Mat Masters: Thanks, Rob. We're pleased with our 6-month performance, which supports our track record of delivering NAV total return of 9.8% per annum over the last 10 years, which is at the top end of our target range. Across both public and private markets, our portfolio is high quality, diversified and deliberately positioned to withstand short-term market volatility while compounding value over time. And none of this would be possible without our strong balance sheet, exceptional team fully aligned with shareholders and focused on long-term value creation. Thank you very much for joining us today, and we will now take questions. Operator: [Operator Instructions] Our first question comes from Iain Scouller with Stifel. Iain Scouller: I just wanted to ask about the valuation of Stonehage. I think in the statement, you're saying it's at a 5% discount to the expected proceeds. But in the presentation, you're talking about a 10% discount. So I just wondering if you could clarify that. Tom Leader: Certainly, the total discount relative to the expected proceeds is approximately 10%, comprising 2 separate adjustments: one, approximately 5% discount for execution risk and a 5% discount for the time value of money. The total discount relative to the expected proceeds is 10%. Iain Scouller: Okay. And when do you expect to receive the proceeds? Tom Leader: We expect to receive the proceeds on completion of all the regulatory approvals. But there are, in fact, slightly more than 20 regulatory approvals required in multiple jurisdictions. That process will take several months. So we expect the deal to complete towards the back end of the first half of calendar 2026. Operator: Our next question comes from Anthony Leatham with Peel Hunt. Anthony Leatham: A couple of questions, if I may. You were particularly active kind of April, that liberation day volatility on the public company side. How are you feeling about the environment and the positioning of the portfolio today? And then I had a couple of questions on the private equity side. Maybe a comment on the maturity profile of the funds portfolio. And then we're hearing from private equity trusts and managers that realization activity is actually improving. And I didn't know whether you had seen the same trend within your holdings. Mat Masters: Anthony, thanks for the question. Mat here. So yes, we did. So following President Trump's what's been Liberation Day sort of announcements and things, the stock markets sold off. And we added -- very pleased to add Charles Schwab to the portfolio. And that is absolutely sort of the playbook when we sort of invest in the quoted markets is to keep our powder dry until opportunities present themselves. And we also topped up other holdings in the wake of that, and that's all thus far performed very well for us. The portfolio is a long-term portfolio. We try not to judge precisely where it is on any particular day, but we do feel as we risk manage the portfolio as we go forward, we obviously talk about the fact that we to Oracle as that went up in value and loss rating went up, we did that across the whole portfolio. So we feel good about the medium and long-term prospects of the portfolio. Obviously, impossible to predict what share prices do on a day-to-day basis, I'm sure you'll appreciate. Maybe Rob could tackle the funds questions. Rob Memmott: Yes. Thanks, Anthony. Just in terms of the fund’s activity, as we mentioned in the presentation, the level of realization and investment activity in the last 6 months has reduced quite significantly. And what we're seeing is that start to increase the weighted average life of the portfolio compared to where we were a year ago. In terms of recent activity in the market, certainly, there is sort of noise of increased activity taking place. We're yet to see that sort of flow through into sort of real pound notes coming back through to us. And certainly, from a sort of planning and thinking about sort of liquidity, we're sort of still quite cautious in terms of the speed of that recovery getting back up to the norms, which I guess we were experiencing in the prior financial year. Operator: [Operator Instructions] There are no further questions on the webinar. I will now hand over to [Beck Hughes] to read out the written questions. Please go ahead. Unknown Executive: So the first question is about Oracle. What is your view and future prospects for your Oracle holding? And have you sold any more since the period end? Mat Masters: Thanks for the question. Mat here again. So we think Oracle has a fantastic future ahead of it. Most of its current trading is still sort of legacy type business. And what's really happened is its forward order book, it's grown a lot and a lot of that is sort of AI related. So actually, that's reflecting the opportunity expanding ahead of it. So we're quite excited about the future for Oracle. Nevertheless, the rating has changed materially during the period. And so we do sort of respond to that. And so we have also the size of the position during the we talked about the money we've had it over the course of our investment period. But over the year -- over the half year rather, we've taken GBP 54 million of it. So we have trimmed the holding according to the change in risk -- really around rating risk with it. We remain pretty excited about its medium and long-term future. Unknown Executive: A question on Stonehage. Are the proceeds contingent on anything or just deferred? And what are the most attractive areas for new investment? Tom Leader: So dealing with the Stonehage completion mechanism first. As I alluded to earlier, completion is conditional on reg approval in multiple jurisdictions. That will crystallize payment of the bulk of the proceeds, just over GBP 250 million. There is a deferred element, which is payable in 2 tranches 6 and 12 months post completion. Those deferred proceeds are interest-bearing, and they are subject to adjustment depending on the finalization of a closing balance sheet audit, which includes a true-up mechanism. So that could go either up or down, positive or negative against the estimated closing balance sheet just prior to closing. So there is bound to be a small difference between the 2, but we do not expect it to be material. In terms of the second part of the question, future opportunities, we scan somewhere between 300 and 350 new opportunities a year across a very broad range of sectors. Our historic strengths have been in financial services and business services and technology-driven industrial businesses. And there is a regular flow of opportunities in all of those sectors. But I would add that it is a difficult market in which to deploy capital. Good quality assets are still transacting at very high prices, and less good quality assets are either taking longer to sell or not selling at all. So we will remain selective and we have the liquidity to finance new acquisitions if and when we can find the right opportunity. Unknown Executive: Thanks, Tom. A question around discount. What plans do you have to reduce the very large discount now the buyback may have marginal benefits, but does not seem to benefit? And why have you only bought back GBP 13 million worth of stock given the discount is just over 30% and you have a lot of liquidity. Rob Memmott: Yes. Thank you, Beck. So as you rightly point out, the discount of around 33%, we certainly feel undervalues the value of the portfolio, our track record and our prospects. I guess the buybacks, we sort of see those as an investment opportunity for us. We don't see that -- we don't have a discount control mechanism. The things that we are doing to influence the discount are the things that we can control, which is continue to invest in a good quality, high-quality portfolio, make sure that we communicate with as large an investor base as possible to make sure that we -- the proposition is properly understood and rated. And then there are some smaller sort of tactical things that we've done around the share split, rebalancing the dividend payment to make sure that the shares are as attractive to a broader investor base as possible. Unknown Executive: Another question here about hedging. You mentioned return in sterling is diminished by your U.S. dollar weakness. Do you hedge? Rob Memmott: And the answer to that is that we do not hedge. We're a long-term investor. And if you like, the short-term volatility coming from exchange rates, we sort of understand those and sort of monitor them, but it is about sort of long-term sort of value sort of creation. And generally, if you sort of hedge the balance sheet position, you pay a premium in order to end up in the same place. So we don't hedge unless there are specific cash flows that we would do so for. And I think that the weighting of the portfolio is more dollar denominated reflects the fact that the size and the quality of the companies which we're investing in, a lot of those are based in North America or headquartered in North America. Unknown Executive: Another question here on special dividend. In the past, there was a loose policy of providing a special dividend every 3 years or so. Is this policy still operative? Mat Masters: So we have -- thanks for the question. We have a track record of occasionally paying special dividends. I don't think we've ever sort of announced a policy about when we would do it. And we've not made any announcement about paying a special dividend. So that is the case at the moment. Unknown Executive: Another question here about equity market valuations. What do you think of them. Mat Masters: Well, thanks for the question. So equity market valuations vary around the globe, and there'll be one market up and one market not quite so far up. And actually, it's a really difficult question to address and actually respond to in your portfolio. And so what we do is to try and keep it very simple. We invest in good quality companies and hold them for the longer term and try not to worry too much about what's going in the macro and make sure we invest in things where we don't have to worry too much about the macro. Okay. Well, we have gone through the questions now, and we're very grateful for everyone joining us on the call today and for the questions, and we look forward to connecting with you next time. Operator: Thank you for joining today's call. We are no longer live. Have a nice day.
Operator: Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Tuya Inc.'s Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be informed that today's conference is being recorded. I'll now turn the call over to your first speaker today, Ms. Regina Wang, Investor Relations Senior Manager of Tuya. Please go ahead. Regina Wang: Thank you, operator. Hello, everyone, and welcome to Tuya's Third Quarter 2025 Earnings Conference Call. Joining us today are Founder and CEO of Tuya, Mr. Jerry Wang; and our Co-Founder and CFO, Mr. Alex Yang. The third quarter 2025 financial results and website of today's conference call are available on our IR website at ir.tuya.com, and a replay will be posted shortly after our conclude. Before we continue, please note that our safe harbor statement in the earnings press release apply to today's call as we may make forward-looking statements. With that, let me now turn the call over to our Founder and CEO, Mr. Jerry Wang. Jerry will deliver his remarks in Chinese, which will be followed by a corresponding English translation. Jerry, please. Xueji Wang: [Interpreted] Hello, everyone. Thank you for joining Tuya's earnings call for the third quarter of 2025. In the third quarter, the external environment remains volatile, continuing the trend seen since the beginning of the year. The global consumer electronics industry experienced an uneven recovery with customer demand becoming more cautious in the ongoing macro uncertainties. In addition, the high base from the same period last year created added pressure on year-over-year growth. Against the backdrop, our total revenue for the quarter reached approximately USD 82.5 million, marking our ninth consecutive quarter of year-over-year growth and underscoring the strength of Tuya's business model. Gross margin remained above 48%. This result further reflects the resilience of our business structure and the steady improvements we have made in product mix and operating efficiency over recent quarters. In terms of profitability, supported by an improved gross margin profile, greater expense efficiency and sustained scale leverage, our non-GAAP net margin reached 24.4%, while GAAP net margin was 18.2%. Notably, GAAP net margin expanded by more than 23.6 percentage points year-over-year. Overall, while maintaining key investments in business development, we have continued to optimize our expense structure, enabling incremental revenue and gross profit to translate more effectively in operating profit. At the same time, on the strategic execution front, we continue to fully embrace AI and deepen its integration across our ecosystem. As of the end of Q3, smart devices equipped with AI capabilities accounts for 93.99% of total shipments, an increasement from the previous quarter, demonstrating that AI is swiftly becoming the default configuration from smart devices. On the user side, AI adoption is also scaling quickly. AI has clearly moved beyond single category features like AI voice to a broader spectrum of product categories. Tuya's AI agent service now handle 135 million daily interactions for global users, supporting diverse scenarios such as AI node, AI translate, AI health, AI energy, AI pet care, AI [ play ], AI gaming, AI secure [indiscernible] and AI robotics. AI continues to penetrate a broader range of daily devices and [ lab ] scenarios, laying the foundation for large-scale product innovation and long-term valuation creation. During the quarter, we also began global beta testing of our new AI agent app with Tuya ecosystem users, aligned with our Smart Life smart living mission, we are currently developing a universal AI life assistance for global users, which is scheduled for official release at the CES show in the United States in just over a month. Now let me turn the call over to our Co-Founder and CFO, Alex Yang, who will share more details about our financial performance and business progress. Yi Yang: Hello, everyone. This is Alex. I will now provide more details on the third quarter's results. Please note that all the figures are in U.S. dollar based and all the comparisons are year-over-year based. And we delivered a total revenue of approximately USD 82.5 million in the third quarter, representing a 1.1% year-over-year increase. Despite a strong comparison base last year and continued caution in external demand, we achieved our ninth consecutive quarter of year-over-year growth, underscoring our resilience and stability in our business. With the total revenue, our PaaS business delivered strong results, generating USD 59.2 million, a 2.4% year-over-year increase, driven primarily by our strategic focus on the customer demand and product optimization. In Q3, the number of PaaS premium customers reached 280, further strengthening our core customer base. In addition, fueled by growth in the cloud software products revenue, the SaaS and others business showed consistent expansion, generating USD 11.5 million this quarter, a 15.4% increase year-over-year. This momentum was driven by continued rise in installed devices and a high proportion of recurring revenues. Revenue from Smart Solutions reached USD 11.8 million during this quarter. We strategically scaled by lower efficiency projects and prioritize scalable high-value solutions such as AI energy management solution and spatial AI solution to further improve overall gross margin and cash recovery efficiency. From a regional perspective, in China market, AI Toy continued to show healthy growth in the third quarter. More than 50 customers, including brands, channel partners and solution providers, they launched products powered by Tuya and key product capabilities also continue to advance such as multimodal interactions, long-term memory and emotion expressions with several connectivity versions coming soon as well. These improvements further strengthened the foundation of expanding into new product categories and regional markets. In the European market, demand from AI-powered solutions such as AI cloud storage and AI energy saving solutions continue to rise. At the same time, we added several new industrial clients in the energy and HVAC sectors during this quarter. In Asia Pacific, deployment of Cube, the privatized platforms for several Southeast Asian telecom operators are scaling rapidly with additional cities entering the delivery phase. The Singapore HDB, Housing & Deployment Board of Singapore projects also progressed into implementation with the first bench of the hardware and software solutions delivered and installed in this quarter. In North America, AI-enabled products such as smart bird feeders continue to record healthy growth. The strong adoption validates the commercial potential of niche scenarios that integrates emotional values, frequent content interactions and long-term subscription model and underscores the structural growth opportunities for AI products in mature consumer markets. In summary, despite pressure in the global consumer environment, Tuya leveraged its diversified product portfolios and strong software capabilities to achieve a structural growth. Those trends further strengthen our resilience against external macro volatilities and uncertainties. Moving to gross margin. Our blended gross margin for Q3 in 2025 was 48.3%. Total gross profit reached approximately USD 39.8 million, representing a 6.1% year-over-year increase. This growth was primarily driven by concurrent improvements in both our revenue mix and cost structure. By segment, the PaaS gross margin rose to 48.8%, continued to upward trend from the second quarter of 2025. SaaS and others maintained a strong gross margin of 70.8%, remaining above 70% level. Smart Solutions posted a gross margin of 23.8%, slightly higher than last year's 23.5%. Overall, our Q3 performance in line with our expectations and continue to reinforce the profitability foundation at this stage. On the expense side, we continue to maintain prudent and disciplined financial management. Even as both our scale and profitability expanded, total operating expenses declined to $36 million. down 34.1% year-over-year. GAAP operating margins improved significantly to 4.6% and GAAP net margins increased 23.6 percentage points year-over-year to 18.2%, while ensuring that R&D investment in key AI initiatives and platform development remain intact, and we continue to exercise strategic cost control to balance growth quantity and profitability. On the cash flow front, operating net cash flow continued to grow steadily this quarter, reaching USD 30 million, a 25.7% increase year-over-year. Our cash collection cycles remain stable and cash flow quantity materially improved. At the end of the Q3, our net cash balance stayed above USD 1 billion, giving us ample flexibility to balance shareholders' returns, manage external uncertainties and support long-term strategic investment. Next, I'd like to briefly highlight some recent progress in our AI capabilities and developers ecosystem, which serves as a crucial foundation for Tuya long-term growth. At the end of the Q3, Tuya's platform had 1.62 million registered developers, representing a 23% year-over-year increase. AI adoptions across smart devices also continue to accelerate. Commercial AI developers have collectively created more than 12,000 AI agents on the Tuya platform, covering a broad range of smart products categories, including toys and pet products, electronic, home appliances, IP cameras and wearables. Meanwhile, we continue to deepen and strengthen our AI developer ecosystem, anchored by TuyaOS, TuyaOpen and the T-Series AI Developer Board. On the open source front, TuyaOpen has seen steady growth in both documentation and code engagement. Since the beginning of this year, the GitHub repository star count has increased by about 80%. To date, over 2.3 million lines of codes have been contributed to open source projects. Beyond the rise of the Tuya developer participation, the overall quality of the ecosystem is also improving significantly. In summary, despite the prevailing external uncertainties, we still demonstrate strong resilience and operational agility, achieving solid financial growth and impressive profitability, which steadily advancing the AI plus IoT developer ecosystem across our core business segments. Thank you, all. Operator. We can begin Q&A session right now. Operator: [Operator Instructions] Our first question comes from the line of Yang Liu from Morgan Stanley. Yang Liu: I have one question regarding the business outlook with more and more trade deals settling down in the international trade market, what is the business outlook going into fourth quarter this year, which is the peak season? And also, what is your early look for customers' demand going into 2026? Yi Yang: Thanks, Liu. I'd like to share 3 points. So the first one is that this year, we still see that with the kind of the softened demand on the growth side. And because of the uncertainties on the global macroeconomy situation this year. And so this year, the Q4, we'll see that the regular promotion season will be kind of the soften versus the last year. So we will keep a closing eye to review that while we already have the stable -- kind of the stable turns across multiple countries that whether the demand will be going to return steadily on December. So that will be the short term. And for 2026, what we see here is that because like Jerry shared earlier before, that all those kind of AI features and smartphone portfolios become more and more inevitable trend for the entire sector. So which means that more and more consumers are already starting to familiar with this type of products, they really become the beginning users of these type of things. And all the major brands and the players, manufacturers in industries are already starting to enter these sectors and bring that into their growth factors. So those type of trend will never stop. So in 2026, we'll have a very positive outlook about the growth -- keep growing the entire business sectors. And the third one I'd like to share is that by reviewing all the technology improvements in the past decade, and we review AI will be one of the booster that bring the IoT experience into next level because in the past, the smart home experience is majorly focused on the connectivities, some automation and control. But while coming out with the AI capabilities, the user experience will come to a next level to more friendly, more easy to use and more smart. And so that's why we decided to provide a new AI assistant for life, which connecting all the home scenarios and to ordinary people and have more people be able to enjoy the smart devices experience. So that will lower another bar for the entry user. So combine that 3 together, the short times, we will see that 2025, there is still some uncertainty and pressure on that. But it's become more and more inevitable and become a default options for major brands and players there, and we're trying to bring the bar lower for more users who are not become the smart devices user as well. So I think that will be the overall -- it's very positive in the long term and [ constant ] in short term. Operator: Our next question comes from the line of Timothy Zhao from Goldman Sachs. Timothy Zhao: Congrats on the solid results. I have 2 questions here. One is regarding the AI home agent that you just mentioned. Just wondering if you can share more color on the detailed specs and the use case of these AI agents that you are going to officially release at CES next month? And how do you think about the impact on the overall business of Tuya with this new product? Secondly, is about the AI overall impact on your PaaS and SaaS and smart solution business. Just wondering for example, for the segment growth this quarter, would you please break down in terms of by volume and by pricing? Has AI brought any positive impact on the overall pricing of your product and services and also the impact on the gross profit margin? Yi Yang: Okay. Thank you, Timothy. So the first one is that -- so we define this as AI assistant. So it's bigger than agent. And because we think that if we review the live scenarios, even only for home that you find that you have multiple things you want someone to help you with. So this is AI assistant come with multiple agents that can help you to do almost everything you need in a home. So that's the first one. That's how we design this new assistant. And the key value for the other part, we believe in 2 things. The first one is that while coming out with the adaptions of the GenAI app, including the GPT, including like the Gen-1, et cetera, you found that the AI can help you to do a lot of things, a lot of tasks on the software side. But there's no assistant focus on home. That's what you need for your home and how you want to taking care of the home. So for us is that we design the different type of agents and capabilities focus on those scenarios people want to interact and people want to have a better life quality or easier life experience in home. That's the first one. And the second one is that the key differentiation of this assistant among any generic assistant is that this assistant will naturally be able to interact with the physical scenarios through the hundreds of millions of the Powered by Tuya devices. So which means that we're trying to bring kind of science fiction to come true, like the JARVIS in Iron Man's house, every people appreciate that. Every people, I mean, admire that, but there is no that type of JARVIS yet. So we want to create that type of experience for the global people. So that's how we define the key features and value for the user side. And I think the -- what does it mean for the ordinary users. I think the key part is that right now, we found the smart devices is still kind of complicated. They become way more easier than 10 years before, but still kind of complicated to -- I mean, to learn to use, to interact with by many nonuser, I mean, for those beginners. So those bar is still there. But coming out through the assistant, so you don't have to learn to use the app anymore. And you don't even need -- you just need to know how to speak, right? Like how you can tell the housekeeper to do something, how to tell a servant to do something, it's same like the assistant will be able to take the orders and to do all those kind of complicated operation for you. So we believe that will lower the bar significantly to the -- for the new users for home. And right now, we see that while the penetration of even smart home is still in the low digits and by the entry bar, we'll be able to open more doors for those new users while they found that the smart devices will be accessible for them to use. So that's for the AI assistant part. And the second part -- second question is for the AI. And so first one is that this year, we consider the beginning year of the AI device. So we are very happy to see that finally, our education to the market, to the developers, to the customers are already starting to offer some feedback. So like the numbers we shared before, by end of the Q3, over 93% of the products we shipped this year already been turned on some AI capability. So which means that my customers, my developers are already very actively to try whatever AI features or capabilities they can provide through their devices, even their existing devices. So that's the first one. So we really have a lot of innovative developers trying to try the ideas and try to educate the end users and test end users' feedback. And we believe that will be a very, very typical starting point for any new technology adoption. And so we really have that kind of scale test field taking places. And the second one is that we still provide the AI seamlessly through our 3 business model. So including the PaaS, including the solution, including the SaaS, right now, we have different type of AI offering in different business model as well. So which means that for my customer side, on the procurement perspective, so they don't have to learn how they will be able to purchase something from Tuya differently. It's a similar like offering, but come with different features. And maybe come with a different pricing, maybe not. So for that part is that we try to open -- have almost all my customers defaultly be able to try AI -- try to bring AI into their existing products and solutions. And through that seamless integration into my existing business models, we believe that, that will help in 2 things. The first one is that coming out with a new feature set, any new feature set will bring new demand. So that will be able to speed up the penetration and adoption of the entire market. And we're looking forward to have the AI coming as a booster. And the second one is that with some really new feature set that we reprice that and that will improve our GPM as well. But we're looking forward to have the GPM impact coming very soon because it's still in the beginning. So we try to promote the market. We try to incubate the market in the beginning, but not running very aggressively on the profitability side on that type of niche sector. So that's the overall outlook, Timothy? Operator: Our next question comes from the line of Mingran Li from CICC. Mingran Li: Congrats on the solid results, and 2 questions from my side. First is that following adjustment of recent global tariff policy, could management share more color on the downstream order recovery progress in your overseas market, especially in North America? My second one is that could management share the latest progress on the AI technology, particularly in terms of commercialization? Yi Yang: Yes. So the first one is that a couple of weeks ago that we get a temporary 1-year terms between China and U.S., right? And so which means that all the merchants importers right now, they have stable cost levels at a specific timing. And so that will be the good things, at least we get some certainty. But the promotion for this year will be pretty locked in. So those kind of new terms will be able to impact for next year's demand. So we're looking forward to have that to be a positive impact. And right now, on the customers and importer side, they still kind of review, okay, what will be the tune for next year and they'd like to review what will be the turns of sell-throughs for this promotion season starting from this week, right? We have the Black Friday this week. So we're looking forward to have more feedback in December, like I described. And while people already know that what cost they're going to get for next year over a year and what will be the demand looks like and then how they set the [ teams ] for the new projects and the new sell-in reordering. So that's the first one. So still under review. And the second one is for the AI. I think that I already answered part of that to Timothy earlier for the earlier questions. So the first one is that right now, we're offering AI across almost all my categories. We have some generic AI capabilities, can work on anything. And we also have some differentiated vertical AI capability for specific type of the products. But all those kind of offerings are seamlessly integrated into my existing 3 services, the PaaS, the solution and the SaaS. That's the first one. And in this year, on the new device side, including the PaaS and solutions, we're really happy to see some breakthroughs into some new sectors like the toys, and we shared that earlier last quarter as well. So this will be 2, 3 new vertical categories come up with a large total addressable market size and that we didn't touch before. And the IoT never get be able to enter that sector. But coming out with AI, so right now, we'll open the door. And in this year only, we're running 3 quarters only, that's many of the key players in the industry, starting from China in the toy industry and already starting to profit with us. And in Q3, we already helped the customer to launch a lot of use cases to test the demand. And it turns out that the end users love it. And so I would say the trial sales for many of the customers works out. So we're looking forward to continue to improve the experience and also the customers starting to reordering and running a new type of promotion across its all sales channels to scale it. So that's why we see that the AI open new doors. So that's the second one. And the third one is that not only upgrades, kind of upgrades on existing categories and open new categories. So the third one we try to open is the 2C experience. So we're looking forward to using the new AI assistant to open all the new home users doors, especially for those ones who still don't have any smart devices, they still consider that type of devices will be kind of complicated for them. So we're using assistant to help them up. That's it. Operator: Our next question comes from the line of Matt Ma from Jefferies. Matt Ma: So I just have one question regarding smart solutions. So the smart solutions revenue declined by around 14% in third quarter. Just wondering what is the reason behind it? And then could management provide any growth outlook for the segment in 2026? And also any thoughts on product category expansion going forward? Yi Yang: Yes. So I think the first one is that in 2026, we're looking to have a better year versus 2025 because we should have less turbulence for the macroeconomy side on a global basis. And so like I described that the customers right now in many vertical sectors, the customers already think that the AI features or AIoT features will become more and more default for them. So like some categories that every single new project they've been doing, they have to come along with the AIoT. So we become to take a larger portion in their pie. So that's the first one. So we will see that the penetration will grow. I mean, for the overall industries, we continue to grow steadily, no matter what. It's only a matter of speed, which year will be the tipping point. And -- so that's the first one, 2026, and we keep closing eye. We think that we can share more colors around the second half of December, while the customers have more feedback on the end demand side and while they're starting to set the tunes for 2026 because they don't like to run in a very conservative operation base for a long time. They're really running for 2025. So that's -- I think that's for the first one. And the second one... Matt Ma: The second one is also regarding -- yes, it's also regarding smart solutions. So just want to understand what is our thoughts on product category expansion for smart solutions going forward. Yi Yang: Sorry, I missed one part. And so I think that for smart solutions, and we're very carefully looking for the expansion to new categories because we're already learning that business model for over 2 years. So I think for smart solutions, we still kind of focus on some strategically highly value categories. And for those ones that the AI can bring a total difference, like to bring some innovative idea to come true without the AI, it never exists and also to some categories that we're really helping customers to do a differentiation to help them out. So usually, the solutions is the one we design for the customers for their flagship model. So that's what we put out. So right now, the solutions, the major categories will be the video and related multimodeling capabilities, the control panels that's super comprehensive interactions on the touch panel side and including the gateways focused on specific scenarios and energy. So I think that for the middle term that we continue to put focus and scale those kind of verticals unless we see some opportunities with the scalabilities in some new vertical categories. Operator: There are no further questions at this time. I'll now hand the conference back to the management team for closing remarks. Regina Wang: Thank you, operator, and thank you all for participating on today's call and for your support. If you have any further questions, please feel free to reach out to our IR team. We look forward to speaking with you at our upcoming investor event. Thank you, everyone, and have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, everybody, and welcome to the Movado Group Third Quarter Fiscal twenty twenty six Earnings Call. As a reminder, today's call is being recorded and may not be reproduced in full or in part without permission from the company. At this time, I would like to turn the conference over to Alison Melkin of ICR. Please go ahead. Alison Melkin: Thank you. Good morning, everyone. With me on the call today are Efraim Grinberg, Chairman and Chief Executive Officer and Sally DeMarcellus, Executive Vice President and Chief Financial Officer. Before we get started, I would like to remind you of the company's Safe Harbor language. Which I'm sure you're all familiar with. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in such statements due to a number of risks and uncertainties all of which are described in the company's filings with the SEC which includes today's press release. If any non GAAP financial measure is used on this call, a presentation of the most directly comparable GAAP financial measure to this non GAAP financial measure will be provided as supplemental financial information in our press release. Now, I would like to turn the call over to Efraim Grinberg Chairman and Chief Executive Officer of Movado Group. Efraim Grinberg: Thank you, Allison. Good morning, and welcome to Movado Group's third quarter conference call. Joining me today is our Executive Vice President and CFO, Sally DeMarcellus. After I review the highlights of our quarterly results, and the progress we're making against our strategic initiatives, Sally will discuss our financial results for the quarter and year to date in greater detail. We'll then be glad to take your questions. We're pleased with our results for the third quarter. And more importantly with the progress we're making in building our brands and business in a sustainable way. In a globally challenging retail environment, we delivered revenue growth of 3.1% to $186,100,000 Excluding The Middle East, where we have rebuilt our team and are refining our strategy, growth was 5.9%. We plan to return to growth in that region next year. For the quarter, gross margin improved by 80 basis points to 54.3% compared to 53.5% last year. Despite a $4,500,000 and two thirty basis point impact from incremental U. S. Tariffs. After quarter end, The US and Switzerland announced a framework agreement that we expect will lower our overall US tariff rate on Swiss watches to 15%. Roughly one third of the rate we've paid since August. This positive development will allow us to plan effectively for next year and reduce the level of price based mitigation. Benefiting both American consumers and the company. Adjusted operating income grew more than 40% to $12,600,000 For the first nine months, we generated positive operating cash flow of $1,300,000 versus a use of cash of $40,600,000 last year. We ended the quarter with a strong balance sheet dollars 183,900,000.0 in cash and no debt. And our board has approved a quarterly dividend of 35¢ per share. This quarter reflects continued progress on our strategic priorities. Strengthening our brands driving innovation, delivering improving financial results. Our results are a direct reflection of our team's effort, dedication, and commitment. Despite ongoing global economic and political uncertainty, we're increasingly optimistic about the improving dynamics in the fashion and accessible luxury watch categories. Driven by innovation in new shapes, and sizes and growing interest from women and younger consumers. We're also seeing a strong momentum in fashion jewelry. Supported by the growing adoption of jewelry for men. Regionally, we're pleased that The United States returned to 6.9% growth, led by our fashion brand business and our direct to consumer business. 11.9% growth in Movado Company stores, and 12.4% growth on movado.com. Internationally, our business in Europe and Latin America continue to perform strongly partially offset by softer results in The Middle East. From a branding standpoint, we're very pleased with the progress we're making on the Movado brand. Our product innovation this year has resonated strongly. The museum collection performed well, particularly our new BANGL collection. And we're introducing a new style that would allow lab grown diamonds for the holiday season. This collection will be featured prominently in holiday marketing with Jessica Alba and Julianne Moore. For men, we launched the Automatic Museum Imperial, a new hero collection inspired by an iconic design from the late nineteen seventies. Holiday marketing will feature the collection in videos with star running back Christian McCaffrey. In bold, our limited edition collaboration with brand ambassador Ludacris celebrating the twenty fifth anniversary of his debut album, has been a standout. The MVP collection is already sold out. We're also seeing strong growth in Movado Heritage. Inspired by our rich archives. The new 1917 collection based on a square vintage design from that year has launched successfully. Supported by a digital campaign featuring basketball superstar Tyrese Halliburton who is an avid vintage watch collector. Sell through is strong across both men's and women's styles. Our holiday campaign is designed to deepen engagement between our products, ambassadors, and consumers while driving performance at the point of sale through enhanced displays, training, and retail partner support to ensure an elevated in store experience. The Movado brand helped drive double digit growth in both sales and contribution margin in our company stores. Overall, sales in Movado company stores grew 9.4% on a comparable store basis. With Movado brand sales up 17.7%. Over the past year, we've refreshed all Movato display displays and visuals in our stores. Improved assortments, leading to a strong strong results from these initiatives. Among our licensed brands, we saw strong performance in both jewelry and watches, delivering a 6.4% growth overall and a 2.9% on a constant currency basis. Leading the way to Gen Z consumers has been coached. Continues to drive double digit growth led by the SAMI collection. Inspired by Coach's iconic turn lock. We've expanded his hero family with SAMI stretch bracelets and a mini ring watch. Which is trending strongly. Other successes include the Caddie, Cass, and Reese families. All featuring shaped cases. Hugo Boss continues to perform well. Led by hero families such as Sky Traveler, the Grand Prix, and the Principal Tank Watch. We're also excited about the potential in Hugo Boss jewelry, particularly for men, led by the watch inspired candor bracelet. For Tommy Hilfiger, the new T. H. Oxford family, with a dial inspired by the classic Oxford shirt is gaining traction. With new case shapes rolling out this fall. On the women's side, we are increasing our penetration with our best selling Mia collection already sold out in many markets. Lacoste continues to set trends in jewelry, with the best selling Metropole collection and strong results in the rugged LC33 anti digi lie. Which is truly aligned with the Lacoste brand. The new black and gold version introduced this fall is expected to sell out over the holidays. In Calvin Klein, we're building leadership in women's watches, complemented by a strong jewelry offering. The Mini Pulse has quickly become a best seller and the new micro contemporary is performing very well. For Olivia Burton, we're seeing healthy growth in our two key markets. The US and The United Kingdom. Led by the Mini Grove Collection our Mini to the Max campaign, which will continue through the spring. We're very proud of our team's execution this year. Especially following a challenging fiscal twenty twenty five. We're making strong progress against our strategic initiatives and capturing opportunities across global markets. We're also encouraged by the renewed interest among younger consumers embracing analog watches for their design, innovation, quality, and value. With our strong portfolio of brands, we're well positioned to capture this momentum. At the same time, we've made meaningful strides in improving gross and controlling expenses as we return to sales growth. Looking ahead, our focus remains on driving improved profitability across every aspect of the business. We're looking forward to a strong holiday season and to building on this momentum as we plan for the next year. I'll now turn the call over to Sally. Sally DeMarcellus: Thank you, Efraim, and good morning, everyone. For today's call, I will review our financial results for the third quarter and year to date period of fiscal twenty twenty six. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the third quarter and first nine months of fiscal twenty twenty six and fiscal twenty twenty five in our press release issued earlier today. Which also includes a reconciliation table of GAAP and non GAAP measures. Turning to a review of the quarter. Overall, we were pleased with our performance for the 2026. Sales were $186,100,000 as compared to $180,500,000 last year. An increase of 3.1%. In constant dollars, the increase in net sales was 1.2%. Net sales increased across licensed brands and company stores, partially offset by a decrease in net sales in owned brands. By geography, US net sales increased nine I'm sorry, U. S. Net sales increased 6.9% as compared to the third quarter of last year. International net sales increased 0.6% with strong performances in certain markets such as Europe, and Latin America, offset by a weaker performance in The Middle East. Which is where we are making progress rebuilding this important market. On a constant currency basis, international net sales decreased 2.5%. Gross profit as a percent of sales was 54.3% compared to 53.5% in the third quarter of last year. The increase in gross margin rate as compared to the same period last year was primarily driven by favorable channel and product mix and the increased leverage driven by certain reduced costs and higher sales. This was partially offset by increased tariffs. Operating expenses were $88,500,000 as compared to $87,900,000 for the third quarter of last year. The $600,000 increase was driven by an increase in performance based compensation partially offset by a planned reduction in marketing expenses. The combination of higher revenue and gross profit more than offset a relatively small increase in operating expenses to deliver a 43.5% increase in operating income. To $12,600,000 This is a $3,800,000 improvement from the $8,800,000 spent in the 2025. We recorded approximately $1,200,000 of other nonoperating income in the 2026 as compared $1,400,000 in the same period of last year. Other nonoperating income is comprised of interest earned on our global cash position. We recorded income tax expense of $3,500,000 in the third quarter fiscal twenty twenty six as compared to $1,500,000 in the third quarter fiscal twenty twenty five. Net income in the third quarter was $10,200,000 or $0.45 per diluted share as compared to $8,500,000 or $0.37 per diluted share in the year ago period. Now turning to our year to date results. Sales for the nine month period ended 10/31/2025 were $479,700,000 as compared to $471,900,000 last year. Total net sales increased 1.7% as compared to the nine month period of fiscal two thousand twenty five. In constant dollars, the increase in net sales for the year to date period was point 6%. U. S. Net sales increased by 1.5% and international net sales increased 1.8%. Gross profit was $260,000,000 or 54.2% of sales. As compared to $254,800,000 or 54% of sales last year. The increase in the gross margin rate for the first nine months was primarily due to favorable channel and product mix partially offset by increased tariff costs, and the unfavorable foreign currency exchange. Operating expenses were $239,500,000 as compared to $241,300,000 for the same period of last year. The decrease was driven by a reduction in marketing expenses partially offset by an increase in performance based compensation. For the nine months ended 10/31/2025, operating income was $20,500,000 compared to $13,500,000 in fiscal twenty twenty five. We reported approximately $4,000,000 of other nonoperating income in the nine month period of fiscal two thousand twenty is primarily comprised of interest earned on our global cash position as compared to $5,200,000 in the same period of last year. Net income was $17,400,000 or $0.77 per diluted share as compared to $13,900,000 or $0.62 per diluted share in the year ago period. Now turning to our balance sheet. Cash at the end of the third quarter was $183,900,000 as compared to $181,500,000 in the same period of last year. Accounts receivable was $118,300,000 up $4,500,000 from the same period of last year, primarily due to foreign currency. Inventory at the end of the quarter was up $20,800,000 or 11.8% above the same period of last year. $5,400,000 of the increase was due to foreign currency. And $6,400,000 of IEPA reciprocal tariffs is included in the inventory on hand at the end of the third quarter. We are comfortable with the composition and balance of our inventory at quarter end. In the first nine months of fiscal twenty twenty six, capital expenditures were $3,500,000 and we repurchased approximately 100,000 shares under our share repurchase program. Of 10/31/2025, we had $48,400,000 remaining under our authorized share repurchase program. Subject to prevailing market conditions and the business environment, we plan to utilize our share repurchase program to offset dilution. As Efra mentioned, there has been a recent trade agreement impacting future Swiss tariff rates, we will adjust our mitigation strategy accordingly. Given the current economic uncertainty and the unpredictable impact of tariff developments, the company is not providing fiscal twenty twenty six outlook. I would now like to open the call up for questions. Thank you. The floor is now open for questions. Operator: Once again, that's star one if you'd like to register a question at this time. Our first question today is coming from Hamed Khorsand of BWS Financial. Please go ahead. Sally DeMarcellus: Hi. Good morning. So first, I just wanted to ask you, the success you're seeing with many of your watches and brands, is that coming from your, you know, influencers, your, you know, the spokespeople that you have, or is that because of the design and it's just trending well with with Gen z? Efraim Grinberg: Well, I think it's a combination of both, Amit. Thank you. A good question. And so what you're seeing is is an increased coverage of of these products on social media and obviously, the bulk of our campaigns are also on digital media, and and and so that resonates they're resonating, with with younger, consumers across the spectrum. I think it's also the combination of innovation of new shapes and sizes. And the embrace of younger consumers to the the watch category. And and that's occurring pretty much on a global basis. So it's it's nice to see. Hamed Khorsand: Okay. And then as far as the commentary you made about many of your brands being selling well or being sold out, Do you want the sold out conditions? I mean, would that that impair your sales? Efraim Grinberg: So, I think it's really on some select product families across, I think I mentioned Tommy Hilfiger in some markets and some of our other brands. And and and and I think that that that what you know, this is not a in some cases, we also in the case of the ludicrous watch and Movado, it was a limited edition. So it was planned to be sold out. We still have one model available. Which we expect to sell out in the next few weeks. So I think it's always good to have a balance of supply and demand, and we'll be able to replenish most of the styles into the first early first quarter or the end of the fourth quarter of this year. So I think it's a good balance to have. And part of it is as the category comes back and the innovation has has increased and consumers are drawn back into the category. Obviously, the levels of demand change. And that's also very good to see. Hamed Khorsand: And the success you're seeing in sales, does that change your commentary coming into the calendar year about you know, what your spending levels would be for the the fiscal year? Efraim Grinberg: I think it's really a balance. And our focus has been on improving profitability. And you saw that through the first nine months of this year and particularly in quarter. So it's really we will continue to invest in in in our brand building efforts. But at the same time, we have made it a goal and we're very serious about it. Of of driving improved profitability at the company. Hamed Khorsand: Okay. Thank you. Operator: Once again, that's star one if you'd like to register a question at this time. We're showing no additional questions in queue at this time. I'd like to turn the floor back over to Mr. Grinberg for closing comments. Efraim Grinberg: Well, thank very much all for participating today. I'd like to wish everybody a great Thanksgiving holiday. And, of course, it's the really formal beginning of the holiday shopping period. We'll all be in stores looking to see how how businesses out there, and I'm sure many of you will be as well as, beginning your holiday shopping. So, again, enjoy the holiday, and and thank you very much for being here today. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or lock off the webcast at this time, and enjoy the of your day.
Clint Tomlinson: Good morning, everyone, and welcome to the Anavex Life Sciences Fiscal 2025 Fourth Quarter Conference Call. My name is Clint Tomlinson, and I'll be your host for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. And during this session, you would like to ask a question, please use the q and a box or raise your hand. Please note that this conference is being recorded, and the call will be available for replay on website at www.anavex.com. With us today is doctor Christopher Missling, president and chief executive officer and Sandra Bohnish, financial officer. Before we begin, please note that during this conference call, the company will make some projections and forward looking statements. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. We encourage you to review the company's filings with the SEC that include, without limitation, the company's forms 10 k and 10 q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements. These factors may include, without limitation, risks inherent in the development and or commercialization of potential products, uncertainty in the results of clinical trials or regulatory approvals, need an ability to obtain future capital, and maintenance of intellectual property rights. This conference call discusses investigational uses of agents in development and is not intended to convey conclusions about efficacy or safety. And there is no guarantee that any investigational uses of such products will successfully complete clinical development or gain health authority approval. And with that, I would like to turn the call over to doctor Misslin. Christopher Missling: Thank you, Clint. And good morning, everyone. Thank you for being with us today to review our Q4 financial results and quarterly business update. We are fully committed to bringing Oral Black Amazin and oral ANAVEX three seventy one to patients. We are dedicated to delivering on the value of our pipeline and maximizing its potential for patients investors, and our employees. Over the coming months, we will continue to focus on progressing our clinical trials and regulatory actions. At the same time, we're aiming to expanding our collaborative initiatives and strategic partnership activities. As previously announced, through our update on the status of the regulatory filing of blacaramazine in Europe, we expect the CHMP to adopt a negative opinion on the MAA at its December meeting. We intend to request a reexamination of the CHMP opinion upon its formal adoption based on feedback and continued guidance from the CHMP, EMA and the Alzheimer disease community. DMA procedures adopted by the CHMP allow an applicant to request reexamination of its decision. Which would be undertaken by a different set of reviewers that conduct a new examination. Independent from the first opinion. Our expert advisers investigators, as well as patients and their caregivers encourage us our commitment to continue working in partnership with global regulatory bodies to advance science and potentially new treatment options for patients and their families. As part of the MAA review process, we have successfully undergone a full good clinical practice GCP inspection of the trial data by EMA. The manufacturing package has passed the EMA review as well. A good clinical practice GCP inspection is an official review by a regulatory authority over clinical trials documents facilities, records, and other resources to ensure compliance with g p GCP guidelines. We're looking forward to working closely with EMA and other stakeholders advance our investigational therapy for early Alzheimer disease. Importantly, we also announced we had initial contacts with the authorities in The US regarding our Alzheimer's disease program. And we intend to provide further updates on our interaction with the FDA as they become available. Going forward, we will provide both regulatory and clinical trial updates on dacamazine in other indications, such as Parkinson disease, Rett syndrome, and fragile X. This will include the disclosure of planned future clinical trial designs as we continue to advance our therapeutic pipeline. Scientific & Clinical Data Updates Christopher Missling: During the most recent quarter, we announced several new scientific and medical publications includes a peer reviewed publication in the journal Neuroscience Letters, titled Prevention of Memory Impairment: in Hippocampal Injury with blacamazine in an Alzheimer's disease model. This study shows that pretreatment with blacarbazine prevented amyloid beta induced memory impairment. And brain oxidative injury suggesting that blackamcin is an attractive candidate for Alzheimer disease pharmacological prevention. A peer reviewed publication the journal Eye Science asserting the precise autophagy mechanism of sigma one receptor through blacamazine activation titled conserved LI R specific interaction of sigma one receptor in GABA RAB. A publication oral glycogen phase two b slash three trial confirms identified precision medicine patient population significant broad clinical and quality of life improvements for early Alzheimer disease patients. To be available online as a preprint and in submission to a peer reviewed medical journal. Anavex announced the latest published scientific results for blacamazine. On all standard scales for measuring Alzheimer's disease and cognitive decline after forty eight weeks, the defined precision medicine population ABCEAR three, consisting of early Alzheimer's disease patients with confirmed and progressed pathology taking thirty milligram once daily oral blacamazine demonstrated barely detectable decline This was comparable to minimally perceptible decline in prodromal which is pre dementia aging with adults. On October 29, we announced additional long term clinical data for blacamycin, This new data demonstrated continued long term benefit from oral blacamazine compared to decline observed in the Alzheimer disease neuroimaging initiative control group also called ADNI, a control group established by a clinical research project launched by NIH in 2004. In the intent to treat population, significantly less cognitive decline was observed for the black carnosine participants compared to the acne control group at forty eight weeks with a significant and clinically meaningful difference in mean change from baseline at a 13 total score of minus 2.68. Points. Over the course of the open label extension study, at time point ninety six weeks, these two groups further diverged sharply with statistical significant differences in mean change in ADAS cogs. 13 total score at ninety six weeks of minus 6.41 points. The difference between groups continues to increase at one hundred and forty four weeks. To ADA's COC 13 total score difference of minus 12.78 points. The results provide evidence of the significant beneficial therapeutic effect of blacamazine which positively separates from black from which positively separates from the ADNI control group with duration of treatment. This significant beneficial therapeutic effect of blacamazine compared to decline observed in the ADNI control group, trans translates into seventeen point eight months of time saved with oral blacamazine. Allowing for longer independence of the patients by approximately over one point five years. Looking ahead, Annavec will be presenting additional data and scientific findings at upcoming conferences and in publications. These include the direct relationship between cognitive function and reduced brain region atrophy with blacamazine. Oral blacamazine for early symptomatic Alzheimer's robust effect size through precision medicine an analysis of the ANAVEX two seventy three AD024 randomized trial. Also, newly identified precision medicine gene collagen 24A1, with over seventy percent, seven zero, prevalence, establishes effective treatment of early Alzheimer's disease with glacamazine. And also, continued long term benefit from oral blacamazine compared to delayed start analysis and decline compared to natural history studies. ANAVEX 3-71 (Schizophrenia & Neuropsychiatry) Christopher Missling: With regard to ANAVEX three seventy one, in October, ANAVEX announced positive top line results from its placebo controlled Phase two clinical study, evaluating ANAVEX three seventy one for the treatment of schizophrenia in adults on stable antipsychotic medication. The study successfully achieved its primary endpoint demonstrating that ANAVEX three seventy one was safe and well tolerated. The safety profile was consistent with previous studies of ANAVEX three seventy one in healthy volunteers. With no serious or severe treatment emergent adverse events reported in either Part A or part b of the study. In addition, to meeting the primary safety endpoint, secondary and exploratory analysis revealed encouraging trends in several outcome measures. Our other oral medicine candidate ANAVEX three seventy one, represents therefore, a transformative opportunity in neuropsychiatric drug development. Leveraging its unique dual sigma-one agonist unique sigma-one m one PAM mechanism to address multiple high value indications through a unified neuroinflammatory biomarker platform Further detailed analysis of randomized, strictly double blind, and placebo controlled clinical trial under DEX371 SZ001 revealed very encouraging data in suffering from schizophrenia. Following successful Phase two results from the SZ 001 study while confirming the accident safety profile of ANAVEX three seventy one, the study demonstrated reduction in GFab NYLK40 neuroinflammatory markers. G Fab is a structural protein of astrocytes in the brain, represents aberrant activation of astrocytes the major brain glycol cell lineage. Astrocytes participate in brain neural function in multiple ways. Amongst them, critical modulation of synaptic relay between neurons in neural circuits. Its dysfunction a key pathogenesis mechanism in schizophrenia. This positions ANAVEX three seventy one to advance into pivotal trials with the once daily modified release oral tablet enabling once daily dosing across depression, and psychosis indications where current therapies have failed or shown limited efficacy. Addition to schizophrenia, one high unmet need opportunity would be depression in Alzheimer's disease. With currently no approved therapies. Up to forty percent of people with Alzheimer experience significant especially in early and middle stages of the disease. Depression in Alzheimer's is associated with worse quality of life. Accelerated cognitive decline, and earlier onset of dementia symptoms. The neuroinflammatory biomarker strategy positions Anavex 371 to potentially achieve disease modification claims beyond symptomatic treatment, representing a paradigm shift in neuropsychiatric drug development. And now I would like to direct the call to Sandra Boenisch, principal financial officer of ANAVEX, for a financial summary of the recently reported quarter. Sandra Boenisch: Thank an you, Christopher, and good morning to everyone here. I'm pleased to share with you today our fourth quarter financial results for our 2025 fiscal year. Our cash position as September 30 was 102,600,000.0, and we had no debt. During the quarter, we utilized cash and cash equivalents of 8,600,000.0 in our operating activities. After taking into account changes in non cash working capital accounts. As of today, with a current cash balance of over a 120,000,000 we anticipate that at the current cash utilization rate, our cash runway is more than three years. Our research and development expenses for the quarter 7,300,000.0 as compared to 11,600,000.0 in the comparable quarter of last year. General and administrative expenses were 3,500,000.0 as compared to 2,700,000.0 for the comparable quarter of last year. Compared to the same quarter of fiscal twenty twenty four, we saw a decrease in operating expenses mostly driven by the completion of a large manufacturing campaign of larcamesine and a decrease in clinical trial activities. As a result of the completion of our open label extension studies and our ANAVEX three seventy one phase two study in schizophrenia. And lastly, we reported a net loss of $9,800,000 for the quarter which is $0.11 per share. Thank you. And now I will turn the call back to Christopher. Christopher Missling: Thank you, Sandra. In summary, we are focused on continuing to advance our precision medicine compounds we are excited to be potentially making a difference for individuals suffering from these diseases by presenting a scalable treatment alternative alongside the ease of all administration. I would now like to turn the call back to Clint for Q and A. Clint Tomlinson: Thank you, Kasr. We'll now begin the Q and A session. If you have a question, please raise your hand or enter it into the q and a box. It looks like our first question will from Michael Obadiah from HC Wainwright. Hello. Good morning. So are we asking the questions on behalf of Ram Selvaraju? From H. Wainwright? Have a couple of questions for the management. And the first question is, what is the likely commercial impact of the failure of semaglutide on the outlook for glycogenesine in Alzheimer's disease? Second one is when is the next formal discussion of black hemisinin scheduled to take place with the FDA? And the third question is, what initiatives does INOVIX plan near term pursue glycemic sign approval in regions beyond the European Union and The United States? Thank you. Christopher Missling: I appreciate the questions. So to answer the first question about the impact of the semaglutide glutide results. We understand there's an unmet medical need here. And this is certainly further highlighted by the recent setback by the two EVOQUE studies from Novo Nordisk. And also by other companies, including other large pharma companies recently, with also with anti tau injectables. So there's a lack of upcoming pipeline certainly. We also understand that the Evoque semaglutide GLP one finding highlight the complexity of Alzheimer disease biology. And the challenges of expecting metabolic pathway alone to meaningfully alter your dinner processes. But Alzheimer's more complex, involves impaired proteostasis, autophagy dysfunction, synaptic failure in multiple converging mechanism. So therapeutic effects seen in related conditions do not always translate into kind of benefit here. However, we have with oral once daily blacamazine with this upstream mechanism of action, which restores autophagy, which precedes these pathologies adjust summarized and has demonstrated in early Alzheimer disease patients clinically meaningful efficacy of slowing cognitive decline significant amounts. Some cases over fifty percent. With an acceptable safety profile with no ARIA, and as demonstrated in the phase two b less free study. So the answer to the question is this makes it more clear that this is a complex disease and there's a lack of compounds near term available for patient to address this unmet need. Second question is about timing. So we provide as we stated, updates what we'll follow-up in the initial discussion with The US regulators and we'll provide updates as we receive them. But we're very excited about the initiation of these discussions. Regarding the third questions, we are continuing to now explore other regulatory geographies. As well as moving forward where we can see fit to address open questions. So I trust this addresses the question. Michael Obodai: Yes. Very much for the clarity and transparency. Christopher Missling: Thank you. Clint Tomlinson: The next question is gonna come from Tom Bishop at BI Research. Tom, you need to unmute Christopher Missling: per the press release, the, CHMP seems to have given you some guidance about the additional information they they need to see, for example, biomarker. But can you elaborate, what this includes? Christopher Missling: So we we want to proceed with the reexamination. Because we owe it to the patient, and we get the feedback also from investigators that the unmet need is very high, And we it boils down to CHMP the benefit await the risks. Of the drug to be on the market. And that discussion includes all available data. And it might be you know, to make the glass half full, that the should or may out biomarker, which are not subject to influence, might be helping in getting to that point. So that is the background of biomarker best including biomarker assessments. Tom Bishop: Well, there was no particular biomarkers that you you hope to bring out? Christopher Missling: We have communicated, and it's, been published that we have a brace strong biomarker of the pathology. Which is the analogy of oncology where tumor grows and you look at the size of the tumor, which is measurable objectively, can be measured objectively, and it cannot be influenced by a patient or by anybody else. The same as in Alzheimer's disease is the brain shrinks. So the brain gets smaller, then the the brain mass shrinks, and we can measure that as well. And it's a very objective marker of neurodegeneration, and we demonstrated that this marker of neurodegeneration is significant, the less or even halted in some patients, with active oral blacamazine. While in the placebo arm, this shrink, the brain continues. Which is the clear definition of the advancement of the Alzheimer pathology. And we like to include, of course, that as well in the discussion. Tom Bishop: What about the ABC Clear data? I mean, that was very compelling with forty eight to eighty six percent slowing depending on the gene biomarker, or combination Was this guess this was not considered by the CHPT as it came out, MP because it came out kinda late. But, can this be included for consideration on reexamination? Christopher Missling: It's a good question. So we like to emphasize our focus is on each individual patient affected by Alzheimer. And we see that very clear beneficial signal of cognitive also clinically meaningful effect in both cognitive and functional also in all the other endpoints consistent improvement and significant improvement of the clinical outcomes that is the CGI that is the quality of life and PRQ, MMSE, all the measures are the SCOC 13, see there from the boxes, ADCS ADL, In all this a b clear, two and three, populations, we see clearly clinically meaningful and significant improvement. So we would like to also point that out and that is really good a good dataset to have and to put this forward. And also, last but not least, making the point about the focus on each individual patient we see a reversal of the negative trajectory of quality of life of the patients in seventy percent of the patients seven zero, in the trial. That means the quality of life is better after one year than at the start of the trial. That's very impactful because that's what is really impacts the individual patient. Tom Bishop: Okay. If the approval ultimately came from the EMA, and and let's assume perhaps it was conditional. Is is there a rule of thumb or how long you would have to to do a conditional trial? Christopher Missling: It's really not it's it's really hard to speculate about this. But we would like to make sure we wanna point out we are motivated and driven by the fact that there's a huge significant unmet need for a drug which with these features today, and we pointed out the recent pipeline failures, And also, I wanna point out that between twenty and twenty five, this year and 2030, there will be more than 300,000,000,000 of large pharma revenue at risk from loss of exclusivity with over 40% of top pharma sales exposed creating an estimated $90,000,000,000 growth gap even after internal pipeline contributions. So that means there's also a huge unmet need not only for this indication, but also for overall pipeline to be filled by large pharma. Tom Bishop: Well, that's interesting that you brought that up because I wanted to ask about how you're coming with you know, exploring your options if you get approval. For example, blarcamesine to market. large pharma, organizations, and so forth to take Christopher Missling: Yes. So we pointed out in just in this call that one of the key things we are focusing on now is expanding the corporate development partnership activities And we mentioned that we are presenting at the most important conference every year, which takes place in San Francisco in early January. And we are a presenting company on Wednesday. On at that conference itself. And that allows for more meaningful discussions, which is the hotspot for business development activities. At at this conference, and we will make sure we are present in that regard. Tom Bishop: Okay. Well, I think it'd be a real tragedy for Alzheimer's patients to to to not see this drug approved because especially the ABC CLEAR data to me is so convincing. That and and the risks are so low, and it's oral. That it I I just can't fathom that it wouldn't get approved, but that's just me. I wish I had a vote. Christopher Missling: We would agree. Thank you for your vote as well. Clint Tomlinson: Tom, are you there? Tom Bishop: Yeah. Okay. As long as I'm still on, is there a mechanism of action for call 241? Christopher Missling: Yes. There is. And this will be now published in a peer review paper But in summary, I can say that collagen twenty four zero one is the ingredient key ingredient of the extracellular matrix called ACM. When you look at pictures of brain neurons or astrocytes, we see this very nice you know, connections or network like a web. Spider web description or pictures. And in the background, it's always like pitch black. And you're wondering this is how the brain looks like. And, of course, it doesn't it does not. And this background is actually the axosodular matrix. And that's where these neurons and astrocytes are residing or sitting on. Your brain. And if you have a mutation of this extracellular matrix, then your response to blacamazine is impaired. The autophagy flux the autophagy restoration, which is the recycling mechanism of the neurons, which precedes a beta and tau. So it's further upstream closer to the origination of the pathology of Alzheimer, if you like, that is impaired. And for that reason, we found that patients with a wild type, with not mutated collagen genes, they respond extremely well. And we see effects of in ADAS-Cog13, minus 4.7. In the patients with that effect. With that wild type gene. And in in the CDS or the boxes, the scores go up, up to 1.4, minus 1.4. And these are really very unprecedented effects of benefit. And we pointed out that that means since patients are actually almost not declining or declining less than prodromal patients. Which are less impaired. So that's quite impactful. And this is really intriguing science. And it will be published in a major peer review paper very soon. So extremely intriguing. And also consistent with the mechanism of blackamazin. Tom Bishop: Great. Okay. Well well, that's it for me. I'm just excited to see this ABC data get examined by the e CHMP as well. Christopher Missling: Appreciate it. Thank you. Clint Tomlinson: Thank you for the questions, Tom. The next question going to come from Jesse Silvera. Spirit of the Coast Analytics. Jesse Silveira: Hey. Good morning. Can you hear me alright? Clint Tomlinson: Yes. You're fine. Ahead, Jesse. Jesse Silveira: Good morning, Clint and doctor Missling. This is Jesse Silvera from Spirit of Coast Analytics. Thank you for taking my call. Some of these questions you've kind of addressed a little bit earlier, but hopefully you can maybe provide some additional color on on some of them. Yeah. Just to reiterate kind of one of your previous points. My first question is sort of an assumption, though I think you got at it earlier. But considering the CHMP review is ongoing and a final decision hasn't even been rendered yet, is it safe to say that you can't discuss the reasons negative CHMP trending or give details on the strategy going into the reevaluation Christopher Missling: That that's, yeah, correct. That's correct. Jesse Silveira: Okay. Got that. And perhaps adjacent to that conversation, you think you can give more detail on a statement that was found in the fourteen November press release? It stated, quote, the company intends to request a reexamination of the CHMP opinion upon its formal adoption, including providing relevant biomarker data based on feedback and continued guidance from the CHMP, EMA, and Alzheimer's disease I think it was Tom that was getting at this earlier, but can you can you comment any further on the the biomarker data? I think I saw in your press release this morning that you plan to publish maybe a paper about brain atrophy and its direct correlation to cognition. Is that accurate? And is that some of the data that you may may not be presenting to to the EMA? Christopher Missling: That's accurate. So the advantage of the biomarker is that the biomarker endpoint is objective and cannot be influenced by a patient the caregiver, or the physician, or anybody else as a matter of fact, because it's objective. And I pointed out that in analogy to oncology where you get drugs approved purely by the effect of the brain measure sorry, of the tumor measurement. And while, for example, the clinical effect was not yet significant, And that is something which we like to point out that the analogy is in Alzheimer, the clear pathological shrinking of the brain, which is one of the first features Alois Alzheimer himself actually identified his patients with Ultima, the first patient he assessed. Subsequent later on when he looked into the brain, he found this additional, you know, aberrant features of proteins than identified as a beta plaque or tau. But the first thing he identified was really that the brain shrinks and the holes, the gaps widen in the brain. And that's really the pathological logical consequence of a declining brain, less less functional brain. And it's like a lemon which is drying up. You cannot squeeze anything out of it. And that is really a strong objective biomarker and biomarker end point for demonstrating an objective effect of a drug and that was demonstrated with blacamazine. So we just make sure that gets visibility and and part of this is also a correlation analysis. That we are able to find that not only that there's a shrinking less shrinking of the brain, shrinking of the brain going along with blackamazin treatment, but also that correlates with each patient with a improvement in the respective regions. Of the brain's activities of the adascoct 13 subdomains, for example, For example, learning and and reading and writing as in one area of the brain, and if that is improved, in the clinical trial for the patient, that same region of the brain responsible for that if that also is less impaired in the active glycogen treatment arm compared to placebo. And if you can find this this further confirms the true effect of the drug. And that will be convincing in our opinion. Jesse Silveira: I I think that's really interesting. I'm definitely looking forward to that. And I think kind of related is in light of the semaglitude failure is that they reported that you know, that the drug had improved bio markers, amyloid, maybe tau. I don't recall about tau. But you know, the improved amyloid but had no clinical effect no improvement on CDR sum of boxes. And I think that I'm not sure exactly when there needs to be if there will be a time where regulators will no longer see amyloid equals, you know, better cognition or whatever. But moving along kind of on September, the company PR'd really impressive AppClear three comparisons to Prodromal. Populations and had a detailed follow on analysis of AbClear two and AbClear three subpopulations in a GWAS preprint a little bit later. AbClare three in particular appears to showcase an effective functional cure in early Alzheimer's patients and you covered the mechanisms of these earlier But can you give further color on APCLEAR one versus APCLEAR two and APCLEAR three? Specifically whether they were prespecified or exploratory and how regulators may or may not view these subpopulations in light of being exploratory or being prespecified. Is this something you can talk about? Christopher Missling: Yeah. So the definition of a b clear one which basically is the wild type sigma one gene. Which was identified already in the beneficial effect of that gene, in the previous preceding phase two a study. Which was published 2020, we identified that patients with the sigma one wild type which represents seventy percent, seven zero, of the population, had a better response to blarcamesine than those with the respective mutation. It's a point mutation and that's how biology is. Thirty percent of overall population, that's not patients, but overall population has a one point mutation, r s one eight hundred eight sixty six, and this one mutation changes the confirmation of the gene makes it a little bit less viable or effective in its ability to restore homeostasis. Increase autophagy, which is the mechanism of the activation of blackamisines through sigma one activation as its ultimate effect. And so the patients with the wild type, the fully functional non mutated gene respond better. So this was identified in the phase two a. So we prespecified the analysis of the primary endpoint as well as the secondary and exploratory endpoints With these in mind, how would patients do in the phase two b slash three study? With the wild type sigma one. And that was prespecified, and we now define this as a b clear one. And we did indeed demonstrate or it was demonstrated that indeed that was confirmed Blacamazine increased effect of patients with that of seventy percent, roundabout is the number of patients, seven zero, which improved better than the patients with the mutation. And that is improving. So now ABCLEAR2 was the result of a pre planned in the trial. We did a whole genomicosome analysis. That means we looked at all patients in the study and analyzed their genes and genes expression and response to the drug based on the genetic profile as well. That is the DNA of all patients. And in this analysis, which was preplanned, we found to our surprise, unexpectedly, one gene showing up is a extremely strong driver of efficacy And that gene turned out to be the collagen 24 a one gene. And that gene, I explained it just before, is involved in the buildup of the extracellular matrix. That's really really intriguing novel science and underappreciated or overlooked up to now by the in the field because everybody always looks at the neurons or the astrocytes or the areas of active involvement in the brain. But the extracellular matrix is where all these neurons and astrocytes are residing or sitting on. It's like a a pavement, like a street. And if that street is not smooth, like a highway, or like a a pavement, then then this then this these neurons cannot function well. And we were able to find find them because the patients with the mutation of this colagene in gene in this extracellular matrix, not respond so well, to blackamazine, representing that they're not as viable as the respective wild type carriers. And the good news, though, is the collagen wild type represents seventy one patient percent of the overall population. And that was also found in our trials. We had run about seventy percent with patients with this cytology and wild type gene. So very intriguing new data, and that was, as a consequence, was preplanned in the study. Of course, not prespecified because we found it in the analysis of the phase two b slash three study. Jesse Silveira: Okay. And it's my understanding that Leqembi and Kisunla were both approved after a CHMP reexam, and that subpopulation data enrich their filing by conferring a more desirable like, safety efficacy axis. Is that true, and is this any way relevant to Anavex's current position with some of this data, the the ABC CLEAR two and ABC CLEAR three data. Christopher Missling: It's it's it's correct. Both lecanumab and donanemab and these are run by large pharma companies. They had been a low prior approved in The US, reached the same point as we did just as we communicated a few weeks ago. And they underwent the same reexamination and were able to get approval. I don't want to I would say, make that that this is a guarantee for us because every review is complex and we are not able to anticipate or know the outcome of this re reexamination process, but the body pulls down to in the assessment of lecanumab and donanemab. Was the assessment and the judgment of benefit needs to outweigh the risk. Sure. And our our drug has safe has safety. It's has no ARIA. We talked about the efficacy, which we just discussed. But we cannot anticipate, of course, an outcome of the regulatory review. Jesse Silveira: Okay. Understood. And moving forward, will you be immediately refiling for the EMA reevaluation? To my knowledge, it took about three and a half to four months for the CHMP to give Leukemia and Kasimha their next opinions respectively. So maybe we could see something around April. Is that about what you're projecting? Christopher Missling: That that's correct. We will immediately ask for the reexamination as soon as possible. And, again, while there's never certainty to obtain approval from regulators, we remain highly excited about the science and the data. Jesse Silveira: Okay. And, you know, being a small with a unique mechanism of action, it's probably difficult for you to garner support from the community. I recall that the European Alzheimer's disease consortium, Alzheimer's Europe, and even the US Alzheimer's Association kinda put together persuasive arguments for the CHMP to consider during the Lyckembian re evaluations. Does Anivex have any support like this? Are you aware of any organizations, key opinion leaders, or even patients from the trial attempting to persuade the CHMP to reconsider. Do you have that support from the community? Christopher Missling: It's really not for us to make that move, and the community is aware of our of our drug, and we let them basically do what they think is appropriate. And what we only can do is point out the data and this is a process. And we are committed to this process. But also, very importantly, with this process, we gain also confidence with the regulators We are doing this in a partnership. We are doing this in a open discussion. We are are also getting the the ability to get feedback, which we need to move this forward in what way it takes to help patients addressing this unmet medical need. Jesse Silveira: Okay. Well, I see that we're, you know, nearing time. So to conclude for me, least, it's pretty obvious to anyone paying attention that, you know, Blarcamesine should likely be approved for early Alzheimer's patients and, you know, the the efficacy has been absolutely unprecedented in these megalithic effect sizes were achieved in a really small population, which should theoretically make it more difficult to do So I think it's a clear win for patients, caregivers, and payers, and I I think part of the problem the first time around may have been that it was sort of you know, piecemeal analysis and you're, you know, you're introducing analysis as you're going. But now that you have all analysis at your disposal, and a clear narrative, it's my hope that the company will use know, the reexamination to tell Barcambizine's story and earn the approval it deserves. So thank you for taking my call, and you have a good rest of day. Thank you. Christopher Missling: Oh, we appreciate the kind words, and our expert advisers advises us also to proceed and so do the patients and investigators They also advise us to proceed. And we may remain committed to do our best. Thank you. Clint Tomlinson: Yeah. Thank you, Jesse. And doctor, I don't see any further questions at this time. Christopher Missling: Well, thank you. So we are thankful for your continued interest and trust in ANAVEX. Wishing you a happy and blessed Thanksgiving. But in closing, we like to continue to point out our focus on execution as we advance our therapeutic pipeline to potentially improve patients' lives living with these devastating conditions. Oral once daily blacaramazine has the potential to address high unmet medical need in early Alzheimer patients. With its clinically meaningful efficacy profile, of slowing cognitive decline by more than thirty percent and sometimes even higher for certain populations. Its acceptable safety profile as demonstrated in the phase 2bthree program. Thank you very much. And, again, happy and blessed Thanksgiving. Clint Tomlinson: Thank you, ladies and gentlemen. This will conclude today's conference call. We appreciate you participating, and you may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Pony AI Inc's Third Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, there will be a question and answer As a reminder, today's conference call is being recorded. And a webcast replay will be available on the company's Investor Relations website at irpony.ai under the News and Events section. I will now turn the call over to your host, George Shao. Head of Capital Markets and Investor Relations at pony.ai. Please go ahead, George. George Shao: Thank you, operator. And hello, everyone. We appreciate you joining us today for Pony AI's third quarter twenty twenty five earnings call. Earlier today, we issued a press release with our financial and operating results. Which is available on our Investor Relations website. An earnings presentation, which we'll refer to during this conference call, can also be accessed and downloaded on our Investor Relations website. Joining with me on the call today are doctor James Tong, chairman of the board and chief executive officer. Doctor Tianqin Luo, chief technology officer. And doctor Liu Wang, chief financial officer of the company. They will provide prepared remarks followed by a q and a session. Before we begin, please refer to the safe harbor statement in our earnings press earnings release which applies to this call as we'll be making forward looking statements. Please also note that we'll discuss non GAAP measures today. Which are more thoroughly explained and reconciled to the most comparable measures reported under GAAP in our earnings release. Available on our Investor Relations website. And filings with the SEC and Hong Kong Stock Exchange. I will now hand it over to our chairman and CEO, Doctor. James Peng. Please go ahead. CEO Remarks (James Tong) James Tong: Thank you, George. Hello, everyone. Thank you for joining our earnings call. I'm excited to share that we have successfully completed the dual primary listing on the Hong Kong Stock Exchange. Under stock code 2026. On November 6 just one year after our Nasdaq listing. With strong support from both international and the domestic investors, We secured the largest IPO in the global autonomous driving sector this year. Raising more than 800,000,000 US dollars. This significantly strengthens our balance sheet and provides the dry powder to accelerate mass production and the largest scale commercialization. We now expect stronger growth surpassing 1,000 robotaxis fleet plan by year end and expanding to more than 3,000 vehicles for 2026. We have already seen the flywheel. In action. Expanded fleet is driving higher user adoption. Shorter wait time, more orders, and a strong revenue growth. After launching Gen seven Robotaxi, we have already sync a citywide unit economics breakeven This in turn gives us more room to increase fleet size. The capital we raised also fills our business development research and development, market making strategic investments in new markets, new applications, and attracting world class AI talents. All these are set to further propel our technology leadership and the long term growth. Our Hong Kong IPO also powers our core mission bringing autonomous mobility to everyone around the world. We're firmly delivering on this commitment Earlier this month, we officially launched fully driverless commercial service. For gen seven robo Texas across Guangzhou, Shenzhen, and Beijing. Today, our management team, including myself, actually arrives at our Shenzhen office in a fully driverless gen seven robotaxis to host this conference earnings call. This is more than just a normal ride for us. It actually marks a giant leap in autonomous driving's advancement. We are making level four autonomy more accessible than ever to a much broader user base. I'm excited to share a critical milestone Our gen seven robotaxis have reached city level UE breakeven in Guangzhou. Shortly after their official commercial launch. This is pivotal to validate our viable business model It not only gives us strong confidence to further scale our fleet, but also attract more and more third party partners enabling them to fund our fleet. And the support. Our asset light model. The scaling up of a fleet is key to our growth. As large scale operational footprint drives efficiency through the economy economy of scale. Our robotaxi vehicles are moved essentially moving billboards. In fact, many new users discover and download our Pony pilot app after spotting our vehicles. On the road for daily operation. To lead fleet expansion serves as a highly efficient self reinforcing marketing engine facilitating user adoption and strengthening brand recognition. This creates a powerful upward spiral more vehicles, generate greater visibility which attracts more users and establish network effects. The results are already evident. Building on that momentum, new registered users nearly doubled within just one week of launching gen seven from late October. Reflecting robust user demand and effective go to market strategy. Now let me highlight some key advanced advanced we made in recent months in executing our scale up strategy. First, we have ramped up production at a accelerating pace. Since the start of production in the middle of this year. By November, more than 600 gen seven robotaxis had rolled off our assembly lines bringing the total fleet size to be over 900 vehicles. Thanks to the streamlined production process, we now expect to outperform our full year target of 1,000 vehicles. Delivering ahead of schedule. This gives us increasing confidence to sustain robust momentum. Driving speed size, to surpass 3,000 vehicles in 2026. Second, in Q3, our robotaxi revenue surged by 90% year over year. With their charging revenues delivering over 200% year over year growth. This was fueled by rising user adoption across all four tier one cities, improved fleet operational efficiency, and tailored pricing strategy for diverse user segments. We have seen that the higher order density leads to lower users average waiting time. And in turn, higher vehicle utilization rate. This allows us to continuously optimize our pricing strategy. Third, we have continued to expand our operational footprint. For example, in Shanghai, we became the city's first company to launch fully driverless commercial global taxi operations earlier this July. Covering the Jingqiao and the Huamu areas of Pudong. In Shenzhen, we extended commercial fully driverless operations to more and bigger city areas. Including Circle and Overseas Chinese town. We're taking major steps toward scale up strategy. So following our collaboration with Hehu in June, we recently forged another partnership with Sunlight Mobility This alliance reflect growing market recognition of our business model, with increasing number of third parties wanting to fund fleet deployment. This actually enables us to speed up further fleet expansion. Now let me turn to our global expansion. We are deeply dedicated to advance global taxi services while strategically expanding our international fleet. Now we have robotaxi presence established in eight countries across China, The Middle East, East Asia, Europe, and The US. We entered a new market in The Middle East. Qatar. Through a partnership with Nova Salet in third quarter. Nova Soleil is the country's largest transportation service provider. As part of this collaboration, our robotaxis have recently begun testing on public roads in Doha the capital of Qatar. We have also advanced our presence in South Korea by securing nationwide robotaxi permits enabling operation across the country's autonomous testing and operational zones. Our collaboration with local partners continue to deepen We're closely with Comfort Air World, the country's largest transportation fee transportation service provider. To begin road testing in Luxembourg, we plan to deploy testing vehicles based on the perjury eTraveler through our alliance with the Stellantis. It's a European leader in light commercial vehicles. This effort will initially focus on vehicles designed for Europeans diverse mobility need to enable a range of use cases. In addition, we have partnered with global ride hailing platforms that also participated in our Hong Kong IPO. Those platforms include Uber, and Bolt. A boat is a Estonia based mobility company operating in over 50 countries and 600 cities. Built upon our collaboration with Uber, we aim to leverage Uber's robust ecosystem to in enter The Middle East and then scale into additional international markets. Last but not least, we recently released our fourth generation robot truck. With production and the initial fleet deployment expected in 2026. Featuring fully automotive grade components, optimized software hardware integration, and the transition from internal combustion engine vehicles to electric vehicles. The Gen four Robotex robotruck delivers a significant more efficient cost structure and a greater energy saving. The new platform fully leverages the technological foundation and operational expertise developed through our gen seven robotaxi vehicles. In addition, we deepened our collaboration with SANE Group and added Liuzhou Moto as a new partner to have multiple vehicles to support. Our further operations. To sum up, 2025 is a critical year of mass production and the commercialization for Pony AR. We take pride in the progress we have made and are steadily delivering on the promise we have made to our shareholders at the time of our US IPO last year. Our recent Hong Kong listing not only marks a major milestone for our company, but also underscores the promising future of the industry. Moving forward, we will drive technological innovation and create lasting values. By scaling fast efficient, and comfortable autonomous mobility services toward our mission. Autonomous mobility everywhere. With that, now I'll hand it over to our CTO, doctor Tianten Lo, to share more about our technology strategies. Hinton, please go ahead. CTO Remarks (Tianqin Luo) Tianqin Luo: Thanks, James. Hello, everyone. This is Tian Cheng. Let me first share my thoughts on our home driving technology stack. From day one, we believe that full stack integration across software, hardware, and operations was the only way to build a truly scalable autonomous mobility. That conviction have been validated again and again. Especially for this critical year of scaling up. With the achievement we made, it is clear to over early technology best help us help us achieve the leading position and it will further accelerate our future growth. Our deep foresight into tech stack what is what is positioning us as a leader in the industry today. As we become one of the few company to operate large scale 40 driverless stroke protection services. So as early as 2020, we recognize the importance of a training go through base on reinforcement learning unit simulation. In that year, we transit transitioned over tech stack into a one model. Which is what we call a pony word today. Through years of R and D effort and the real real world validation, over a top driving world of the driving model have evolved into a closed loop training. We achieved unsupervised self improving iterations. In recent years, we are seeing the broader autonomous and robotic industry coverage converge on one model. Validating the approach we adopt today. This full time in AI tech stack has given us a meaningful head start and we're confident that we will stay ahead of for multiple years. Tianqin Luo: Then let me dive into the three criteria that put us the frontier forefront of of what model development. First, the high fidelity impacted simulation. This is far beyond the ability to just generate the scenarios and render sensor data. Driving is by nature interactive. The robotaxis action directly affect how to run the agent to behave. Such as other vehicles and pedestrians need to react to over driving behavior. It must understand and adapt to new situation and the complex physical interaction in real time. Mirroring true unload interactions. It enables robotax operation that are safe, smooth, and social aware. After 10,000,000,000 kilometer of test miles that only were generated each week, more than 99% kept vehicle agent detections, while less than 1% are still static environment such as center rendering. Okay. Second, the ability to reproduce scale and the realistic color cases. While this long tail scenario don't occur frequently, the way are they they are critical to safety. In our top More importantly, every scenario must be something that could real have really happen in the real world. Not those use case useless edge cases with no basic no basic in reality reality. So the third, the AI based learning evaluator. This is the reward based evaluation mechanism. Driving is a multiple object optimization problem What is considered as a good driving also changes in various driving scenarios. Within the cross loop training environment, the PonyWord and our virtual driver are continuously evaluate on key driving metrics. This assessment does not rely on real world data. Human label data, or rules. Instead, it use AI in part model to learn what good driving looks like directly from the outcomes. Turning real and assimilated experience into a powerful cycle of self improvement. A best in class word model must meet all three criteria to enable truly unsupervised and self improving closed loop training. This is critical to realizing large scale driverless auto driving. And leveraging over full stack technology as a core strengths, I will now turn to how to drive business progress during the third quarter. First, on cost and operational efficiency. We pioneer we pioneered 100% automotive grade autonomous driving kit. For for gen seven robotaxis. We've optimized the design reduce reducing bomb cost by 70% compared with the previous generation. The gen seven v have been officially operating for public in Guangzhou, Shenzhen, Beijing, fully validating our safety standard and operational efficiency. We build on our momentum and deliver further progress. Driving by scale the production and enhance R and D We've already realized an additional 20% reduction in the atomic driving kit from cost for the gen seven platform designed for 2026 production, compared with 2025 baseline. This slide foundation for sustained cost fit Our our robust AI algorithm and fleet management has proven effective at driving operational efficiency. To better identify user demand in hotspot areas, during rush of hours, we will hand our algorithm for all the dispatch. Matching, scheduling. Thereby ensuring sustained different sustained sustained sustained efficient robotactic utilization. Have also improved our virtual driver to recognize more and more complex scenarios. This allow us to improve over remote assistant to vehicle ratio substantially. On the track to reach one to one to 30. By year end. Our our superior servers service experience have become the key reason user choose only Airover taxi. After launch of Gen seven robotaxis, we will earn the worldwide widespread positive feedback and and generate great social media bot from users. As we deliver high quality experience, users are increase increasingly willing to pay a premium for the enhanced effort reliability, the safety of the of our autonomous journey. For ride comfort, over advanced interactive planning cap capability intelligence to optimize for the frequency, and the magnitude of acceleration, braking, and steering. This delivers smooth natural motion control. Tell to the electronic vehicles and the ride sharing markets. Offering consistent comfort experience for every Polyair prover taxi ride. This enhancement have reflect the imaginable improvement for gen seven such as the emergency brakes and the steering over the past few months. Tianqin Luo: Additionally, our low tech features are super in cabin experience. We also pioneered the innovative smart positioning feature with one tap, user can remotely adjust their vehicle position for more convenient pickup and drop off. Introduced the voice active features call it POPO voice assist. Allow users to do star trips, and the country air condition, etcetera. We will continue to upgrade to the cabin into an AI powered mobility terminal. Together, this upgrade create a more accessible and streamlined user experience. Tianqin Luo: So third, over text stack is also built for generalization. The alpha native tech architecture allow us to adapt quickly to new markets and platforms. In terms of cost region generalization, all virtual drive and the show is can quickly understand and adapt to diverse traffic conditions around the world. For example, leveraging over high fidelity training environment and evaluation mechanism powered by 40 jobless coverage in Pudong District in just a few weeks. In addition, when sending to Europe, the system intelligently identified and adapted key difference in in local road conditions. Such as unique traffic signals configuration, and the various driving driving patterns. Our technology boost generation power across platform as well. The latest generation robot truck will commence production and operation from next year. This demonstrate our capability to create synergy between Robotexi and Robotrex tech stack. Looking ahead, we will leverage our success Hong Kong listing to reinforce our technology core leadership. Increasing r and d investment, and attract top AI talent to advance our robotaxi, robotruck, and new market initiatives. We will continue pushing the frontier of the autonomous mobility refining what is possible in the transportation. Okay. This concludes my prepared remarks. I will now pass the call over to our CFO, doctor Liu Wang. For a closer look at our financial results. Liu, please go ahead. CFO Remarks (Liu Wang) Liu Wang: Thank you, Tien Tsin. Hello, everyone. This is Leo. I will focus on year over year comparisons for the third quarter. Unless otherwise noted. Q3 twenty twenty five was a landmark quarter. We delivered a robust revenue growth specifically with solid progress in robotaxi large scale commercialization. And now we expect to outperform our full year fleet target of 1,000 vehicles. Moreover, our newly deployed Gen seven robotaxis fleet have reached a pivotal citywide unit economic breakeven milestone. This layout a solid foundation for further scaling up. And the implementation of ASA Live business model. Well which will be further accelerated by our success Hong Kong IPO capital raise. In this quarter, revenue finished at 25,400,000.0 US dollars. Growing by 72% This strong performance was primarily driven by the continuous optimization of our robotaxis services. And the sustained demand in our licensing and application business. Firstly, robotaxi services revenue reached 6,700,000.0 US dollars. Representing a remarkable growth of 89.5%. Year over year. And the 338.7% quarter over quarter. Specifically, fare charging revenue continued to deliver a triple digit growth surging 233.3%. This was achieved even before the commercial rollout of our gen seven robotaxis. Supported by a stable commercial fleet of our Gens five and Gens six vehicles, the strong growth during Q2 and Q3, stemmed from growing user demand in tier one cities in China. Our continuous effort to optimize fleet operation and the pricing strategy, altogether leading to increased fleet utilization and efficiency. This is a testament to growing user recognition and the brand royalty to Pony Pilot service Going forward, as we follow this strong momentum towards a significant fleet expansion, of over 3,000 vehicles by 2026. Tianqin Luo: We expect Liu Wang: robotaxi revenue growth to accelerate even further driving more orders and a higher operational efficiency. In Q3, another key robotaxi update is the implementation of our ASA Lido asset light model for fleet expansion. As we have shown promising numbers, in vehicle unit economics, We received a strong interest from third parties who are willing to purchase gen seven vehicle. To run as robotaxi operators Such partners include, but are not limited to, leading ride hailing or taxi operators. For instance, Shenzhen Shihu Group and Sunlight Mobility. The asset light model has contributed revenues through technology licensing fee and the vehicle sales. While giving us further leverage and capital efficiency for further fleet expansion. Aside from strong top line growth domestically, we are also seeing fast growth of robotaxis revenues from overseas market. Moving forward, we expect robotaxi revenues from overseas market to continue to grow. Currently, our robotaxi footprint have already expanded into a country globally. Serving as a promising foundation in our exploration of the international opportunities. Secondly, moving to Robotruck. Robotruck service revenues were 10,200,000.0 US dollars, growing by 8.7% Moreover, as we launch our Gen four, fully auto grade robot truck, we expect to reduce the bound cost of its ADK autonomous driving hardware kit. By 70% and the reach a thousand unit scale of Robotruck fleet going forward. This new generation of Robotruck will powerfully accelerate the progress of Robotruck commercialization at scale. Thirdly, licensing and application revenues were 8,600,000.0 US dollars. Growing significantly by 354.6% We continue to see robust and growing demand of our autonomous domain controller. Primary from robot delivery clients. Turning to gross margin. We delivered a significant gross profit margin improvement from 9.2% in Q3 twenty twenty four to 18.4% in Q3 twenty twenty five. With gross profit of 4,700,000.0 US dollars in the third quarter. This remarkable improvement was firstly driven by our strategic initiatives to optimize the revenue mix and secondly, by a greater contribution from robotaxis services. Which carry a relatively higher margin. The UE, the unique economic breakeven achievement validates our due focus on go to market execution. And optimize the operational efficiency. Since the launch of gen seven commercial operations in Guangzhou, daily net revenue per vehicle has reached 299 RMB. The net revenue refers to the total RMB value generated from ride hailing service after deducting discounts and the refunds. Notably, daily average orders per vehicle have reached 23. Fueled by a robust widespread user demand and our operational optimization. Meanwhile, we have also optimized the hardware depreciation as well as operational cost. Including charging remote assistant, ground support, service, maintenance. Insurance, parking, and network costs. This will further improve our margin down the road. The total operating expenses were 74,300,000.0 US dollars up by 76.7% Tianqin Luo: Excluding share based compensation expenses, Liu Wang: non GAAP operating expenses, were 67,700,000.0 US dollars. Up 63.7%. Tianqin Luo: The increase primarily reflects Liu Wang: the one one off r and d investment in gen seven vehicles and the expansion of our r and d personnel. Critical to securing and extending our technological leadership. Specifically, approximately half of the increase in research and development expenses stemmed from onetime customized development fee of 12,700,000.0 US dollars for gen seven vehicles. Net loss for the third quarter was 61,600,000.0 US dollars, compared to 42,100,000.0 US dollars in the same period of last year. Non GAAP net loss was 55,000,000 US dollars, compared to 41,400,000.0 US dollars last year. Looking ahead, we expect to sustain disciplined investment to accelerate larger scale commercial deployment. Turning to the balance sheet. Our cash and cash equivalents short term investments, restricted cash, and long term debt instrument for wealth management were 587,700,000.0 US dollars as of 09/30/2025. Compared to the balance as of 06/30/2025 of 747,700,000.0 US dollars. Around half of this decrease comes from one off cash outflow, including capital injection to Jifeng our joint venture with Toyota, to support a gen seven mass production and deployment All of the capital commitment in Jifeng has been completed The remaining cash balance reduction primarily reflects our mass production and the large scale deployment status including firstly, ongoing operational cash outflow, and secondly, capital expenditure for the Procurement of gen seven vehicle in Q3. To support our goal of 1,000 vehicle fleet by year end. For the nine months ending 09/30/2025, we have a accumulated free cash outflow of 173,600,000.0 US dollars, With the completion of our recent Hong Kong IPO, we have over 800,000,000 US dollars cash newly added providing us with substantial fuel for the next phase of growth. The IPO proceeds will help us accelerate fleet expansion into key addressable markets further optimize our platform for scale, and deepen our R and D investments. To further solidify our technology mode. Looking ahead, our mass production momentum continues to strengthen. And we are on track to exceed our full year vehicle target of 1,000. Achieving this milestone ahead of schedule. This acceleration reinforce our confidence in scaling rapidly. And we now anticipate to grow our fleet to be more than 3,000 vehicles by 2026. In addition, we've already transitioned to a asset light model for a meaningful portion of our new vehicles. This will enhance our capital expenditure efficiency. And provide a greater leverage for scalable fleet expansion. With the proven operational model, and the financial runway from the recent Hong Kong IPO. We are uniquely positioned to accelerate our business plan turning momentum into sustained profitable growth, I will now turn the call over to the operator to begin our q and a session. Thank you. Question & Answer Session Operator: Thank you. We will now begin the question and answer session. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. For the benefit of all participants on today's call, please limit yourself to one question. If you have more questions, please reenter the question queue. If you ask questions in Chinese, please repeat them in English. And the first question comes from Ming Shun Li with Bank of America. Please go ahead. Ming Shun Li: Thank you. Thank you management to give the opportunity for me to ask a question. So I just have one question. So could the management team give us some more update on the flea size for this year and also outlook in 2026. For the new vehicles added, what is the full fleet deployment plan across different city? Thank you. James Tong: This is James. I'll take this one. So as you can see that since the launch of our gen seven robotaxi, we actually have seen a much faster than expected production and the the deployment. So so for this year, we certainly expect to outperform our previous target of 1,000 robotaxis by the year end. We certainly expect this strong momentum to continue into 2026. Now with conservative target of over 3,000 vehicles, This is mainly because we have already seen upward spiral with the launch of our gen seven vehicles. Essentially, the fleet density creates a much shorter wait time for the passengers. And then that creates a better user experience. And then the user experience leads to much higher utilization for our vehicles. And, then we can actually then charge a better pricing So so this spiral really created a strong momentum for us to expand much faster. In addition, we also started experimenting with the asset light model. By collaborating with fleet managers such as, Shihu, Sunlight, and and certainly we'll add more partners This asset light model allows us to deploy at a much larger fleet with, less CapEx. So this is our growth plan. Then in terms of the fleet deployment plan, we'll go deeper on our existing markets and at the same time, we'll go much wider to explore some new opportunities. The citywide UE breakeven for the gen seven in Guangzhou In my view, it's a pivotal milestone to validate our business model. This gives us a huge confidence and allow us to deepen our collaboration and our operation in the existing markets, which are the tier one cities in China. This is because as I already mentioned, expand expanded fleet size creates a upward spiral. But at the same time, we also expand into many more domestic cities and also the overseas markets. We see those for our future growth, Our go to market strategy on those markets is that we'll collaborate deeply with the local partners and the local government agencies to establish presence and prepare for our future growth. So stay tuned. I think we'll have, great news ahead of us. With that, back to the operator. Operator: Thank you. The next question comes from Bin Wang with Deutsche Bank. Please go ahead. Ming Shun Li: Hi, management. Thank you for taking my question. I I just have one question. Which is about the charging. I'd like to know fair charging revenue delivered another growth in 03/2025. So what is the outlook for fair charging revenues as we deploy more vehicles? Thank you. Liu Wang: Yeah. This is Leo. I'll take this question. Yes. In Q3, our fair charging revenue actually surged even faster. It was growing about two hundred and thirty three percent. Though at that time, our fleet were still with the gen five and gen six, gen six vehicles. So we believe such growth was driven by both the demand side as well as the operational side. On the demand side, we have been continuously to do our effort to improve the whole writing experience and also the user experience. So with this effort, we've seen, robust and organic user demand in tier one cities. This is also a signal of a strong consumer adoption of our robotaxis service. Giving you an example that the total registered user Was more than doubled, year over year in Q3. And on the operational side, we have also been optimizing the fleet operation to improve our vehicle utilization and the order fulfillment as Tianqin already mentioned in his remarks. So for example, we enhanced our fleet dispatching and the deployment This has consistently reduced our wait time. It's approximately 50% shorter compared to the same period. In 2024. And we also continue to expand our pickup and drop off points to create a much more smooth user experience. For example, in Shenzhen, now we have more than 10,000 such points. More than 300% increase since the end of June this year. With all this, you know, demand side and operational side improvement, I believe we could see sustained strong growth momentum through the continuous fleet expansion with more and more gen seven vehicle are into our service. First of all, we expect that our fleet has been growing exponentially from 270 next last year and to be more than 1,000 this year. And a target of more than 3,000 next year. This scaling up would also create a a better network effect. Which means shorter wait time and higher vehicle utilization and higher user adoption. We would also progressively expanding our service area. In cities such as Shanghai, Shenzhen, we've already been doing so today. We would increase the population coverage and expanding to more drivable mileages. Etcetera, etcetera. With all these being done, I think we can boost the average order value per chip. Okay. I'll get back to the operator. Operator: Thank you, sir. The next question comes from Kyle Wu with Citi Research. Please go ahead. Unknown Executive: Thanks for taking my questions. This is Kyle from Citi Research. And congratulations on achieving the milestone of Citi wide UEFA even. Could you elaborate more about the assumption behind the delivery per event? Including daily order, pricing, daily operating hours, and a ratio of remote assistance. Thank you. Liu Wang: Yes. I'll I'll take this question. Like you said, we we all believe the citywide u unique economic breakeven is a pivotal milestone for the company and also for the industry. First of all, we you know, achieved this pivotal milestone, in Guangzhou City, since our gen seven vehicle. Has been put into commercial service. And we always believe China is the largest market of global ride hitting market. And for the tier one cities, the total TAM accounts for a huge percent of ride hailing market in China. So achieving this milestone in this market is far more meaningful. From commercial perspective. Then if we talk about the unique economic, there's the revenue side. There's always the cost side. On the revenue side, first of all, on the daily net revenue per vehicle, As I mentioned, our daily net revenue per vehicle has hit 299 RMB. It's based on a two week daily average figures as of November 23. Following the launch of our gen seven vehicle in Guangzhou. And this net revenue also refers to the total RMB value generated from ride hailing service after deducting discounts. And the refunds. And in terms of daily orders, from this 299 RMB number, it was average 23 orders per day. It's fueled by robust widespread of user demand. Now let's look into the cost side. So the cost side of the unique economic basically, has two major component. First of all, it's the hardware depreciation. For gen seven vehicle, the annual vehicle depreciation is based on a six year useful life. The other major component on the cost side is the operational cost. Which include the charging remote assistant, and the ground supporting staff. Vehicle service and maintenance, insurance, parking, Internet network cost, So regarding the remote assistant, we are on track to achieve our well over 30 vehicles. And from this milestone that we achieved, we are very confident to capture the China huge TAM. Meanwhile, it also established a strategic foundation for further scale scaling up. Domestically and internationally. This not only give us strong confidence to further scale our fleet, But we also see more and more third party companies are enabled to fund their fleet and helping us to transition into a satellite model. So all these together we believe will drive our top line growth and also the call cost optimization. Okay. I'll go get back to the operator. Operator: Thank you. The next question comes from Purdy Ho with Huatai Securities. Please go ahead. Unknown Executive: Hello, James, doctor Law, and Liu. Thank you for taking my question, and congratulations on the results. Purdy Ho: We've observed a surge in diverge players attempting to attempt into the robotaxi operation. Particularly the easy makers. Right? So what's your take on these new entry entrants in the l in the level four autonomous driving space? And not so specifically, could you elaborate on the main technical and operational challenges such as tackling corner cases and fleet management for digital commerce. James Tong: Thank you. This is James. I'll take this one. So so first and the foremost, I think it's definitely as we see more and more companies announcing that they're gonna enter into robotaxi industry, I think itself, is actually a great thing because it indicates increasing recognition and the confidence in robo taxi imminent potential for the large scale of of commercialization. As the the awareness increase more resource, More companies come in. More resources will pour into this robotaxi industry. To actually accelerate its development. So overall, I view this as a good thing. But on the flip side, the robotaxi industry is actually not a one that any new player can easily enter. Because as you can see, the fact is that currently none of the new entrants are being OEM maker or being a ride hailing platforms? None of them have fully driverless vehicles deployed on the road to road. So it's clear evidence this is not easy industry to to be entered. I think there certainly three huge hurdles for the any new players. And those hurdles are business side, regulatory side, and also technical challenges. Let's probably look at the business challenges first. Because Volvo Taxi, as you see, it's not just about airfoil driving itself. It also has many more aspects such as user acquisition vehicle production, fleet dispatching, fleet maintenance, such as the cleaning, charging, and everything else. So as a leader, and first mover in this industry, we certainly enjoyed the early mover advantages. As we have a much bigger l four fleet on the road. We generated a better brand awareness We have optimized the cost on every aspects of the business as Leo already mentioned in his answer to the last question. And and the we because of early mover, we also have secured more partners. I think all those are important and it creates big hurdle for any new entrants. The second hurdle that I wanna mention is on the regulatory front. Because l four, a robotaxis needs very high safety requirement. All the policymakers worldwide have fundamentally will require a much, much higher safety requirements for the robotaxis compared with the traditional taxi That means in any city, a new player needs to prove its safety stepped by step. Before they can expand. Even into a fully driverless fleet. Typically, a new player will start with a testing with just a few dozen or maybe even less vehicles. And then once those vehicles prove to be safe, they add more vehicles and then expand operational areas. After they can accumulate the the safety records. And along the way, they also need to acquire all the required licenses and permits And this is in itself is actually a lengthy process. So overall, the whole process takes time. And this code starting process cannot be easily accelerated. So that's the second challenge. The third challenge challenge is certainly in my view, is on the technical side. And probably for this one, I'll tend to tend to elaborate. Tianqin Luo: Yeah. Sure. So I'm Kenton. So let me continue from a technology perspective. So as I as I said in my prepared remarks, we are now seeing the broader industry starting to using one model. Such as robotaxi players and automakers. Essentially, they are all about using reinforcement learning based on simulation training environments. First and foremost, I would say we started developing reinforcement learning for account driving five years ago. This give us a early mover advantage. They have one of the most experienced company in the world model. We believe that we'll continue to stay ahead as more peers follow the same path. So once the word more mature now, the human feedback and the real word, they no longer used for further iterations. Purdy Ho: So Tianqin Luo: at at the stage of training cost loop, the word model and the virtual driver co evolve into a dual spiral cycle. This means the word model and training the virtual driver And at the same time, the word model improves sales through feedback of the virtual driver. This sharply reduce reliance on the real world data. Question will touch on the technical challenge before the meeting of corner cases. Maybe example here that why the virtual driving some corner cases. So this is gonna give feedback to the word model. And the word model will improve its distribution of the corner cases. Then the next generation next version of our model will be able to create a generator testing and also improving the the the capability of the virtual battery handle the chronic cases. Okay. So looking ahead, our real advantage lies in ability to validate new technology safely and then deploy that scale. So based on our proven track record of scaling Robotech's operations, so we believe can quickly capture the next wave of innovation. Also, last but not least, our current Hong Kong IPO will further accelerate IND and the attrition cycles. Reinforcing our technical leadership at a widening over competitive mode. Yeah. With that, I'll back to the operator. Operator: The next question comes from Xia Li with Jefferies. Please go ahead. Purdy Ho: Thanks for taking my question. I have one as well. My question is about what do you see as the main factors behind the faster expansion of your operational areas. And beyond technology, what else do you think really matters? And from the technical perspective, are you using large language models? And if so, how are they helping push for autonomy fall forward? Thank you. Tianqin Luo: Thank you. This is Kim Chubb. Will continue to answer this question. I think your question consists of two parts. Let me answer your question on generalization first. Then we address the other one on large language model later. Generalization, would say tech technically, over text side, it's by nature built for generalization. So a good example is that over operational area expansion into new areas in Shanghai, Pudong and Shenzhen, Nan Shan District, the third quarter. In both cases, it only took us only a few weeks for our verifying the city to truly realizing fully drivers operation to the public. There was no need for additional model training. Quick the key reading that and, also, native architecture is a beautiful handling corner cases and to June cases. While these cases are actually very consistent across different regions, They are really nothing more than things like small obstacles, boxes on the road. Pedestrians that they are crossing. And suddenly, they change from other cars without looking at the vehicle behind. Etcetera. So it's just about the likelihood and the probabilities of each what happening. So hope that can help understand why the awful tech stack by nature built for generalization. So at this moment, I will say, the key to over new area extension, the number of v number of robotaxi vehicles. If we extend to too many areas without adding more cars, it will instead dilute the density. So that is the reason why the speed of operational error extension cannot significantly faster than that of three five. Yeah. So then then let me share my thought on the second part. That's a land large language model. First, I will say first and foremost, there are two non negotiable requirement for l four onboard value model. Uncompromising safety. And also low latency. There are the lot longer more than chatbot don't need and that are not designed to meet as well. So for safety, last we went not not long long model generally have issue like model health and nation. Which is which is unacceptable for l four in terms of safety. And for latency, large language models are optimized for throughput like tokens per second, In contrast, l four, the optimized for low latency and the ability to run fully driverless over textile chips. That are both low power consumption and the cost efficient. Moreover, large language model overly run human data. Fundamentally limits them to the boundary of the existing human knowledge. Add anything ever inevitably makes them pick up human errors. Bad habit from human driver. So we also extensively use l a lot of language model in the IND effort such as AI has human machine interaction, engineering productivity tools for coding and documentation, and analysis for the rider feedback for extended improvement. But, however, due to the multiple reasons mentioned above, large large language model is by nature not good for driving model onboard. So with that, so back to the operator. Thank you. Unknown Executive: Thank you. That's very helpful. Operator: The next question comes from Jin Yu Fang with UBS. Please go ahead. Unknown Executive: Hi. Thank you, management, for taking my questions. I have one question here. It is currently that only cooperate with multiple OEMs for robotaxi manufacturing including BAIC, GAC, and Toyota, Does management see potential for improving operating leverage through working with only one OEM team staff? Thank you. James Tong: This is Jets. I'll take this one. So the matter of the reality is that in the whole global taxi industry, local governments and the local residents actually have a strong preference preferences for the local branded taxi vehicles. So so that's a reality. Typically, when, robotaxi fleet is relatively small. The brand that doesn't really matter much. But if we need to deploy a significant fleet size, the requirements certainly is no longer true. And the local branded OEMs is much more more preferred. So it is necessary for us to cooperate with multiple local OEMs in different regions it actually can help us to expand into different markets much quickly And that's why we are now collaborate with three OEMs to produce our gen seven robotaxis. It is true that feeding our autonomous driving kit into a different vehicles actually posts a huge technical challenge But on the if you look at from the other side, the mere fact that we were able to standardize our technology and being able to treat our setup into different vehicles. That shows our technical generalization And down the road, it actually can create a huge competitive edge. So as a result, we can add new models much faster to accelerate our expansion into new regions. For example, in the Europe, we currently added the partnership with Stellantis. So with that, back to the operator. Operator: The next question comes from Tung Zhujia with Guosun. Please go ahead. Thanks for taking my question. Purdy Ho: I have one question. Why Pony can use remote assistant on robotaxi when the car meets difficulty? Instead of remote control human take up. Over? And what is the technology difference behind that? Tianqin Luo: This is Kim Chen. I will take this one. I think one of the previous question also touched on the remote assistant for robotaxi. So let me elaborate on that at least more detail. First and foremost, I'd say over remote assist never control the vehicle. Through the thin wheel or pedal. Instead, they provide remote support and suggestions by responding to service request. For all the time, the vehicle can independently drive from this independently make decisions without remote assistance. Assistance only initiates one of vehicle requested. Rather than through the remote driving. So one vehicle received the assistance response. The onboard driving system will still make time decision based on the actual situation. Because the vehicle never waits for remote command to react to act. So it will remain safe, operates operation without any dependence on network latency. So one typical example of remote assistance is the situation of a temporary traffic control. In such cases, the system may request remote assist which can provide high level suggestion to confirm the car's decision navigating through a scenario. But also, as I mentioned, we have to continue to improve the AI algorithm, and also leverage our general AI capability to recognize more and more complex contact context This allows us to improve remote assist to vehicle ratio in a third quarter quarter. To reach one to 30 by year end. Hope that can answer your question. Go back to the operator. Operator: The next question comes from Serena Li with China Securities. Please go ahead. Purdy Ho: Okay. Thank you for taking my question. This is Serena Li from China Security. As far as we know, some countries in The Middle East have issued fully driverless robotaxi license recently. What's our view on that? What town is overseas? To stretch it? James Tong: Sure. This is James again. Let me take this one. Our company's mission has always been autonomous mobility everywhere. So we certainly have the global ambition since our funding to actually utilize our technology to benefit the local societies worldwide. Currently, our global efforts are focused on the markets with hyper growth potential. Those are the markets with typically strong mobility demand well developed infrastructure, and a supportive regulatory environment. When we evaluate a potential market to enter on a high level three factors, we'll consider. One is the, adjustable market size, which is 10. Second is the openness and the execution of the local government. To support. And issue permit for the fully driverless commercial operation. Third is how strong is the local partner for their on the ground resources. And operational capacities. So as you can see, our globe current global expansion status is that we have already entered eight countries for our robotaxi. And we also for example, in Q3, we added Qatar as a new market by collaborating with Movasaleh. In Q3, we have also saw a rapid revenue growth especially for the robotaxi for our overseas from our overseas markets. And we certainly expect this momentum to continue. So going forward, we will enter other global markets if we see, there's a good growth opportunities. So this is our overseas strategy. With this, back to the operator. Operator: As there are no further questions, I'd like to turn the call back over to the company for closing remarks. Tianqin Luo: Thank you, operator. This is George again. If anyone has any more questions, feel free to contact the IR team. We will conclude our call today. Thank you, everyone. Operator: This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your line.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the DICK'S Sporting Goods, Inc. Third Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press star followed by the number one on your telephone keypad. If you'd like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Nate Gilch, Investor Relations. Nate, please go ahead. Nate Gilch: Good morning, everyone. And thanks for joining us to discuss our third quarter 2025 results. On today's call will be Ed Stack, our Executive Chairman, Lauren Hobart, our President and Chief Executive Officer, and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived in our Investor Relations website located at investors.dicks.com for approximately twelve months. As a reminder, we will be making forward-looking statements that are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K and our quarterly report on Form 10-Q for the first fiscal quarter, as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAAP financial measures referenced in today's call. And finally, a couple of admin items. First, a quick note on our comparable sales reporting. Foot Locker will be included in our comp base beginning in Q4 of next year, which will mark the start of their fourteenth full month of operations post-acquisition. As such, all reported comp sales for this quarter and for the upcoming year pertain to the DICK'S business only. Second, I want to provide clarity on certain terminology we'll use throughout today's call and going forward. First, when we refer to the DICK'S business, we mean our existing DICK'S Sporting Goods operations, including the DICK'S Sporting Goods, Golf Galaxy, Going Going Gone, and Public Lands banners, as well as GameChanger. Earnings per diluted share results for the DICK'S business exclude the dilutive effect of the 9,600,000 shares issued as part of the Foot Locker acquisition. Second, Foot Locker business refers to our newly acquired operations including the Foot Locker, Kids Foot Locker, Champ Sports, WSS, and Atmos banners. And finally, for future scheduling purposes, we are tentatively planning to publish our fourth quarter 2025 earnings results on March 10, 2026. With that, I now turn the call over to Ed. Ed Stack: Thanks, Nate. Good morning, everyone. Thanks for joining us today. This is an important call. It's our first earnings call as a combined company with Foot Locker. We have a lot to share. There's a lot of detail and a lot of numbers. We want to make it clear we're doing all that our shareholders would expect us to do to make the Foot Locker business accretive in 2026. And I have to tell you, as the largest shareholder, I couldn't be more excited about the progress we're making and the opportunities ahead. As announced earlier this morning, we delivered another great quarter with comps of 5.7% for the DICK'S business, and we continue to operate from a position of strength. Our momentum in the DICK'S business remains strong, as we execute against the key priorities that have fueled our success: a differentiated on-trend product assortment and an industry-leading omnichannel athlete experience. This is the flywheel of our success as a company. It's driving consistent growth and performance. Now I will discuss the tremendous opportunity we see with Foot Locker. Completing this acquisition on September 8 marks a bold and transformative moment for DICK'S. Together, we're building a global platform that is at the intersection of sport and culture, one that we believe will redefine sports retailing. This powerful combination will allow us to serve a broader consumer base, deepen our partnerships with the world's leading sports brands, and significantly expand our total addressable market. When we announced this acquisition, we knew that business was going to need work. Let me be candid. Foot Locker strayed from retail 101 and did not execute the fundamentals. Post-COVID, Foot Locker did not react quickly enough as its largest brand pivoted toward a direct-to-consumer model, leaving Foot Locker with the wrong inventory—too much of what didn't sell and not enough of what did sell. Consequently, as we enter this transitional phase, the Foot Locker business, as expected, comped negatively with pro forma comp sales for the full third quarter declining 4.7%, including a 10.2% decline internationally. Now after looking even deeper under the hood as the owners of Foot Locker, our conviction that we can turn this business around has only grown. We will bring our operational excellence, our supplier relationships, and our merchandise expertise to return Foot Locker to its rightful place as a top player in the specialty athletic channel. Today, we're even more excited about the long-term value we believe this acquisition will deliver to our shareholders. We're committed to investing in Foot Locker's business to return it to profitable growth. We've assembled a world-class management team to lead the Foot Locker business, and I'm personally excited to guide this next chapter. As previously announced, Anne Freeman, a longtime former Nike executive, is now serving as Foot Locker North America president. Anne brings deep industry expertise and leadership experience, and she is supported by a high-caliber team of senior leaders—a combination of key executives from Foot Locker, all of whom are well respected by the stripers, blue shirts, and our brand partners, experienced leaders from DICK'S, and talent from other world-class companies. This team was handpicked to return Foot Locker to its rightful place in our industry, and we're already moving quickly in North America to build momentum. In addition, we're thrilled to have just announced that Matthew Barnes, former CEO of Aldi, will be joining our team next month as president of the Foot Locker International business. Matthew has nearly three decades of experience in global retail and a track record of transforming brands. We look forward to working to stabilize and ultimately accelerate that business with targeted turnaround strategies to meet the evolving needs of consumers globally. There's a lot happening to position the business for the short term and build for the long term. Our first priority is clear. We need to clean out the garage of underperforming assets. This means clearing out unproductive inventory, closing underperforming stores, and rightsizing assets that don't align with our go-forward vision for the Foot Locker business. This is the groundwork for the transformation. We began this work shortly after the closing on September 8. We have identified an initial number of underperforming assets around the globe, including inventory that needs to be marked down and liquidated, along with the preliminary number of stores that need to be impaired or closed. We initiated certain pricing actions in late Q3 and we'll be more aggressive in Q4 to clean up unproductive inventory. Our intent is to get the vast majority of the inventory charges behind us by the end of the year so we can start 2026 fresh and position Foot Locker for an inflection point during the back-to-school season in 2026. As a result, we expect Q4 margin rate for the Foot Locker business to be down between 1,000 to 1,500 basis points with pro forma Q4 comp sales being down mid- to high single digits. We believe this aggressive purging of underperforming assets is what needs to be done to return Foot Locker to its rightful position as a key leader in this industry. Navdeep will share more details in his remarks about the charges we anticipate as part of this important cleanup effort. Importantly, we've met with all of our key vendor partners and they are fully aligned with our vision and are eager to support a thriving, growing Foot Locker. They indicated they are committed to investing alongside us to reignite the Foot Locker business. We're moving with urgency and have already kicked off an 11-store pilot to begin testing changes in product and the in-store presentation. It's early, but we're encouraged by what we're seeing and learning. Looking ahead, we expect back-to-school next year to be an inflection point as our new strategies, assortments, and processes align to drive meaningful progress in the Foot Locker business. All supported by the work we're doing now by cleaning out the garage to position Foot Locker for future success. With these actions, we continue to expect Foot Locker to be accretive to our EPS in fiscal 2026, excluding one-time costs. What amplifies our confidence is the talented people we found inside the Foot Locker business. Over the past two months, we spent time in Foot Locker stores, offices, and distribution centers. Our teammates' passion is real, especially among the stripers and blue shirts along with the rest of the team members. They love sneakers, they're hungry for leadership, and they want to get back to playing offense. That energy is validating our excitement and building focus for what's ahead. In closing, at DICK'S, we've built a business that leads our industry in performance, innovation, and customer loyalty. DICK'S has generated consistent growth and strong margins, with a relentless focus on delivering shareholder value. While we're just getting started on Foot Locker's transformation, our deep expertise and our track record of growth and success fuel our conviction that we can turn this business around and we are confident that Foot Locker will reemerge as a stronger, more resilient, and more dynamic business. We will do this with the same grit, vision, and execution that got DICK'S to where it is today. Before turning it to Lauren, I want to take a moment to thank our more than 100,000 teammates across all of our banners for their passion and commitment during this exciting chapter for our company and wish everyone a happy Thanksgiving. With that, I'll turn it over to Lauren to share more on the continued momentum across the DICK'S business. Lauren Hobart: Thank you, Ed, and good morning, everyone. We're very pleased with our strong third quarter results for the DICK'S business, which continue to demonstrate the strength of our operating model and our team's disciplined execution. We are entirely focused on delivering on our strategies and sustaining our strong momentum. As always, our performance is powered by our compelling omni-athlete experience, differentiated product assortment, best-in-class teammate experience, and our ability to create deep engagement with the DICK'S brand. Today, we are raising our full-year outlook for the DICK'S business. This updated guidance reflects our strong Q3 results and the ongoing confidence we have in our business, grounded in our team's execution of the four strategic pillars I just mentioned. We now expect comp sales growth of 3.5% to 4% for the year and EPS to be in the range of $14.25 to $14.55 for the DICK'S business. Now moving to our third quarter results for the DICK'S business. Our Q3 comps increased 5.7% with growth in average ticket and transactions. These strong comps were on top of a 4.3% increase last year and a 1.9% increase in 2023, as we continue to gain market share. Our gross margin expanded 27 basis points in line with our expectations, and we delivered non-GAAP EPS of $2.78 for the DICK'S business, up from $2.75 in the prior year's quarter. As we continue to execute through our strategic pillars, we're seeing strong momentum across the three growth areas for the DICK'S business that we are focused on for 2025. First, we're incredibly proud of the progress we're making in repositioning our real estate and store portfolio. In Q3, we opened 13 new House of Sport locations, the most we've ever opened in a single quarter, bringing our year-to-date total to 16 openings. This achievement reflects the outstanding work of our team, whose focus and execution made this ambitious rollout a reality. We now have 35 House of Sport locations nationwide, a major milestone in the growth of this transformative concept. We also opened six new Fieldhouse locations in Q3 and opened another just last week, completing our 15 planned openings for the year and bringing us to a total of 42 Fieldhouse locations across the US. These innovative formats are delivering powerful results, deepening engagement with our athletes, brand partners, and landlords, and laying the foundation for long-term profitable growth for the DICK'S business. The second of our three major focus areas is driving growth across key categories. Our unparalleled access to top-tier products from both national and emerging brand partners continues to fuel athlete demand and excitement, driving strong growth across the DICK'S business. At the same time, our vertical brands are resonating incredibly well with our athletes, further contributing to this momentum. For Q3, this growth came from having more athletes purchase from us with more frequent purchases and more spending each trip. We feel great about the product pipeline from our brand partners, and our inventory is well-positioned to meet athlete demand this holiday season. I also want to highlight our ongoing expansion into trading cards and collectibles. In partnership with Fanatics, we've launched the Collector's Clubhouse in 20 House of Sport locations, with plans to include it in every new location going forward. These spaces feature trading cards, autograph memorabilia, and more, and the athlete response has exceeded our expectations. It's a unique and fast-growing category that's a great fit to everything we do, and we're very excited about the opportunity ahead. And our third major focus area, our multibillion-dollar highly profitable e-commerce business continues to stand out as a growth driver, once again growing faster than the DICK'S business overall. I'd like to highlight three examples of ways we're building strength in e-commerce. First, we're really leaning into our app experience, including app-exclusive reservations that are establishing us as a leader in launch culture across many key categories. Second, we're continuing to invest in capabilities to deliver more personalized experiences, content, product recommendations, and search results. An example of this is how we're targeting NFL fans with personalized creative messaging and product recommendations for their favorite team. Third, for the holiday season, we're making it easier than ever to find the perfect gift with a new capability for athletes to build and share their wish list with family and friends. Lastly, as part of our broader digital strategy, we're harnessing the power of our athlete data and continue to be enthusiastic about the long-term growth opportunities we see with GameChanger and the DICK'S Media Network. Our GameChanger platform keeps expanding with new features, partnerships, and content that enriches the whole youth sports experience and reinforces our leadership in the multibillion-dollar youth sports tech ecosystem. A great example is our new game insights feature, which gives coaches fast, actionable takeaways after every game, further elevating the value we provide to athletes, coaches, and families. We're also seeing great momentum with our DICK'S Media Network, which is deepening engagement with consumers and key brand partners while expanding across new ad platforms. In addition to our collection of owned and our full spectrum of off-site channels, we're ramping up our in-store capabilities like our interactive digital experiences and programmable spaces that are driving impactful brand activations in our House of Sport locations. In closing, we're very pleased with our strong third quarter results and remain highly confident in our long-term strategies to drive sustained sales and profit growth for the DICK'S business. We believe the power of our omnichannel athlete experience and our compelling differentiated product offering will resonate with our athletes this holiday season, supported by our fantastic holiday brand campaign, which launched a few weeks ago. I'd like to thank all of our teammates for their hard work and commitment and for their focus on delivering great experiences for our athletes throughout the season. And, also, a warm welcome to all stripers, blue shirts, and team members from the Foot Locker business. We're excited to have you as part of the DICK'S family and to achieve great things together. I share Ed's excitement about how we will bring our operational excellence, our supplier relationships, and our merchandise expertise to return Foot Locker to its rightful place as a top player in the specialty athletic channel. With that, I'll turn it over to Navdeep to share more detail on our financial results and 2025 outlook. Navdeep, over to you. Navdeep Gupta: Thank you, Lauren, and good morning, everyone. Before I begin my review of our third quarter results, I would like to take a moment to provide important context for Foot Locker's performance included in our consolidated financial results. As noted in this morning's release, our acquisition of Foot Locker closed on September 8. As a result, our third quarter consolidated financials do not include the peak back-to-school selling season in August for the Foot Locker business. They reflect just eight weeks of post-acquisition results in September and October, historically an unprofitable time period for the Foot Locker business. Let's now move to a brief review of our third quarter results for the consolidated company, including continued strong performance for the DICK'S business. Consolidated net sales increased 36.3% to $4.17 billion, driven by an approximate $931 million sales contribution from a partial quarter of owning the Foot Locker business and a 5.7% comp increase for the DICK'S business as we continue to gain market share. On a two-year and a three-year stack basis, comps for the DICK'S business increased 10% and 11.9%, respectively. These strong comps were driven by a 4.4% increase in average ticket and a 1.3% increase in transactions. We also saw broad-based strength across our three primary categories of footwear, apparel, and hardlines. As Nate said, Foot Locker will be included in the comp base beginning in Q4 of next year, which is when they will commence their fourteenth full month of operation following the closing of the acquisition. For reference, pro forma comp sales for the Foot Locker business in Q3 in its entirety decreased 4.7%, with the comparable sales in North America decreasing by 2.6% and the comparable sales in Foot Locker International decreasing by 10.2%, primarily driven by softness in Europe. Consolidated gross profit for the quarter was $1.38 billion or 33.13% of net sales, down 264 basis points from last year. For the DICK'S business, gross margin increased by 27 basis points and was in line with our expectations. Notably, the year-over-year decline in consolidated gross was driven entirely by the mix impact from the lower gross margin Foot Locker business. On a non-GAAP basis, consolidated SG&A expenses increased 40.8% or $320.9 million to $1.11 billion and deleveraged 84 basis points compared to last year's non-GAAP results. $259.9 million of this consolidated increase was driven by the Foot Locker business. For the DICK'S business, expense dollars increased by 7.7% and deleveraged 45 basis points, which was in line with our expectation and driven by strategic investments digitally, in-store, and in marketing to better position the DICK'S business over the long term. Consolidated preopening expenses were $30.6 million, an increase of $13.8 million compared to the prior year. As Lauren mentioned, this supported the opening of 13 new House of Sport locations in Q3, our highest numbers opened in a single quarter to date, plus another six Fieldhouse locations we opened in the quarter. Consolidated non-GAAP operating income was $242.2 million or 5.81% of net sales, compared to $289.5 million or 9.47% of net sales last year. For the DICK'S business, non-GAAP operating income was $288.6 million or 8.92% of net sales. This year's consolidated results included a $46.3 million operating loss in the quarter from the Foot Locker business, which was primarily driven by the gross margin decline. We initiated certain pricing actions in late Q3. Importantly, since the acquisition of Foot Locker closed on September 8, these results exclude a profitable back-to-school season for the Foot Locker business in August and through Labor Day. For reference, pro forma non-GAAP operating income for the Foot Locker business in Q3 in its entirety was approximately $6.8 million. On a non-GAAP basis, other income comprised primarily of interest income was $12.7 million, down $7.8 million from the prior year. This decline was from lower cash on hand and a lower interest rate environment. Consolidated non-GAAP EBT was $239.9 million or 5.76% of net sales, including the Foot Locker business. This compares to an EBT of $297.1 million or 9.7% of net sales in Q3 of last year. Moving down the P&L, consolidated non-GAAP income tax expense was $59.4 million or a rate of 24.7%. While the income for the DICK'S business was taxed at a low 20% rate, the combined company was subject to a higher tax rate primarily driven by the Foot Locker's EMEA business, where a full valuation allowance remains in place. In total, we delivered a consolidated non-GAAP earnings per diluted share of $2.07 for the quarter. These results included non-GAAP earnings per diluted share of $2.78 for the DICK'S business based on a share count of 81.2 million, which excludes the dilutive effect of the shares issued in connection with the acquisition of Foot Locker. This is up from the earnings per diluted share of $2.75 last year. The DICK'S business results were partially offset by the effects of the partial quarter contribution from the Foot Locker business, which include a 52¢ negative impact from Foot Locker operations, including the gross margin decline as well as the higher tax rate, a 19¢ negative impact from the increased share count, which was up 5.9 million prorated for the eight weeks of the Foot Locker ownership. On a GAAP basis, our earnings per diluted shares were 86¢. This includes the noncash gains from our nonoperating Foot Locker stock, as well as $141.9 million of pretax Foot Locker acquisition-related costs. For additional details on this, you can refer to the non-GAAP reconciliation table of our press release that we issued this morning. Now turning to our balance sheet. We ended Q3 with approximately $821 million of cash and cash equivalents and no borrowings on our $2 billion unsecured credit facility. Our quarter-end inventory levels increased 51% compared to Q3 of last year. Excluding the Foot Locker business, inventory levels for the DICK'S business increased 2% compared to Q3 of last year. We believe the inventory in the DICK'S business is well-positioned to continue fueling our sales momentum. For reference, on a pro forma basis, inventory levels for the Foot Locker business increased approximately 5% as compared to the same period last year. And as I've mentioned, the work is underway to clear out the unproductive inventory at the Foot Locker business. Turning to our third quarter capital allocation, net capital expenditures were $218 million, which included $201 million for the DICK'S business and $17 million for the Foot Locker business. We also paid $109 million in quarterly dividends. Before I move to our outlook, I want to address a few key expectations surrounding the Foot Locker acquisition. First, as Ed discussed, our immediate priority is to clean out the garage of unproductive assets as we look to optimize the inventory assortment and store portfolio for the Foot Locker business. We expect these actions, along with other merger and integration costs, to result in a future pretax charge of between $500 million and $750 million. Importantly, these future pretax charges are excluded from today's outlook. Second, we remain confident in achieving the previously announced $100 million to $125 million in cost synergies over the medium term, primarily from procurement and direct sourcing efficiencies. Third, as Ed said, we continue to expect the acquisition to be accretive to EPS in fiscal 2026, excluding one-time costs. Now moving to our outlook for 2025. Today, we are providing an updated outlook that is specific to the DICK'S business and does not include the Foot Locker business, which we will address separately. We are taking this approach to ensure comparability of our performance across the quarters and to provide ongoing visibility into the DICK'S business. This outlook also excludes the investment gains as well as the merger and integration costs related to the Foot Locker acquisition. As Lauren said, we are raising our expectation for comp sales and EPS for the DICK'S business. Our updated guidance reflects our strong Q3 performance and includes the expected impact from all tariffs currently in effect. This outlook balances our confidence in the outcomes we are driving through our strategic initiatives and our operational strength against the ongoing dynamic macroeconomic environment. We now expect full-year comp sales growth for the DICK'S business in the range of 3.5% to 4% compared to our prior growth expectation of 2% to 3.5%. Total sales for the DICK'S business are expected to be in the range of $13.95 billion to $14 billion compared to our prior expectation of $13.75 billion to $13.95 billion. Driven by the quality of our assortment, we continue to expect to drive gross margin expansion for the full year. We anticipate this expansion will be offset by SG&A deleverage as we are making strategic investments digitally, in-store, and in marketing to better position ourselves over the long term. We still expect operating margins to be approximately 11.1% at the midpoint. At the high end of the expectations, we continue to expect to drive approximately 10 basis points of operating margin expansion. We now expect EPS for the DICK'S business in the range of $14.25 to $14.55 compared to a prior expectation of $13.90 to $14.50. Our earnings guidance for the DICK'S business is based on approximately 81 million average diluted shares outstanding and excludes the dilutive impact of the 9.6 million shares issued in connection with the acquisition. This outlook for the DICK'S business also assumes an effective tax rate of approximately 24% compared to our prior expectation of approximately 25%. We continue to expect net capital expenditures of approximately $1 billion for the full year for the DICK'S business. Turning now to the Foot Locker business. We want to provide some perspective on our expectations for the fourth quarter. As Ed discussed, our priority is to position Foot Locker for a fresh start in 2026 and reset the business for long-term success. This includes taking strategic actions to address unproductive assets, including the optimization of inventory and the closure of underperforming stores. As a result of our actions to optimize Foot Locker's inventory, we expect Q4 gross margins for the Foot Locker business will be down between 1,000 to 1,500 basis points as compared to Foot Locker's reported results in the same period last year, with the pro forma comp sales being down mid- to high single digits. Excluding the one-time costs associated with our actions to address unproductive assets, we expect Q4 operating income for the Foot Locker business to be slightly negative. Looking ahead, we expect next year's back-to-school season to be an inflection point to drive meaningful progress in the Foot Locker business. As a reminder, we continue to expect the Foot Locker acquisition to be accretive to our EPS in fiscal 2026, excluding the one-time cost. Before we wrap up, I want to provide a couple of consolidated company assumptions to provide clarity for your models. For the fourth quarter, we expect approximately 91 million average diluted shares outstanding, which includes the dilutive impact of the 9.6 million shares issued in connection with the Foot Locker acquisition. We also anticipate a consolidated company effective tax rate of approximately 29% for Q4, impacted by the expected Foot Locker losses in EMEA where no corresponding tax benefit is anticipated. As Ed and Lauren said at the top of the call, we are proud that we continue to operate from a position of strength with robust momentum in the DICK'S business and a significant effort underway to return the Foot Locker business to growth. We are doing all that our shareholders would expect to make the Foot Locker business accretive in 2026. We could not be more excited about our future together. This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods, Inc. Operator, you may now open the line for questions. Operator: Thank you. We will now begin the question and answer session. Withdraw that question, again, star one. And as a reminder, please limit yourself to one question and one follow-up. Any additional questions, please re-queue. And your first question comes from the line of Robbie Ohmes with Bank of America. Please go ahead. Robbie Ohmes: Good morning. Hi, Ed and Lauren. My first question is I know we're going to be talking a lot about Foot Locker today, but on the 5.7% comp, etcetera, and you raised guidance. But just how are you driving that? And how are you guys thinking about your confidence going into the holiday here? Lauren Hobart: Thanks, Robbie. We are so proud of the team for a 5.7% comp. And importantly, we are comping strong comps, so a two-year stack of 10%. And as you know, it's been several quarters, seven quarters in a row, where we've had an over 4% comp. That really speaks to the fact that our long-term strategies are working. And I would point to the differentiated product assortment that we've been able to bring in, everything from newness from our strategic partners to emerging brands, our vertical brands, consumers, athletes are really resonating with the products that we are providing. And at the same time, our entire team is fully focused on delivering an engaging athlete experience. So that's in our stores. That's our digital environment. We are really focused on excelling and getting people the product that will give them the confidence, the excitement to do their absolute best. So our strategies are working. If you look at Q3, one of the great things we saw was that we had growth across all of our key categories. When you think of back to school, you think of back to sport, you think of footwear and apparel and team sports. We knocked it out of the park with those categories. But also golf and as well as our licensed business and our trading card business really doing well. So as I flip to the holiday, all of those themes are the reasons why we are so excited and confident as we look to Q4 and that we just raised our guidance. We've got an incredible product assortment for athletes. The consumer is fully focused on sport, and we are right sitting at the middle of the intersection of sport and culture. Robbie Ohmes: That's really helpful. And then just my follow-up, just on Foot Locker, what kind of assumptions did you make about Foot Locker's cleanup of inventory in the fourth quarter having on DICK'S Sporting Goods? And also, how many stores are you guys planning to close, and what would the timing be there? Ed Stack: Thanks, Robbie. As we take a look at closings, we're still addressing that. We've got some stores that we think we're going to close. Also looking to address just the upside that we think we have in these stores and many really need to be closed and how many can we make more profitable. So we'll give you some more guidance on that at the end of our fourth quarter call. Navdeep Gupta: Robbie, let me quickly add on to the cleanup of the inventory in the fourth quarter. So what Ed said in his prepared remarks as well as what I said, that we expect the gross margins in the Foot Locker business in the fourth quarter to be down between 1,000 to 1,500 basis points. As you can imagine, that is primarily driven by us quickly addressing the unproductive inventory that is in the system right now and have the room available to bring the excitement assortment that positions the business really well for 2026. Robbie Ohmes: Thank you. Operator: Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead. Simeon Gutman: Hey, good morning team. My first question on Foot Locker, so it looks like the business may have been a bit softer than the Street was expecting in Q3, and you're anticipating a slightly negative operating income in Q4. Yet you're expecting the acquisition to be accretive to EPS in '26. Can you walk through the building blocks to achieve it? And then what gives you confidence? Ed Stack: Sure. Thanks, Simeon. I can't tell you really couldn't be more excited about Foot Locker and the opportunity of Foot Locker. But there's some work that needs to be done to get it ready for '26 and for it to be accretive to our business. So one of the things that we're doing, and we gave the Foot Locker team kind of a visual that we need to clean out the garage. So we're cleaning out the garage. We're cleaning out old unproductive inventory, we're going to be impairing underperforming assets. And from a confidence standpoint, those are all part of the building blocks that we need to put together to be ready for 2026. I have tremendous confidence in this management team that we've assembled in North America as we talked about. It's being led by Anne Freeman, a longtime Nike executive that we've got a tremendous amount of respect for. The brands have a tremendous amount of respect for her. We just announced today that Matthew Barnes is going to run our international business. And he's a Brit, and we think that it truly needs to be run by a European. We're making some real changes on how we are approaching the international business, which we think is going to be very positive. And one of the things we love about Foot Locker and one of the reasons we bought it when we went out and did our due diligence before is the men and women in the stores, the stripers and the blue shirts. These young men and women, they love sneakers. They love Foot Locker. They love to be around this product. And they're really our secret weapon as we go forward. And the other thing that gives us a tremendous amount of confidence is we've talked with every brand, and every brand has a renewed interest in being supportive to Foot Locker, and they've all talked that they want a stable and growing Foot Locker. And to be honest with you, it's great for our business. It's also great for the brand's business. And we've got complete alignment with the brands. And we are confident that in 2026, we do put all these building blocks together. We're confident that Foot Locker will be accretive to our earnings in 2026. Simeon Gutman: So my follow-up, I guess, I'll make it two parts. First, just to that point on '26 accretion, that's Foot Locker standalone, including Synergy. That's not, let's say, DICK'S Sporting Goods electing to buy stock back. That's Foot Locker math adding to DICK'S earnings base. That's part one of the follow-up. And then part two, you know, you don't tell us what your footwear gross margin is inside of core DICK'S, but if you look at Foot Locker, they've been on a steady decline for the last several years, and a lot of it does track with one of your major suppliers' proliferation of product. Is it feasible once you're done with your cleanup that you can get gross margins at parity with DICK'S Sporting Goods, or is there something about the mix and the selection that you can't get it quite to that level? Meaning, how much quick repair could there be once you clean up the assortment? Ed Stack: Well, we're not going to guide right now, and we'll give you some more guidance at the end of Q4. But we're not going to give you we're not going to tell you where it's going to be compared to DICK'S Sporting Goods. But we do know that it can be meaningfully different than it is right now. There's a huge opportunity. One of the reasons it struggled is they haven't had access to some of the key product, haven't had allocation of some of the product. There's a number of stores that are out of stock in product that they don't have. I was just in a store in New York yesterday, as a matter of fact, and talking to the gentleman who runs the store. He said, we're a great running store. We just got Nike's running construct in last week. When you take a look at some things like that, there's just a huge opportunity. That product is being sold at full price. So, yeah, we're really confident that there'll be a meaningful increase in their gross margin. And we'll give you some more color on that at the end of the fourth quarter. Simeon Gutman: And then I don't know, Ed. Sorry. It was that follow-up to the accretion comment if you can comment any more on that, whether that included buyback or that's just core Foot Locker? Ed Stack: That's core Foot Locker. That's not to say we might not, you know, as we've said, we've been opportunistic based on what happens with the stock. We may buy back some stock, but we think from a core Foot Locker standpoint, it can be accretive to our earnings in 2026. Simeon Gutman: Okay. Happy holidays. Thanks. Good luck. Ed Stack: Thanks. You too. Operator: Your next question comes from the line of Kate McShane with Goldman Sachs. Please go ahead. Kate McShane: Hi, good morning. Thanks for taking our question. We were curious about how you're going to manage the markdowns at Foot Locker. I guess the concern is that if you do discount aggressively in the fourth quarter, do you think you'll be in a position where you can go back to full price selling and the customer be ready for that as new product comes into the store? Our second question on the discounting is, do you feel like the market is going to be heavy with discounts now in Q4? And how much do you expect that to impact the market and DICK'S own footwear sales? Ed Stack: Sure. Thanks, Kate. I don't really think that that's going to be an issue with these markdowns and then going back to full price because the product that we're marking down is older product that hasn't sold, product that's been sitting around for a while. So when we get the new fresh product, we're confident we'll sell that at full price. And the consumer out there is looking for new fresh product that is innovative in the marketplace. That's what Foot Locker, for the most part, doesn't have right now. And we'll be bringing that product in as we get into '26. From a discounting standpoint, right now and who knows, things could change. But right now, we don't think that the discounting is going to be meaningfully different than it was last year. We do feel that we've got, as Lauren said in her remarks, we've got different and innovative product, more premium product that you'll see, product that's not as fully distributed in the marketplace. We don't see that promotional activity impacting our business a whole lot. Kate McShane: Thank you. Operator: Next question comes from the line of Adrienne Yih with Barclays. Please go ahead. Adrienne Yih: Great. Thank you very much. It's great to see the continued momentum at the DICK'S brand. I guess Lauren and Ed, obviously, I'm going to ask a question about Foot Locker. Is this a case of kind of just historically underperforming operations? And with some closures and inventory management, that you can control the controllables to kind of turn the business, or are there more infrastructure investments in some longer-tailed structural things about the business? Secondarily, are there banners within Foot Locker that no longer perhaps make sense? If you could talk about that. Then finally, my follow-up is on inventory. 1,000 to 1,500 basis points is quite a bit. Is there a write-off reserve within that? And is it just the depth of the promo, or are you using third-party channels? Just trying to understand the magnitude of that and the quickness of trying to get through that in the next couple of months. Thank you very much. Ed Stack: Wow. That's a lot. That's a lot, Adrienne. Let me start. Adrienne Yih: That was a one. Thank you. Ed Stack: That's okay. So the idea of this is historically underperforming operations. I think that's a big part of this. So Foot Locker really didn't know. They kind of got away from retail 101 of trying to have the right product in the right store and having those. I think turning this around, we don't think there's going to be some capital, and we're going to invest in the stores. But we've just done an 11-store test, and it was pretty capital light. And what we really did is we took the inventory, most of the inventory out of the store, and we relaid out the wall. And one of the things that, you know, the DICK'S team is really good at, and we're bringing that expertise to Foot Locker, is from a merchandising standpoint and how those visual merchandising really can help drive store. We took the inventory out of the store and we redid the walls. And no real infrastructure back in there. But if you had walked into a Foot Locker store and still walk into a lot of Foot Locker stores other than these 11, look at the wall, it's kind of merely a run-on sentence of shoes. And what we've done is we've taken and tried to segment it and show the consumer what's important in the stores. And we've got this 11-store test, and now it's only 11 stores. But the results have been we're pretty enthusiastic about the results. So we think that we can definitely turn this around. As far as the inventory being down 1,000 to 1,500 basis points, we are going to take markdowns to get this out of the store of older underperforming SKUs. And we do expect the end of the year, there will be a program that we will sell some of this off to a jobber and just clean out what's left from the inventory and be able to get a fresh start in 2026. Yep. So that's why we're moving as quickly as we can to get a fresh start in 2026. Yep. Lauren Hobart: I want to just add to what Ed is saying from my perspective. If you look at the core challenges that we're facing with the business, it really is, as you said, it's underperforming operations, it's inventory management, core retail 101. And one of the things that's been so amazing to see is the team is coming together, and Ed is spending a ton of time with them. Is that the core expertise in DICK'S, be it merchandising and the balance of art and science or the visual presentation, you can hear in his remarks just talking about that. The fact that our, you know, we are a marketing-driven company and that we believe in brand, and so those plans are being worked on for next year. And the brand relationships, there's just a heavy operational focus. All of those things are being transferred by, you know, osmosis, coaching, mentorship, all of that. And that's what gives us the confidence that we are moving in the right direction. Adrienne Yih: Okay. And just to be very crystal clear, the markdowns of the inventory are on lifestyle and will have kind of no competitive impact with the performance, you know, premium performance at DICK'S. So there's no crossover there. Ed Stack: The product that we're marking down is not key product at DICK'S Sporting Goods. It's older product that, quite frankly, and with the visual we used with the Foot Locker team, and it is kind of caught on globally as we just got to clean out the garage. We got to clean out all the inventory that's kind of in the corner that's not selling. That we need to have out of our system. Adrienne Yih: Fantastic. A 100% sense. Good luck. Ed Stack: Thank you. Operator: Your next question comes from the line of Michael Lasser with UBS. Please go ahead. Michael Lasser: Good morning. Thank you so much for taking my question. The first one is relatively straightforward. The expectation that Foot Locker will be accretive next year is based on the $14.25 to $14.55 for this year. Is that correct? And how dependent is the accretion expectation on inflecting the sales that you would anticipate by back to school for next year? Navdeep Gupta: Michael, thanks for that question. Yeah. Let me clarify on and exactly like you said, yes. The basis is on the $14.25 to $14.55 as the basis for 2025 results. And the dependency, I think, so starts with what Ed said about the building blocks. It starts out with cleaning out the garage, positioning the inventory, and having that excitement assortment and the newness that is resonating so well at DICK'S Sporting Goods with the gross margin expansion and the merch margin expansion that you are seeing. Gonna be the first and foremost priority as we look to the building blocks for how can this business be accretive. And keep in mind, you know, we talked about as part of the cleaning out of the garage that there are other unproductive assets. We are looking into the store portfolio where there are some unprofitable stores. But the opportunity we are looking at is not only deciding if the store should be closed, but actually the opportunity is the reverse to say if those stores had access to the right product, and the right innovation and the newness, can those stores be turned around and made profitable? We are looking into that. We are absolutely looking into some of the unproductive assets. That won't be part of the core business going forward. To your point, it starts with sales and margin. And in addition to that, we'll look into cleaning up under the garage to position the business for profitable growth into 2026, especially from the back-to-school season of next year. Michael Lasser: Got you. And my follow-up question is, one of the key debates on the combined enterprise story right now is how do you ring-fence the core DICK'S business in order to ensure that the integration of Foot Locker does not become a distraction to slow the momentum of the core business. It does look like in the fourth quarter, you are anticipating a significant slowdown guiding to a flat to slightly positive comp for the core business. So, a, what is fostering that expectation? And, b, given you have owned this business for a matter of months now, give us a sense of how you anticipate that they won't be it won't become a distraction such as the core business can accelerate into next year and drive some growth on top of the accretion that you're anticipating for Foot Locker? Sorry. There was a lot of words in that question. Lauren Hobart: I got it. Thank you, Michael. One of the absolute prerequisites for us to do this acquisition is exactly what you're saying. We needed to ring-fence the DICK'S team, and DICK'S needs to stay completely focused on driving our growth and our strategic priorities. And that is exactly what we are doing. I mean, eight, ten weeks in now, I'm even more confident that that is how we're doing it. Set up the team at Foot Locker. Ed is very much spending time over there. The DICK'S team is fully focused on the DICK'S priorities. And we're going to continue to just keep the teams sharing learnings, but not, not remotely working, you know, not distracting each other from what their core priorities are. When we look at Q4, you mentioned the deceleration. I want to be really clear about this. We just came off of a 5.7% comp, and we're up against a 6.4% comp last year. So the fact that you see our comp slightly moderating in Q4, we actually just raised the comp and the high end of our previous guidance now is the low end of our guidance. So we are really bullish on the holiday. We are just balancing that with an appropriate level of caution as we always do. We don't ever guide to the best possible outcome, but we are pumped and ready to go on the DICK'S side for Q4. Michael Lasser: Thank you very much, and good luck. Lauren Hobart: Thank you. Operator: Your next question comes from the line of Mike Baker with D.A. Davidson. Please go ahead. Mike Baker: Great. Couple to start on. First, a little bit more detail on that 11-store test. Maybe any initial results or pop in sales in and, I mean, is it just simple as relaying a back wall, or there's got to be more to what you're doing? So if you could address that, please. Ed Stack: Sure. So we're not going to lay out kind of the results. As I said, they're early, but we're really very, very encouraged on them. And it's not just as simple as laying out the wall as kind of taking some of the older product out of those stores. Put in some newer, fresher product that we were able to get our hands on. And one of the things we've also done is we're bringing the apparel business back to Foot Locker. They had really kind of walked away from the apparel business. And if you walk into these stores, you can see the apparel in there, and the apparel is selling really quite well too. So we think that there's an increase from a footwear standpoint, from an apparel standpoint going forward. And, you know, we'll more than likely give you a little bit more color on this test at the end of the fourth quarter as we give guidance going into 2026. But there's a lot of just basic retail 101 that if Foot Locker gets back to that or when Foot Locker gets back to it, will have a meaningful impact on their business. Mike Baker: Great. Fair enough. One more follow-up. If I could, you're talking about a fresh start and getting everything cleared by the end of the fourth quarter, but back to school is the inflection point, not to, you know, put too much pressure on you or try to accelerate it, but why not spring as an example as the inflection point? Why should the first half not be as strong? Ed Stack: I think that's a really good question. And the main reason for that is our merchandising philosophy and how we're buying the product. We didn't buy that. It was bought by the previous management team, and we think that there's some going to talk to the brands about trying to plug some holes. But the third quarter or the back-to-school time frame is the first time we will have had complete control over the assortment going forward. Mike Baker: Perfect sense. Thank you for that answer. Ed Stack: Sure. Operator: Your next question comes from the line of Christopher Horvers with JPMorgan. Please go ahead. Julie Wasserman: Hi. This is Julie Wasserman on for Chris. Just following up with DICK'S ability to affect inventory orders for Foot Locker. So just confirming that you're saying that you won't be able to fully affect it until the start of the third quarter, but are you able to have any sort of impact even if it's lighter in the first half? And just specifically on the percent of spring ordered, since the acquisition, how much of that have you been able to order? Thus far, and how do you see that flowing into the fall? Ed Stack: We can have some impact on Q1 and Q2 probably. Hopefully, a little bit more on Q2 than Q1. We're working through that and working with the brands, and they are being as helpful as they can to try to get product to us that we need. But it's really going to be in that third quarter that you'll see the big difference that our team will have fully bought that product and merchandise that product. Julie Wasserman: That makes sense. And our follow-up question was just on gross margin with the third quarter. Just more broadly, if you could speak to what's going on there. In terms of promotional environment for is all for Cortex, promotional environment. Tariff costs, and the other inputs we discussed last quarter, like the GameChanger business. Navdeep Gupta: Yeah. So we reported today at 27 basis points in our gross margin. Keep in mind that that 27 basis points of gross margin expansion is on top of a 70 basis points of expansion that we saw. In terms of the promotionality within the quarter, the promotionality, as you can imagine, the overall marketplace continues to remain dynamic. We participated in select promotions, which we always do during the important back-to-school season. Tariff impact was within that quarter, our results as well within the merchandising margin. But keep in mind, we still delivered a merchandising margin expansion of five basis points on top of almost about a 60 basis points of impact, a positive impact last year. And there was a slight unfavorable impact from the mix, like Lauren talked about. The license business performed really well, which is a fantastic growth opportunity, but has a slightly lower margin. So that we had a little bit of an unfavorable impact from the mix as well. And just to kind of round out that answer, I would say that if you look at it, we have guided that we expect our gross margin to expand on a full-year basis. We expect gross margin to expand in our on the back half as well as within the fourth quarter. So overall, we feel great about the capability, the work that the GameChanger team is doing, and the DICK'S Media Network. Those ingredients continue to remain in place that drive our confidence in the gross margin expansion for this year and into the future. Julie Wasserman: Thank you. Operator: Your next question comes from the line of Paul Lejuez with Citi. Please go ahead. Paul Lejuez: Hey, guys. Can you talk about the $500 to $750 million in charges that might be coming? How much of that is cash versus just write-off? And how many stores are actually being reviewed when you think about that range of $500 to $750 and any split that you can share in US, international, or a banner? Navdeep Gupta: Yeah, Paul. We'll share much more of the detailed assumptions. You can imagine, we are ten weeks into this acquisition. And like I said before, we are balancing the evaluation that we are doing with the opportunity that we see in terms of driving growth and profitability expansion on a store basis. So on stores, we'll share much more of the detailed plans during our Q4 call. In terms of the makeup of this $500 to $750, I would say there are three main buckets. The first and foremost, as Ed talked about, is the unproductive inventory, which makes up quite a decent chunk of that that we will be addressing. The vast majority of that will be addressed here in Q4. That does include some of the poor store portfolio evaluation. And then we are looking deeper into the assets that we have in place, some of the technology assets, some of the legacy contracts, that we will evaluate as part of the fourth quarter and clean that also up to position the business and the profitability of the business for 2026. In terms of the cash versus noncash, I would say it would be a combination of both things. You know, inventory definitely would be cash, but if there are some existing assets on the balance sheet that we'll be cleaning up, those will obviously be noncash. So we'll share more detailed assumptions behind all of this during our fourth quarter call. Paul Lejuez: Thanks. And then just on the synergy number, the $100 to $125 million, how much of that are you assuming you can capture in FY26 to get to those accretion numbers? And I'm curious if you're thinking you might be actually playing for a bigger number than that $100 to $125 longer term. Navdeep Gupta: Yeah. Well, the $100 to $125 million, I would say we have a lot of work that has already been done. What we are working through, as you can imagine, is just conversations with the brands, conversations with the non-merchandising vendors, and those conversations are happening right now. So to allow a better line of sight, call it, twelve weeks from now, part of the fourth quarter. And in terms of looking for additional opportunity, you know us, we'll continue to focus on driving the top line and the bottom line results for the collective business now. Absolutely, that's a focus within the organization. Paul Lejuez: Thank you so much. Operator: Your next question comes from the line of Christina Fernandez with Telsey Advisory Group. Please go ahead. Christina Fernandez: Good morning. I wanted to ask a question on the vision for the merchandising and Foot Locker. That business historically was heavy on basketball, sneaker culture, and kids. So as you look at where there can be improvement, do you see that mix materially changing on the apparel side? Are you looking to lean more into private label, or do you also see national brands playing a big role in their apparel expansion? Ed Stack: Yeah. Foot Locker has always been steeped in basketball culture, and basketball will still be a very important part of that. The basketball construct that we see in the product coming forward from a basketball standpoint, we are really enthusiastic about across a couple of brands. And the apparel business, we do see the apparel business—the national brands is where they had kind of stepped away from. And leaned into their private brands, which we think the private brands certainly have a place there. But we feel that the national brands will have a meaningful increase in the apparel business in Foot Locker, which will help drive the AURs, and we think it'll be very profitable. Christina Fernandez: And then my second question is on Foot Locker also having been on a pretty significant remodel and refresh program. Have you continued with those Foot Locker reimagine stores, or have you paused that program? And looking to make changes in that real estate strategy that they had been on. Ed Stack: I think the Foot Locker reimagined stores have been an interesting test. As we've kind of gone through there, there's parts of the reimagined store that are very good and other parts that need to be rethought. And we're in the process of rethinking those right now. So as an example, what they characterize as the Kick It Club and the drop zone when you first walk into a Foot Locker store in the middle of the store, we're going to take that out, reimagine that, give better sight lines to the balance of the store. And repurpose some of that place, which that area of the store, which was not very productive at all. It was more of a social place and turned that into the apparel presentation more space and really focusing on an apparel standpoint, which we think will drive the sales even better than they are. Operator: We have time for one more question, and that question comes from the line of Steve Forbes with Guggenheim. Please go ahead. Steve Forbes: Morning, Ed, Lauren, Navdeep. Ed, I was curious maybe to just explore, like, any demographic differences we should be aware of as we think about the performance spread between the two businesses? Yeah. I think one of the thoughts out there is maybe more exposure to lower income, but I'd be curious maybe just hearing you summarize how we should think about the demographic exposure and how that sort of impacts your merchandising plans on a go-forward basis here? Ed Stack: Well, we'll merchandise Foot Locker for Foot Locker, which is going to be a bit more basketball-inspired, a bit more trend-inspired, definitely more urban than the DICK'S business. The DICK'S business will be more sport-led along with the lifestyle product. We think DICK'S is really kind of at the center of sport and culture. And it's a more suburban concept. With that being said, all categories of consumer, if you will, are looking for product that is new, innovative, and different than what's out there in the marketplace right now. And Foot Locker didn't have that new and innovative product. As we get into 2026, we'll start to have more of that product. And by the third quarter, I think we'll be fully invested in that newer, innovative product that the consumer across all income levels is looking for. Steve Forbes: And then just a quick follow-up for Navdeep. Maybe just so we're all on the same page here. There's a slightly negative adjusted EBIT for Foot Locker on a pro forma basis, is that that compares to the $118 million last year? I just I guess, confirm that. And then is there any way to sort of think through how you sort of view, you know, like a normalized 4Q or how you would speak to just where that LTM adjusted EBITDA profile is for the business relative to the $395 million that's in the presentation? Navdeep Gupta: Yeah. So the comparison, you're right. It's comparing to a normalized on a non-GAAP basis, the results that the Foot Locker posted in the fourth quarter of last year. And keep in mind the connection point between the 1,000 or the 1,500 basis points of the margin decline versus the slightly negative operating income expectation for Foot Locker is the part of the cleanup of the garage inventory, and that's the piece that we have threaded between the two numbers and the estimates that we gave out for the Foot Locker business. Steve Forbes: Thank you. Operator: And that concludes the question and answer session. I will now turn the conference back over to Lauren Hobart, President and Chief Executive Officer, for closing comments. Lauren Hobart: Okay. Well, thank you all for your interest in the DICK'S story. We will see you next quarter. Have a wonderful Thanksgiving, and a huge thank you to our entire teams of over 100,000 people around the globe. Thank you. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Morning, and welcome to The J. M. Smucker Company's Fiscal 2026 Second Quarter Earnings Question and Answer Session. This conference call is being recorded and all participants are in a listen-only mode. Please limit yourselves to two questions and re-queue if you have additional. I will now turn the call over to Crystal Beiting, Vice President, Investor Relations and Financial Planning and Analysis. Thank you. You may begin. Crystal Beiting: Good morning, and thank you for joining our fiscal 2026 second quarter earnings question and answer session. I hope everyone had a chance to review our results as detailed in this morning's press release and management's prepared remarks, which are available on our corporate website at jmsmucker.com. We will also post an audio replay of this call at the conclusion of this morning's Q&A session. During today's call, we may make forward-looking statements that reflect our current expectations about future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties. Additionally, we use non-GAAP results to evaluate performance internally. I encourage you to read the full disclosure concerning forward-looking statements and details on our non-GAAP measures in this morning's press release. Participating on this call are Mark Smucker, Chief Executive Officer and Chair of the Board, and Tucker Marshall, Chief Financial Officer. We will now open the call for questions. Operator, please queue up the first question. Thank you. Operator: The question and answer session will begin at this time. For operator assistance, please press 0. As a reminder, please limit yourselves to two questions during the Q&A session. Should you have additional questions, please re-queue. Our first question today is coming from Andrew Lazar from Barclays. Your line is now live. Andrew Lazar: Great. Thanks so much for the question. And good morning, everybody. Maybe I wanted to start off with a question on sweet baked goods, if I could. Organic sales in that segment came in sort of better than I think most Street expectations. Trying to get a sense from you as, you know, how much of this do you see as sort of sustainable improvement versus maybe just, you know, easier year-ago compares or any transitory benefits? Mark Smucker: Morning, Andrew. It's Mark. Morning. Thanks for the question. First, we are very pleased with the progress that we're making on Sweet Baked Snacks and the Hostess brand. As you noted, we are seeing sequential improvement. Notably, we're seeing improved performance in c-store. Our volume shares are improving. Our focus on a more focused portfolio has been helping. You will recall that we had a three-pronged plan where we're strengthening our portfolio by actually eliminating 25% of the SKUs, and we've seen really strong flowback into our core brands, notably the number one brands of donuts and cupcakes, which each of those are the number one in their respective segments. And so that has been great. We recently relaunched SuzyQs after they've been out of the market for many years, and that has been off to a pretty good start. And then just, you know, elevating our execution around sales, we're streamlining our operations. The Indianapolis closure should be complete by the fourth quarter. And then continuing to invest in the brand. So long and short of it is, you know, the plan we put in place, decisive actions are working, and we just need to continue to do what we're doing over subsequent quarters, and we do expect to see acceleration over the next couple of quarters as well. Andrew Lazar: Got it. Great. Thanks for that. And then maybe, Tucker, how much of the $0.50 tariff impact this year is specifically coffee-related, such that if tariff policy remains sort of unchanged from here going forward, how much of a benefit we could or should expect this to be to fiscal 2027? Thanks so much. Tucker Marshall: Andrew, good morning. The predominance of the $0.50, if not all, is related to green coffee tariffs. And so, therefore, stepping into FY 2027, it should be viewed as a tailwind while in FY 2026, it continues to be a headwind. Operator: Thank you. Our next question today is coming from Tom Palmer from JPMorgan. Your line is now live. Tom Palmer: Good morning. Thanks for the question. I wanted to follow-up on coffee as well. You noted not taking the third round of pricing as an incremental earnings overhang in the prepared remarks for this year. You've provided some really helpful bridges in terms of other items such as the tariff impact. I was wondering if you could maybe quantify how much that might have impacted your outlook to decision not to take pricing? And then just given the tariff guidance was kind of unchanged, should we think about tariffs flow through your P&L throughout fiscal 2026? And or is there a point where we start to see relief this year? Tucker Marshall: Good morning. As you think about this fiscal year, as we came out of our first quarter earnings call, we called out a net $0.50 impact as a result of tariffs. And that net $0.50 impact was receiving the benefit of recovering dollar-for-dollar cost inflation due to tariffs through an early winter pricing action and then ultimately making an assumption around a price elasticity of demand factor. That was all embedded in the $0.50 as we came out of the first quarter earnings call. We have essentially added that back as a result of being in a tariff-off environment moving forward. However, we have made the decision not to take pricing through US retail coffee in early winter, so we will be absorbing about $75 million of tariff-related costs incurred to date that we will realize, as I've noted, in our third quarter, which coincidentally is $0.50, which is why we're calling it out. Therefore, an impact to this fiscal year but a tailwind to next fiscal year. Tom Palmer: Understood. Thank you. On the SG&A side, there was the guidance reduction now flat year over year. Couple of pieces. One, is there a segment where that's going to be most evident? And then any update on marketing plans? Maybe I missed it. I think they were previously expected to be up around $40 million year over year. Any change there? Thank you. Tucker Marshall: So, Tom, let's begin with marketing. We remain committed to investing in the long-term health of our brands. And so marketing absolute dollars will be up year over year. And we're projecting that to be about 5.5% of net sales, which is pretty consistent throughout the year. We have sharpened the pencil as it relates to SG&A spend, not only throughout the entire network but also as we think about discretionary spend. And we've also sharpened the pencil in certain areas as it relates to marketing. We're still committed behind our growth brands, and you will see an increase year over year. Operator: Thank you. Next question is coming from Robert Moskow from TD Cowen. Your line is now live. Robert Moskow: Hi. Wanted to know, Tucker, about the profit results in Sweet Baked Snacks. Was that also in line with your expectations? Because, you know, sequentially, it's a step down. And it generally, you know, when you have these SKU rationalizations, it improves the profitability of the business because you get rid of some waste. Is there a reason why that's not happening in 2Q? Tucker Marshall: Rob, good morning. So the second quarter top line for Sweet Baked Snacks did exceed our expectations. The bottom line did not meet our expectations. We had anticipated sort of in line with Q1 to maybe slightly better in our second quarter. And as you've noted, we were just over $20 million. We do expect both the third and fourth quarters to get better so that we get back toward our outlook for the full fiscal year with respect to segment profit. And I would say that the second quarter shortfall to expectations really had much to do with the transition of our bakery network or environment and just more cost that we absorb through our supply chain, whether that be absorption, overhead, just the timing of transition. So we do expect benefit as we step into the third and fourth quarters. I would also remind you in our fourth quarter, we should benefit about $10 million from the closure of the Indianapolis facility, which is estimated to be a $30 million annual run rate impact, of which $10 million affects or benefits our fourth quarter this fiscal year. Robert Moskow: Okay. And maybe a follow-up on Petrete. In the commentary, you described the category dog treats as getting better. Your business is still down. What should we expect in the back half? I know there's some very easy, I think, some easy comparisons to some disruption last year. But are there marketing plans also to improve market share in what I guess is an improving category overall? Mark Smucker: Rob, it's Mark. And you actually are correct. You stated it. We are expecting a really strong lap, particularly as we get into this third quarter. So you will see Milk Bone getting back to growth, which is great news. And it's not only the lap, but I would just highlight it's all the work that we've been doing, and it is marketing. You know, we have continued to push on our campaign, which is called More Dog. And so you've probably seen that in various media channels. It has been helping, you know, just the, again, what we always remind you guys is just the spectrum from value-based all the way to premiumization. So as the consumers are looking for different things from their dog treats, the Milk Bone brand is definitely there delivering. And then just the innovation on peanut buttery bites has been very successful. And as we referenced in the prepared remarks, we are going to be launching another innovation after the beginning of the calendar year, which is also standing on another collaboration between the Jif brand and the Milk Bone brand. So that, including seasonal items, which we referenced as well, you know, there's a lot of really strong innovation in that category. It depends a lot on news for growth. So feeling really good about Milk Bone and the trajectory of the brand. And then just overall, our pet business and the growth that's gonna be driven by Meow Mix, we expect to continue as well. Tucker Marshall: Rob, in support of your question, we are anticipating low single-digit growth for our pet portfolio in the third and fourth quarters behind the momentum of Milk Bone and Meow Mix. Operator: Next question is coming from Yasmeen Deswande from Bank of America. Your line is now live. Yasmeen Deswande: Hey guys, thanks so much for the question. Just on the reduced net sales expectation for frozen handheld and spreads, I know that spreads, particularly peanut butter, was challenged in the second quarter. And the expectation is for that to continue for the balance of the year. So I'm asking around the reduced net sales expectation, is that simply flowing through the weaker 2Q? Or is that also, you know, spreads being enough of an offset that Uncrustables accelerating to double-digit growth won't be enough to offset the unforeseen weakness? Tucker Marshall: Yes. Good morning. As it relates to frozen handheld and spreads, we're really calling down that business a little over $80 million on a full-year basis. You're kinda seeing half of that come through the second quarter, and the balance will come through the back half of the year. Much of that is driven by the spreads portfolio, and we really haven't taken up the outlook on the Uncrustables brand. I can tell you that it still demonstrates growth and it is demonstrating a path or trajectory to being a billion-dollar brand by the end of this fiscal year. Yasmeen Deswande: Okay. And then Mark Smucker: Yeah. If I may, just add a little bit of color on a couple of these items. So on Uncrustables, Tucker just highlighted still gonna be a billion-dollar brand. The reason, you know, overall, saw 7% for the total company away from home has been extremely strong. We did see growth in retail as well. Maybe not as much as we would have expected because we were lapping a very strong Q2 last year, really strong merchandising and promo. But we do expect Uncrustables to get back to double-digit growth in the back half of the year, obviously supporting that billion-dollar ambition. And innovation is playing a key role. Right? So, you know, a couple of years ago when we had been capacity, we weren't able to innovate. Now we're launching seasonal flavors. The new one that just came out is this peanut butter and chocolate. It's called PB Choco Craze. And then we've got two new higher protein items that are meant to target sort of a morning daypart or breakfast daypart, and the uptake on those from our retail customers has been great as well. And then just on spreads, because we were expecting the question, I might just highlight peanut butter. Again, there is a very big lap against last Q2, we had multiple tropical storms in the Caribbean, and that drove a lot of stock up. And so we are seeing, you know, the Jif, the peanut butter business being down in the quarter, but regardless, it's generally holding share. So overall, still feel good about spreads, you know, making sure that we're getting our x right. But that is obviously supportive of the Uncrustables business. Yasmeen Deswande: Okay. Great. And if I could just squeeze another one in. I think the previous expectation was for in sweet baked snacks for SKU rationalization to be isolated to the second quarter. And with now that extending into the third quarter, is the expectation still for top-line stabilization in the second half? And I guess asked another way, given the expectation for sequential improvement, could 3Q be flattish in 4Q grow? Or is there still a possibility for, you know, March to be down? Tucker Marshall: I would say that one, the SKU rationalization is back to sort of single digits of growth. Crystal Beiting: Oh, your microphone is off. Tucker Marshall: Sorry. Yes. I'm sorry. We had a technical difficulty here. But to your question, I just want to acknowledge that the Q3 will be the completion of the SKU rationalization associated with the closure of the Indianapolis bakery. And then with respect to your question on growth, we should be flat to slightly down in the third quarter on a comparable basis. And then demonstrating a level of growth on a low single-digit basis in our fourth quarter for Sweet Baked Snacks. Thank you. Operator: Our next question is coming from Megan Klatt from Morgan Stanley. Your line is now live. Megan Klatt: Hi, good morning, Mark, Tucker, thank you. Maybe another question, Tucker, on coffee. Can you talk a little bit about how you're thinking about the pacing of coffee margins in 3Q and 4Q? The 3Q EPS outlook in the prepared remarks is a little bit softer than where the Street is. I assume most of that is just that you still have tariffed coffee flowing through the P&L that's sitting on the balance sheet today without the pricing. So is that the right way to think about it? And then do you still expect to get to mid-twenty percent margins in coffee in 4Q? Or will there be a lingering kind of tariff impact there as well? Thank you. Tucker Marshall: Megan, good morning. So we demonstrated an 18.2% second-quarter segment profit margin in coffee. Would anticipate a slight improvement to that in our third quarter, but it will not surpass 20%. And then as you step into our fourth quarter, we should move beyond 20%. I don't think that we'll get all the way to 25% just as we continue to digest a lot of cost and cost inflation. But just acknowledging, not taking pricing in early winter in our US retail coffee portfolio and absorbing the incurred coffee tariffs to date. So that will be approximately $75 million in our third quarter. Some of that may go into our fourth quarter, but the predominance is in the third, to your question. Megan Klatt: Okay. That's helpful. Thank you. And then maybe just putting together all of your comments on pet and sweet baked snacks and frozen handhelds. As you think about moving through the third quarter and the fourth quarter, you laid out for all segments an expectation for an acceleration in growth. So as you think about the 4Q exit rate, I guess, how are you feeling about outside of coffee, kind of the rest of the U.S. Retail portfolio contributing to or getting back to algo OSG as we finish the year? Thanks. Tucker Marshall: Megan, I would say that when you think of the midpoint of our guidance range today at the top line, it's 4% on a reported basis. Then you affect or isolate on a comparable basis divestitures and foreign exchange, and it's aligning to about 5.5% comparable growth year over year. And then underpinning that, we've got about $38 million worth of co-manufacturing sales that we're lapping. So all else equal, we're at 6%. On a comparable basis adjusted for the manufacturing sales for our outlook for this year. And, yes, much of that is driven by our coffee portfolio. But when you think about the balance of our portfolio, we're seeing tremendous momentum in the away-from-home aspect. We're seeing resilience and strength in our pet portfolio. We're seeing stabilization in sweet baked snacks. We obviously have great growth and momentum on Uncrustables. And we're addressing things within our spreads portfolio. And so I don't want to promise sort of what the exit rate is. What we're acknowledging is that we do have great organic sales growth. On a comparable basis. Our strategy is working, our execution is focused. We'll continue to drive the growth brands, and we'll continue to support the balance of the portfolio. Operator: Next question today is coming from Peter Grom from UBS. Your line is now live. Peter Grom: Great. Thank you. Good morning, everyone. Good morning. I wanted to just ask a follow-up on the tariff commentary in 2027. And I know you noted to both Andrew and Tom that this will be a tailwind to earnings. But I guess specifically, are you expecting those benefits to largely drop to the bottom line? Or would you look to maybe reinvest some of that upside? Tucker Marshall: As it relates to tariff-based inflation and in a tariff-off environment, and not taking pricing for tariffs and, in turn, not experiencing tariffs in our next fiscal year. That should benefit our bottom line, which is why we're effectively saying it should be a tailwind to our coffee portfolio next fiscal year. So, hopefully, it helps provide a little bit of context about how we're thinking about tariffs stepping into next year. Peter Grom: Okay. No. That's helpful. And then maybe just on coffee, can you maybe walk us through what you're now expecting in terms of elasticity? And I guess just as we think about modeling top-line growth through the balance of the year, can you maybe just understand how you see price versus volume at this stage? Especially considering that you're not going to take that additional price increase for the winter? Thanks. Tucker Marshall: Sure. So our current outlook for the coffee portfolio is 16% year-over-year growth. And what's embedded in that is 22% pricing offset by 6% down volume mix. That's an improvement to when we stepped into this fiscal year where we thought growth would be 11% against 22% pricing offset by negative 11% of volume mix. So what you can see is our elasticity assumptions have improved from point five stepping into this fiscal year to around point three where we stand. And, again, that's on average over the year. So hopefully that provides additional context as to the strength, the resilience of our coffee portfolio. Operator: Thank you. Our next question is coming from Matt Smith from Stifel. Your line is now live. Matt Smith: Hi, good morning. I wanted to dig in a bit on the Uncrustables sequential acceleration in the second half. Can you talk about some of the underpinnings to that acceleration, whether there's also unique comparisons there? And how we should be considering pricing in frozen handheld and spreads in the second half? Is there potentially increased promotional support behind Uncrustables to support that sequential acceleration? Thank you. Tucker Marshall: Yes. So we demonstrated 7% growth in our second quarter, which is really good momentum as we continue to advance to the billion-dollar ambition. As we think about our third and fourth quarters, we would anticipate low double-digit growth on the way to that journey of being a billion-dollar brand by the end of this year. We will continue to ensure that we're supporting with marketing, we continue to support our recent innovation launch around protein. We continue to round out distribution and also making sure that we have the right placement and promotion. I would also acknowledge that about 80% of sales run through our US retail portfolio and the balance of 20% flow through our away-from-home portfolio. And we are seeing great momentum in away-from-home on Uncrustables. And one example is the acceleration of growth in the convenience channel, not only due to our innovation behind the sandwich but also due to the capabilities that we acquired through the Hostess acquisition. Matt Smith: Thank you. And Mark, as a follow-up to some of the coffee commentary, elasticities are better than expected on average, but the performance by brand in the measured channel data that we see has varied. Specifically for the Dunkin' brand, elasticities have been softer than Folgers or Bustelo. Was that expected as you went into a more price-intensive environment? Has the performance of Dunkin' been different from what you anticipated coming into the year? Thank you. Mark Smucker: Yeah, Matt. A couple of things. So first of all, you're right that we have seen obviously very strong performance on Bustelo and Folgers. And so the resilience of the category overall gives us optimism, right, in terms of just how we've consumers still consuming coffee, our brands are resonating with consumers, you know, the investments we're making behind these brands is working, notably Bustelo, just had a phenomenal quarter. And then Dunkin' did in the quarter, so we did see a bit of improvement in Dunkin'. But as we've highlighted in previous quarters, we've seen some competitive pricing pressure that we have not overcome, but we are continuing to actually make surgical balancing, some surgical pricing investments as well as supporting innovation in terms of seasonals and so forth. So I think the long-term story on Dunkin' is that it's a great brand. We love the brand, and we still think it has plenty of runway. But over time, as we would expect pricing to moderate competitively, that will support the brand overall. Operator: Thank you. Next question is coming from Max Comfort from BNP Paribas. Your line is now live. Max Comfort: Thanks for the question. With regard to Uncrustables and the volume decline that we saw this quarter in the frozen handheld and spread segment, it sounds like you have plenty of confidence in the business. Distribution is gaining. Innovation is working. And you still see long-term opportunities. So I'm curious, is the volume decline we saw in the quarter really just due to any lapping items that you saw with the strong 2Q a year ago? And then also, could you comment on anything you're seeing from some of the new entrants in this space who have gotten distribution pretty quickly? Thank you. Mark Smucker: Yeah, Max. It's Mark. It is largely the lap. So, you know, again, that strong merchandising and promo in the last Q2 last year is what we're lapping. And as you highlighted, both the innovations Tucker, in his previous answer, talked a bit about the support that, you know, will be not out of the ordinary, but solid merchandising support. Coming into the back half is gonna continue to support the acceleration of that brand. And in broad strokes, you know, we have seen some competition come into the category. I would say that's largely been supportive over the longer term, seeing, you know, a couple of other brands, whether that might be private label. And some of the variety that you're seeing in the category in terms of and then pricing. Should continue to support the brand. But I think overall, you just think about the household penetration we've gained and the continued marketing that's and the innovation will continue to drive growth. Max Comfort: Great. Thanks. And then just to wrap it up with regards to the tariff impact, I just want to confirm, the $75 million in tariff expense that you're referring to, is that the total amount you expect to see in FY 2026, and it is essentially entirely due to coffee tariffs. Tucker Marshall: Correct. Operator: Thank you. Our next question is coming from Alexia Howard from Bernstein. Your line is now live. Alexia Howard: Good morning, everyone. Can I start with innovation and the pace of innovation? Are you able to quantify whether that's been accelerating? It sounds as though the pace has been picking up. I'm not sure whether you can give us numbers on the percentage of sales from new products. And is that pace of innovation now where you want it to be across the portfolio, or are there pockets where you would like to increase that still? Mark Smucker: Alexia, thanks. It's Mark. Yes is the short answer. Our pace of innovation has accelerated. I would say I'm very proud both of, well, actually, across the board, if you look at innovation on Hostess, innovation on pet, notably pet snacks, and more recently, the innovation on Uncrustables has all accelerated. The speed to which our teams have been able to get to market is as fast as we've ever done that. And so I think we're very proud of the work we've done. I mean, the Uncrustables innovations have been notable. And then I think we expect a little bit of a faster turnaround of both pet snacks and human snacks we've continued to deliver again. So thank you for the call out. Alexia Howard: And then a question for Tucker on leverage. You've been hovering a little above four times net debt to EBITDA for the last couple of quarters, and you're talking about getting it down to three times by 2027. How quickly does that start coming down? Should we expect it to start coming down more substantially in the near term? Tucker Marshall: Alexia, so we are committed to $975 million of free cash flow generation this fiscal year, which will support a half-billion dollars of debt pay down this fiscal year, and we anticipate the ability to pay down an additional $500 million in FY '27. As you think about the leverage profile this year, we'll probably hover around four times through the balance of fiscal year 2026. Then as we step into '27, we should begin to see the step down toward that three times amount in fiscal year 2027. Operator: Thank you. Next question is coming from Scott Marks from Jefferies. Your line is now live. Scott Marks: Hey, good morning. Thanks so much for taking our questions. First thing I wanted to ask about, we've heard some of your competitors speak to the need to reduce prices to offer value for the consumer. And we obviously haven't heard your team talk about that much. So just wondering if you can share any thoughts around that and whether you see any opportunities within the portfolio where you think that might be required. Mark Smucker: Scott, thanks. This is Mark. I would say first and foremost, our portfolio is very broad. And so as we look at each category, the fact that we play across the value spectrum allows us to deliver varying degrees of value to the consumer. So you think about Meow Mix is a mainstream brand that provides affordability for cat parents. Our Milk Bone brand, similarly, from base biscuits to more premium offerings like the peanut buttery bites, also has a range and obviously provides affordability to the consumer. It goes without saying in coffee as well, despite the fact that we've seen significant inflation, we're glad, of course, that the tariffs are off, and that affords us the ability to do the right thing for consumers, frankly, and our retail customers and holding our price. I would say on coffee more broadly, you know, history would show that over time, costs would moderate. And so although we don't have a clear view onto if and when that takes place as we get into a new coffee season, to the extent that we do see some meaningful deflation on the commodity, we would certainly pass that along to consumers as well. So, you know, I think the headline is the portfolio itself offers a tremendous amount of options for consumers and notably value all the way to more premium offerings. Scott Marks: Appreciate that. Thanks. And the second question for me would be, you've made comments again today just about fiscal '27. In terms of EPS growth, expectations for on algo were better. Obviously, the tariff relief provides a significant tailwind. So just wondering maybe how we should be thinking about base business expectations for '27 if you're willing to comment on it. Thanks. Tucker Marshall: Yeah. Scott, it's probably early to provide the FY '27 outlook. But the essence that we are trying to communicate is that with a stabilizing commodity environment and an off-tariff environment, as we continue to generate cash and pay down debt and we deliver a level of business momentum, there could be a path to that, and that's what we were trying to just lay out as you think about a $9 midpoint at this fiscal year. And all of the puts and calls that we've had to deal with in this fiscal year as we consider the future. So, hopefully, that provides a little context. Again, as we get to our fourth-quarter earnings call, we'll be able to lay out our outlook for FY '27. Operator: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Mark Smucker: First of all, I would just like to thank all of you for joining our call this morning. Our second-quarter results demonstrate that our strategy is working. We delivered sequential acceleration in comparable net sales growth, which we anticipate will continue into next quarter. Our bottom-line results reflect increased investments in our brands, disciplined cost management, and strong execution. Our business continues to build positive momentum, and we are confident in our ability to deliver our financial outlook for this fiscal year while advancing our long-term objectives to increase shareholder value. As always, I would like to thank our outstanding employees for their continued hard work and dedication to our company. We wish all of you a very happy Thanksgiving and a great holiday week. Have a great day. Operator: Everyone, this concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.
Operator: Welcome, ladies and gentlemen, to Embecta Corp.'s fiscal Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. Please note that this conference call is being recorded and a replay will be available on the company's website following the call. I would now like to hand the conference call over to your host today, Mr. Pravesh Khandelwal, Vice President of Investor Relations. Mr. Khandelwal, please go ahead. Pravesh Khandelwal: Thank you, operator. Good morning, everyone. And welcome to Embecta Corp.'s Fiscal Fourth Quarter 2025 Earnings Conference Call. The press release and slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company website at www.embecta.com. With me today are Devdatt Kurdikar, Embecta's President and Chief Executive Officer, and Jacob P. Elguicze, our Chief Financial Officer. Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in our slides. Such statements are, in fact, forward-looking in nature, and are subject to risk and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include but are not limited to, factors referenced in our press release today, as well as our filings with the SEC which can be accessed on our website. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not as a substitute for financial measures prepared in accordance with GAAP. Reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation. Our agenda for today's call is as follows. We will begin with an overview of Embecta's fiscal year 2025 performance and discuss progress across our strategic priorities. Jacob will then review the financial results for the fourth quarter and full year 2025 and share our preliminary thoughts for fiscal year 2026. Following these updates, we will open the call for questions. With that said, I would now like to turn the call over to our CEO, Devdatt Kurdikar. Devdatt Kurdikar: Good morning, and thank you for taking the time to join us. During fiscal year 2025, we achieved several key milestones. We made the decision to end our batch pump program and we executed a restructuring plan aimed at enhancing our profitability and free cash flow. We completed the implementation of our own ERP system and operationalized a new distribution network and shared service capabilities in Latin America and India, marking the completion of a major complex multiyear standard program. With this, 100% of our revenue now flows through our systems, and all TSAs and LSAs that we had at spin have been exited. We substantially completed our brand transition efforts in North America, with more than 95% of our US and Canadian revenue now converted to the brand. This was carefully managed to ensure continuity for customers and patients. With this foundation in place, we have now commenced the next phase of the initiative globally. Transition activities have already begun in certain international markets, and we expect to be significantly complete in most regions by the end of calendar year 2026. Together, the completion of these separation and stand-up activities have freed up capacity which we are now devoting to initiatives that we anticipate will help transition the company towards long-term sustainable growth. Supporting this goal, we advanced our GLP-1 strategy meaningfully during fiscal 2025. We are now collaborating with more than 30 pharmaceutical partners to co-package our pen needles with generic GLP-1 therapies. Several of these partners have already signed agreements and placed purchase orders. Our products are included in multiple GLP-1 managed regulatory submissions expected to lead to commercial launches. Our generic GLP-1 partners are anticipating launches in Canada, Brazil, and India during calendar year 2026. While we do not control the timing and content of the company's regulatory submissions, nor the timing of their launches upon receiving regulatory approval, we are encouraged by their momentum and remain ready to support our partners by providing them with our pen needles. In parallel, we are continuing to expand the availability of pen needles in consumer-friendly small packs for the Canadian and select European markets. These small packs are targeted specifically towards out-of-pocket customers like GLP-1 users. Taken together, we continue to believe that the use of our pen needles with GLP-1 represents at least a $100 million annual revenue opportunity by 2033. We anticipate that this will be a growing contributor to our results over the next several years. We also initiated new product development programs for market-appropriate syringes and pen needles aimed at strengthening and expanding our portfolio with the goal to maintain our leadership position in our core product categories. These programs are important because we believe they will allow us to expand our reach into market segments that we do not significantly participate in. We continue to prioritize financial discipline and debt reduction. Throughout the year, we generated approximately $182 million in free cash flow, and we paid down approximately $184 million of debt, exceeding our original fiscal year 2025 target of $110 million. With leverage now at 2.9 times net debt to adjusted EBITDA, we continue to create financial flexibility to invest in potential organic and inorganic opportunities that can reshape Embecta's long-term growth profile. In summary, fiscal year 2025 was a year of solid execution on multiple fronts, while outlining and initiating a new strategic direction for the company. From the standpoint of our financial results, we exceeded our previously provided fiscal year 2025 adjusted gross margin, adjusted operating margin, and adjusted EBITDA margin ranges, while our adjusted diluted earnings per share was at the top end of our previously provided guidance range. As we move into fiscal year 2026, we remain focused on the priorities and the long-term financial targets outlined at our 2025 analyst and investor day. Now let's review our revenue performance for the fourth quarter and full year. During 2025, Embecta generated $264 million in revenue, reflecting a 7.7% decline year-over-year on an as-reported basis, or a 10.4% decline on an adjusted constant currency basis. Within the US, revenue for the quarter totaled $142 million, reflecting a year-over-year decline of 15.2% on an adjusted constant currency basis. The year-over-year decline was primarily driven by an unfavorable comparison to the prior year fiscal fourth quarter, which benefited from additional distributor orders that occurred because of the then-looming US port strike totaling approximately $10 million, as well as the unwinding of the favorable order associated with the July 4 holiday, that positively impacted our 2025 results, totaling approximately $7 million. Additionally, year-over-year price in the US was unfavorable by approximately $7 million, primarily due to milestone payments made to a large US pharmacy customer. Turning to our international business, revenue for the fourth quarter totaled $122 million, representing an increase of 2.8% on a reported basis but a decline of 4% on an adjusted constant currency basis. This decline was anticipated and primarily due to lower volumes and year-over-year pricing headwinds within China. This was driven by heightened competitive intensity in China, fueled by the growing preference of local Chinese brands amidst an evolving US-China geopolitical and trade environment. This was partially offset by performance in other emerging markets. While from a product family perspective, during the quarter, adjusted constant currency pen needle revenue declined approximately 13.9%, syringes declined by approximately 4.5%, safety products grew approximately 3.7%, and contract manufacturing revenue grew approximately 8.5%. The year-over-year decline in pen needle revenue was driven by the same factors that impacted our US and international results. Turning to our syringe products, the decrease was primarily due to ongoing end-market volume declines within the US. This trend is not new and has persisted over the past several years and is consistent with the decrease in prescriptions for insulin vials as compared with insulin pens. This decline was partially offset by improved pricing. Finally, our safety products grew 3.7% primarily due to improved pricing. For the full year, Embecta generated adjusted revenues of approximately $1.08 billion, which represented a decline of 3.9% on an adjusted constant currency basis. US revenues totaled $579.1 million, which is a decrease of 4.6% on an adjusted constant currency basis. The year-over-year decline in the US was largely due to the aforementioned advanced distributor ordering that occurred in Q4 of fiscal 2024 associated with the potential port strike, as well as the continued end-market declines in syringe volumes. Meanwhile, international revenues totaled $501.3 million, which equated to a year-over-year adjusted constant currency decline of approximately 3.1%. The decline in international revenue was primarily due to lower revenue contribution from China. Turning to our product family revenue performance, globally, our pen needle revenue declined approximately 7.1%, totaling $784.1 million. Fiscal year 2025 pen needle revenue reflects the confluence of several transitory factors, including advanced distributor ordering in the prior year, lower China revenue, and pricing headwinds in certain markets. Turning to our syringe products, revenue grew year-over-year by 1.7%, primarily driven by improved pricing, while our safety products grew 6.3% due to a combination of improved pricing and volume increases. Lastly, contract manufacturing revenue grew approximately 53.9% as compared to the prior year. With that, let me turn the call over to Jacob P. Elguicze for him to review other financial highlights as well as to provide our preliminary financial guidance for fiscal year 2026. Jacob? Jacob P. Elguicze: Thank you, Devdatt, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of Embecta's fourth quarter financial performance at the gross profit line. GAAP gross profit and margin for 2025 totaled $158.5 million and 60%, respectively. This compared to $173.8 million and 60.7% in the prior year period. While on an adjusted basis, our Q4 2025 adjusted gross profit and margin totaled $159.5 million and 60.6%. This compared to $178.3 million and 61.4% in the prior year period. The year-over-year decline in adjusted gross profit and margin was primarily driven by the lower year-over-year volume and mix and price that Devdatt mentioned earlier, as well as the negative impact of foreign currency translation. These headwinds were partially offset by manufacturing cost improvement programs, the favorable impact of net changes in profit and inventory adjustments, and lower freight costs. Turning to GAAP operating income and margin, during the fourth quarter, they were $56.5 million and 21.4%. This compared to $26.2 million and 9.2% in the prior year period. While on an adjusted basis, our Q4 2025 adjusted operating income and margin totaled $66.7 million and 25.3%. This compared to $61.2 million and 21.1% in the prior year period. The year-over-year increase in adjusted operating income is primarily due to lower R&D expenses associated with the discontinuation of our insulin patch pump program, as well as lower year-over-year SG&A expenses due to the restructuring initiative we announced earlier this year coupled with no TSA expenses within the current year. This was partially offset by lower revenue and gross profit as compared to the prior year period. Turning to the bottom line, GAAP net income and earnings per diluted share were $26.4 million and $0.45 during 2025, as compared to $14.6 million and $0.25 in the prior year period. While on an adjusted basis, during 2025, net income and earnings per share were $29.4 million and $0.50 as compared to $25.9 million and $0.45 in the prior year period. The increase in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed, as well as a reduction in interest expense. This was offset by an increase in our adjusted tax rate from approximately 9.5% in 2024 to approximately 25% in 2025. Lastly, from a P&L perspective, for 2025, our adjusted EBITDA and margin totaled approximately $89.9 million and 34.1%, as compared to $73 million and 25.2% in the prior year period. Turning to our full year results, GAAP gross profit and margin for fiscal 2025 totaled $676.8 million and 62.6%, respectively. This compared to $735.2 million and 65.5% in the prior year. While on an adjusted basis, our 2025 gross profit and margin totaled $687.3 million and 63.7%. This compared to $740.7 million and 65.7% in the prior year. The year-over-year decrease in adjusted gross profit and margin was primarily driven by lower year-over-year volume and mix, and an unfavorable year-over-year impact from profit and inventory. This was partially offset by manufacturing cost improvement programs. Turning to GAAP operating income and margin, during 2025, they were $242.1 million and 22.4%. This compared to $166.8 million and 14.9% in the prior year. While on an adjusted basis, our 2025 adjusted operating income and margin totaled $337.7 million and 31.3%. This compared to $296.9 million and 26.3% in the prior year period. Similar to the comments relating to the fourth quarter, the year-over-year increase in adjusted operating income and margin is due to similar factors that impacted the fourth quarter. Those being the lower R&D expenses associated with the discontinuation of our insulin patch pump program, as well as lower year-over-year SG&A expenses due to the restructuring initiative we announced earlier this year coupled with a reduction in TSA expenses. This was partially offset by lower revenue and gross profit as compared to the prior year. Turning to the bottom line, GAAP net income and earnings per diluted share were $95.4 million and $1.62 during fiscal 2025, which compared to $78.3 million and $1.34 in the prior year. While on an adjusted basis, net income and earnings per share were $173.9 million and $2.95 during fiscal 2025. This compared to $143.1 million and $2.45 in the prior year. Like my comments relating to the fourth quarter, the increase in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I discussed, as well as lower year-over-year interest expense resulting from a reduction in outstanding borrowings under our term loan B facility as we continue to pay down debt. Somewhat offset by an increase in our adjusted tax rate from approximately 20% in 2024 to approximately 25% in 2025. Lastly, from a P&L perspective, during 2025, our adjusted EBITDA and margin totaled approximately $415.3 million and 38.5%. This compared to $353.4 million and 31.4% in the prior year. Turning to the balance sheet and cash flow, during fiscal year 2025, we generated approximately $182 million in free cash flow. Additionally, during the year, we repaid approximately $184 million of outstanding debt and ended 2025 with a net leverage level of approximately 2.9 times as defined under our credit facility agreement compared to our covenant requirement of below 4.75 times. And finally, we recently executed an agreement with a third party to sell certain intellectual property rights and long-lived assets associated with the discontinued patch pump program for $10 million. This transaction occurred subsequent to year-end and therefore had no impact on our fiscal fourth quarter results. That completes my prepared remarks on our fourth quarter full year 2025 results. Next, I'd like to discuss our preliminary 2026 financial guidance and certain underlying assumptions. Before I go into all the details surrounding our fiscal year 2026 guidance, let me remind you that in May 2025, at our Analyst and Investor Day, we laid out our long-range plan through fiscal year 2028. Those expectations included that our revenue growth CAGR would remain flattish on a constant currency basis from fiscal year 2026 through 2028, with modest declines of approximately 1% to 2% in core injection and contract manufacturing revenue over the LRP period, offset by contributions from new revenue streams, including GLP-1 opportunities and distributed product partnerships that were expected to build as we move through fiscal years 2026 through 2028. Additionally, the financial targets that we provided at our Analyst and Investor Day anticipated adjusted operating margin to be between 28-30% by fiscal 2028, as R&D expenses were expected to increase from 2025 levels as we support key value creation initiatives through 2028, while SG&A expenses were expected to remain flattish as compared to 2025 levels. Despite a dynamic geopolitical and trade backdrop, I'm pleased to say that we believe our initial fiscal 2026 financial guidance is well aligned with the expectations established in our long-range plan. Beginning with revenue, on an adjusted constant currency basis, we currently anticipate that our revenues will be flat to down 2% as compared to 2025 levels. At the high end of our constant currency revenue range, we have factored in modest volume declines within our core injection business, primarily related to syringe declines within the US, that reduced contract manufacturing revenues contributed to approximately 50 basis points of the decline, that pricing is relatively flat year-over-year, and that the contribution from new revenue streams contribute positively by approximately 100 basis points. While at the low end of our range, we are assuming that volumes within our core injection business contribute to approximately 150 basis points of the decline, that reduced contract manufacturing revenues contribute to approximately 50 basis points of the decline, that pricing is relatively flat year-over-year, and that the contribution from new revenue streams is negligible. Turning to our thoughts on FX, our initial guidance calls for a foreign currency tailwind of approximately 1.2% during 2026. This assumption is based on foreign exchange rates that were in existence in the early November time frame. Somewhat offsetting FX is an estimated 0.1 year-over-year headwind associated with the Italian payback measure, primarily driven by the favorable adjustment recognized in fiscal year 2025. On a combined basis, our as-reported revenue guidance calls for a range of between negative 0.9% to positive 1.1%, resulting in an initial revenue guide of between $1.071 billion and $1.093 billion. Turning to adjusted operating margin, our initial guidance range calls for a range of between 29-30%, or lower by approximately 180 basis points at the midpoint as compared to 2025 levels. The expected decline at the midpoint is due to two factors contributing equally. First, adjusted gross margin is expected to decline due to increased cannula costs. While in terms of tariffs, based on current information, we expect incremental tariffs to have a negligible impact as compared to the prior year. Second, we anticipate R&D expense to approximate 2% of revenue, as we continue to invest in the development of market-appropriate pen needles and syringes, and advance our efforts to qualify and onboard alternate cannula suppliers. SG&A as a percentage of revenue is expected to remain relatively consistent with fiscal 2025 levels. All totaled, our initial guidance range for adjusted operating margin aligns with the margin framework outlined in our Analyst and Investor Day and reflects our disciplined approach to balancing reinvestment for growth with sustained profitability as we advance through the next phase of our transformation. Moving to earnings, during 2026, our initial guidance calls for an adjusted diluted earnings per share range of between $2.80 and $3, and it's based on a weighted average diluted share amount of approximately 60 million shares. Our initial adjusted earnings per share range includes an assumption that during 2026, we will repay approximately $150 million in debt and that our annual net interest expense will be approximately $93 million. While from a tax perspective, our initial adjusted earnings per share range assumes that our adjusted tax rate will be approximately 23% as compared to approximately 25% in fiscal year 2025 due to tax planning initiatives we put in place, US tax reform, and lower interest expense. Before I turn the call over to the operator, I'd like to highlight some considerations regarding the cadence of quarterly revenue during 2026. Moving forward, we may not provide any further commentary concerning the quarterly cadence of revenue on an ongoing basis. During fiscal year 2025, we generated approximately 48% of our adjusted revenue dollars during the first half of the year, with revenue split roughly evenly between the first and second fiscal quarters. During fiscal year 2026, we currently expect something similar to occur. Finally, during fiscal 2026, we expect to generate between $180 million and $200 million in free cash flow, which includes using approximately $20 million of cash for capital expenditures as well as approximately $30 million of cash on one-time spend primarily focused on advancing the global brand transition program, which remains on track to be substantially complete by the end of calendar year 2026. Importantly, the free cash flow that we expect to generate during fiscal year 2026 keeps us firmly on pace with the commitment we outlined at our Analyst and Investor Day to generate approximately $600 million of cumulative free cash flow from fiscal 2026 through fiscal 2028, and demonstrates the strength of our cash generation model and reinforces our confidence in achieving our long-term deleveraging and investment objectives. That completes my prepared remarks. At this time, I would like to turn the call over to the operator for questions. Operator? Operator: Thank you. Star one one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Marie Yoko Thibault with BTIG. Your line is now open. Marie Yoko Thibault: Good morning. Thanks for taking the questions. I wanted to start here and see if I could learn a little bit more about the GLP-1 partnership that you have. Can you just give us a little more detail on how many partners you have signed POs with? And anything on timing, how they might be ordering ahead of any approvals that they get on their side, just so we can sort of get a little more detail on how this might impact fiscal year 2026, of course, understanding that it's not being assumed in your revenue guidance. Devdatt Kurdikar: Yeah. Good morning, Marie. Thanks for the question. So we are in discussions with 30 plus potential GLP-1 entrants. And as you remember, this is all about co-packaging of pen needles. They are moving through various stages of discussions. You can imagine, you know, we go through quality agreements. We talk about MSAs. The orders that they provide, and a handful of them have already provided orders, and we've actually shipped product during 2025. Much of the volume, I would say, is for their own development purposes. As they work out, you know, what data they need beyond the data we supply for their regulatory submissions. Several of them have actually submitted to the regulatory authorities. Now they control the timing and the content of the submissions, and these submissions, we believe, include many of them will include specs that our product satisfies. Now, obviously, timing of commercial quantities is contingent on when they get approval, which one of them get approval, when they get approval. As you might have heard, publicly, generic GLP-1s could be available in calendar year 2026 in China, India, Brazil, and Canada. So there is obviously some uncertainty associated with timing, but overall, we are very, very pleased with the progress that we made in fiscal 2025. I mean, you might remember a year ago, we were just starting discussions, the team has made tremendous progress. And we continue to remain confident in the opportunity for us by 2033. in the assumptions that we had laid out or the estimates that we had laid out during the Analyst Day of this being, you know, over a $100 million opportunity. Jacob P. Elguicze: And Marie, this is Jake. I'll just jump in regarding guidance. I think the low end of our guidance range assumes really a negligible impact in terms of new revenue streams, mostly associated with GLP-1s. While from a high end of our revenue guidance range, we assume that new revenue streams, again, mostly coming from GLP-1 additional revenue, would contribute positively by about 1%. So we feel, we feel very good about where the, where this is all going. Devdatt mentioned that over the longer term that we feel that this can be at least a $100 million, you know, annual product revenue for Embecta through 2033. And we feel like we're well on our way towards achieving that. Marie Yoko Thibault: Okay. Thank you for that clarification, Jake, on the guidance as well. I guess I'll ask my follow-up here on China. You referred to it at the beginning, you know, some of the geopolitical tensions. What are you seeing on the ground in China in terms of consumer willingness to buy non-Chinese products? Of course, the product is made in China, but not a Chinese brand, I suppose. So any further updates on how that dynamic is playing out? And thanks for taking the questions. Devdatt Kurdikar: Yeah, Marie. On that, first, let me just say China in Q4 2025 performed very close or almost exactly in line with our expectations. So, you know, our thoughts when we formulated or revised our FY 2025 guidance incorporated a significant year-over-year decline, you know, partially because of the pressures that you mentioned, partially because of some inventory rebalancing. And Q4 2025 played out exactly as we thought it would. We've certainly taken steps to stabilize the situation, including reorganizing our sales team, we've actually introduced a more price-competitive pen needle which also has a lower manufacturing cost. Our guidance for 2026 does incorporate some expectations around headwind in 2026 compared to 2025. But our current expectation is that it's gonna be much less as compared to what we experienced in 2025. You know, as we all read in the press, I mean, the situation continues to evolve. But certainly, we are focused on controlling what we can control to stabilize the situation there as quickly as possible. Maybe just one final comment. Over the long term, you know, we still continue to believe that this is gonna be an important market for us. The market itself is growing mid-single digits. As you know, we have strong commercial and manufacturing infrastructure in China. You've heard us refer to the development of a market-appropriate pen needle. In fact, that pen needle is being developed by our team in China and I'm quite hopeful that it will serve a segment in China that we don't serve today. As well as you asked about GLP-1s earlier. You know, there are generic GLP-1 companies in China that have global aspirations that obviously we wanna serve as well. So over the long term, we still think it's gonna be an important market for us. And we'll find a way to weather through the evolving landscape over there. Operator: Thank you. Our next question comes from the line of Michael K. Polark with Wolfe Research. Your line is now open. Michael K. Polark: Hi. Good morning. Thank you for taking the questions. Two smaller ones for me. I'm interested in the cannula comments. You talked about increased costs there, and an effort to source alternate, alternative suppliers. So maybe can you just unpack that for us a little bit? Why are the costs up? And what does the opportunity set look like to find other sources to mitigate that creep? Thank you. Devdatt Kurdikar: Yeah. Good morning, Mike. Maybe I'll kick us off just as a reminder. So the entire supply of cannulas that we get is from our previous parent BD. And we have a cannula agreement with them to supply those cannulas that goes until 2032. So it's sole source from BD right now. And you can imagine, that we do want to have an alternate supplier for cannula. Our team has been working on this for the last couple of years. We've identified a couple of alternate cannula suppliers, and the team has made significant progress, including running some trials with alternate cannulas and doing some development work. So you know, I feel confident that certainly, you know, we have our current supply of cannula to 2032. But the team is making remarkable progress, and I feel reasonably confident that we are gonna have at least one alternate supplier here qualified certainly well before our current cannula agreement runs out. With that, obviously, that allows us, you know, an alternate supply with a different cost profile. Because since we became independent, the increase in cannula cost to us has been a significant contributor to the pressure we faced on gross margin. Jake, anything you'd like to add? Jacob P. Elguicze: Yeah. Devdatt, so just to maybe add a little bit more, you know, Devdatt had mentioned sort of what the margin profile of the company sort of looked like at the gross margin line kind of pre-spin as to sort of where we were during say 2025 and exiting 2025. And pre-spin, gross margins were sort of or right at spin, right around, let's call it, 67%. This year for 2025, our adjusted gross finished just under 64%. And really, Mike, the entirety of the decline over those years really came down to just increased cannula costs. It really is important for us to find an alternate provider, both from a risk mitigation standpoint and you never wanna be beholden to one sole source. And then also to drive some price decreases in the future as well, which we would certainly hope to do. In terms of our fiscal 2026 guidance in relation to 2025, we talked about our adjusted operating margins being down about 180 basis points at the midpoint compared to 2025 levels. About half of that is in the gross margin line entirely due to increased cannula costs, and the other half of that is just increases in terms of R&D expense as we, you know, need to make some investments in order to come to market with an alternate cannula provider as well as some of those market-appropriate low-cost products for pen needles and syringes to service some of the emerging markets. Michael K. Polark: Helpful color. For the follow-up, I wanted to ask on one of the comments about the fourth quarter performance. I heard, price unfavorable year on year in the US, $7 million. Mention of milestone payments to a large US pharmacy customer. I just wanna make sure I understand what that is, what you're saying there. The word milestone specifically tripped me up. So if you can add any color on that dynamic, I'd appreciate it. Thank you. Devdatt Kurdikar: Yeah. Mike, I'm happy to. Obviously, I won't talk about this specific contract, but you know, our contracts with the US change, you know, there is a rebate level. Right? There are sometimes marketing spend items that we contribute to marketing of our products. And finally, on achievement of certain volume levels typically, there is an additional payment, and we often refer to them as milestone payments. At the end of the day, it all comes down to price. But depending upon the timing of the payments, it can lead to, you know, year-over-year unfavorability or favorability during the course of a quarter. Operator: Thank you. Our next question comes from the line of Anthony Charles Petrone with Mizuho Americas. Your line is now open. Anthony Charles Petrone: Thanks, and good morning, everyone. Happy early Thanksgiving here to everyone in the team's family. Maybe start on GLP-1 and the generic contracting phase. I'm wondering, Devdatt, and or Jake, if you could talk a little bit about how those contracts are gonna be structured here. So typically, when we have, you know, drug-device combination solutions, you're in the clinical phase. But if you get to market, you know, essentially get written into the drug master file and the instructions for use, and that can be a multiyear contract. So how does contracting work with the generic GLP-1 providers in the clinical development phase, and what will those look like once we get with success to a commercial phase? How long will they be? Will there be minimum quantities baked in? How do the economics work over, let's say, a medium-term contract? Then I'll have a couple of follow-ups. Thanks. Devdatt Kurdikar: Yeah. Anthony, so you know, I don't wanna get too far ahead of myself with respect to commercial quantities and commercial contracts until, you know, some of these generic manufacturers get approved. But let me at least provide additional color. Right? So as we go through the contracting phase, you can imagine the early discussions and the initial discussions. We get NDAs in place. We get qualified as a vendor in our system that includes providing some data on our product from a quality standpoint, from a regulatory standpoint. We have quality agreements in place. Then we start talking about contracting, get a contract complete. But the commercial contract, I think we'll talk about once some of these drugs are commercial. The quantities that they are ordering now are really to do their own development work. And you can imagine, the way this is all going to play out is we will be supplying bulk pen needles to these manufacturers. They are going to co-package our pen needles with their pen injector. And then they will be the ones to market that combined product to patients. They also, as I think you implied, are going to be responsible for the regulatory submission for the whole package. That includes the drug and the device. Certainly, we'll help with providing data but they are responsible for that submission and our pen needle will get specked in. Now, obviously, once you are part of that combination, that imparts a level of stickiness to the product. But beyond that, since they are going to be doing the co-packaging, you know, the co-packaging lines will be configured, if you will, to be accepting of our pen needles. And that provides some additional stickiness, if you will, to our product as part of that combined package. But perhaps most importantly, you know, I wanna point out something that might seem obvious. We have a long history in demonstrating reliability of supply. And if you are a generic manufacturer that's introducing a generic GLP-1 drug, I would think that you would want your pen needle supplier to be somebody you can depend upon and has that generic has that long demonstrated reliability of supply, not to mention our pen needles are already approved in markets where you would expect generic GLP-1s to launch. With respect to profitability, what I would also say is that these are, as pointed out, bulk pen needles. We don't expect to spend any significant CapEx in meeting this demand, and so we would expect there to be, you know, some incremental margin drop through as compared to our corporate averages of gross margin. You know, obviously, I won't comment on pricing. Maybe one final comment. Because we've established these conversations now with generic drug companies, we are also expanding the conversation to work with them on potential supply of other devices that they may use. And I think on analyst day, I said, you know, the most sort of nearest adjacent device to us would be a pen injector. So I'm hopeful that supplying devices to generic drug companies for their generic GLP-1 drugs is just the start as we transition from, you know, pure injection delivery for insulin company to a broader-based medical supplies company. Hopefully, that was helpful, Anthony. Anthony Charles Petrone: No. Very helpful. And provide some color as we think about the, you know, next few years ahead. And then the follow-up here will just be on capital deployment. You mentioned a little bit of CapEx here, but the leverage ratios are coming down. You know, the company in the past has talked about potentially forging additional partnerships perhaps outside of GLP-1 or being a little bit more focused a little bit on tuck-in M&A. So just a little bit to take the temperature on capital deployment outside of GLP-1 and the CapEx needs immediately. Do you see any tuck-in M&A opportunities over the next couple of years? Thanks. Devdatt Kurdikar: Yeah. Thanks, Anthony. First, let me just say I'm very pleased with how our profitability metrics ended up. With respect to our guidance, as you saw, we sort of exceeded the top end of our gross margin, adjusted EBITDA margin, adjusted operating margin, and that really allowed us to pay down significantly more debt in 2025 and brought our net leverage down, as you pointed out, to 2.9. Our capital allocation plan, you know, remains unchanged from what I said on investor day. You know, we think $600 million in free cash flow over the two years. Most of that will go to debt pay down. We, you know, pay a dividend at this point. We are not considering changing that. And our highest priority still remains paying down debt. But as our leverage comes down, certainly, it's already below three and we drive it down further in 2026. We are very open to organic and inorganic investments. And so M&A by obviously, its very nature, is very opportunistic. We will continue to, you know, to be alert and aware if such an opportunity arises. And we feel that it is gonna be value accretive to our company and help transition the company towards long-term sustainable growth. We certainly will be ready to act on it. Anthony Charles Petrone: Thank you again. Operator: Thank you. Our next question comes from the line of Gracia Leydon Mahoney with Bank of America Securities. Your line is now open. Gracia Leydon Mahoney: Hey. This is Gracia on for Travis. Thanks for taking the questions. I just wanted to ask a follow-up on in your prepared remarks, you mentioned selling certain intellectual properties of $10 million associated with the patch pump subsequent to year-end. So just wondering if you could add any more details around this and what's baked into your assumptions moving forward that is associated with this? Devdatt Kurdikar: Yeah. Gracia, thanks for the question. Yeah. We did sell certain intellectual property and associated assets to a buyer for $10 million. We are pleased to be able to monetize these assets from the patch pump program that we discontinued about a year ago. I'll let Jake comment on. This is a Q1 event really for 2026 for us. But I'll let Jake comment on how you should expect to see that run through the financials. Jacob P. Elguicze: Yeah. So, obviously, Gracia, it'll obviously be an increase to cash from a guidance standpoint. This isn't going to impact our adjusted results that we provided guidance metrics for today. There'll be a gain most likely on the sale of these assets. And as a result of that, we're just going to normalize that for our adjusted operating margins or earnings per share. Gracia Leydon Mahoney: Great. Thank you. And then maybe just one follow-up on the pharmacy closures that you saw earlier this year, and then you had the stocking dynamic in for July 4 and ahead of the brand transition. So a lot of one-time benefits. Can you just speak to any more details on how you saw that play out in '25? And maybe if there's any sort of visibility on that into 2026 on how the pharmacy volumes are moving forward. Thanks. Devdatt Kurdikar: Yeah. So, you know, as you pointed out, earlier in the year, we had commented on, you know, plans to closure, store closures at a major US pharmacy chain. We don't sell directly to that pharmacy chain. We sell to a third-party distributor that also serves other customers. But I think as I said at that point, you know, our product is medically necessary. So what happens is if a chain if a store closes, patients will shift to other chains or the sources to procure product. And as expected, we saw strength at some other chain outlets. And we incorporated our thoughts around, you know, what the impact of that closures will be into our 2026 guidance. You know, in the guidance that Jake went through, he talked about, you know, a 100 basis point range in the volume assumptions. That includes our thoughts on what might happen with the US pharmacy volume as well. You know, maybe one just final point on how 2025 played out. You know, we had started the year with the original guidance. And actually, as the year played out, we did see what I'll say China year-over-year headwinds that were not incorporated in our original guidance. But actually, the year played out including the impact of store closures with us being within the range of our original guidance had it not been for China. So I think the store closures are playing out as we thought they would, patients will move to other outlets and will see strength, and we incorporated our thoughts in the 2026 guidance. Thanks, Gracia. Gracia Leydon Mahoney: Thank you so much. Operator: Thank you. And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Devdatt Kurdikar for closing remarks. Devdatt Kurdikar: As we close the call, I just want to express my sincere gratitude to all my colleagues at the company around the world. Fiscal 2025 represented a meaningful milestone as we completed the first phase of our strategic roadmap, standing up our core systems and infrastructure needed for the next stage of growth. And despite a complex trade and geopolitical backdrop, we continue to perform well and strengthen our operational foundation. We enter fiscal 2026 confident in the direction of the company. Our focus remains clear: maintaining leadership in our core categories, advancing our innovation programs, and delivering strong profitability and cash flow in order to execute on the commitments we outlined at our 2025 analyst and investor day. Thank you for calling in for your interest in Embecta, and happy Thanksgiving all. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Yiren Digital Ltd. Third Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Keyao He. Please go ahead. Keyao He: Thank you, Operator. Good morning and good evening, everyone. Today's call features a presentation by our Founder, Chairman, and CEO of Yiren Digital Ltd., Mr. Ning Tang, and our CFO, Mr. Ka Chun Hui. There will be a Q&A session after the prepared remarks. Before beginning, we would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties, and factors that can cause actual results to differ materially from those contained in any such statements. Further information regarding such risks, uncertainties, or factors is included in our filings with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under the relevant law. During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP financial measures and reconciliation to GAAP measures, please refer to our earnings press release. I will now pass it to Ning Tang for opening remarks. Thank you all for joining us today. Ning Tang: This past quarter presented a more challenging operating environment than we have seen in recent periods, driven primarily by heightened regulatory uncertainty and a more cautious credit backdrop. While these factors weighed on parts of our business, we moved quickly to adjust our risk posture and protect asset quality. I am pleased to share that these actions have been effective. At the same time, our Internet insurance segment continued to deliver solid growth, reinforcing the resilience and diversification of our platform. As we look ahead, we remain focused on disciplined execution and positioning the company for the next generation of fintech with AI and blockchain. As part of our ongoing transformation, we continue to advance our agentic AI capabilities to enhance process efficiency and strengthen unit economics. These innovations are helping us offset the margin pressure associated with rising credit risk. Our agentic platform, MagicQ, is already demonstrating meaningful impact, improving sales conversion, elevating risk controls, and driving greater overall productivity. With that, let me walk you through the key business highlights for the quarter. First, turning to our financial services segment. We facilitated RMB 20.2 billion in loan origination during this quarter, up 51% year over year. Our repeat borrowing rate remained at a record high of 77%, in line with last quarter and 16 percentage points higher than a year ago. While the number of our total borrowers decreased by 11% to 1.3 million compared to the same period last year due to the tightening of credit policies, our total cumulative borrower base increased by 21% year on year to 14 million. We also continued to see healthy structural improvements across our borrower base. The average size for new loans from our lending platform rose from RMB 7,000 to RMB 10,100, driven by our ongoing shift towards higher credit quality customer segments and better credit predictability from repeat borrowers. We expect this favorable mix trend to continue as we continue to trade up for better quality borrowers. Our agentic AI has delivered a remarkable boost in our operations. For marketing, our AI-driven marketing agent continues to deliver strong results. It enhanced customer profiling accuracy and expanded the pool of identified high-intent users by 38% quarter over quarter. In addition, our proprietary AI agent now generates tailored responses across a wide range of customer inquiries, effectively reactivating dormant users and driving a 15% increase in their ATP engagement. For customer service, our LLM-powered service robot continues to strengthen its performance, with response accuracy rising from roughly 80% to over 92%. Meanwhile, the rate of inquiries requiring escalation to human agents declined by nearly 15% quarter over quarter. For quality control and risk management, we continue to optimize our multi-model models. Fraud detection coverage increased from a weekly manual sampling of 450 cases to 5,800 by agentic AI, while accuracy improved to 91%. Now let's turn to capital allocation. As of September 30, 2025, our total outstanding loan balance is RMB 34.2 billion, representing 10% quarter-to-quarter growth. Our funding cost rose by 55 basis points during the quarter, in line with the sector trend. We are now included in the YBASE of nearly 30 compliant funding partners under the new regulatory framework, positioning us as one of the leading players in the market. Asset quality and credit risk, we continue to see industry-wide pressure this quarter. Although we proactively tightened our credit policies, our risk indicators edged up in Q3. As of September 30, our one to thirty-day delinquency rate stood at 2.7%, while the thirty-one to sixty-day and the sixty-one to ninety-day delinquency rates were 1.7% and 1.4%, respectively. The good news is that we see that risk indicators for the loan portfolio from new borrowers begin to trend down in November, which is proof of the effectiveness of our upgraded credit strategy. However, from a conservative point of view, we expect the industry-wide impact on the overall asset quality to continue in the fourth quarter and that the recovery is likely to begin early next year as the market stabilizes. Our AI-driven collection capabilities play an important role in mitigating early-stage synthesis. This automation drove productivity growth, reducing labor costs by an average of RMB 5 million per month, up from RMB 2.7 million in the second quarter, while improving service quality. Turning to our overseas business, our Indonesian operations launched on schedule in September 2025, and we expect this segment to contribute significant growth in 2026. Now turning to our insurance brokerage business. After navigating significant regulatory headwinds and commission pressure in 2024, we entered 2025 with a transformed operating model. Our insurance business has shifted from a high-touch, high-cost brokerage approach to a digital, low customer acquisition cost, high-margin model by tapping into new insurance demand within our existing customer acquisition channels on the platform. This has allowed us to focus on a healthier, more profitable customer base that is contributing meaningfully to segment margins. In 2025, gross written premium reached RMB 1.15 billion, an increase of 35% quarter over quarter. Revenue from the segment was RMB 84.2 million, up 45% from the prior quarter. Our Internet insurance business continued its rapid expansion, delivering RMB 196 million in annualized premium, representing 204% quarter over quarter growth. Total customer numbers rose 93% quarter over quarter to 229,353, driven by more precise marketing and still low penetration within the target segment. We expect the Internet insurance business to sustain strong momentum over the coming quarters. Finally, while we continue to strengthen and scale our core business, we are also investing strategically into the future. Building on our technology capabilities and our position within the broader fintech ecosystem, we are exploring new ways to better serve customers and manage assets through AI and blockchain-enabled solutions. We see AI and blockchain as core strategic pillars for the future of our business, especially as we expand our footprint globally. We are investing in the systems and capabilities needed to build our next-generation fintech infrastructure while deepening partnerships with key industry players. In October, we signed an MOU with TrainUp, a leading crypto solutions provider in Singapore, and we also announced our plan to launch an Ethereum staking service, which is currently undergoing testing. This initiative marks an important milestone in our journey toward delivering seamless 24/7 global financial services. Over the next few quarters, we look forward to introducing additional products designed to enhance financing efficiency and asset monetization for our customers. To conclude on the quarter, while the third quarter brought its share of challenges, the progress we have made demonstrates that our diversification and forward-looking strategy are working. We have built a stronger, more resilient foundation that positions us well for sustainable growth and value creation in the quarters ahead. I am confident that by staying disciplined and continuing to execute on our priorities, we will emerge even stronger. With that, I will now pass it over to Ka Chun Hui, who will provide more details on the financials for the quarter. Ka Chun Hui: Thank you, Ning. Hello, everyone. I will now walk you through our financial performance for the third quarter this year. Please refer to our earnings release and IR deck for further details, both available on our website. For the third quarter, total revenue grew by 5.1% year over year to RMB 1.55 billion, mainly attributable to 70% growth from the Financial Services segment. It was partially offset by the decline in revenue from the consumers and lifestyle segment, as we announced the mid-decommission of the business in 2024. In the Financial Services segment, total loan facilitation volume increased by 51% year over year. The increase was driven by growth in average loan ticket size, the growth of repeated borrowers, and an increase in loan referral revenue. The loans from repeat borrowers account for 77% of the total loan volume facilitated in the third quarter this year, up 16 percentage points compared to the same period last year. As the credit from repeated borrowers is more predictable, it allows us to extend the credit without substantially affecting our portfolio risk. The average size for new loans from our lending platform increased by 44% to RMB 10,100. Overall, the revenue from this segment increased by 70% year over year to RMB 1.4 billion in the third quarter. The revenue growth is driven by our loan guarantee services revenue, which reached RMB 1.4 billion in the third quarter, up nearly 2.4 times year over year, driven by higher loan facilitation under the risk-taking model. As our service revenue and loan facilitation from the risk-taking model increases, our provisions for contingency liability also increased by 68.8% year over year to RMB 460 million. But as the economic benefits of the guarantee services are recognized over the next few quarters, the total of guarantee liabilities of RMB 930 million will be recognized as revenue over the next few quarters. The contribution margin for the entire Financial Services segment improved from 5.2% in 2024 to 23% in the third quarter, driven by a 27.1% decrease in the origination expense while the revenue grew by 70%. In the insurance segment, our gross written premium in the third quarter was RMB 1.15 billion, up 35% from the second quarter this year. It is showing a sign of recovery for this business. Compared to the third quarter of 2024, the premium is still down by 15%. The total premium is slightly down by 1.5% year on year. We have successfully turned around the business. The main growth contributor is the Internet insurance line that we launched in the first quarter. In the third quarter, the gross premium from the Internet insurance line was RMB 196 million, representing 204% growth quarter over quarter. We expect this growth momentum will continue in the next few quarters and have significant revenue contribution to the overall insurance line. One thing to highlight is that the margin and the take rate for the Internet insurance business is much higher than the traditional brokerage line because the clients for this segment come from our customer traffic from insurance and other business segments. These customer segments are of better risk quality than traditional insurance carriers are not able to reach. As such, the Internet insurance business has lower customer acquisition costs, better revenue sharing with the carriers, and no commission cost. The margin is expected to increase as the premium scales, which will benefit the bottom line. On the expense side, sales and marketing expenses in the third quarter decreased by 1.2% year over year to RMB 332 million. The marketing expenses decreased while our total loan facilitation increased by 51%. This is the result of better AI-assisted precision marketing that drives a higher sales conversion, effectively lowering the borrower acquisition cost. Research and development expenses decreased by 39% year over year to RMB 92 million. This is because, during the same period last year, there was a one-off large system development project. The origination, servicing, and other operating costs decreased by 27% year over year to RMB 150 million because of the 27.1% decrease in the origination expense from the financial services business due to the improved collection efficiency driven by AI and lower commission costs from the traditional insurance brokerage line. General and administrative expenses for the quarter increased by 30% year over year to RMB 104 million, primarily due to increased personnel-related costs to strengthen our risk management and to fund the plan for new business initiatives such as the development of the next-generation fintech that we mentioned in the announcement in October. The allowance for contract assets and receivables and others for the quarter increased by 142% year over year to RMB 229 million. This is driven by higher receivables from loan facilitation services and guarantee services as the loan volume has grown with particular strength from the risk-taking model that generates higher service revenues. Along with the increase in the self-funded loan balance in 2025, provisions for contingent liability this year increased by 69% year over year to RMB 460 million because of the increase in loan volume facilitated under the risk-taking model. Net income for the third quarter was RMB 318 million, translating to RMB 3.65 per ADR share or USD 0.51 per ADR share. This represents a 12% decline from the second quarter of this year. The pressure on profitability is attributed to multiple reasons, including the substantial upfront provisions under our risk-taking loan facilitation model, industry-wide volatility in asset quality, a declining fee rate for the loan facilitation business following the new regulation, as well as the decreasing commission rate in our traditional insurance brokerage line. Our net margin declined slightly from 22% in the prior quarter this year to 20%. However, we maintain a very good cash position. The net cash outflow from operations in the third quarter was RMB 1 million, and our balance sheet remained robust with a total cash equivalent and restricted cash of RMB 4 billion. This will position us well to address any future challenges and to capture new opportunities. Looking ahead, we remain cautiously optimistic about our business. While we anticipate volatility in the credit and regulatory risk environment, our disciplined credit policy, enhanced risk management capability, and effective risk revenue model will position us well in this market environment. Our international business and Internet insurance segments are expected to drive higher revenue growth and margin growth in the next few quarters. For 2025, we are projecting revenue to be in the range of RMB 1.4 billion to RMB 1.6 billion, reflecting our disciplined approach to growth and risk management. That's the end of my part of the presentation. Thank you very much. Operator: Thank you. And operator, we are open for Q&A. We will now begin the question and answer session. The conference has now concluded. If you have any questions, you are welcome to contact the company's IR team. Thank you for attending today's presentation. You may now disconnect. Ka Chun Hui: Thank you.
Kylie Yeung: Good evening, and good morning, everyone. Welcome to Tongcheng Travel's 2025 First Quarter Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Director and CEO, Mr. Hope Ma; our CFO, Mr. Julian Fan; and our Chief Capital Officer, Ms. Joyce Li. For today's call, our management team will provide a review of the company's performance in the first quarter. Hope will brief us on the company's strategies, Joyce will discuss our business and operational highlights, and then Julian will address the details of our financial performance accordingly. We will take your questions during the Q&A session that follows. As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements to differ from those in the forward-looking statements. This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website. Now let me introduce our CEO, Hope. Hope will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Hope, please go ahead. Heping Ma: [Interpreted] Thank you, and good evening, everyone. Welcome to our 2025 third quarter earnings call. In the third quarter of 2025, China's travel market continued to unleash its growth potential, driven by profound changes in tourism consumption patterns and behaviors. Notably, we have observed a growing trend toward more diversified and personalized consumer demand. Experience-oriented consumption, including emerging segments such as event-driven economy and concert economy has gained significant traction. The ongoing emergence of innovative service scenarios and business models has introduced new momentum into the industry, fostering sustainable growth. Riding on this tailwind, we swiftly identified changing market demand and proactively grow product innovation to meet these evolving needs. Benefiting from these initiatives, our ending paying users in the third quarter reached a historic high and surpassed 250 million, which demonstrates our organizational agility to capture new opportunities and our continuously expanding brand influence. Horizontally, we're expanding our business by proactively enriching our product and service offerings to cater to diverse demand while maintaining steady growth in our core domestic OTA business. Vertically, we're deepening our value chain integration through exploring potential growth opportunities to build a solid foundation for our long-term development. Driven by our effective expansion strategy and outstanding execution capabilities, we delivered robust results in the third quarter, marking a milestone in our overall development. In the National Day holiday, the travel industry exhibited a healthy growth momentum supported by sustained travel enthusiasm, validating the resilience and growth potential of China's travel industry. As a leading travel platform in China, we will consistently embrace technological innovation to drive product and service upgrades with a steadfast focus on delivering high-quality, convenient and diversified travel experiences for our users. Concurrently, we remain committed to executing our core strategy. While maintaining focus on mass market to consolidate our domestic leadership, we will continue to expand our outbound business and explore opportunities across the travel industry to seek new growth drivers. On October 16, 2025, we successfully completed the acquisition of Wanda Hotel Management, which we believe will accelerate the growth trajectory of our hotel management business, contributing to further expansion and strengthening of our company. Going forward, we will further promote the integration of AI technologies and our supply chain resources to persistently enhance operational efficiency and user experience. We have strong conviction that our clear strategic road map and excellent operational capabilities will enable us to achieve long-term sustainable growth and generate more value for all stakeholders. Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the third quarter of 2025. Joyce, please go ahead. Joyce Li: Thank you. Since the start of this year, China's travel market has been demonstrating an upward trajectory, characterized by rising demand for immersive natural and cultural experience. Against the backdrop of the evolving consumer preference, we continue to achieve solid growth across all segments, underpinned by the precise execution of our strategies. In the third quarter, our accommodation business sustained its growth momentum, reaching record highs in both daily room nights sold and quarterly revenue. During this period, we focused on addressing users' evolving demand for higher-quality hotels, resulting in a meaningful increase in the proportion of high-quality accommodation on our platform, with more than 20% growth in its room nights sold. In the meantime, we will reinforce our value for money proposition to further solidify our presence in the mass market. Our upgraded membership program has been instrumental in enhancing user engagement, enabling users to freely redeem their points on our platform. This, combined with the fast response to user inquiries has greatly increased user purchase frequency and strengthen user loyalty. In our international accommodation business, we remain focused on strengthening cooperation with third-party partners and expanding our product service offerings. These efforts were designed to better meet the diverse needs of our users and drive further growth in the segment. As for our transportation business, it demonstrated solid growth during the third quarter, supported by enhanced monetization capabilities. Throughout the quarter, we prioritized improving user experience and deepening connections with targeted users. Leveraging our acquisition capabilities and further integrating live transportation options, we provided users with more seamless, feasible and convenient travel solutions. Through engaging and entertaining marketing campaigns, we aim to strengthen mind share among younger demographics and enhance our brand positioning as an experience-driven platform rather than merely a ticketing service provider. In the past quarter, we launched an AI-driven interactive game that allow users to discover travel destinations tailored to their disposition. Such entertaining initiatives has successfully enhanced our brand appeal among younger users over the past years. In terms of our international air ticketing business, we're focusing on strengthening user loyalty and fortifying our market position by implementing a disciplined incentive policy and improving operational efficiency. We maintain a balanced approach to growth in both volume and value. These efforts contributed to healthy volume growth and further improvement in the monetization capability of this segment, aligned with our long-term growth strategy. We see significant growth potential in China's hotel industry and have been actively investing in the hotel management business since 2021, which we believe will serve as a key growth driver for the company. Over the third quarter, our efforts were focusing on expanding our geographic network, while prioritizing quality growth, to optimize operations, we streamed our brand portfolio and concentrated resources on several major brands so as to precisely target segmented markets. At the end of September, the total number of hotels in operation has risen to nearly 3,000 with 1,500 in the pipeline. In mid-October, we completed acquisition of Wanda Hotel Management. The companies are processing multiple upscale hotel brands with a strong presence and influence in the Tier 2 and below cities along with the network of 239 hotels, both domestically and internationally at the end of September. We believe Wanda Hotel's valuable brand equity combined with profound industry expertise, while diversifying our brand portfolio and accelerate the growth and expansion of our hotel management segment, further strengthening our competitive positioning in this industry. Besides the addition of Wanda Hotel will also have positive financial impact on the company. By implementing innovative and effective user engagement initiatives, we have built an extensive and steadily expanding user base across China. For the past 3 months, our 12-month annual paying sustained its growth trajectory and recorded another historical high of 253 million, representing a year-over-year growth of 8.8%. In the meantime, the cumulative number of passengers served on our platform over the past 12 months exceeded 2 billion, indicating stable annual pay purchase frequency of 8x per year -- per user. Furthermore, our MPUs for the quarter also reached a record high of 47.7 million, suggesting a year-over-year growth of 2.8%. Besides our annual ARPU by the end of September increased by 6% year-over-year to more than RMB [ 17.4 ]. The Weixin ecosystem remained a crucial traffic channel during the period, where we focus on enhancing operational efficiency as well as maximizing user value. At the same time, our standalone app, a key driver for acquiring new users maintained strong growth momentum during the last quarter with its DAU hitting an all-time high of nearly 5 million before the National Day holiday. By introducing innovative products, and launching engaging marketing activities, our standalone app has attracted a significant number of younger users. Additionally, social media platforms have become an increasingly important channel for user engagement, particularly among the younger experience-oriented travelers. So collaboration with influencers and the distribution of creative content, we strengthened user mind share and has broadened user reach within this high potential demographics. To further amplify the brand visibility and a deeper engagement with top users, we have made consistent investments in brand equity. This summer, we collaborated with Tencent Music and exclusively sponsored 3-day music festival in Macau, effectively capturing the attention of younger audience and significantly boosting brand exposure among them. Additionally, we appointed a popular stand-up comedian as our brand ambassador to reinforce our valuable money proposition and strengthen our positioning as a dynamic and entertaining platform. These efforts have not only elevated our brand presence, but also positioned us as a preferred choice for value-conscious, experience-driven travelers, driving user loyalty. As a technology-driven travel platform, we proactively embrace cutting-edge technologies and seek to upgrade our business capabilities and deliver enhanced value to our users. In March, we launched our AI-driven travel planner DeepTrip, which generates viable and personalized travel itineraries for users by leveraging the reasoning capabilities of DeepSeek and the supply chain advantage of our platform. Since its debut, it has more than 5 million users in total with a steadily increasing number of orders placed directly through the portal. In the foreseeable future, we will remain focused on iterating DeepTrip's functionalities and expand its application across our business processes, in an effort to cultivate user mind share and strengthen user trust. In the area of customer service, we have made meaningful progress in integrating AI technology to enhance operational efficiency and improve user experience. By embedding AI tools into every stage of the customer service process, we have eased the workload of our customer service staff and shortened handling time. These AI-powered capabilities allow our staff to better understand user inquiries and provide timely, accurate response to address user concerns, ultimately enhancing user satisfaction. We will continue our investments in AI capabilities to deliver seamless and efficient service while fostering long-term user loyalty. We remain deeply committed to advancing our ESG performance to align with the highest global standards and best practices. Through years of dedicated efforts, we have achieved exceptional results in ESG performance, earning significant international recognition. Notably, our MSCI ESG rating has achieved the highest level of AAA, placing us among the top 5% of companies globally in our industry. In addition, our CSA score has improved consistently over the past 3 years and was awarded industry mover by S&P Global. These achievements underscore our commitment to ESG principles and demonstrating our ability to continuously enhance our ESG performance, establishing us as an ESG leader among global peers. I will stop here to hand over the call to our CFO, Julian. He will walk with you through our financial highlights for the third quarter. Julian, over to you. Lei Fan: Thank you, Joyce. Good evening, everyone. In the past quarter, China's travel industry maintained robust growth with travel demand demonstrating strong momentum. During the summer peak season, we observed steady increases in diversified travel scenarios, including family trips, graduation trips and educational tours, leveraging our precise understanding of user needs and agile operational capabilities, we successfully captured emerging opportunities across various travel scenarios, driving impressive growth in our Core OTA business. In the third quarter of 2025, we achieved outstanding results for both top line and bottom line. We reported a net revenue of RMB 5.5 billion, marking a 10.4% year-over-year increase from the same period of 2024, thanks to our effective marketing investment and enhanced operational efficiency of our OTA business. We achieved a remarkable adjusted net profit of RMB 1,060 million reflecting a 16.5% year-over-year growth, with adjusted net margin expanding to 19.2% compared to 18.2% in the same period of last year. Our Core OTA business revenue registered an excellent growth of 14.9% year-over-year and recorded RMB 4.6 billion, supported by growth across our accommodation reservation, transportation, ticketing and other business segments. Our accommodation reservation business achieved RMB 1.6 billion in revenue for the third quarter of 2025, representing a 14.7% increase from the same period in 2024. The revenue growth was mainly attributable to the increase in hotel room nights sold as well as the slight increase in ADR. For the domestic accommodation business, we rapidly responded to emerging user demands and actively explored new consumption scenarios to capitalize on new growth opportunities. For the international accommodation business, we continue to deepen cooperation with global suppliers and strengthen our footprint in outbound designations favored by Chinese travelers, in order to solidify user mind share, driven by changes of consumer preferences on our platform and our proactive adjustments to user subsidy strategies, our ADR sustained a year-over-year increase and once again outperformed the industry. Additionally, during the third quarter, our blended take rate maintained at a relatively high level which was similar to that of the same period last year, mainly fueled by our precise and disciplined marketing strategies. Our transportation ticketing revenue for the third quarter reached RMB 2.2 billion, marking a 9.0% year-over-year increase compared with the same period of 2024. During the past quarter, we continued to optimize our VAF offerings and enhance user experience to improve the monetization capabilities of the segment. The revenue growth is a testament to our profound user insights and operational refinement. Furthermore, supported by enhanced user mind share along with our disciplined operational approach, our international air ticketing business maintained stellar growth momentum and accounted for around 6% of our total transportation ticketing revenue, up about 2 percentage points year-over-year. Other business segments continued to expand rapidly with revenue reaching RMB 821 million in the third quarter, marking a growth of 34.9% year-over-year. This growth was primarily fueled by the outstanding performance of our hotel management business. Our tourism business achieved a revenue of RMB 900 million, representing an 8% decrease from the same period in 2024. This decline was mainly caused by travelers persistent safety concerns regarding travel to Southeast Asia since the beginning of this year and our strategic scaling back of prepurchased business to reduce operational risks. In terms of profitability, our gross profit increased by 14.4% year-over-year to RMB 3.6 billion with gross margin rising to 65.7% for the third quarter of 2025. Our operating profit for the Core OTA business achieved RMB 1.4 billion, with margin increasing to 31.2% in the third quarter of 2025. The margin improvement was primarily attributable to our efforts to enhance the ROI of sales marketing investments and improve operational efficiency. The operating profit for the tourism business reached RMB 12.4 million with 1.4% margin. Our adjusted EBITDA increased by 14.5% and reached RMB 1.45 billion, with a 27.4% margin compared to 26.4% margin in the same period last year. Adjusted net profit grew by 16.5% to RMB 1,060 million with a 19.2% margin, up from 18.2% in the third quarter of 2024, demonstrating consistent year-over-year margin improvement. Service development and administrative expenses in the third quarter of 2025 decreased by 3.2% from the same period of 2024. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 13.8% of revenue in the third quarter compared with 14.7% of revenue in the same period of 2024. Selling and marketing expenses in the third quarter of 2025 increased by 16.9% from the same period of 2024, excluding share-based compensation charges, selling and marketing expenses accounted for 31.0% of revenue in the third quarter compared with 29.2% of revenue in the same period of 2024. As of September 30, 2025, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 13.6 billion. In the first 3 quarters of 2025, the Chinese travel market continues its upward trajectory with travel enthusiasm flourishing. During the National Day holiday, a nationwide increase in travel activity was observed, further demonstrating the resilience of travel market. According to official government data, both the summer and National Day holidays recorded solid year-over-year growth in a number of domestic tourists indicating that travel is one of the key contributors to high-quality economic development. Heading into the fourth quarter, we remain committed to capitalizing on market opportunities, navigating challenges with agility and efficiency, and managing risks with discipline and prudence. We are dedicated to balancing market expansion and profitability, aiming for robust growth in both top line and bottom line. Looking ahead, we will unwaveringly focus on our Core OTA business. In this context, we will enhance user value and operational efficiency in our domestic business while actively expanding outbound business and strengthening our global market presence. Concurrently, we will continue expanding our presence across the travel industry, strategically advancing the development of our hotel management business to unlock more growth potential. Through this strategic initiative, we are posted to further solidify our industry-leading position, while maintaining sustainable growth and decent profitability, which we believe will deliver greater value to all stakeholders. With that, operator, we are ready to take questions now. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Qiuting Wang from CICC. Qiuting Wang: Congratulations on the solid performance. I have 2 questions regarding for your future growth engines. The first one is about international business, what is your expected growth rate in the following years? And what are the key growth drivers? And how will the company balance monetization rate and volume growth? And what is the better margin for next year? And the second one is about hotel management business, how many hotels are expected to be opened in the next 2 or 3 years? And what measures will be taken to effectively manage these hotels? And after the acquisition with Wanda Hotel Management, what will -- how will the company achieve synergy with your Core OTA business? Joyce Li: Thank you, Qiuting, for the questions. I will take these 2 questions. And the first is concerning our international business, mainly the outbound business, we would say that outbound business has been our growth driver for our Core OTA business right now. For our outbound accommodation business, we have continued to deepen the partnerships with global suppliers and strengthen our presence in regions levered by Chinese travelers. Destinations like Hong Kong, Macau and Asian regions continued to attract high demand and performed exceptionally well on our platform. Our outbound air ticketing business maintained a steady growth momentum. This has been supported by our competitive pricing strategy focused on expanding user mind share combined with a disciplined marketing approach aimed at maximizing efficiency and return on investment. These efforts positioning us well to capture the increasing demand and deepen our market presence in the outbound travel segment. In third quarter, our international air ticketing business accounted for around 6% of our total transportation ticketing revenue, representing nearly 2-percentage-point increase year-over-year. And in 2025, we introduced a margin improvement program for outbound business, as we mentioned, concentrating on marketing and promotional efficiency. As a result, our outbound business turned profitable in the third quarter. Looking ahead, we will continue to enhance our outbound travel offerings through strategic partnerships with the leading global OTAs, wholesalers, airlines and overseas TSPs. We plan to increase investments in research and development to improve service capabilities and ensure a seamless booking experience, but also exploring cross-selling opportunities from outbound air tickets to accommodation to drive further revenue and profit growth. In the next 2 to 3 years, expanded business volume and user base growth remains our key prioritized with a strong focus on profitability. We anticipate rapid growth in outbound segment, targeting a revenue contribution of 10% to 15%, making it a major growth driver with higher margins than our domestic business. Overall, we are on track for breakeven this year with international business poised to positive impact margins and become a significant revenue contributor in the future. And in terms of the hotel management business, as a comprehensive travel platform, we are dedicated to expanding our influence throughout industry trend to ensure sustainable growth. Hotels play a vital role in China's travel ecosystem and deepen our involvement in hotel management will further solidify our positioning in this travel industry. We have seen significant potential for our hotel management business to become our second growth driver, playing a vital role in our long-term strategy. Our objective is to become a key player in China's hotel industry by offering a diverse range of brands that create exceptional value for hotel owners and travelers like. In 2024, already ranked 8 in China's hotel group scale ranking, measured by the number of rooms in our hotel portfolio. In the last month, we have successfully completed the acquisition of Wanda Hotel Management company, and now we are progressing with the integration and transition. Wanda Hotel Management has a comprehensive portfolio in 9 major upscale hotel brands with strong marketing trends, as we mentioned. So together with eLong Hotel management platform, we are currently operating over 3,000 hotels. Given its stable and mature development as well as strong brand influence in the market, the Wanda brand will be retained. This will allow the brand to complement our existing hotel portfolio and strengthen our overall offerings. The core management team and the key staff of that company largely remain in place, continuing to oversee and execute strategic development and operations. From a financial perspective, as I mentioned, the hotel business we acquired has decent profitability. Although the acquisition impact only around 3 months this year, it is expected to contribute positively to our revenue and profit. We believe the acquisition will accelerate growth of our hotel management business, supporting further expansion and strengthening of the company. We are confident that our clear strategy road map and clear operational capabilities will drive long-term sustainable growth and create great value for all stakeholders. Operator: Our next question comes from the line of Yang Liu from Morgan Stanley. Yang Liu: Congratulations on the solid results. I have 2 questions here. The first is -- question is about the management's view on the future hotel ADR trend and also Tongcheng's take rates for hotels given that the recent high-frequency data suggest some improvement from the value chain, do you think this will translate to even better ADR trends for Tongcheng? And the second question is regarding the competition in domestic market, we noticed that certain peers announced a pretty good GMV data since the fourth quarter this year. Does there -- any bring -- any incremental competitive pressure to Tongcheng and that company need to fight back or need to do anything to retain its market position? Lei Fan: Liu, thank you for the question. For the hotel industry, actually, we mentioned a lot of times that the domestic ADR has largely stabilized year-on-year in quarter 3 and our domestic ADR already turned positive since quarter 2 and the trend continued in quarter 3. This great improvement is driven by 2 factors. The one is the recovery of the ADR across the industry. And the second is the shift in user behavior in our platform, as users increasingly prefer high-quality products, which has resulted in shift from 2-star hotel to 3-star or above hotel bookings in our platform. In quarter 3, the proportion of higher quality accommodation bookings on our platform increased meaningfully with more than 20% -- more than 20% growth in the room night sales. Given this trend, we expect that the growth in ADR will be a positive factor contributing to accommodation segment's revenue growth this year and also for the next few quarters. At the same time, we have adopted a more disciplined and targeted approach for user subsidies. This approach has also helped us to maintain our net take rate at a very decent level, ensuring a balanced focus on both expansion and the profitability. Our outstanding performance in accommodation business in the past few quarters demonstrated that the pricing pressures of the industry had a rather limited impact on our revenue as ADR on our platform remains relatively resilient, thanks to our extensive exposure in the mass market and our ability to swiftly seize market opportunities. So in the future, we think the trend of ADR improvement are still ongoing because there's a lot of space will be released for the high-quality hotel booking along with the user value and user maturity improved in our platform. In terms of the competition landscape, I think you will have, Joyce. Joyce Li: Thank you, Julian. In terms of competition landscape, as we mentioned a lot of times before, we believe established OTAs with deeper supply chains, user understanding and service capabilities maintain strong defensive moat. First, for the new entries in the OTA market, supply chain will be one of the major challenges for them. As a leading OTA with over 20 years of industry experience, we have an extensive hotel supply chain and deeply established relationships with TSPs. Efficiently managing hotels supplies requires complex systems and close communication with hotels, especially when handling the price fluctuation and room availability constraints. This strong supply chain advantages are difficult for new entries to replicate quickly. Secondly, purchase of travel product services tend to be relatively low frequency and involve longer, more complicated decision-making process. Therefore, converting users into paying customers in OTA space is particularly challenging, as it requires thorough understanding of users' preference and behaviors. And thirdly, our focus on OTAs on delivering superior service and user experience, heavily investing in innovative value-added products tailored to market demand, coupled with a dedicated customer service team, addressing user needs rapidly. These competitive ages are not easily matched by newcomers. Besides, we have upgraded our membership program to enhance user engagement by providing faster response to inquiries and allowing users to redeem their points as cash on our platform. These enhancements aim to boost purchase frequency and deepen user loyalty. The OTA market is complex and requires significant time, resources and experience to build sustainable competitive advantages. We expect near-term competition to remain relatively stable, and our current strategy continues to focus on improving operational efficiency with the profit expectations unchanged. So we remain vigilant to make adjustments as market dynamics evolve. Thank you. Operator: Our next question comes from the line of Brian Gong from Citi. Brian Gong: Congratulations on the solid results. Two questions. First, management just talked about ADR and wondering how should we think about room night growth in the first quarter and any initial color for next year? And the second question is our take rate on transportation has been persistently improving this year. But I heard that airline ticketing pricing has been under pressure. And it seems airline companies also lowered commission fees to some extent. Not sure if this will impact our transportation revenue growth ahead. Lei Fan: Thank you for the question, Brian. I would like to give you some color for the Q4 performance first and then provide more color on the transportation side from the airline companies. As mentioned throughout this year, the company remains focused on striking the balance between top line and bottom line as well as enhancing user value and ARPU. In quarter 4, actually, the margin improvement will remain our key priority, while we simultaneously pursue maximum growth and market share gains, both for accommodation and transportation. For accommodation business, we believe that the growth will be driven by both volume expansion and also the ADR improvement like what I imagined. Our volume is expected to continue outpacing the market growth. While our ADR will be benefited from the ongoing upgrade in hotel store mix driven by the shift in user preference like I mentioned in previous question. For transportation, actually, the ATV has already turned positive in quarter 3 because we monitor that there's more demand released in the long haul in the summer vacation and also the October holidays because the October holidays, we have 8 days holidays this year. So actually, for the industry, the ATV has already turned positive. And also the ATV has also turned positive in our platform as well. We don't have any pressure for the commission decrease from the airline companies. We don't have any information from that. For the fourth quarter, the transportation business volume growth will be still in line with the market. The market is only single digits. While the take rate still have some space to improve, driven by cross-sell and VS will continue to contribute the revenue growth. In the long run for the transportation business, actually, we will continue to emphasize innovation in our products and services to meet the diverse needs in our users during their travel journeys, thereby increasing the monetization of our transportation business. As our platform progresses towards becoming a fully integrated one-stop travel solution, we are starting to explore opportunities for cross-selling from long-haul transportation to a broader area of short-haul options with our Huixing and AI capabilities. Our goal is to develop comprehensive travel combo solutions that extend beyond selling individual tickets, which will help enhance the monetization capability and drive revenue growth in the future for our transportation segment. And in terms of the color for next year, actually, it's still too early to say because of the booking window is shortened lately. So we may give you more information on that, I think, in next call, February, March next year. I think that will be more accurate than now. So thank you for the questions. Operator: Our next question comes from the line of Wei Xiong from UBS. Wei Xiong: Congrats on the solid quarter. First, I want to ask about the margin trend. So after our encouraging effort to improve cost efficiency this year, how should we think about the room for margin expansion next year as well as the drivers behind? And second, just regarding AI because given the technology advancement, we do see investor discussion on the potential AI disruption to vertical platforms like OTA. So I want to get your latest thoughts on the topic as well as our strategy to navigate such potential risk. Lei Fan: Thank you for the question, Xiong. In terms of the margin expansion, actually, as we discussed, as always, our strategy for 2025 and beyond is to balance the revenue growth with profitability improvement. Margin improvement remains a key priority while we continue to pursue maximum growth and market share gains. In the second half of 2025, the quarter 3 and quarter 4, the net margins for both the company and our Core OTA business will improve year-over-year, mainly driven by gross margin expansion and operational leverage. The broad applications of AI have significantly improved automation and efficiency across customer service and tech development processes such as coding, further supporting our margin performance. Looking ahead, we still see a lot of room for our service development and G&A expenses ratio to trend down in second half of 2025 and 2026, as overall operating efficiency continues to improve. This efficiency gain will remain an important long-term driver of margin expansion, while on selling and marketing expenses in the second half of 2025, specifically, we expect the ratio to stay broadly stable compared with last year, since we have already realized savings in G&A and delivered solid margin improvement. We will maintain an appropriate level of marketing investment to support growth and strengthen our marketing position and to seek more market share and opportunities. That said, we will continue to strengthen our ROI and efficiency of sales and marketing spending over the long term to ensure sustainable margin improvement for our business in the next 2 to 3 years. So that is my comments on margin expansion. In terms of the AI, Joyce, please. Joyce Li: Sure. First of all I would say that the development of AI technology will largely benefit OTA like us. As we mentioned lot times before, we have remained dedicated to developing our technology, which has been instrumental in improving our operational efficiency and enhancing the user experience. I think DeepTrip is a vivid example of how we embrace this advancement of AI technology. And I would say that we have keep investing in the implement of DeepTrip's functionality and it has already overcome the limitation of traditional travel recommendations and delivers reliable and actionable insights to users. It offers ample access to a wide range of options on our platform and support seamless closed bookings. Moving forward, DeepTrip will continue to evolve through the generative updates to meet users' needs more effectively. And I think DeepTrip's benefits from our extensive resources, including a comprehensive portfolio of online travel products and services. While general purpose large models can generate travel guides, they offer less ability to match recommendations with actual real-time travel resources availability. DeepTrip provides a more practical and actionable solution by directly integrating Tongcheng products into the planning and booking process. Our strong connections and close relationships with supply end enable us to secure competitive pricing and high-quality products to satisfy diverse travel needs. And secondly, I think AI technology has helped improve our operational efficiency and reduce manual work. Julian also have touched on that. Currently, generative AI has reduced our coding workload by 20%. Generative AI also handles over 60% of our accommodation related to online consultations and more than 70% of Internet phone inquiries. It delivers improved accuracy and efficiency. We have made significant progress in integrating AI into our customer service operations, embedding AI robots across entire service process to lighten staff workload and shorten the response times. This enables our team to better understand user inquiries and provide timely, accurate answers, resulting in a 10% reduction in handling time. So we will continue investing in AI to deliver seamless, efficient service and foster long-term use loyalty. In parallel, AI will also help us identify new application scenarios, product innovations or traffic opportunities, supporting both revenue expansion and efficiency-driven profitability improvement in the future. Thank you. Operator: Our next question comes from the line of Thomas Chong from Jefferies. Thomas Chong: My question is about the impact coming from a recent Japan incident. And how is the latest market situation right now? And how does that affect the business performance, if any? Joyce Li: Thank you, Thomas. Currently, we expect that there will be slight impact on our business. But we strongly believe that people's devise for outbound travel remains very strong. So they will be willing to explore other destinations. And we believe for OTA users, it is quite easy for them to change the travel plan and destinations but the impact on the group tools of our tourism business may be a little more obvious, and we will closely monitor further policy developments and adjust our product mix and marketing strategies accordingly to mitigate the impact. Overall, we do not expect a material impact on our full year performance at this stage. Thank you. Operator: Thank you. There are no further questions at this time. So I'll hand the call back to Kylie for closing remarks. Kylie Yeung: Thank you. We are closing the call now. If you wish to check out our presentation and other financial information, please visit the section of our company website. Thank you, and see you next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Conversation: Justin Platt: Good morning, everybody. Thank you for joining us today. Welcome to the Marston's preliminary results for financial year '25. My name is Justin Platt, CEO. And with me, I have Stephen Hopson, our new Chief Financial Officer. We'll take you through our results today, and we'll do that with the following running order. I'll start with the headlines. Stephen will then share the financial results, and I'll then give some insight into the strategic progress we've been making through the year before wrapping up and taking any questions you might have. So the headlines, 2025 has been a very strong year for Marston's. It's been a year when we've been very focused on delivery, delivery of the strategy we outlined a year or so ago at the Capital Markets Day. And the results bear out that the strategy is working and driving real progress for us as a business, with profit before tax of GBP 72 million, that's year-on-year growth of 71%, and that's on top of the 65% growth we delivered a year ago. And that profit delivery has helped us drive cash flow. So cash flow at GBP 53 million. That's ahead of our GBP 50 million target, and it's also earlier than planned. Alongside that, it's really pleasing we've made great progress with our new pub formats, 31 launches this year. They're performing very strongly for us and driving big revenue uplifts. It's very clear now that these formats can be a significant growth engine for us in the future. And we've been doing all of that while giving our guests a great time. So record satisfaction scores with a reputation score at 816. So overall, a really good set of results, and it's a set of results that leave us feeling very positive in our outlook going forward. So that's the summary. I'll now hand over to Stephen, and he'll take you through the financials. Stephen Hopson: Thanks, Justin, and good morning, everyone. As Justin said, this is my first set of full year results at Marston's, and I joined the business at what is clearly an exciting time for Marston's. As these numbers show, we're making great progress and delivering against our goals with lots more to come. On my first slide, I'd like to begin by looking at some of the key group financial metrics. Total revenue was GBP 898 million, which showed growth of 1.6% on a like-for-like basis. EBITDA was up 7% to GBP 205 million, with the margin expanding by 140 basis points to 22.8%. That's been driven by good operational discipline, particularly on labor and controlling input costs alongside the revenue growth. As a result of the EBITDA growth and lower finance costs, PBT stepped on significantly. Underlying profit before tax was GBP 72 million, nearly 3x where we were just 2 years ago. And importantly, this has translated into stronger cash generation. Recurring free cash flow was GBP 53 million, which is up 22% year-on-year and ahead of our GBP 50 million recurring free cash flow target. Finally, we've made real progress on the balance sheet. Net debt has reduced from 5.2x, to 4.6x EBITDA as we continue to delever. So overall, excellent progress on both profit and cash. Turning now to look at our income statement in a bit more detail on the next slide. As I mentioned, FY '25 marked another year of substantial profit growth for Marston's with PBT up 71%. Reported revenue was flat, although this masks the impact of the FY 2024 disposal program, which I'll show on the next slide. I've already mentioned that EBITDA was up 6.5%, and that GBP 12.6 million of EBITDA improvement basically flowed through to operating profit, which was up 8.6% to GBP 159.9 million. Net finance costs were significantly lower year-on-year as a result of ongoing delevering and last year's CMBC disposal, leading to that very significant jump upwards in PBT. And whilst our effective tax rate increased, this simply reflects a return to the U.K.'s headline rate of corporation tax after a period of a lower rate. Together, this income statement shows a stronger and more profitable business with improved earnings quality and stronger margins. Turning to revenue performance. As I've already touched on, revenue for 2025 was GBP 898 million and was broadly flat year-on-year, but I would like to pick out 2 points on this chart. First, that the revenue includes a negative movement of about GBP 40 million in relation to the disposal of pubs over FY 2024 and 2025. To put the disposals into context, about GBP 50 million of assets were sold as part of the disposal program. So it's important to consider that impact when assessing year-on-year revenue progression. And the second point is that our like-for-like performance continues to be ahead of the market, which grew by 0.7% in the year, with positive contributions across all key categories of drink, food and machines. Turning now to look at margin. A key target for the group outlined at the CMD was to grow our underlying EBITDA margin by 200 to 300 basis points from FY '24 levels, giving a target range of 23.4% to 24.4%. And I'm pleased to say that this year, we've delivered 140 basis points of margin expansion, achieving total EBITDA margin of 22.8% in the year. Labor productivity gains were the single biggest contributor, supported by the rollout of improved scheduling tools, which Justin will cover in a bit more detail later on. The labor productivity benefits in the year were enough to fully offset the increases in the National Living Wage and National Insurance contributions, which came in from April 2025. We also saw benefits from improved food and drink margins, energy savings and other operational efficiencies. These gains were partially offset by inflationary pressures, including those employment cost increases that I mentioned and some investment in key areas, including more marketing. But overall, we've made real progress embedding cost discipline and delivering margin expansion across the business, and we feel that our EBITDA margins really do benchmark very well across the whole pub sector. We view ourselves as a high-margin local pub company, and we see further opportunity to increase the EBITDA margin in FY '26 as we move towards our CMD target. Turning now to look at capital expenditure. Total CapEx for the year was GBP 61.2 million, which is equivalent to 6.8% of revenue, and we're now approaching the 7% to 8% of revenue range that we talked about in the CMD. This is an increase from GBP 46.2 million last year, with the main driver being our pub format conversions, which I'll come back to shortly. Of this total, GBP 53.2 million was in maintenance and other CapEx deployed across our 1,300-strong pub estate. This includes works such as maintenance, estate management, investment in new IT platforms and other items. But I also want to pull out a bit more granular information on our pub format conversions, which are very important to our overall growth plans and which Justin will cover in more detail. In the year, we covered 31 conversions to our differentiated formats, which are delivering strong results. Average revenue uplifts were 23% year-on-year, and EBITDA returns are over 30% to date, in line with our CMD targets. At an average cost of GBP 260,000 a site, we believe these conversions represent excellent value for money. And of course, we've only completed a small number so far in comparison to our estate. So there's a lot more to go at in this space. Clearly, the driver of increasing our capital expenditure is to improve the quality of our estate. So let's turn to that now. On this slide, we show that we ended the year with 1,328 pubs following the continuation of our estate optimization strategy. This included a small number of disposals in the T&L estate as well as conversion of some pubs to the partner model. As a result, the managed and partnership estate consisted of 1,182 pubs and the T&L estate had 146 sites at the year-end. EBITDA per pub increased to GBP 154,000, which, as you can see, is a 28% improvement over the last 2 years. This uplift reflects both operational improvements and tighter estate management with gains in both, our managed and partnership estate and the remaining T&L pubs. The result is a higher-quality, better-performing pub estate that's delivering stronger returns at a site level. I think this is a really important slide as it shows how the improvements being made to the business model are feeding through at pub level. Turning now to our cash performance in the year, which was another highlight. The takeout from this slide is that we delivered and, in fact, exceeded our CMD target of GBP 50 million of recurring free cash flow ahead of schedule, with GBP 53.2 million delivered in the period. And how was that delivered? Well, cash from ops increased year-on-year by GBP 5.6 million, which included the improvements in EBITDA I described earlier. Within that number, we also had a GBP 6 million saving from lower contributions to our DB pension scheme. And offsetting that, we had a small working capital gain, but it wasn't as large as last year's gain. Finally, we started making cash tax payments again of GBP 5.3 million as our profits improved. And as a smaller side, investors and analysts should note that in FY '26, we expect to move into the very large company corporation tax regime, which will accelerate our cash tax payments this year. And then in the second line on the chart, we had a GBP 15 million saving on interest, offset by GBP 15 million more CapEx year-on-year, as I just described, together with lower banking fees. So recurring cash was strong and now over GBP 50 million, which we expect to be able to exceed again this year. I also wanted to draw out on this slide that this strong free cash flow is fully absorbed by scheduled debt repayments, GBP 43.8 million of securitized debt repayments and GBP 8.6 million of lease liabilities. Clearly, this does mean that the group is delevering, as I'll show on the next slide, but also that our cash generation is currently fully utilized. And then just to complete the chart, after other movements in borrowing and disposals, there was a cash outflow of GBP 9.6 million in the year. And I'm now going to return to that progress about delevering in the group. This slide shows the different elements of the group's financing structures and the overall movement in net debt year-on-year. So starting at the bottom, net debt, excluding lease liabilities, reduced by GBP 46.2 million, to GBP 837.5 million. This takes our net debt-to-EBITDA multiple, excluding leases, down to 4.6x from 5.2x last year. That continues the recent downward trend and reflects the group's stronger cash generation and disciplined approach to capital investment. And then to briefly cover what makes up our financing structures, the largest element shown at the top is the securitization, which provides long-term predictable financing for the group. It does also impose some restrictions, both in terms of the assets that are tied up in the securitization structure and in our ability to move assets and cash around the group. However, these restrictions are manageable at present. Swaps are in place to fix the interest that we pay on the securitized debt. Other lease-related borrowings are essentially loans that were raised against other properties in the group outside the securitization. They were legally structured as sale and leasebacks, but where we have the option to buy back the properties at the end of the period for a nominal fee. Therefore, we treat these properties as effective freehold. And as noted in the slide, we're currently paying interest only on those borrowings. And I've put a new slide in the appendices showing investors how those structures will work over coming years. Our GBP 200 million bank facility was renewed in the year and now extends to July 2027 with relatively low drawings at the year-end, and cash balances ended the year at GBP 35.9 million. So in summary, we're continuing to delever at pace while preserving the secure long-term funding arrangements in the group. If I then broaden this to look at the group's whole balance sheet rather than just the net debt elements, this slide shows the evolution of our balance sheet and our net asset value per share, which increased to GBP 1.25 this year. And actually, the movements year-on-year are pretty straightforward. Our balance sheet is underpinned by GBP 2.2 billion of property assets, of which 81% of the estate by number of pubs are effective freeholds. The net book value of those assets increased by over GBP 100 million in the year, reflecting our annual estate reval and also our ongoing investment into the business. Net debt, as I've just described, reduced GBP 837.5 million, excluding lease liabilities, and lease liabilities were GBP 5.5 million lower. So total net debt was GBP 51.7 million lower year-on-year. Other liabilities increased by GBP 28.4 million, almost entirely due to an increase of GBP 28.5 million in deferred tax liabilities relating to the upward property revaluation. So overall, the property reval with its associated tax movements as well as the net cash generation of the group, drove GBP 136 million increase in net assets, which was a 21% increase year-on-year, to GBP 791 million, which equates to GBP 1.25 per share. Given the progress made on the balance sheet, I want to finish by looking at our capital allocation framework. And if I start by saying that this is not a change to our capital allocation policy, which remains consistent with what we laid out at the CMD, we remain focused on delivering sustainable shareholder value through a disciplined balance of investment in the business, delevering and ultimately, shareholder returns. That said, there are a couple of updates we wanted to share this morning. On the right-hand side of the chart, you'll see our continued progress on leverage, which, as I mentioned, has reduced substantially. We are pleased with that progress, but would like to see leverage continue to decrease. And today, we're committing to reduce leverage to below 4x on a pre-IFRS 16 basis. When we get to that level, we anticipate the start of capital returns to shareholders through dividends, share buybacks or a combination of both. What that looks like will depend on circumstances at the time, including the share price and investor preferences. To be clear, we also expect to see the group continue to delever below 4x even after the recommencement of shareholder returns. We believe this disciplined approach continues to be the right strategy to create and sustain long-term value. So to conclude, we've delivered a strong financial performance this year with clear progress on margin, profit and cash flow, and we expect further progress this year. And before I hand back to Justin, I'll briefly touch on 5 forward-looking points. First, we remain confident in the trading outlook for FY '26 with like-for-like sales currently tracking in line with last year and Christmas bookings up 11%. Second, we expect further progress towards our margin target of 200 to 300 basis points of growth versus 2024 following the 140 basis point gain this year. Our format growth engine will be accelerated this year with at least a further 50 refurbishments and our CapEx is expected to be within the target range of 7% to 8% of total revenue. And after achieving our CMD target ahead of schedule this year, we expect to deliver another year of GBP 50 million in recurring free cash flow in FY '26. And lastly, we've significantly reduced our debt profile over the past couple of years and expect to continue to do so with leverage now at 4.6x and progressing well towards our sub-4x target. So overall, we're delivering against our targets, and we remain firmly on track to drive further financial and strategic progress in the year ahead. Thanks very much, and I'll now hand back to Justin. Justin Platt: Thank you, Stephen. So I'll now take you through the progress we've been making as we've implemented our strategy through the year. You will remember from the Capital Markets Day, we're very focused on being a high-margin, highly cash-generative local pub company. And we'll do that with a portfolio of brands that appeal across a range of consumer segments. 5 key value drivers that get us there: executing a market-leading operating model; using CapEx to deliver differentiated formats; unlocking value with digital transformation; expanding our excellent managed and partnership management models; and in time, supporting that with targeted acquisitions. So I'll now deep dive on each of those value drivers to give you a flavor of some of the work that we've been doing. The first one I will spend some time on is the operating model. Really, this is the bread and butter of running a great pub business. It's the balance of revenue growth, cost efficiency and guest satisfaction. So first of all, I'll talk to revenue. Really good momentum this year. We've continued to do well, especially in our peak trading periods. Across our peak trading periods, we're up almost 6% on the year. And that's enabled us to grow our like-for-likes ahead of the market at 1.6%. And a lot of what's behind that is our event plan. Our event plan has been a key thing for us this year. In 2025, Marston's Pubs have been home to a darts tournament led by Luke Humphries, the world #1. Paddington and his new movie joined us from Peru. We had a national Trivial Pursuit quiz event. And through the summer, when Oasis Mania was sweeping the U.K., we had a series of '90s throwback events with tribute bands and the like in our pub life. So all of these are designed to give people reasons to visit our pubs, a range of guest demographics. I think that's essential at any time of year, but especially so in the summer when, of course, this year, we had no big football tournament. So events are big success for us and an important driver in supporting our revenue growth. So secondly, on costs. As Stephen has shown you, we've made excellent progress during '25 on our journey to being a high-margin business in adding 140 basis points to our margin despite significant and well-known headwinds. And we've done this with a relentless drive for efficiency across all areas of our cost base. The biggest area of our cost base is labor, where we've saved almost GBP 10 million, a little bit more than 1 percentage point on our margin. And this has been about continually getting smarter with the way we use our technology to enhance and optimize our labor teams and our labor schedules, all about getting the right people in the right place at the right time. I think probably the best way to bring to life for you the work we've done on labor is to pick a case study of one of our pubs. The lady pictured on the right is Kati. She's one of our fantastic general managers. She runs the King Charles pub in Chesham, a lot of work with our labor planning this year. They've actually reduced their labor costs through the year by 8%. And despite doing that, they've grown their revenue by 19% and also grown their guest satisfaction well ahead of our company average. So a good example in the way labor is playing out for us in one of our pubs, but it also represents our approach across the company. So secondly, in terms of food and drink, our formats allow us to simplify the ranges we offer because we're a lot clearer about the demographic by format. And so that allows you to be clear which food offer and which drink offer you need by pub. So that's allowed us to simplify our range. That's helped us with efficiencies. But alongside that, we've also renegotiated our key food and drink contracts to drive efficiencies where we can. So that's labor and food and drink. Finally, energy and estates. Every pound counts on energy. We've been that way for a number of years now, whether it be the usage that we manage, but also the contracts, there's a relentless focus on attempting to drive efficiencies there. But as Stephen said, we take a very judicious approach to estates more broadly with our CapEx, looking at our maintenance cycles, spending strictly in maintenance cycles, and that helps us on efficiencies with our repairs budget. So overall, really good progress on the cost side of things. And then finally, on the operating model, guest satisfaction. I mean this is all about ensuring that when our guests come and see us, they have a great time. And it's very pleasing in the context of the efficiency gains I've just talked to that we're still delivering better and better experiences through our guests. So from a score of 766 in '23 to 800 last year, 816 this year is a very pleasing performance. And this really is a combination of many of the initiatives coming together, whether it be our events program, and the visual there is of our Oktoberfest event that we run during September, whether it be through digital ordering or some of the menu enhancements we've made. All of these things together add up to make a difference to the guest experience. It's worth saying, though, that the #1 factor that dominates, that really drives a great guest experience is, really strong guest service. That requires almost an obsession, a relentless obsession with getting that right day in, day out. And the work on that is never done. Our teams are very focused on delivering that experience all the way through the year. And as I say, it's pleasing that this year, we've been able to continually improve on that. So that's the operating model. When you take revenue, cost, satisfaction together, it's good that we've made strong progress across the piece. And this has been complemented with the work we've done on the digital transformation value driver. I think a key example of this would be the new order and pay app that we launched in March. Really well received. It's paying dividends with our guests in terms of both revenue and reputation, and it's complementing the personal service for those guests who want it. So we've got a 10% revenue uplift when using the app. And those pubs with a higher mix of order and pay usage do significantly better on reputation. What's also good about the app is it can work hand-in-hand with our events. So the Trivial Pursuit: Win a Wedge event drove a big uptake in the use of the app. So good progress overall on this area, digital, but a lot more opportunity here in the future as digital transformation can help us both on revenue and on cost. The third value driver I want to focus on is our new pub formats. So against 5 core consumer target segments across the market, we've designed 5 pub formats that are specifically designed to meet the needs of those target audiences. And through a series of test and learn launches in '25, we've been assessing the potential of these pubs to drive appeal and importantly, drive powerful CapEx returns. Now in May, I did a deep dive on the Two-Door format. So I thought this time around, we'd share some more information on the Grandstand brand. Grandstand is a local sports pub. So it targets adults who want an entertainment experience when they go to their local pub. I mean this is an absolute sports lover's dream. It's similar to a city center sports bar environment, but in the local community pub. Number of constituent parts to it. At its heart, state-of-the-art technology ensures that we've got 3-meter stadium screens, amazing sound systems. Alongside that, there's great match-day food suited to watching the big game. And these pubs will always be run by sports enthusiast general managers who know what their guests want and can work with them to give them a great experience. It's an absolute must visit for the big game, the atmosphere that we create. But more than that, because it's a local pub and it's a great environment, it's a place that you would want to go to on any night of the week, and we support that with a program of sports events through the week to give people reasons to come every night. So Grandstand has done really well this year. The guest reaction and the returns that we've had have been very, very impressive, and it's been a key part of our test and learn year. And test and learn overall this year has exceeded our expectations. We've done 31 launches through the year. So we did 21 Two Doors, 5 Grandstand and 5 Woodie's. Woodie's is our new family pub. All have done well. Guests love them. They've driven strong uplifts in revenue of 23% and all of that off relatively modest levels of CapEx. We've been driving ROIC of more than 30% on only GBP 260,000 per pub. So the test and learn phase really has proven the potential of this stream for us, real growth opportunity as we roll out across the estate. And all of our pubs have been mapped to the format opportunity they can play to over time. So over time, this really does give us an opportunity as a significant driver of growth. So great progress across our value drivers in '25, and this leaves us feeling very positive as we look towards 2026. Through this year, we'll have a big program of exciting events, all designed to encourage guests to come and visit us, not least with a big football tournament on the horizon that everybody will be very much focused on in the summer. And we'll complement that with our revenue management and order and pay disciplines to drive spend per guest. But alongside the demand drive, as I've just said, our new formats will play an increasingly important role in driving growth through the year. Given our success in '25, we're now accelerating the rollout plan. We'll have 50 or so launches focused on Two Door and Grandstand, and all of these will make a meaningful difference to both revenue and EBITDA performance through the year. So to summarize, another year of strong delivery in '25, significant growth in both profit and cash flow. We're very excited by the growth potential of our new formats, and we see a very promising outlook for the year ahead as we continue to deliver as a reliable growth company. And with that, we can now take some time for questions. Operator: [Operator Instructions]. The first question we have comes from Douglas Jack of Peel Hunt. Harold Jack: So I've got 2 questions, if that's okay. In terms of the new formats in 2026, is the choice of Grandstand and Two Door largely because they're the ones that have the greatest uplift potentially, adding to the number of reasons to visit, I think, obviously, they've got quite a lot of opportunity there. And then the second one was about margins. In 2026, what are the best margin opportunities do you see over this year? Justin Platt: Thanks for your questions. I'll take the first one on formats and then, Stephen, if you want to come to margins. In terms of choices, as you know, we were very clear to have the plank of a test and learn phase first to guide our implementation. So the primary choice is certainty of return in the sense that Two Door and Grandstand both launched earlier in the year last year than Woodie's, which allowed us to get more data on those through the year. Most of the Woodie's launches came sort of the summer onwards. So whilst all are performing well, we've just got longer data on the other 2. The other attraction, of course, with Grandstand is you absolutely want a bigger footprint of those pubs in the market in a year with the World Cup, which we've certainly got an eye on. But really, it's about certainty of returns, Doug. Stephen Hopson: And Doug, on your question on margins, I mean, yes, look, we've made really good progress in 2025. I think we do expect EBITDA margins to increase in 2026, but not to the same extent as 140 basis points we did in 2025. I mean I think the best opportunities for me, so there's a bit of flow-through stuff. So we made really good progress on labor. And Some of those things didn't come through until the second half last year. And so I think some of them will help H1 2026. And also, that is a continuing journey for us. So matching right people, right place, matching demand with supply of labor is something that we're going to be relentlessly focused on going forward. That may come through in terms of reduced cost. It may come through in terms of better customer service and therefore, improved sales, but I think there will be some upside from that. And then I think on gross margins, I mean, we've got pretty good visibility of both food and drink cost prices moving into next year. We're lock in quite a few contracts on that quite early. And I think, therefore, that gives us certainty on those lines. We'll continue the journey on things like revenue management and upselling and so on, and it should be an opportunity to move that further forward as well. Operator: The next question we have comes from Karan Puri of JPMorgan. Karan Puri: I've got 2 quick ones. One, on the 1.6% like-for-like momentum in '25. Just wondering if you could provide a split between pricing and volumes, number one. And number two, just coming back on the cash tax payment in '26. I know it's going to be higher than 2025, but in terms of magnitude, if you could share a bit more on that front would be helpful. Justin Platt: So I'll start with the like-for-likes. As we said in the release, food, drink and machines were all in growth, and that's a mix across them. As you'd expect in that, revenue management has played an important part for us and will continue to do so, particularly actually the premiumization as consumers are upgrading to more premium beers and also adding and upgrading on the menu. And then the second one, Stephen? Stephen Hopson: Yes, the cash tax. So yes, you're right. We flagged that it would increase. Last year, the cash tax payments were GBP 5.3 million. That will approximately double next year, to about GBP 10 million, Karan. So that's about the extent of it. We are still using some losses from previous trading period. So the cash tax is still relatively low, but it will be about GBP 10 million in FY '26. Karan Puri: Perfect. And then just a quick follow-up on that one. So do we -- can we expect it to be sort of normalized cash tax starting in 2027? Or will you still benefit from some loss in the previous period there as well? Stephen Hopson: Yes. 2027 will still be a little bit low. And then from 2028, it will go back to normalized levels. So it will be a step-up in 2027, but it won't be up to normalized levels, yes. And then from 2028, you should expect normalized levels of cash tax. Operator: [Operator Instructions]. The next question we have comes from Anna Barnfather of Panmure Liberum. Anna Barnfather: Just a couple of questions. Firstly, on the reformats, you've mentioned sort of acceleration sort of 50. Could you update us on your thinking of what proportion of the estate at this stage you think could benefit from a reallocation into 1 of the 5 formats? So how many of your sort of 1,300 pubs? And have you only done managed or have you done partnership ones as well? The second question, I was just thinking about the sort of peak trading. Obviously, you're doing really well in those big events, with peak trading periods up 5.8%. Are you tempted to sort of reduce opening hours on the sort of nonevent days? Or is there any sort of thinking on that as a way to cut down on overheads? And then just third question on the revenue mix. I think obviously, higher margins and gross margins, can you just give us a bit more color on perhaps some of the shifts in your sales mix? Justin Platt: Thanks, Anna. I'll take the first 2 and then Stephen, if you could take the third one. Let me start on peak trading, and then I'll come back to formats. We do look at our hours on a regular basis, but there's not a massive need to start big closure periods by any means. I mean one of the things that's most notable in pub trading today certainly versus 5 years ago is the growth of the early evening at the expense of the late evening. So if you look at booking patterns now, peak time for a table, the busiest time to get a table is 6:30 to 7:00. You go back 5 years, that was more like 8:00. So there's definitely an earlier day point to your business. And we do look at hours, but I don't think there's anything significant there in cost, particularly the local community environment where people are around the corner from their houses quite a lot. On the formats. So first of all, yes, we've actively launched formats across our managed and our partner estate, and they're performing equally well in each, neither is a differentiator actually in terms of performance, but they do work across both managed and partner. And then in terms of the numbers, as we showed earlier, 5 formats. The 2 that we didn't deep dive on were locals pubs and adult dining, signature pubs. Both of those, we have some of them in market already. I would say in terms of the opportunity, it's probably the locals pubs is the only bit that we wouldn't see as a sort of significant ROIC north of 30% opportunity, which probably takes you to 75% or so of our estate with the opportunity for those new formats. Stephen Hopson: And then, Anna, on the revenue mix, I mean, we're about 35% food in our business overall, but there is a big variation in that, as you'd expect between format and some of those local pubs versus, for example, our adult dining business, which is very, very different. And that has been growing. I mean, clearly, food across the market really has been growing quicker than drink over a period of time, but it's not huge. I mean that number has probably changed by 0.5% year-on-year. So it's not a huge mix. So hopefully, it gives you some idea about the sort of the food and drink pub. Operator: [Operator Instructions]. The next question we have comes from Fintan Ryan of Goodbody. Fintan Ryan: Two questions from me, please. Firstly, can you give us a sense of what your sort of base case expectations are for the budget tomorrow in terms of, I guess, labor costs, anything that you might be expecting or hoping for business rates. Just to sort of get a sense of what the base case is for the outlook currently and maybe what can change within the next 24-odd hours. And then secondly, could you give some color on like like-for-like trading in Q4 and over the last 8 weeks, obviously, you reported flat like-for-likes. How much -- what's been sort of the volume versus pricing split in that? Can you give some color on the visibility for the Christmas trading? Obviously, you've got bookings up 11% year-on-year, but like typically how much of bookings are -- of your Christmas trading are bookings? And what you'd be at this point, assuming for incremental pricing for FY -- for the calendar '26, would be great. Stephen Hopson: Thanks, Fintan. If I start on, I guess, the hot topic of the day and tomorrow, which is the budget and expectations for that. I mean, our base expectations and sort of what's embedded into the guidance that we've given to the market is that we expect National Living Wage to increase, obviously. Our expectations are about a 4% increase in the headline rate of National Living Wage, and we're expecting the differential for under 21-year-olds to close slightly compared to where it is at the moment. We're not expecting any further changes to things like National Insurance. And then really, I know there have been lots of stories in the press, but at the moment, we're not making any expectations on changes for things like machine, gaming duty or business rates either. I mean the Chancellor has flagged that there'll be a review of the way business rates is levied. So that will be interesting to see. But we're not making any assumption on that because simply, we just don't have the information available to us at this point. Justin Platt: And before I answer the like-for-like, Fintan, if you've got any assumptions on the budget tomorrow, please share them with the group. In terms of the like-for-likes, look, as you know, quarter 1 is all about Christmas. October and November are relatively small months in the grand scheme of things. December performance is really what matters. And within that, it's the key 2 weeks from kind of 19th of December until 2nd of January, quite time, tight time. And bookings pace, as we've said, is very good at 11%, and that's off the back of last year. I think we grew Christmas at about 11% last year in like-for-like terms. So it's pleasing the stage we're at. But to your point, walk-ins are also important at Christmas. So we've still got a lot of work to do in order to land that. And that's both in encouraging people to spend their Christmas with us but also then in managing spend per guest, so we drive the revenue return as well. Fintan Ryan: Great. And just in terms of the pricing and current expectations? Justin Platt: Well, again, we -- as you know, we don't -- we kind of manage price through the year in a broader revenue basis. So in terms of our revenue management initiatives around booking density, around premiumization. And yes, lead price is part of that mix, but we don't have like a hard and fast target. It's overall spend per that we look at. Operator: Ladies and gentlemen, at this stage, there are no further questions. I would now like to hand back to the management team for closing comments. Justin Platt: Well, just to say, thanks, everybody, for joining us. Really good engagement. Obviously, we'll all see what comes tomorrow. And I'll wish you an early best wishes for the festive season. Thank you. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines. Justin Platt: Good morning, everybody. Thank you for joining us today. Welcome to the Marston's preliminary results for financial year '25. My name is Justin Platt, CEO. And with me, I have Stephen Hopson, our new Chief Financial Officer. We'll take you through our results today, and we'll do that with the following running order. I'll start with the headlines. Stephen will then share the financial results, and I'll then give some insight into the strategic progress we've been making through the year before wrapping up and taking any questions you might have. So the headlines. 2025 has been a very strong year for Marston's. It's been a year when we've been very focused on delivery, delivery of the strategy we outlined a year or so ago at the Capital Markets Day. And the results bear out that the strategy is working and driving real progress for us as a business, with profit before tax of GBP 72 million, that's year-on-year growth of 71%, and that's on top of the 65% growth we delivered a year ago. And that profit delivery has helped us drive cash flow. So cash flow at GBP 53 million. That's ahead of our GBP 50 million target, and it's also earlier than planned. Alongside that, it's really pleasing we've made great progress with our new pub formats, 31 launches this year. They're performing very strongly for us and driving big revenue uplifts. It's very clear now that these formats can be a significant growth engine for us in the future. And we've been doing all of that while giving our guests a great time. So record satisfaction scores with a reputation score at 816. So overall, a really good set of results, and it's a set of results that leave us feeling very positive in our outlook going forward. So that's the summary. I'll now hand over to Stephen, and he'll take you through the financials. Stephen Hopson: Thanks, Justin, and good morning, everyone. As Justin said, this is my first set of full year results at Marston's, and I joined the business at what is clearly an exciting time for Marston's. As these numbers show, we're making great progress and delivering against our goals with lots more to come. On my first slide, I'd like to begin by looking at some of the key group financial metrics. Total revenue was GBP 898 million, which showed growth of 1.6% on a like-for-like basis. EBITDA was up 7% to GBP 205 million, with the margin expanding by 140 basis points to 22.8%. That's been driven by good operational discipline, particularly on labor and controlling input costs alongside the revenue growth. As a result of the EBITDA growth and lower finance costs, PBT stepped on significantly. Underlying profit before tax was GBP 72 million, nearly 3x where we were just 2 years ago. And importantly, this has translated into stronger cash generation. Recurring free cash flow was GBP 53 million, which is up 22% year-on-year and ahead of our GBP 50 million recurring free cash flow target. Finally, we've made real progress on the balance sheet. Net debt has reduced from 5.2x to 4.6x EBITDA as we continue to delever. So overall, excellent progress on both profit and cash. Turning now to look at our income statement in a bit more detail on the next slide. As I mentioned, FY '25 marked another year of substantial profit growth for Marston's with PBT up 71%. Reported revenue was flat, although this masks the impact of the FY 2024 disposal program, which I'll show on the next slide. I've already mentioned that EBITDA was up 6.5%, and that GBP 12.6 million of EBITDA improvement basically flowed through to operating profit, which was up 8.6% to GBP 159.9 million. Net finance costs were significantly lower year-on-year as a result of ongoing delevering and last year's CMBC disposal, leading to that very significant jump upwards in PBT. And whilst our effective tax rate increased, this simply reflects a return to the U.K.'s headline rate of corporation tax after a period of a lower rate. Together, this income statement shows a stronger and more profitable business with improved earnings quality and stronger margins. Turning to revenue performance. As I've already touched on, revenue for 2025 was GBP 898 million and was broadly flat year-on-year, but I would like to pick out 2 points on this chart. First, that the revenue includes a negative movement of about GBP 40 million in relation to the disposal of pubs over FY 2024 and 2025. To put the disposals into context, about GBP 50 million of assets were sold as part of the disposal program. So it's important to consider that impact when assessing year-on-year revenue progression. And the second point is that our like-for-like performance continues to be ahead of the market, which grew by 0.7% in the year, with positive contributions across all key categories of drink, food and machines. Turning now to look at margin. A key target for the group outlined at the CMD was to grow our underlying EBITDA margin by 200 to 300 basis points from FY '24 levels, giving a target range of 23.4% to 24.4%. And I'm pleased to say that this year, we've delivered 140 basis points of margin expansion, achieving total EBITDA margin of 22.8% in the year. Labor productivity gains were the single biggest contributor, supported by the rollout of improved scheduling tools, which Justin will cover in a bit more detail later on. The labor productivity benefits in the year were enough to fully offset the increases in the National Living Wage and National Insurance contributions, which came in from April 2025. We also saw benefits from improved food and drink margins, energy savings and other operational efficiencies. These gains were partially offset by inflationary pressures, including those employment cost increases that I mentioned and some investment in key areas, including more marketing. But overall, we've made real progress embedding cost discipline and delivering margin expansion across the business, and we feel that our EBITDA margins really do benchmark very well across the whole pub sector. We view ourselves as a high-margin local pub company, and we see further opportunity to increase the EBITDA margin in FY '26 as we move towards our CMD target. Turning now to look at capital expenditure. Total CapEx for the year was GBP 61.2 million, which is equivalent to 6.8% of revenue, and we're now approaching the 7% to 8% of revenue range that we talked about in the CMD. This is an increase from GBP 46.2 million last year, with the main driver being our pub format conversions, which I'll come back to shortly. Of this total, GBP 53.2 million was in maintenance and other CapEx deployed across our 1,300 strong pub estate. This includes works such as maintenance, estate management, investment in new IT platforms and other items. But I also want to pull out a bit more granular information on our pub format conversions, which are very important to our overall growth plans and which Justin will cover in more detail. In the year, we covered 31 conversions to our differentiated formats, which are delivering strong results. Average revenue uplifts were 23% year-on-year and EBITDA returns are over 30% to date, in line with our CMD targets. At an average cost of GBP 260,000 a site, we believe these conversions represent excellent value for money. And of course, we've only completed a small number so far in comparison to our estate. So there's a lot more to go at in this space. Clearly, the driver of increasing our capital expenditure is to improve the quality of our estate. So let's turn to that now. On this slide, we show that we ended the year with 1,328 pubs following the continuation of our estate optimization strategy. This included a small number of disposals in the T&L estate as well as conversion of some pubs to the partner model. As a result, the managed and partnership estate consisted of 1,182 pubs and the T&L estate had 146 sites at the year-end. EBITDA per pub increased to GBP 154,000, which, as you can see, is a 28% improvement over the last 2 years. This uplift reflects both operational improvements and tighter estate management with gains in both, our managed and partnership estate and the remaining T&L pubs. The result is a higher-quality, better-performing pub estate that's delivering stronger returns at a site level. I think this is a really important slide as it shows how the improvements being made to the business model are feeding through at pub level. Turning now to our cash performance in the year, which was another highlight. The takeout from this slide is that we delivered and, in fact, exceeded our CMD target of GBP 50 million of recurring free cash flow ahead of schedule, with GBP 53.2 million delivered in the period. And how was that delivered? Well, cash from ops increased year-on-year by GBP 5.6 million, which included the improvements in EBITDA I described earlier. Within that number, we also had a GBP 6 million saving from lower contributions to our DB pension scheme. And offsetting that, we had a small working capital gain, but it wasn't as large as last year's gain. Finally, we started making cash tax payments again of GBP 5.3 million as our profits improved. And as a smaller side, investors and analysts should note that in FY '26, we expect to move into the very large company corporation tax regime, which will accelerate our cash tax payments this year. And then in the second line on the chart, we had a GBP 15 million saving on interest, offset by GBP 15 million more CapEx year-on-year, as I just described, together with lower banking fees. So recurring cash was strong and now over GBP 50 million, which we expect to be able to exceed again this year. I also wanted to draw out on this slide that this strong free cash flow is fully absorbed by scheduled debt repayments, GBP 43.8 million of securitized debt repayments and GBP 8.6 million of lease liabilities. Clearly, this does mean that the group is delevering, as I'll show on the next slide, but also that our cash generation is currently fully utilized. And then just to complete the chart, after other movements in borrowing and disposals, there was a cash outflow of GBP 9.6 million in the year. And I'm now going to return to that progress about delevering in the group. This slide shows the different elements of the group's financing structures and the overall movement in net debt year-on-year. So starting at the bottom, net debt, excluding lease liabilities, reduced by GBP 46.2 million, to GBP 837.5 million. This takes our net debt-to-EBITDA multiple, excluding leases, down to 4.6x from 5.2x last year. That continues the recent downward trend and reflects the group's stronger cash generation and disciplined approach to capital investment. And then to briefly cover what makes up our financing structures, the largest element shown at the top is the securitization, which provides long-term predictable financing for the group. It does also impose some restrictions, both in terms of the assets that are tied up in the securitization structure and in our ability to move assets and cash around the group. However, these restrictions are manageable at present. Swaps are in place to fix the interest that we pay on the securitized debt. Other lease-related borrowings are essentially loans that were raised against other properties in the group outside the securitization. They were legally structured as sale and leasebacks, but where we have the option to buy back the properties at the end of the period for a nominal fee. Therefore, we treat these properties as effective freehold. And as noted in the slide, we're currently paying interest only on those borrowings. And I've put a new slide in the appendices showing investors how those structures will work over coming years. Our GBP 200 million bank facility was renewed in the year and now extends to July 2027 with relatively low drawings at the year-end, and cash balances ended the year at GBP 35.9 million. So in summary, we're continuing to delever at pace while preserving the secure long-term funding arrangements in the group. If I then broaden this to look at the group's whole balance sheet rather than just the net debt elements, this slide shows the evolution of our balance sheet and our net asset value per share, which increased to GBP 1.25 this year. And actually, the movements year-on-year are pretty straightforward. Our balance sheet is underpinned by GBP 2.2 billion of property assets, of which 81% of the estate by number of pubs are effective freeholds. The net book value of those assets increased by over GBP 100 million in the year, reflecting our annual estate reval and also our ongoing investment into the business. Net debt, as I've just described, reduced GBP 837.5 million, excluding lease liabilities, and lease liabilities were GBP 5.5 million lower. So total net debt was GBP 51.7 million lower year-on-year. Other liabilities increased by GBP 28.4 million, almost entirely due to an increase of GBP 28.5 million in deferred tax liabilities relating to the upward property revaluation. So overall, the property reval with its associated tax movements as well as the net cash generation of the group drove GBP 136 million increase in net assets, which was a 21% increase year-on-year, to GBP 791 million, which equates to GBP 1.25 per share. Given the progress made on the balance sheet, I want to finish by looking at our capital allocation framework. And if I start by saying that this is not a change to our capital allocation policy, which remains consistent with what we laid out at the CMD, we remain focused on delivering sustainable shareholder value through a disciplined balance of investment in the business, delevering and ultimately, shareholder returns. That said, there are a couple of updates we wanted to share this morning. On the right-hand side of the chart, you'll see our continued progress on leverage, which, as I mentioned, has reduced substantially. We are pleased with that progress, but would like to see leverage continue to decrease. And today, we're committing to reduce leverage to below 4x on a pre-IFRS 16 basis. When we get to that level, we anticipate the start of capital returns to shareholders through dividends, share buybacks or a combination of both. What that looks like will depend on circumstances at the time, including the share price and investor preferences. To be clear, we also expect to see the group continue to delever below 4x even after the recommencement of shareholder returns. We believe this disciplined approach continues to be the right strategy to create and sustain long-term value. So to conclude, we've delivered a strong financial performance this year with clear progress on margin, profit and cash flow, and we expect further progress this year. And before I hand back to Justin, I'll briefly touch on 5 forward-looking points. First, we remain confident in the trading outlook for FY '26 with like-for-like sales currently tracking in line with last year and Christmas bookings up 11%. Second, we expect further progress towards our margin target of 200 to 300 basis points of growth versus 2024 following the 140 basis point gain this year. Our format growth engine will be accelerated this year with at least a further 50 refurbishments and our CapEx is expected to be within the target range of 7% to 8% of total revenue. And after achieving our CMD target ahead of schedule this year, we expect to deliver another year of GBP 50 million in recurring free cash flow in FY '26. And lastly, we've significantly reduced our debt profile over the past couple of years and expect to continue to do so with leverage now at 4.6x and progressing well towards our sub-4x target. So overall, we're delivering against our targets, and we remain firmly on track to drive further financial and strategic progress in the year ahead. Thanks very much, and I'll now hand back to Justin. Justin Platt: Thank you, Stephen. So I'll now take you through the progress we've been making as we've implemented our strategy through the year. You will remember from the Capital Markets Day, we're very focused on being a high-margin highly cash-generative local pub company. And we'll do that with a portfolio of brands that appeal across a range of consumer segments. 5 key value drivers that get us there: executing a market-leading operating model; using CapEx to deliver differentiated formats; unlocking value with digital transformation; expanding our excellent managed and partnership management models; and in time, supporting that with targeted acquisitions. So I'll now deep dive on each of those value drivers to give you a flavor of some of the work that we've been doing. The first one I will spend some time on is the operating model. Really, this is the bread and butter of running a great pub business. It's the balance of revenue growth, cost efficiency and guest satisfaction. So first of all, I'll talk to revenue. Really good momentum this year. We've continued to do well, especially in our peak trading periods. Across our peak trading periods, we're up almost 6% on the year. And that's enabled us to grow our like-for-likes ahead of the market at 1.6%. And a lot of what's behind that is our event plan. Our event plan has been a key thing for us this year. In 2025, Marston's Pubs have been home to a darts tournament led by Luke Humphries, the world #1. Paddington and his new movie joined us from Peru. We had a national Trivial Pursuit quiz event. And through the summer, when Oasis Mania was sweeping the U.K., we had a series of '90s throwback events with tribute [ bans/bands ] and the like in our pub life. So all of these are designed to give people reasons to visit our pubs, a range of guest demographics. I think that's essential at any time of year, but especially so in the summer when, of course, this year, we had no big football tournament. So events are big success for us and an important driver in supporting our revenue growth. So secondly, on costs. As Stephen has shown you, we've made excellent progress during '25 on our journey to being a high-margin business in adding 140 basis points to our margin despite significant and well-known headwinds. And we've done this with a relentless drive for efficiency across all areas of our cost base. The biggest area of our cost base is labor, where we've saved almost GBP 10 million, a little bit more than 1 percentage point on our margin. And this has been about continually getting smarter with the way we use our technology to enhance and optimize our labor teams and our labor schedules, all about getting the right people in the right place at the right time. I think probably the best way to bring to life for you the work we've done on labor is to pick a case study of one of our pubs. The lady pictured on the right is Kati. She's one of our fantastic general managers. She runs the King Charles pub in Chesham, a lot of work with our labor planning this year. They've actually reduced their labor costs through the year by 8%. And despite doing that, they've grown their revenue by 19% and also grown their guest satisfaction well ahead of our company average. So a good example in the way labor is playing out for us in one of our pubs, but it also represents our approach across the company. So secondly, in terms of food and drink, our formats allow us to simplify the ranges we offer because we're a lot clearer about the demographic by format. And so that allows you to be clear which food offer and which drink offer you need by pub. So that's allowed us to simplify our range. That's helped us with efficiencies. But alongside that, we've also renegotiated our key food and drink contracts to drive efficiencies where we can. So that's labor and food and drink. Finally, energy and states. Every pound counts on energy. We've been that way for a number of years now, whether it be the usage that we manage, but also the contracts, there's a relentless focus on attempting to drive efficiencies there. But as Stephen said, we take a very judicious approach to estates more broadly with our CapEx, looking at our maintenance cycles, spending strictly in maintenance cycles, and that helps us on efficiencies with our repairs budget. So overall, really good progress on the cost side of things. And then finally, on the operating model, guest satisfaction. I mean this is all about ensuring that when our guests come and see us, they have a great time. And it's very pleasing in the context of the efficiency gains I've just talked to that we're still delivering better and better experiences through our guests. So from a score of 766 in '23 to 800 last year, 816 this year is a very pleasing performance. And this really is a combination of many of the initiatives coming together, whether it be our events program, and the visual there is of our October Fest event that we run during September, whether it be through digital ordering or some of the menu enhancements we've made. All of these things together add up to make a difference to the guest experience. It's worth saying, though, that the #1 factor that dominates, that really drives a great guest experience is, really strong guest service. That requires almost an obsession, a relentless obsession with getting that right day in, day out. And the work on that is never done. Our teams are very focused on delivering that experience all the way through the year. And as I say, it's pleasing that this year, we've been able to continually improve on that. So that's the operating model. When you take revenue, cost, satisfaction together, it's good that we've made strong progress across the piece. And this has been complemented with the work we've done on the digital transformation value driver. I think a key example of this would be the new order and pay app that we launched in March. Really well received. It's paying dividends with our guests in terms of both revenue and reputation, and it's complementing the personal service for those guests who want it. So we've got a 10% revenue uplift when using the app. And those pubs with a higher mix of order and pay usage do significantly better on reputation. What's also good about the app is it can work hand-in-hand with our events. So the Trivial Pursuit: Win a Wedge event drove a big uptake in the use of the app. So good progress overall on this area, digital, but a lot more opportunity here in the future as digital transformation can help us both on revenue and on cost. The third value driver I want to focus on is our new pub formats. So against 5 core consumer target segments across the market, we've designed 5 pub formats that are specifically designed to meet the needs of those target audiences. And through a series of test and learn launches in '25, we've been assessing the potential of these pubs to drive appeal and importantly, drive powerful CapEx returns. Now in May, I did a deep dive on the Two-Door format. So I thought this time around, we'd share some more information on the Grandstand brand. Grandstand is a local sports pub. So it targets adults who want an entertainment experience when they go to their local pub. I mean this is an absolute sports lover's dream. It's similar to a city center sports bar environment, but in the local community pub. Number of constituent parts to it. At its heart, state-of-the-art technology ensures that we've got 3-meter stadium screens, amazing sound systems. Alongside that, there's great match-day food suited to watching the big game. And these pubs will always be run by sports enthusiast general managers who know what their guests want and can work with them to give them a great experience. It's an absolute must visit for the big game, the atmosphere that we create. But more than that, because it's a local pub and it's a great environment, it's a place that you would want to go to on any night of the week, and we support that with a program of sports events through the week to give people reasons to come every night. So Grandstand has done really well this year. The guest reaction and the returns that we've had have been very, very impressive, and it's been a key part of our test and learn year. And test and learn overall this year has exceeded our expectations. We've done 31 launches through the year. So we did 21 Two Doors, 5 Grandstand and 5 Woodie's. Woodie's is our new family pub. All have done well. Guests love them. They've driven strong uplifts in revenue of 23% and all of that off relatively modest levels of CapEx. We've been driving ROIC of more than 30% of only GBP 260,000 per pub. So the test and learn phase really has proven the potential of this stream for us, real growth opportunity as we roll out across the estate. And all of our pubs have been mapped to the format opportunity they can play to over time. So over time, this really does give us an opportunity as a significant driver of growth. So great progress across our value drivers in '25, and this leaves us feeling very positive as we look towards 2026. Through this year, we'll have a big program of exciting events, all designed to encourage guests to come and visit us, not least with a big football tournament on the horizon that everybody will be very much focused on in the summer. And we'll complement that with our revenue management and order and pay disciplines to drive spend per guest. But alongside the demand drive, as I've just said, our new formats will play an increasingly important role in driving growth through the year. Given our success in '25, we're now accelerating the rollout plan. We'll have 50 or so launches focused on Two Door and Grandstand, and all of these will make a meaningful difference to both revenue and EBITDA performance through the year. So to summarize, another year of strong delivery in '25, significant growth in both profit and cash flow. We're very excited by the growth potential of our new formats, and we see a very promising outlook for the year ahead as we continue to deliver as a reliable growth company. And with that, we can now take some time for questions. Operator: [Operator Instructions]. The first question we have comes from Douglas Jack of Peel Hunt. Harold Jack: So I've got 2 questions, if that's okay. In terms of the new formats in 2026, is the choice of Grandstand and Two Door largely because they're the ones that have the greatest uplift potentially, adding to the number of reasons to visit, I think, obviously, they've got quite a lot of opportunity there. And then the second one was about margins. In 2026, what are the best margin opportunities do you see over this year? Justin Platt: Thanks for your questions. I'll take the first one on formats and then, Stephen, if you want to come to margins. In terms of choices, as you know, we were very clear to have the plank of a test and learn phase first to guide our implementation. So the primary choice is certainty of return in the sense that Two Door and Grandstand both launched earlier in the year last year than Woodie's, which allowed us to get more data on those through the year. Most of the Woodie's launches came sort of the summer onwards. So whilst all are performing well, we've just got longer data on the other 2. The other attraction, of course, with Grandstand is you absolutely want a bigger footprint of those pubs in the market in a year with the World Cup, which we've certainly got an eye on. But really, it's about certainty of returns, Doug. Stephen Hopson: And Doug, on your question on margins, I mean, yes, look, we've made really good progress in 2025. I think we do expect EBITDA margins to increase in 2026, but not to the same extent as 140 basis points we did in 2025. I mean I think the best opportunities for me, so there's a bit of flow-through stuff. So we made really good progress on labor. And Some of those things didn't come through until the second half last year. And so I think some of them will help H1 2026. And also, that is a continuing journey for us. So matching right people, right place, matching demand with supply of labor is something that we're going to be relentlessly focused on going forward. That may come through in terms of reduced cost. It may come through in terms of better customer service and therefore, improved sales, but I think there will be some upside from that. And then I think on gross margins, I mean, we've got pretty good visibility of both food and drink cost prices moving into next year. We're lock in quite a few contracts on that quite early. And I think, therefore, that gives us certainty on those lines. We'll continue the journey on things like revenue management and upselling and so on, and it should be an opportunity to move that further forward as well. Operator: The next question we have comes from Karan Puri of JPMorgan. Karan Puri: I've got 2 quick ones. One, on the 1.6% like-for-like momentum in '25. Just wondering if you could provide a split between pricing and volumes, number one. And number two, just coming back on the cash tax payment in '26. I know it's going to be higher than 2025, but in terms of magnitude, if you could share a bit more on that front would be helpful. Justin Platt: So I'll start with the like-for-likes. As we said in the release, food, drink and machines were all in growth, and that's a mix across them. As you'd expect in that, revenue management has played an important part for us and will continue to do so, particularly actually the premiumization as consumers are upgrading to more premium beers and also adding and upgrading on the menu. And then the second one, Stephen? Stephen Hopson: Yes, the cash tax. So yes, you're right. We flagged that it would increase. Last year, the cash tax payments were GBP 5.3 million. That will approximately double next year, to about GBP 10 million, Karan. So that's about the extent of it. We are still using some losses from previous trading period. So the cash tax is still relatively low, but it will be about GBP 10 million in FY '26. Karan Puri: Perfect. And then just a quick follow-up on that one. So do we -- can we expect it to be sort of normalized cash tax starting in 2027? Or will you still benefit from some loss in the previous period there as well? Stephen Hopson: Yes. 2027 will still be a little bit low. And then from 2028, it will go back to normalized levels. So it will be a step-up in 2027, but it won't be up to normalized levels, yes. And then from 2028, you should expect normalized levels of cash tax. Operator: [Operator Instructions]. The next question we have comes from Anna Barnfather of Panmure Librium. Anna Barnfather: Just a couple of questions. Firstly, on the reformats, you've mentioned sort of acceleration sort of 50. Could you update us on your thinking of what proportion of the estate at this stage you think could benefit from a reallocation into 1 of the 5 formats? So how many of your sort of 1,300 pubs? And have you only done managed or have you done partnership ones as well? The second question, I was just thinking about the sort of peak trading. Obviously, you're doing really well in those big events, with peak trading periods up 5.8%. Are you tempted to sort of reduce opening hours on the sort of nonevent days? Or is there any sort of thinking on that as a way to cut down on overheads? And then just third question on the revenue mix. I think obviously, higher margins and gross margins, can you just give us a bit more color on perhaps some of the shifts in your sales mix? Justin Platt: Thanks, Anna. I'll take the first 2 and then Stephen, if you could take the third one. Let me start on peak trading, and then I'll come back to formats. We do look at our hours on a regular basis, but there's not a massive need to start big closure periods by any means. I mean one of the things that's most notable in pub trading today certainly versus 5 years ago is the growth of the early evening at the expense of the late evening. So if you look at booking patterns now, peak time for a table, the busiest time to get a table is 6:30 to 7:00. You go back 5 years, that was more like 8:00. So there's definitely an earlier day point to your business. And we do look at hours, but I don't think there's anything significant there in cost, particularly the local community environment where people are around the corner from their houses quite a lot. On the formats. So first of all, yes, we've actively launched formats across our managed and our partner estate, and they're performing equally well in each, neither is a differentiator actually in terms of performance, but they do work across both managed and partner. And then in terms of the numbers, as we showed earlier, 5 formats. The 2 that we didn't deep dive on were locals pubs and adult dining, signature pubs. Both of those, we have some of them in market already. I would say in terms of the opportunity, it's probably the locals pubs is the only bit that we wouldn't see as a sort of significant ROIC north of 30% opportunity, which probably takes you to 75% or so of our estate with the opportunity for those new formats. Stephen Hopson: And then, Anna, on the revenue mix, I mean, we're about 35% food in our business overall, but there is a big variation in that, as you'd expect between format and some of those local pubs versus, for example, our adult dining business, which is very, very different. And that has been growing. I mean, clearly, food across the market really has been growing quicker than drink over a period of time, but it's not huge. I mean that number has probably changed by 0.5% year-on-year. So it's not a huge mix. So hopefully, it gives you some idea about the sort of the food and drink [ pub/part ]. Operator: [Operator Instructions]. The next question we have comes from Fintan Ryan of Goodbody. Fintan Ryan: Two questions from me, please. Firstly, can you give us a sense of what your sort of base case expectations are for the budget tomorrow in terms of, I guess, labor costs, anything that you might be expecting or hoping for business rates. Just to sort of get a sense of what the base case is for the outlook currently and maybe what can change within the next 24-odd hours. And then secondly, could you give some color on like like-for-like trading in Q4 and over the last 8 weeks, obviously, you reported flat like-for-likes. How much -- what's been sort of the volume versus pricing split in that? Can you give some color on the visibility for the Christmas trading? Obviously, you've got bookings up 11% year-on-year, but like typically how much of bookings are -- of your Christmas trading are bookings? And what you'd be at this point, assuming for incremental pricing for FY -- for the calendar '26, would be great. Stephen Hopson: Thanks, Fintan. If I start on, I guess, the hot topic of the day and tomorrow, which is the budget and expectations for that. I mean, our base expectations and sort of what's embedded into the guidance that we've given to the market is that we expect National Living Wage to increase, obviously. Our expectations are about a 4% increase in the headline rate of National Living Wage, and we're expecting the differential for under 21-year-olds to close slightly compared to where it is at the moment. We're not expecting any further changes to things like National Insurance. And then really, I know there have been lots of stories in the press, but at the moment, we're not making any expectations on changes for things like machine, gaming duty or business rates either. I mean the Chancellor has flagged that there'll be a review of the way business rates is levied. So that will be interesting to see. But we're not making any assumption on that because simply, we just don't have the information available to us at this point. Justin Platt: And before I answer the like-for-like, Fintan, if you've got any assumptions on the budget tomorrow, please share them with the group. In terms of the like-for-likes, look, as you know, quarter 1 is all about Christmas. October and November are relatively small months in the grand scheme of things. December performance is really what matters. And within that, it's the key 2 weeks from kind of 19th of December until 2nd of January, quite time, tight time. And bookings pace, as we've said, is very good at 11%, and that's off the back of last year. I think we grew Christmas at about 11% last year in like-for-like terms. So it's pleasing the stage we're at. But to your point, walk-ins are also important at Christmas. So we've still got a lot of work to do in order to land that. And that's both in encouraging people to spend their Christmas with us but also then in managing spend per guest, so we drive the revenue return as well. Fintan Ryan: Great. And just in terms of the pricing and current expectations? Justin Platt: Well, again, we -- as you know, we don't -- we kind of manage price through the year in a broader revenue basis. So in terms of our revenue management initiatives around booking density, around premiumization. And yes, lead price is part of that mix, but we don't have like a hard and fast target. It's overall spend [ per ] that we look at. Operator: Ladies and gentlemen, at this stage, there are no further questions. I would now like to hand back to the management team for closing comments. Justin Platt: Well, just to say, thanks, everybody, for joining us. Really good engagement. Obviously, we'll all see what comes tomorrow. And I'll wish you an early best wishes for the festive season. Thank you. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.