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A lot of people are talking about a market downturn lately. And they're saying it might be a good thing.
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Market Domination anchor Josh Lipton breaks down the latest market moves for November 24, 2025. US stocks closed higher, led by the Nasdaq Composite.
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Keith Lerner, Truist, and and Dan Skelly, Morgan Stanley, joins 'Closing Bell Overtime' to talk the day's market rebound.
Cassandra Seier, New York Stock Exchange's head of international capital markets, died over the weekend, a company spokesperson said on Monday, without disclosing the cause of death.
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Bitcoin is rising slightly on Monday, although it remains down approximately 20% over the past month. Yahoo Finance Senior Reporter Ines Ferré weighs in on the upward move and explains why some strategists believe this marks the start of a turnaround for bitcoin, while others remain more skeptical.
Comprehensive cross-platform coverage of the U.S. market close on Bloomberg Television, Bloomberg Radio, and YouTube with Scarlet Fu, Scarlet Fu, Carol Massar and Tim Stenovec. -------- More on Bloomberg Television and Markets Like this video?
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Operator: Good day, and thank you for standing by. Welcome to Lotus Technology Inc. American Depositary Shares third quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead. Michelle Ma: Thank you, Amber. Welcome to Lotus Technology Inc. American Depositary Shares third quarter 2025 earnings call. My name is Michelle Ma, the Head of Investor Relations here at Lotus Technology Inc. American Depositary Shares. With me today are CEO, Mr. Qingfeng Feng, and CFO, Dr. Daxue Wang. Our conference call materials were issued today and are available on our Investor Relations website. We are also broadcasting this call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the safe harbor provisions of The US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in relevant filings of Lotus Technology Inc. American Depositary Shares with the US Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements except as required under applicable law. Please also note that our earnings press release and this conference call will include the disclosure of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. You can also find a reconciliation of these figures in the press release available on our Investor Relations website at ir.group-notice.com. With that, I'm delighted to turn the call over to our CFO, Dr. Wang, please. Daxue Wang: Good morning, good afternoon, and good evening, honored shareholders, analysts, and friends from the media. Thank you for joining us for Lotus Technology Inc. American Depositary Shares Q3 2025 earnings release. I'm Daxue Wang, Chief Financial Officer of Lotus Technology Inc. American Depositary Shares. It is my privilege once again to present the company's unaudited financial results. In the third quarter, the company delivered nearly 1,800 vehicles to distributors. This represents a 35% decrease year-on-year but a 28% increase quarter-on-quarter. As a result, total delivery for the first nine months of the year reached 4,612 units, down 40% compared to the same period last year. These figures reflect a transitional period characterized by the impact of tariffs, gradual destocking activities, and the phased commencement of gradually upgraded module deliveries. Revenue for the third quarter was $137 million, down 46% year-on-year, but up 10% sequentially. Revenues for the first nine months totaled $356 million, down 45% year-on-year. Gross margin improved to 8% in the third quarter, up three percentage points from the previous quarter and five percentage points from the same period last year. This improvement was driven by a favorable shift in our sales mix towards upgraded models reflecting healthy inventory dynamics and continual recovery in our underlying profitability. Gross margin for the first nine months remained stable compared to the same period in 2024, safely in positive territory. Now allow me to break down our sales by category and region. By category, lifestyle vehicles accounted for 77% of the total deliveries in Q3, down from 83% in Q2, contributing 72% of the total deliveries for the first nine months of the year. In terms of regions, deliveries in the US sports car market began a gradual recovery in the first quarter. This improvement came after the initial US, UK tariff disruptions were resolved, with UK vehicles ultimately securing a favorable tariff rate of 10%. Overall, deliveries in the first nine months of 2025 were primarily driven by China and Europe. It's worth noting that our delivery growth in China for the first nine months outpaced the broader premium auto segment in the country. This underscores the competitive strengths of our product portfolio in an increasingly challenging environment. Now let me turn to the key financials. As I already covered deliveries, revenue, and gross margin, I will proceed to other financial metrics. The cost of revenue decreased by 35% year-on-year to $126 million in Q3 and a total of $327 million for the first nine months of 2025. This resulted in a gross profit of $11 million for the quarter and $29 million for the first nine months. We reported an operating loss of $95 million in the third quarter, a 41% improvement year-on-year. The net loss for the quarter was $65 million, a 68% improvement year-on-year. For the first nine months, the operating loss was $370 million, narrowing by 40% year-on-year, while the net loss narrowed to $378 million, down 43% year-on-year. For your reference, on a non-GAAP adjusted basis, the net loss for the first nine months was $2 million lower, primarily due to the impact of share-based compensation. Adjusted EBITDA under the non-GAAP for the same period narrowed by 48% year-on-year to $294 million. Beyond these numbers, I would like to reiterate that we have now reduced operating expenses for eight consecutive quarters through value-added measures. This underscores our strong commitment to operational efficiency. Our efforts in cost discipline and image optimization are reflected in the significantly narrowed loss for both the quarter and the year-to-date. We remain focused on prudent resource allocation and margin enhancement while also preparing for a more dynamic operating environment in the quarters ahead. During the third quarter, we achieved several key milestones amid challenges posed by fierce market competition. We will be unveiling our new PHEV model in the coming months to further expand our electrification product roadmap and to meet consumer demand in diversified powertrain segments. Our CEO, Mr. Feng, will elaborate further on these developments. With that, I will now turn the floor over to Mr. Feng. Qingfeng Feng: Thank you. Good morning, good afternoon, everyone. I'm Qingfeng Feng, CEO of Lotus Technology Inc. American Depositary Shares. Thank you for joining the Lotus Technology Inc. American Depositary Shares quarter three 2025 earnings call. Now I'd like to walk you through the company's latest progress across four key areas: recent highlights, market strategy, product portfolio, and the acquisition of Lotus UK. Zero One Electra, Emira, and Mira. For Lotus, with a 77-year track DNA, it is important to keep enhancing its global image. On September 5, Lotus Technology Inc. American Depositary Shares made a strong appearance at IAA Mobility 2025 in Germany, showcasing the concept car Theory One Electra EMEA, and the Mira, demonstrating a seamless blend of brand legacy, cutting-edge technology, and electric strategy. The 2025 Lotus car one-make racing series kicks off in June, featuring an international lineup of drivers. George Tang: The third round concluded successfully in Chengdu, with a season finale set to take place in Sepang International Circuit in Malaysia this month. On September 14, during the London Design Festival, Lotus served as the official automotive partner and opened an immersive exhibition at our Mayfair showroom, exploring the design DNA of the brand and receiving positive feedback from the public. Qingfeng Feng: On November 16, driver Lu Wenlong piloted the Mira GT4 to a third-place finish in the Macau Grand Prix with the Bay Area GT Cup. This marks back-to-back podiums for the Mira GT4 following its first and second-place finishes in the same event in 2023. The Macau circuit is known for its long straights and tight twisting corners, regarded as one of the most challenging street circuits. This double podium not only highlights the driver's exceptional skills but also underscores the outstanding performance and reliability of the Mira GT4. It strengthens customers' trust and enthusiasm for our sports car, carrying over Lotus' racing track DNA. George Tang: For market strategy, Lotus Technology Inc. American Depositary Shares continues to optimize our global presence and enhance our retail efficiency. As of September, we had 213 retail stores worldwide, with a well-balanced distribution across four key regions: Europe with 70 stores, China with 54, North America with 49, and other markets with 40. This covers roughly 45 markets globally. Besides the retail channel efficiency improvement, we've also explored other measures to reduce our costs and improve our efficiency. For example, we've implemented prudent cost control measures and optimized our store portfolio. This includes relocating high-cost stores, closing underperforming locations, and expanding high-efficiency outlets. It helped boost our conversion rates while reducing operating costs. In addition to that, we've also relocated our European headquarters from The Netherlands back to The UK, cutting operational expenses and allowing us to focus resources on key markets. Returning to London's birthplace also helps us better tell the brand story and strengthen our reach across Europe and beyond. Such measures further improve our overall efficiency. We are also preparing to enter new markets, starting with Brazil. Brazil is the seventh-largest automotive market in 2024, with total sales of roughly 2 million and a new energy vehicle penetration rate of around 8%. In the first nine months of this year, total sales reached 1.44 million units, with a penetration rate of new energy vehicles increasing to 10.1%. As for our product portfolio, two years ago, we planned on that. Actually, we've already launched our hybrid technology, and we believe that all of you will soon see the fruits. For Lotus Technology Inc. American Depositary Shares, we currently offer two models globally, including the Mira, Electra, and Mira, all of which were updated in 2025. The new versions have all been well received, with their share of total sales continuing to grow. We plan to introduce two additional hybrid models based on our new architecture. The first hybrid model is set to launch in China in the first quarter of next year, with a dedicated technology preview event in January and a European release. The new hybrid also carries over inherited DNA in the following areas. The first is ultimate handling, thanks to Lotus' engineering. It is also equipped with dual-chamber air suspension and an expanded 48-volt active stabilizer. It is capable of a long range and high performance, enabled by the latest architecture delivering over 1,000 kilometers of range and 952 horsepower. It also features an inspired design, with the sensational width-to-height proportion of our hypercar, staying true to Lotus' design DNA. George Tang: The introduction of the hybrid model offers more choice for luxury vehicle buyers and will help us expand into broader markets, including regions with slower EV adoption such as Italy, Spain, and Saudi Arabia. It will also help us attract new customer segments. For the acquisition of Lotus UK, we are now making steady progress on the merger or acquisition of Lotus UK, which we expect to complete in 2026. After the acquisition, we will operate under our "One Lotus" strategy. We plan to maintain a consistent global identity as a high-performance premium luxury brand to strengthen worldwide recognition and maximize our heritage. We are also streamlining reporting lines to enable faster, clearer decision-making. A globally aligned governance model, with global standards and regional adaptation, will improve oversight and support medium to long-term strategy execution. For our business integration, we are driving synergy across key areas. In R&D, we consolidate global engineering under one team to improve efficiency, share technology, and accelerate new vehicle development. In purchasing, we leverage shared sourcing to reduce costs across lifestyle vehicles and sports cars. In logistics, we will optimize warehousing and parts distribution to further lower costs. We have also aligned channels and systems globally to eliminate duplication and boost brand value and operational effectiveness. Thank you. We will now open the line for your questions. Operator: Thank you. We will now begin the question and answer session. Press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Translate your questions to English right away. We will now take our first question from Laura Lee from Deutsche Bank. Please go ahead, Laura. Laura Lee: Hey. Thank you for the opportunity. Could you elaborate a little bit more about the key highlights of the upcoming PHEV models? And maybe talk more about the strategic rationale behind those products? Thank you very much. Qingfeng Feng: Thank you for your question. First, allow me to elaborate on the highlights or features of our hybrid model. It features three firsts: it has the best energy-efficient engine, the best performance high hybrid system, and the highest power motor. These three features demonstrate the Lotus DNA from both the handling and performance perspective. As for the details about how to further enhance its handling and performance, as well as the details of our hybrid architecture, please stay tuned to our tech preview event in January. Also, we would like to elaborate on the strategic rationale behind our hybrid model. First, I'd like to start with the market. For the China market, the premium vehicle market in China, including plug-in hybrids and extended ranges, makes up a large and rapidly growing segment among new energy vehicles priced above 400,000 RMB. About 47-70% are plug-in or extended range models, and their growth is a major driver of broader new energy vehicle expansion. The penetration rate of new energy vehicles in this price bracket has also risen quickly, reaching over 40% from January to September. Within that, plug-in and extended ranges accounted for more than 30%. The competition in China's premium hybrid SUV segment is still relatively underdeveloped. The premium hybrid SUV segment means the price is over 500,000 RMB, and the development is relatively underdeveloped compared to the battery electric SUV space. Most current models also lean heavily toward business or off-road use. This creates a clear opening for Lotus Technology Inc. American Depositary Shares to introduce our hybrid models. In Europe, hybrid models represent a large and growing share of the auto market. As emission standards tighten, new energy vehicle adoption is accelerating in Europe, just as it is in China. From January to September this year, NEVs, including battery electric vehicles, plug-in electric vehicles, and hybrid electric models, reached 59-60% of the total market. Among those NEVs, PHEV and HEV together accounted for about 73%. Notably, plug-in hybrid sales have surged in Europe. As of September, PHEV sales have grown year-on-year for seven consecutive months, with EU-wide sales up 65% in September alone. In the premium hybrid segment, Lotus Technology Inc. American Depositary Shares will be the first to introduce such a model in the EU. Last week, I visited the EU, and I heard positive feedback from our dealers when they learned about this hybrid model. In the successive phase, we are going to invite dealers and media to have an in-depth test of our new models. Laura Lee: Thank you. Qingfeng Feng: Okay. The first one is the color. Operator: I'm looking forward to the launch. Our next question comes from Dunlin Ren from CICC. Dunlin Ren: Hello? This is Dunlin from CICC auto team. Thanks for taking my call, and congrats on your sequential improvements. I have one question about your gross margin. Do you have any guidance on your gross margin for this year and next year? Daxue Wang: Hi, Dunlin. Thank you so much for your question. With the recovery of the vehicle gross margin in the second half of the year, our gross margin for the full year is expected to remain at a high single-digit range. Looking ahead, gross margin is projected to further improve, primarily due to the following factors. First, the launch of the PHEV products, which is based on our Luoyang architecture, will further reduce the per-unit vehicle costs and achieve higher gross margins. Second, as BEV fixed-lifted products penetrate global markets, their sales are expected to increase, thereby boosting the gross margins. Third, the implementation of the put option with Lotus UK will further enhance efficiency. For instance, the manufacturing segment's gross profit will be consolidated into the listed companies, and economies of scale resulting from the integration of the supply chain and research and development will contribute to higher gross margins. So I think for next year, we have confidence it is going to be higher than this year. Thank you so much. Dunlin Ren: Thank you. That's all from me. Very clear. Thank you. Operator: I am showing no further questions at this time. With that, I'll now turn the conference back to Ms. Michelle Ma for her closing comments. Michelle Ma: Thank you all again for joining us today. We will conclude the call soon. The Investor Relations team remains available to answer any further queries you have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Woodward, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question and answer session. Joining us today from the company are Charles P. Blankenship, Chairman and Chief Executive Officer, William F. Lacey, Chief Financial Officer, and Daniel Provaznik, Director of Investor Relations. I would now like to turn the call over to Daniel Provaznik. Daniel Provaznik: We would like to welcome all of you to Woodward's Fourth Quarter Fiscal Year 2025 Earnings Call. In today's call, Charles P. Blankenship will comment on our strategies and related markets, William F. Lacey will then discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We have included some presentation materials to go along with today's call that are also accessible on our website. Please note that based on changes in market dynamics, the company has refined its industrial end market presentation to better align certain sales within power generation, transportation, and oil and gas. Accordingly, sales for the quarters and years ended September 30, 2025, and 2024 have been reclassified for comparability. The reclassification had no impact on total industrial or the consolidated financial results. A webcast of this call will be available on our website for one year. All references to years in this call are references to the company's fiscal year unless otherwise stated. I would like to highlight our cautionary statement as shown on the slide of the presentation materials. As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. These statements are made as of today, and we do not intend to update except as required by law. In addition, we are providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results. And now I'll turn the call over to Charles P. Blankenship. Charles P. Blankenship: Thank you, Daniel. 2025 was another remarkable year for Woodward. Our team continues to make significant progress motivated by our purpose to design and deliver energy control systems that our partners count on to power a clean future. Our members' dedication to serving our customers and meeting our commitments to all stakeholders drove record performance in a number of areas. Our annual revenue exceeded $3.5 billion for the first time, which was the result of strong performance in both business segments. Aerospace sales increased 14% to record levels with margin expansion of 290 basis points. Industrial delivered healthy sales growth of approximately 10% excluding China, and core industrial margin expansion of 110 basis points. As a result, we delivered all-time high adjusted earnings per share up nearly 13% compared to the prior year. We achieved these results through a keen focus on our strategy, guided by our values, including integrity, respect, and accountability, and showing up as humble yet driven industry leaders as we continue to improve how Woodward serves customers. Next, I'd like to highlight some notable achievements that created value from last year driven by our pillars of growth, operational excellence, and innovation. Starting with growth, our aerospace team delivered strong growth in defense OEM as predicted, and rose to the occasion to deliver on higher than expected commercial services demand. Commercial aircraft delivery rates were lower than originally planned, including impacts of destocking of some Woodward components and systems. In commercial services, our team successfully captured volume growth and pricing opportunities. We experienced more legacy engine MRO volume than planned, coupled with the expected increase in LEAP and GTF demand, which is rising to levels of significant contribution to overall commercial services revenue and earnings. We expect LEAP and GTF repair revenue to surpass legacy repair revenue in late calendar 2026 or early 2027. For this comparison, I'm speaking specifically to the repair activity and excluding spare LRU sales associated with fleet spares provisioning. As these sales can be lumpy over short periods of time, but generally correlate with total aircraft delivered over the long term. For example, this past quarter, we received more orders for spare end items than we anticipated, with trade and tariff uncertainty contributing to the order surge. Our Industrial segment delivered double-digit growth in oil and gas and power generation, and high single-digit growth in marine transportation. Notably, our industrial services portfolio ranging from component MRO to power plant controls upgrade projects achieved substantial growth contributing to top-line sales and improved mix. Overall, our strong performance in the fourth quarter and full year 2025 reflects the strength of our strategy and our team's ability to execute. We have increased content on growing platforms and growing markets. We believe we are well-positioned for future success. Over the past year, we achieved several key milestones supporting our long-term growth strategy. We completed a strategic transaction to add capability and pedigree to our electromechanical actuation business unit. The acquisition included state-of-the-art horizontal stabilizer trim actuator products on Business Jet, regional, and wide-body commercial aircraft including the Airbus A350. This represents our first direct supply contract to Airbus. Integration of the acquired people and products is progressing on plan to capture the full value of the transaction. We won a competitive selection to design and deliver A350 wing spoiler actuators further increasing our Airbus business portfolio and A350 shipset content. This organic growth project proves our position on a very successful widebody program. As well as prepares us for the next single-aisle opportunity by demonstrating our technology, design, and industrialization capabilities. This win, coupled with our recent acquisition of electromechanical actuation capability, including the A350 HSTA, will raise our total A350 shipset value to approximately $550,000 once we start shipping the wing spoiler actuators. Currently scheduled for late calendar 2028. To that end, we broke ground on our Spartanburg, South Carolina facility construction project in November. This facility is intended to be another showcase advanced manufacturing building on our experience with our Rock Cut campus, highly automated and vertically integrated. We will produce the A350 spoiler plus additional aerospace products at this facility. Within industrial, our Gladney expansion is ahead of schedule and on track to become operational by mid-2026. This expansion will provide increased capacity to meet the growing demand for data center backup power, with enhanced levels of automation, improved flow, and higher inventory turns. To support our growth, we're making increased strategic investments in our company with robust returns for projects that increase capacity, and improve productivity with a specific focus on automation. Turning to operational excellence, we continue to make steady progress. We are focused on improving the fundamentals and I expect our teams to pick up the pace to improve flow and unlock more productivity in this coming year. Everything starts with safety at Woodward. We continue to roll out our human and organizational performance program to reduce injury risks and increase levels of protection. We are on track to have HOP in place at all of our sites this calendar year. We're also investing in immersive training for our team leads, and first-level supervisors. We are starting to see the benefits as they apply what they've learned, solving problems within cycle time, rebalancing work to optimize labor and create flow, and coaching their teams more effectively. I'm excited by our progress so far. We're also making strides in stabilizing our supply chain. Although we are still experiencing some supplier performance shortfalls, Woodward has made progress in optimizing our supplier network while helping our strategic suppliers improve their own quality and delivery when required. Industry-wide efforts to stabilize demand signals are benefiting our planning and delivery performance. I'm pleased to see our investments in automation paying off by reducing our demand for labor. We're also realizing the expected benefits in safety, quality, delivery, and cost as we refine our project execution and rebalance value streams. Our automation focus is on jobs with high turnover, repetitive or ergonomically challenged tasks, and high applied force requirements. Our workforce is embracing these projects and understands the benefit in their daily work. We will continue to invest in automation in 2026 and beyond. Innovation is alive and well at Woodward, and we made prudent investments in technology development for new military programs, the next single-aisle, alternative fuels, automation, and services delivery. We continue partnering with our customers to shape how our technology solutions can elevate the value of their next-generation products. As we look ahead, our priorities for 2026 are centered on strong execution, including capturing continued growth in our markets, driving operational excellence, and meeting our customers' evolving expectations. In aerospace, we are prepared for increased OEM orders as the aircraft manufacturers stabilize and increase production rates and as defense customers continue to signal strong demand. In commercial services, we are prepared for MRO growth as legacy aircraft continue to fly longer and more LEAP and GTF engines enter their maintenance cycles. We do expect somewhat muted top-line growth in commercial services compared to 2025 which benefited from outsized demand for spare end items and some advanced buying. In industrial, we are ready to meet sustained demand across our core markets of transportation, power generation, and oil and gas, and continue to expand our capabilities and global presence in industrial regional repair, overhaul, and upgrade offerings. Our guidance for 2026 reflects our continued confidence in the growth trajectory across our segments, and our continued operational discipline. We are on track to deliver the three-year sales and earnings targets we set at December 2023 Investor Day. We do expect a modest adjustment to our cumulative free cash flow target as we make the strategic decision to allocate more capital toward organic high-return, growth investments, including automation at multiple sites and the Spartanburg facility. 2025 was a year of record performance and significant progress, as we executed on our strategy, and delivered on the commitments we've made to shareholders. We intend to build on the strong momentum in 2026 and beyond. And now I'll turn it over to William F. Lacey to share more detail around our financial performance in 2025 and our outlook for 2026. William F. Lacey: Ready, Chip? I'm ready. Thank you, Chip, and good evening, everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated. And all comparisons are year over year unless otherwise stated. Net sales for 2025 totaled $995 million, an increase of 16%. Net sales for 2025 were $3.6 billion, an increase of 7% and the highest on record. Earnings per share for 2025 were $2.23 compared to $1.36. Adjusted earnings per share for 2025 were $2.09 compared to $1.41. For 2025, earnings per share were $7.19 compared to $6.01. And adjusted earnings per share were $6.89 compared to $6.11. At the segment level, our aerospace segment delivered double-digit sales growth and substantial earnings expansion for both the fourth quarter and full year driven by strong performance in commercial services, and defense OEM. Fourth quarter aerospace segment sales were $661 million, up 20%. Commercial services sales increased 40%, while commercial OEM sales were essentially flat. Defense OEM sales increased 27% and defense services were up 8%. Aerospace segment earnings for the fourth quarter were $162 million, with margins expanding 520 basis points to 24.4% of segment sales. The improvement was driven by strong price realization and higher volume partially offset by strategic investments in our aerospace manufacturing capabilities as well as inflation. For the full year, the aerospace segment delivered record annual sales and earnings. Segment sales were $2.3 billion, up 14%. Commercial services sales increased 29% reflecting both favorable pricing and higher volume supported by sustained high utilization of legacy aircraft and improved throughput by the MRO shops. LEAP and GTF activity also continues to increase further contributing to commercial services growth. I do want to note that toward the end of the fiscal year, while underlying commercial services demand remained strong, we believe a portion of the growth was influenced by certain customers making advanced purchases to take advantage of a window of trade stability. Defense OEM sales increased 38%, primarily driven by strong demand for smart defense. In addition, new JDAM pricing took effect during the fourth quarter, which contributed to the strong year-end performance. Aerospace segment sales growth was partially offset by a 6% decrease in commercial OEM sales. The decrease was largely due to the Boeing stoppage earlier in the year and our discipline and measured production ramp that followed along with inventory normalization by airframers that occurred in the second half of the year. Moving into 2026, we expect these headwinds to ease as airframe production rates increase. Defense services sales were down 2%. As a reminder, while the timing of this business can be lumpy, demand signals remain healthy. Aerospace earnings for 2025 were $507 million or 21.9% of segment sales compared to $385 million or 19% of segment sales. The 290 basis point improvement reflects solid price realization and higher sales volumes. Partially offset by strategic investments in manufacturing capabilities, unfavorable mix, and inflation. We're making these strategic investments to enable future growth by expanding manufacturing engineers, to support our ongoing efforts to increase automation. In addition, we have been increasing and developing our production frontline and team leaders to improve supervision, training, and problem-solving to drive productivity, improve cycle times, and increase output. Turning to industrial. As a reminder, my comments reflect the reclassification of certain sales between the end markets that Daniel Provaznik mentioned earlier. Industrial segment sales for the fourth quarter were $334 million, up 11% from $302 million. Our core industrial sales, which excluded the impact of China on highway, grew 15% in the quarter. Transportation sales increased 15% and oil and gas sales grew 13%. While power generation grew only 6% due to the impact of the divestiture of our combustion business in the second quarter of this year which had averaged approximately $15 million of quarterly sales. Excluding the impact of the divestiture, power generation sales grew in the mid-teens on a percentage basis. Industrial segment earnings for the fourth quarter were $49 million or 14.6% of segment sales. Compared to $38 million or 12.6% of segment sales. Within our core industrial business, margins expanded 330 basis points to 15.2% of core industrial sales, driven by price realization partially offset by expected inflation and planned strategic investments in manufacturing capabilities. For 2025, industrial segment sales were $1.25 billion compared to $1.3 billion, a decrease of 3%. Excluding the impact of China on highway sales, core industrial sales increased 10% to $1.2 billion compared to $1.1 billion for the prior year. Marine transportation grew 9% driven by both price and volume. As elevated ship build rates support strong OEM engine demand and lay the groundwork for future services opportunities. Oil and gas sales grew by 14% as volume growth was driven by greater midstream and downstream gas investment. Power generation, excluding the impact from the divestiture of our combustion business, grew 22% driven by our operational improvements that increased output to meet growing demand in various gas turbine systems value stream. Industrial segment earnings for 2025 were $183 million or 14.6% of segment sales compared to $230 million or 17.7% of segment sales. This decrease was largely a result of lower sales volume and unfavorable mix. Both related to reduced China on highway demand partially offset by price realization. Core industrial margins for 2025 were 15.2% of segment sales, an increase of 110 basis points. This expansion reflects strong operational execution, price realization across the portfolio, and our ability to drive incremental margins from higher volumes. Partly offset by expected inflation and planned manufacturing investments further improve productivity. Non-segment expenses were $41 million for 2025, compared to $31 million. Adjusted non-segment expenses were $35 million in the fourth quarter compared to $27 million. Non-segment expenses were $126 million in 2025, compared to $120 million. Adjusted non-segment expenses were $133 million in 2025, compared to $112 million. At the consolidated Woodward level, net cash provided by operating activities for fiscal 2025 was $471 million compared to $439 million. Capital expenditures were $131 million for fiscal 2025 compared to $96 million. The increase in capital expenditure was driven by ongoing investment in automation and production to improve operations and prepare for growth. In addition, in 2025, we purchased the land for our new facility in Spartanburg, South Carolina. And this project is rapidly moving forward. Free cash flow was $340 million for fiscal 2025 compared to $343 million. The decline in free cash flow was primarily due to higher capital expenditures partially offset by higher earnings. As of September 30, 2025, debt leverage was one times EBITDA. During fiscal 2025, as anticipated, we returned over $238 million to stockholders, including $107.73 million in share repurchases and $65 million in dividends. In November 2025, we successfully completed our previous three-year $600 million share repurchase authorization. More than one year ahead of schedule. Reflecting our ongoing commitment to return cash to shareholders. We recently announced a new three-year share repurchase program authorizing the repurchase of up to $1.8 billion of common stock. This significant expansion reflects the board's confidence in Woodward's strategy, long-term growth outlook, and ability to consistently generate strong free cash flow. In fiscal year 2026, our guidance assumes returning between $650 million to $700 million to shareholders in the form of dividends and share repurchases. From a capital allocation perspective, we remain committed to a disciplined and balanced approach that fully leverages our strong balance sheet to drive growth. We are investing organically to advance automation and complete our new Spartanburg South Carolina facility while also actively evaluating selective returns-driven M&A opportunities. Our strong balance sheet positions us to act decisively when the right opportunities arise. Now turning to our 2026 guidance. As we look ahead, we remain focused on our value drivers: growth, operational excellence, and innovation. Our fiscal 2026 guidance assumes a sustained strong demand environment supporting continued sales growth and further margin expansion. At the consolidated level, Woodward net sales growth is expected to be between 7-12%. Aerospace sales growth is expected to be between 9-15% and industrial sales are expected to grow 5% to 9%. In aerospace, we expect sales growth across the segment weighted towards OEM driven by a return to growth in commercial OEM and continued strength in defense OEM. Commercial services growth is expected to moderate as 2025 included high levels of spare LRU purchases as well as the advanced purchases I mentioned earlier. Defense services are expected to show modest growth. Industrial sales are anticipated to grow across all of our primary markets. We expect power generation growth to be muted in the first half due to the divestiture of our combustion product line. We anticipate China on highway sales in 2026 to be up approximately $60 million in line with 2025. Woodward adjusted earnings per share are expected to be between $7.50 and $8.00 based on approximately 61 million fully diluted weighted average shares outstanding. And an expected effective tax rate of approximately 22%. Aerospace segment earnings are expected to be 22% to 23% of segment sales, and industrial segment earnings are expected to be 14.5% to 15.5% of segment sales. Adjusted free cash flow is expected to be between $300 million and $350 million. Capital expenditures are expected to be approximately $290 million, which includes continued investment in automation, and approximately $130 million dedicated to the build-out of our new production facility in Spartanburg, South Carolina. The increased spend also includes investment in MRO readiness, and the start of a multiyear ERP upgrade project. Some additional items to help you with your modeling. We expect year-over-year price realization of approximately 5%. Non-segment expenses should be approximately 3.5% of sales. Consistent with historical trends, we anticipate performance to strengthen across the quarters of fiscal year 2026. Our fiscal 2026 guidance positions us to meet or exceed the long-term sales and earnings commitments for 2024 through 2026, which were established at our last Investor Day. Free cash flow is expected to be below our three-year target, reflecting higher strategic investments to support sustained long-term growth, including our new Spartanburg facility. We plan to introduce our next three-year outlook at our Investor Day in December 2026. This concludes our comments on the business and results for the fourth quarter and fiscal year 2025. Operator, we are now ready to open the call to questions. Operator: Thank you. And the question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star 1 on your push-button phone. Should you wish to withdraw your question, press star 1 a second time. To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up. Your questions will be taken in the order they are received. Please stand by for your first question. And our first question comes from the line of Scott Stephen Mikus with Melius Research. Your line is open. Scott Stephen Mikus: Chip and Bill, very nice results. Charles P. Blankenship: Howdy, Scott. Thank you. Scott Stephen Mikus: Chip, I had a question kind of on the aftermarket dynamics, particularly in engines. So the Leap MRO network is much more internal relative to the CFM56 network. So when you ship a fuel metering unit, or any component on the LEAP engine, just how are you sure whether it's going to the aftermarket or OE channel? Are you being paid a different price versus both? Just given that GE and CFM more broadly is trying to route as many component sales through the Leap MRO premier network. Charles P. Blankenship: Thanks for the question, Scott. We are sure about the PO status that comes to us, whether it's an install or a spare end item in terms of what customer is ordering it. So we have clear line of sight what type of unit that is. Scott Stephen Mikus: Okay. And then given the investments that you're making in automation, I was at the Rock Cut campus, it was very impressive there. Is there anything structurally that you see that would potentially prevent your LEAP or GTF aftermarket margins to where they couldn't potentially reach CFM56 or V2500 margin levels? Charles P. Blankenship: Well, Scott, there's nothing structurally in the way of that. It's kind of up to us to understand, you know, what the customers are seeing in the field with the units and developing the right repairs and overhaul procedures. And we're learning we've learned a lot with the first units that have come back, whether it be the pump or SCU or FMU on LEAP or it's the GTF fuel nozzles or actuation. So we're pretty confident that we have the right design for repairability and service solutions for our customers that will achieve the right profitability. Thanks, Scott. Operator: And our next question comes from the line of Scott Deuschle with Deutsche Bank. Your line is open. Scott Deuschle: Hi, good evening. Bill, what growth are you assuming for legacy narrow-body engine aftermarket in 2026? William F. Lacey: Scott, for said legacy narrow body? For Yeah. Like, think, narrow body engines. Scott Deuschle: Yes. Yeah. So, we obviously, we saw we saw a really good growth in '25. And based off of that, we would expect sort of single-digit growth rates coming through in 2026. On the legacy narrow body. We expect to see some price, obviously come through and volume at these levels will be tough, but the MRO shops surprised us last year, so we'll see if they get some more productivity. But I would say single digit. Scott Deuschle: Okay. And then, Bill, does the EPS guide include any benefit of the recent share repurchase authorization increase? Or do you not really assume? That authorization or repurchases, excuse me, the guide? William F. Lacey: Thank you. Yes. We do expect put that into our into the guide. Scott Deuschle: Okay. And then last question, Chip. Can you give us any sense as to how much your current power generation revenue is tied to Caterpillar? And I'd be curious if you could talk a little bit about the growth outlook you expect from that customer in the years ahead. Charles P. Blankenship: Well, we've been receiving pretty healthy growth from all of our power gen customers. And Bill and Daniel talked about a little bit of reclass that went on, and it was really by examining where all of our customers and products were being used. Some traditional oil and gas customers have been involved in more power gen type applications, maybe not utility grade but behind the meter type applications. And folks like Caterpillar and INEO and Baker Hughes are all kind of playing in that segment of the market. So it's a very interesting aspect of the power gen growth opportunity that we're capitalizing on. As far as carving out just a single customer like Caterpillar, we don't do that. But I think you can be satisfied that as they grow, we grow. We're on some of their gas engines with SOGAV and valves and actuation, and we're on some of their liquid fuel engines with actuation and governor products. So we've got a good staple of products distributed on their products, and it varies by application. Operator: Thank you. And our next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open. Kyle: Hi guys. This is Kyle on for Sheila. Thanks for taking my question and great quarter. I hope that kind of extend question here on the commercial aftermarket because I think you said muted next year. You gave a the prepared remarks are pretty helpful. I think you said LEAP GTF by the end of calendar year '26, the same or larger than legacy. So when I take that in connection with the single-digit comment you just gave to Scott, I mean, I guess it implies that maybe the pull forward that you saw in this quarter and prior quarters is significantly larger than maybe I expected. So maybe if you can just kinda walk through those puts and takes to round out that comment. Are you thinking about LEAP GTF growth next year? In light of what the OEMs are saying? And the magnitude of the pull forward that you saw this year and whether you're sure that's not repeating or whether there's potential that was actually restocking. Thanks. Charles P. Blankenship: Yes. Thanks for the question. We really do believe there will be strong repair growth for LEAP and GTF. We believe, like Bill was saying, there'll be either flat to a little bit of repair growth on V2500 CFM-five. But the big variable is this lumpy order behavior that we saw last quarter on spare end items. A pretty substantial demand there. And those are quite high-priced individual items to be ordered compared to a repair. So when you think about the total top line, it has an outsized effect on that top line as well as the earnings. So we don't forecast that happening again. There could be additional activity. We don't rule that out, and we're prepared to capture that if it shows up. But I don't think it's prudent to forecast that or put that in our plan because we don't have any line of sight to that at this time. Kyle: And if I could just follow-up on the price comment, Bill. Said 5% next year. I assume that's more weighted to aerospace and increasingly weighted to aftermarket. So maybe any additional color by segment and by subsegment within that? Thanks. William F. Lacey: Yeah. Correct. At the total Woodward level 5%, in the comments we talked about, the JDAM price increase in the fourth quarter, including Bob. We'll see that flow through the '26. And so with that, and some catalog growth, we will Arrow will outpace industrial slightly, but we still also will see good price result from our industrial team as well. Thanks a lot for your question. Operator: And our next question comes from the line of Noah Poponak with Goldman Sachs. Your line is open. Noah Poponak: Hey guys. Thanks for the question. Can you quantify in absolute dollars whatever you're deeming to have been lumpy or pulled forward in the aerospace aftermarket in 2025 revenue? William F. Lacey: Yeah. Noah, it's as you can imagine, it's hard to quantify. Because, you know, the customer isn't telling us exactly kind of their thought. But here, I'll give you a few numbers. That will be in the footnotes of the 10-K. Back where we lay out by segment, sales by region. And you'll see that, from 2024 to 2025, sales grew $50 million. So some part of that $50 million is normal growth. Then some part of that is a part of this advanced purchases. It's just hard to quantify exactly. Noah Poponak: Okay. That's helpful. And can you quantify where LEAP and GTF aftermarket came in for the year 2025 versus 2024? Charles P. Blankenship: So the LEAP and GTF are gaining on the legacy, let's put it that way. And like I said before, they're kind of in the same ZIP code, but not equal. And we're just talking repair activity, not including spare end items. So we really do think that that's going to cross over in the late 2026, early 2027 time period. And that may sound like an earlier crossover compared to what we said at Investor Day back in 2023, but that original graph in 2023 legacy items that included some wide body and regional component repair. And then it also in the new included GEnx. We're trying to strip out some of that other information and make it cleaner for you. Like last quarter, I committed that we would clarify that. And when we do run our model out and look at kind of how fourth quarter ended, how inputs are coming in, for both the legacy as well as LEAP GTF. That's how we come up with that sort of crossover period, which I hope clarifies things for you. Noah Poponak: Okay. Great. That's super helpful. And then just on the Aerospace segment margin, the guidance requires a pretty significant slowdown in the incrementals. I guess in the fourth quarter, you're saying the incremental benefits from the items we just discussed and therefore it's sort of a leveling out over the two years or is there more to it? William F. Lacey: Yeah. So the no. I think your question is about the incremental coming down from about 42 and a half for aero and coming down in 26. And it's a few things. It's our OEM mix growing on the aero side which is a mix down. And then yes, the and so that's the main driver is just the amount of OEM that we expect to come through in 2026. Charles P. Blankenship: And just a reminder about that is a good thing. So we're creating the installed base to get the services revenue and earnings on later. Noah Poponak: Okay. Thank you. I appreciate it. Charles P. Blankenship: Thanks, Noah. Operator: And our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open. Christopher Glynn: Thank you. Good afternoon. Charles P. Blankenship: Good afternoon. Christopher Glynn: So, yes, curious on the defense side. A specific and a general question. You know, where are you with guided weapons clarity longer term, how those programs and what orders are flowing through? Should we anticipate that growth is kinda leveling off on a sequential basis? Or the volume still ramping? I know you have a big price aspect to growth in that category. Charles P. Blankenship: So, you know, our guided weapons programs plural, JDAM, small diameter BOM, STB, and AIM9X are all kind of having a little bit different behavior. JDAM is up substantially. But we feel like that will remain level for a good while. And then we don't have any orders for the other two, but we have indications that customers are asking us to do capacity studies and work with supply chain on capacity studies. So some of these things are leading indicators that these other product lines might experience some growth opportunities, but we don't have anything specific Chris, on that right now. Christopher Glynn: Okay. Great. Thanks. And you mentioned global capacity investment for the industrial aftermarket. I'm guessing that's oriented towards the marine side, but just wondering if we could drill into that investment element there. Charles P. Blankenship: Yeah. So we've been doing a little bit of flag planting here and there on MRO shops. So when you think about a power plant and all of the scope of supply that we could provide to aeroderivative or heavy-duty frame power plant installations. Just like an aircraft engine, they undergo maintenance cycles, and we're finding that have the ability to grow our service content with these customers when we're a little closer to their region. So we've done some of that in the prior couple of years. And we anticipate doing a little bit more of it just to try and closer to the customers. And grow the opportunity to service our fuel metering valves and other types of scope of supply like that that are on our customers' gas turbines. And as well reaching out with the opportunity to do some repair in reciprocating engines. Christopher Glynn: Great. Thanks for that. Charles P. Blankenship: You're welcome. Operator: And our next question comes from the line of Gavin Parsons with UBS. Your line is open. Gavin Parsons: Hey, thank you. Good evening. Charles P. Blankenship: Good evening. Hey, Gavin. Gavin Parsons: Guys, what are you assuming for OE destocking? And it would be helpful if you could that out kind of by airframe and engine. Charles P. Blankenship: Thanks for the question, Gavin. It's a little difficult to parse that out for you. That detail of a way. A customer standpoint. But we feel like, broadly speaking, somewhere in our second quarter sort of time period, if airframe customers and engine customers hit the rates and pull like they've forecast for us. We could be destocked by sometime in that second quarter towards the end of our first half fiscal year. Gavin Parsons: Okay. That's helpful. And then on CapEx going forward, should we kind of assume that normalizes once you finish kind of the A350 build-out or by the end of the decade are we starting to look at build-out for, maybe a new single aisle? William F. Lacey: Yeah. For right now, Gavin, we'll know, we'll say that the Spartanburg investment is causing that peak. Know, we're gonna continue to kinda look through '27, '28, '29, and we'll give you a clear view in December. Of what's out there. We're looking understanding our next single aisle investments. But right now, the Spartanburg is sort of what we see there on the near horizon. Gavin Parsons: Got it. Thank you. Charles P. Blankenship: Welcome. Operator: And our next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open. Michael Ciarmoli: Hey, good evening, Nice results. Thanks for taking my questions. Maybe just to stay on. Charles P. Blankenship: How are you? Michael Ciarmoli: Just to stay on Gavin's question there, the CapEx for Spartanburg can you support or will that have enough capacity to support programs beyond the A350? I mean, there kind of does it build out contemplate next-gen single aisle? Charles P. Blankenship: Thanks for the question. The investment in Spartanburg, that facility, has additional capacity over and above the A350 for us to put select product lines in there that makes sense and are synergistic. But if we're betting on a successful campaign for next single aisle scope, that facility would not by itself be able to support NSA volumes. We have bought enough land there to build a sister facility for NSA support. So we are thinking ahead. Where it makes sense on small amounts of investment dollars, but we're not putting any big investment dollars on NSA capacity. We'll have to really take a look at what that horizon and life cycle looks like from the design phase through the build and flight test phase and lay that out in comparison to our and what's going on with legacy programs before we decide how much additional capacity we'd need. So that's a thought exercise. Even know, like Bill was saying, we'll share more at Investor Day in December. But some of that NSA thought exercise will mature as we understand from the Airbuses and Boeings of the world about what that time frame looks like. Michael Ciarmoli: Okay. Fair. And then just back to Noah's question, actually. You were talking about incrementals, but I guess just absolute margins looking at the low end of the range, really no margin expansion. You're obviously hitting and exceeding the targets. And you talked about the OEM mix which makes sense. But as you're seeing this ramp on LEAP and GTF, is there margin dilution there on services? I mean, you have to get over some learning curves? I mean, I'm assuming straight spare sales would be highly accretive on those platforms. But is there anything else dilutive with the LEAP in the GTF ramp up there? William F. Lacey: Yeah. I'll jump in and Chip maybe cover me if I miss a part. But, no. No. The LEAP GTF service margins are good. It really is, the impact of the overall OE and how that impacts things. Obviously, on the low end of the range, it contemplates some other headwinds. But to the point about LEAP GTF, margins are good. Again, OE mix is the primary driver of the rate expansion that you're seeing in our guide. Charles P. Blankenship: I'll just follow-up and say that we intend to expand margins, and that's what you see a guide there that allows for some headwinds to get in the way of intent. But we've got plans in place and programs and the automation benefit that we're planning some realization of for 2020 we intend to get productivity. Michael Ciarmoli: Perfect. Thanks, guys. Charles P. Blankenship: Jump back in the queue. Michael Ciarmoli: You bet. Operator: And our next question comes from the line of Gautam Khanna with TD Cowen. Your line is open. Gautam Khanna: Yes, good afternoon guys. Charles P. Blankenship: Afternoon, Gautam. Hey, Gautam. Gautam Khanna: Just to elaborate on the first question, which we've written about before, which is this LTSA versus spot aftermarket dynamic on LEAP versus CFM. Is it do you guys are I'm just curious, like on CFM, 56, when you sell into a spare part into the GE network, I presume that's a lower price than what you would sell into if it's an MRO or airline outside the network. Does that same logic apply for LEAP when it when you're selling a spare part to a direct user, like an airline, versus when you sell it through the GE internal MRO network? And if that's true, why wouldn't there be structural differences in profitability between those two platforms in the aftermarket over time. Charles P. Blankenship: Well, the reason why there's no structural difference is because there's really no structural difference to the contracting Gautam. And when we sell spare end items, it can be to an airline. It can be to an MRO shop that has a variety of people under different agreements. We have some asset management contracts with some of the bigger MROs just like us CFM or GE or CEFRON network. So the whole landscape is similar between the previous generation and this generation. So when you think about repair, it's also the same thing. So whether it's a spare end item, spare parts, or a repair, we have fairly similar contracting principles in the LEAP ecosystem that we do to the CFM dash five. And so I think there's nothing to nothing really there to explore further except that we have a lot more LRUs to take care of. Gautam Khanna: Gotcha. Thank you. And a follow-up on the mix dynamic within the aftermarket. I know you talked about repairs and I think that's distinct from spares. So I just want to get a sense is the overall aftermarket profitability next year a little bit softer than it was in '20 than it will it was in '25? Just based on kind of more repair, less spares? Or is there any nuance there that you're trying to convey? Charles P. Blankenship: Really, no nuance to convey there. We have a good blended service earnings profile for 2026. We're pretty happy with that. We'll see if the spare end item, if more comes through than we forecast, it did last year, I mean, it's really hard to tell. We'll have some upside if that happens. Gautam Khanna: Thank you very much. Charles P. Blankenship: You're welcome. Operator: And our final question comes from the line of Louis Raffetto with Wolfe Research. Your line is open. Louis Raffetto: Hey, good evening, guys. Charles P. Blankenship: Hey, Louis. Hey, Louis. Louis Raffetto: How should we think about the return of capital to shareholders? Is it gonna be balanced across the year? Or is there any reason to think it will be skewed one way or the other? William F. Lacey: Yeah. Louis, our plan is to spread it out evenly through the year. We'll see how things go, but the plan is to stay in the market throughout the year. Louis Raffetto: Alright. Thank you. And then I guess on FSG margins, last several years, the first quarter has been substantially below the rest of the year. Is that something we should sort of expect again here in fiscal 2026? William F. Lacey: So I'm sorry, Louis, the margins in Q1 we missed your first words. Margins. Sorry, FSG margins in Q1 have been below sort of the second quarter, third quarter, fourth quarter? Louis Raffetto: Lose the plan? I'm not quite sure we'd say FSU. I'm sorry. I mean, aerospace. Apologize. Charles P. Blankenship: Oh, okay. Yeah. It's a Florida state. Yeah. Yeah. I'm getting my William F. Lacey: Yeah. Correct. That is the normal trend. In aerospace and in industrial that Q1 is usually our lowest margin quarter and it sort of grows sequentially throughout the rest of the year. Louis Raffetto: And then just last one on tax rate. You've had some benefit from option exercises the last few years. I assume with the 22% rate, not expecting anything like that, but certainly could have that benefit depending on how that plays out. William F. Lacey: That's exactly right, Louis. With the prices that we've seen, over the last couple of years, and as we estimate out, we don't foresee that outsized tax benefit from option exercises. So that is what is behind that 22% effective tax rate. Louis Raffetto: Great. Appreciate it. Charles P. Blankenship: Okay. Thanks, Louis. Operator: And that concludes our question and answer session. Mr. Blankenship, I will now turn the conference back to you. Charles P. Blankenship: Thanks, everyone, for joining today's call. We hope you all have a wonderful Thanksgiving holiday. Operator: Ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website, www.woodward.com for one year. We thank you for your participation in today's conference call, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Symbotic Fourth Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Charlie Anderson. Please go ahead. Charlie Anderson: Hello. Welcome to Symbotic's fourth quarter and Fiscal Year 2025 financial results webcast. I'm Charlie Anderson, Symbotic's Vice President of Investor Relations. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions, that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Form 10 including the risk factors. We undertake no obligation to update any forward-looking statements. In addition, during this call, we will present both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at ir.symbolic.com. On today's call, we're joined by Rick Cohen, Symbotic's Founder, Chairman, and Chief Executive Officer and Izzy Bartons, Symbotic's Chief Financial Officer. These executives will discuss our fourth quarter and fiscal year 2025 results and their outlook, followed by Q and A. With that, I'll turn it over to Rick to begin. Rick? Rick Cohen: Thank you, Charlie. Good afternoon, and thank you for joining us to review our most recent results. We made strong progress in fiscal year 2025, finished the year with good momentum. For the full year, we increased revenue by 26% year over year while delivering significant margin expansion and free cash flow generation. The cash on our balance sheet now exceeds $1.2 billion. During the fiscal year, we also expanded and upgraded our product portfolio. We added micro fulfillment, as a new category to address e-commerce, and upgraded our storage structure to a proprietary next-generation design that offers leading density and rapid installation. When we marry up our innovative bot technology, that can handle goods of many sizes, this new highly dense storage structure and our proprietary software we believe we can unlock more opportunities than ever before. This includes everything from smaller buildings to e-commerce facilities to perishable facilities where square footage is at a premium. We are seeing this play out with a growing sales pipeline as our solutions deliver space savings and installation efficiencies that result in higher value. Customers are already taking advantage of this breakthrough in installation efficiency. Notably, our largest customers opted to utilize our next-gen storage to combine what previously took two separate deployments or phases into one single phase for new sites. That means a phase one system deployment when we enter a distribution center for the first time we'll be able to do twice as much work versus when we began deployments for this previously. And the overall time to install and achieve acceptance for the same amount of case output in this example will be cut by more than half. Generating significant savings, reducing disruption, and generating a larger and faster return on investment for customers. Customers are also taking advantage of the modular build qualities of our next-gen storage with a handful of deployments that began in the fiscal fourth quarter connecting next-gen storage to prior-gen storage at the same site. And GreenBox is moving forward with next-gen storage signing up to utilize it at new sites near Dallas and Chicago, both of which were signed in the fiscal fourth quarter. Notably with these sites, Green Box coverage will extend from California to the Midwest to the Southeast. We also finished the fiscal year by signing a new customer, Medline, the largest provider of medical surgical products and supply chain solutions serving all points of care. This marks our first customer in the healthcare vertical, where we believe the case for automation is very strong given the importance of accuracy, speed, and cost. This is also one of the largest potential new verticals available to us. It is worth noting that there are over 500 healthcare distribution centers in The US alone, with a combined 76 million square feet of warehouse space according to the Health, Industry, Distributors Association. With our scale rapidly improving project execution and growing set of capabilities across the supply chain, we are in a better place than ever to bring our new customers covering multiple verticals, geographies, and use cases. Our focus in this has never been greater. In summary, delivered on the commitment we made at the start of the year to achieve strong top-line growth and a significant rise in operational systems, thanks to improvements in our deployment process. This also enabled us to deliver strong margin expansion. Looking ahead, our key objectives for fiscal year 2026 are number one, harness our growing product portfolio and capabilities to broaden our opportunities with customers, particularly in e-commerce with our micro fulfillment solution. Two, unlock higher margins by driving additional value for our along with operational improvements. Three, continue to invest in our innovation engine to expand our capabilities and support future growth. I just want to end by thanking our team for their efforts along with our customers and investors for their support. I'll now turn it over to Izzy, who will discuss our financial results and outlook. Izzy? Izilda Martins: Thanks, Rick. Fiscal fourth quarter revenue grew 10% year over year to $618 million exceeding our expectations. Year over year revenue growth in the quarter was driven by the expansion of the number of systems in operation. Fueling higher recurring revenue along with continued progress on our paid development program. Due to higher stock-based compensation our commitment to attracting and retaining top talent, and restructuring expenses primarily associated with acquisition integration activities, our net loss for the fiscal fourth quarter was $19 million versus net income of $16 million in 2024. Adjusted EBITDA in the fiscal fourth quarter of $49 million was at the high end of our forecast due to revenue and gross margin upside. And up from $42 million in 2024. Our backlog of $22.5 billion remained in a strong position. The increase from $22.4 billion last quarter was due to final pricing on projects started and the addition of backlog associated with Medline offsetting revenue recognized in the quarter. In our fiscal fourth quarter, we began 10 new system deployments. As Rick highlighted, this included two deployments for GreenBox and one for Medline. We also had six systems go operational in the quarter. Bringing our total to 48 operational systems or nearly double the level at the end of fiscal year 2024. Importantly, for the systems that went operational for our largest customer in the fiscal fourth quarter, we observed nearly three months of improvement in the time between start of installation and customer acceptance compared with our historical average with this same customer. This period of deployment is the portion that is most within our control. And it is also when we recognize the highest level of revenue and profit. With the continued growth in operational systems, we saw our software revenue grow 57% year over year to $9.3 million in the fiscal fourth quarter. And operations services revenue grew 21% year over year to $26.9 million. Turning to margins in the fiscal fourth quarter. System gross margin continued its trend at significant year over year improvement, driven by disciplined cost management solid project execution and strong supply chain partnerships as we roll out our next-gen structure and deliver increasing value to our customers. We expect to see additional expansion in systems gross margin. Software maintenance and support also saw a substantial year over year gross margin gains, benefiting from continued scale and exceeding 70% for the full year. In operation services, we posted a loss as we increased investment in additional resources to support certain sites and ensure their long-term success. Operating expenses on a GAAP basis in the fiscal fourth quarter were $149 million. Adjusted operating expenses in the quarter were $87 million up sequentially primarily due to strategic R and D investments in supporting our expanding product portfolio and cloud-based software tools. These investments are in areas where we see the greatest potential to increase value and long-term impact. We finished the quarter with cash and cash equivalents of $1.2 billion up from $778 million in the fiscal third quarter due to the timing of cash receipts tied to project milestones and the signing of new projects. Now turning to the forecast. As I've settled into the CFO role, I want to share some context for how I think about guidance. We will continue to guide one quarter ahead, with a focus on transparency and consistency. My approach will be to set a guidance range reflecting where we expect to land, based on our best view of the deployment schedules and a balanced assessment of both risks and opportunities. With that in mind, for 2026, we expect revenue between $610 million to $630 million representing year over year growth between 25-29%. Adjusted EBITDA between $49 million and $53 million. I want to reiterate what we highlighted during last quarter's earnings call. That is the introduction of our proprietary next-gen storage structure has resulted in a realignment of deployment. While this has no impact on our $22.5 billion of backlog, it does have an impact on how our revenue is phased throughout the fiscal year. With the quarters in 2026, showing less pronounced sequential growth. We believe this new technology advancement combined with the unique capability of our proprietary bots and software, is resonating with customers as they recognize our competitive differentiation and the significant value our solution creates. It also unlocks new opportunities across the supply chain as well as the opportunity for more efficient deployment which we expect will contribute to higher margins over time for Symbotic. With that, we now welcome your questions. Operator? Please begin the Q and A. Operator: Thank you. Question, please press 11 on your telephone. You'll hear an automated message advising your hand is raised. We also ask that you limit yourself to one question and one follow-up. As well, please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q and A roster. Our first question today will be coming from the line of Nicole DeBlase of Deutsche Bank. Your line is open. Nicole DeBlase: Yes. Thanks, guys. Good afternoon. Maybe just starting with Medline, is it possible for you to provide a bit more color on the relationship, what they've committed to? And then, you know, it seems like healthcare could be a pretty big opportunity with respect to new customers. Anything on how aggressively the sales force is pursuing that right now? Rick Cohen: You broke up a little bit, but the Medline relationship is something that we worked on for about a year, maybe a little bit longer. And it was a combination of understanding what they wanted to accomplish with the hospitals and the critical care units that they deliver with. And then for them to understand how the ability of our system to handle lots and lots of items, and also the incredible accuracy with which we ship product. And then thirdly, the ability we have to sequence products because oftentimes to hospitals you're delivering to a specific section to a specific floor. And so we work with them to give them a good understanding of the unique capabilities of our system. And so, that's why we won the award, and there are lots of warehouses, great customer, so we're very excited about that. In terms of future growth, we've added about five or six new salespeople in the past six months. And so we're much more in the aggressive marketing role than we were before. Probably a year ago, we were still wanting to make sure everything was working in testing out. And as I tell the organization, you can't scale chaos. But over the last year, as we began to hit all our timelines for bills, and price points for execution, and the quality of the way we measure it and some of our internal measures has more than improved by almost 300%. So we're feeling very bullish about being able to handle a much broader base of customers and to deploy systems that'll work on day one. Nicole DeBlase: Thanks, Rick. That's really helpful. And you kind of alluded to this, Izzy, when you were talking about like the cadence of 2026. But is the expectation that you guys start to really ramp next-gen systems still kind of around the middle of the year? I think that's what we shared on the last earnings call. And does that mean we're going to have kind of stable revenue through the first half and then the next step up kind of comes in 2026? Thank you. Izilda Martins: Nicole, that's exactly the way we're thinking of it. As you know, we unveiled it last quarter. So we had some signings then. Then this quarter's signings are all about the NextGen system. So what that does is exactly what you said. You'll have to call it see a less pronounced increase in revenue in call it, the fourth, the first, and the second, and then you'll see more of an increase towards the tail end. So, Nicole, I would say you got that right. Thank you. Nicole DeBlase: Perfect. Thanks. I'll pass it on. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Joe Giordano of TD Cowen. Your line is open. Joe Giordano: Hey. Thanks, guys. On Medline, can you talk about, like, what's contemplated there? Like, how many sites are we talking about? What, like, what types of technology is this encompassing? You know, is there break pack in this? Is there room for the micro fulfillment strategy in there as well? Like, what's what was, like, you know, effectively added to the backlog from them right now? Rick Cohen: Yeah. So, Joe, it's one site. It's a proof of concept. It is the way we look at it. Obviously, if we do a good job, they have a lot of warehouses. And initially, we contemplated a pretty straightforward moving case system, but we also think we can upsell or extend to sell to these customers micro fulfillment which could either be in a receiving room in a hospital for them or very specific selection for them in a warehouse. And then, break pack is also an opportunity for us to sell. So, basically, we could sell them three different products. But right now, we are starting out with the first original product. Joe Giordano: And then do we need to, like, just wanna make sure I understand this. The comments about Walmart where, like, the two phases being incorporated into one now. We need to, like, change the way we describe these things? I guess, like, I just wanna make sure the understand the definition. So if you say, like, 10 new systems were started, can some of those new systems effectively be, like, two that you would have said last time? And then we have to talk in dollar terms instead of number of sites now? Rick Cohen: I'll turn that over to Izzy because I'll get in trouble. Izilda Martins: I think the way you said it, you have it right in the sense of, you know, not all every system is created equal. But going forward, the size of the system is gonna be slightly larger. That's how I would think about it. They could be slightly larger, or we also have the ability to do some smaller systems. In terms of smaller space in a warehouse. So it gives us a lot of flexibility. But Izzy was saying is absolutely right, is that in the same amount of space, that we were going to install an operation some of our bigger sites, they can actually take down more of the warehouse because we can do more work in the same space. As we did before. Joe Giordano: Yeah. I see. Okay. Thanks, guys. Operator: Thank you. One moment. While we prepare for the next question. And our next question is coming from the line of Andrew Kaplowitz of Citigroup. Your line is open. Close enough. How are you good? How are you guys doing? Andrew Kaplowitz: So systems gross margin was, I think, a high watermark close to 22%, that's despite all the changes you're making to your systems. I think you had spoken about more flattish gross margin for Q4. So is Q4 a function of ASR mix maybe a little being a little higher? Is it safe to say you're on a better glide path? Given improved operating leverage, better execution? Any more color on whether you think your system gross margin continues to sort of just kind of go up from here? Izilda Martins: Yeah. So let me tackle what you said in the beginning of your question. It's how I think about, call it, ASR in the quarter. It's really, call it, mid to high digits in terms of a percentage of total revenue in the fourth quarter. I kind of would expect that to be about the same as we progress. I think the bigger part of your question is how you think about, okay, do you unpack the margins? And I would say, we feel really, really bullish about our system margins, not only where they are, but where we're headed. So I think if you see the last several quarters, have kind of a little bit of a lumpiness. But I think it's about the exit trend. Where we landed in the fourth. And I would say even though we don't guide to margins, would expect that to be a slight uptick in the first. I think it's more about when you think about how we're recognizing revenue in, call it, that twelve to eighteen month period given when we roll out the next generation storage system. That we expect those margins to really to be expanding. In the coming quarters. That's really what's the key part. And like I said, would reiterate, if there's one thing I would walk away from today, it's the fact that we are very bullish about where our margins not only where they are, but where they're going. Andrew Kaplowitz: It's helpful, Izzy. And then Rick, backlog, as you know, has been somewhat flash for Symbotic. I know your burn rates are going up. But do you think you could grow Symbotic's backlog in FY 2026? And or we know you're ramping on GreenBox, ASR. Can you give us an update on whether FY 2026 is a big year for Symbotic new customers, GreenBox? Can you start booking backlog for ASR? Like any thoughts around all that? Izilda Martins: Yeah. So you're trying to trap me a little bit. So we don't guide some backlog. But here's how I would say. Right? Given the guide we gave for the first quarter, I would expect our backlog in the first quarter to really be no different than where we are. You do have in the 10 ks, call it what our banding is, but what's coming through in the next you know, twelve months. So I would say too soon to tell of where backlog will be. It's not something but with we talk to in coming quarters. I think you have to take two takeaways. As Rick said, we built up our sales team. We constantly obviously have more opportunities. So we will continue to do that. I think it's also important to think about that backlog for us is strictly what you do from a gap perspective, not what we think could happen given that most customers will do one system at a time. And then last but not least, what I'll leave you with, maybe not in the next twelve months, but soon thereafter to some extent, is to think about we still have more than $5 billion of backlog to unlock. With the mini micro fulfillment systems. So I'm not troubled about backlog at all. I think that's more about our long-term strategy. But I would say that 2026 is a solid backlog. Andrew Kaplowitz: Appreciate the color, Izzy. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Mark Delaney of Goldman Sachs. Your line is open. Mark Delaney: Yes, good afternoon. Thank you very much for taking the questions. First one was on GreenBox. And now that you have a CEO of GreenBox, also given the new store structure that you've had and some of the progress you spoke to around building out sites there. I was hoping you could speak a bit more on the progress at GreenBox in terms of finding new customers who use the GreenBox sites? Rick Cohen: Yeah. So our first site that will come live will be Atlanta. I mean, some of these sites are still under construction. Some of it will be a year away, some maybe be a little longer. But Atlanta will come alive. A lot of interest in Atlanta. No customers to announce yet. But we expect hopefully by the in the next ninety days, next one hundred and eighty days, we'll have some announcements as to who our first will be. We continue to get interest. And now that we actually have facilities we are in discussions with customers about how much space they want and when, but nothing to announce yet. Mark Delaney: Okay. Anything in particular, Rick, you think new customers would wanna see in order to, get across the line? Rick Cohen: No. I think I mean, I think what's happened is what we're seeing is on the real estate space, there was a downturn after COVID. And then some of the big guys have gobbled up a bunch of space. So there's a shortage of space right now. So we're very well positioned. And so we're talking to people about some would be different. Some might be versions of GreenBox, some might be just JED storage, very proactive warehouse handling services. And then we're starting to talk to a few new customers about just being a whole active 3PL. So we're in a pretty good spot because we're ahead of the market and so we're talking to different customers about different things right now. Mark Delaney: That's helpful. And just one more for me if I could please on GreenBox. Your partner SoftBank has said they're looking to raise capital more generally in order to fund some of the investments they'd like to do. So as you think about what that may or may not mean for GreenBox, any implications you can share in terms of how GreenBox is looking to have the funding and what that might mean for the pace of deployment at GreenBox? Thank you. Rick Cohen: Yeah. So, I mean, our agreement with SoftBank is ironclad. They're there to provide the funding. We don't have any worries about providing the funding there. And we have a lot of cash to do our part of it as well. So funding will not be a problem with GreenBox. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Colin Rusch of Oppenheimer. Your line is open. Colin Rusch: Thanks so much, guys. You know, as you get into these customer conversations in a bit more detail, can you talk a little bit about the potential for adjustments to bot design or even system design more broadly? How we might think about the cadence of that evolution? Rick Cohen: Yeah, so that's a great question. What's happening is that the customers are coming in now, I'll answer your question in two ways. So what's happening is that the market is appreciating the fact that we're not selling the same system that we were ten years ago. And a lot of our competitors have not innovated. They're just scaling. So our bots for instance, we introduced to our customers what we call a stretch bot. So we can now handle the 36-inch case. We might even be able to handle two eighteen-inch cases. So the bots have more flexibility. We've introduced vision and LiDAR on some of our bots. So, we have collision avoidance. So customers are coming in and they've and even some of the ones that we talked to five years ago, who weren't ready to make a decision, they come in now and they say, my goodness. The pace of change with which you guys are doing things. So I think we're really differentiating us from the rest of the world. One of the things that we have done a lot of is we've moved to cloud-based. We're investing in AI resources, the database. So we can do sorting and slicing and pallet building, and for instance, truck routing. I think may be better than anybody in the world at this point. So I should avoid superlatives, but our customers say, nobody can do what you guys are doing. So it's not just building very aisle-friendly pallets, it's building super friendly aisle pallets, but we can actually route the whole truck because of the reliability of our bots, which made huge progress in the last two years in terms of we pick very, very, very, very high percentage what we say we're going to pick, and we never make a mistake picking. So for hospital supply, that's absolutely critical. But for other people, like we'll start to go live with our Southern Glacier site pretty soon in and it's liquor, and so it's both bars and restaurants, and so the ability to route trucks is really critical for them. They're telling us other people can't do it. So we continue to make improvements both in software. Our bots are getting much more technologically both intelligent but also better vision tools, collision avoidance, better routing, and we're also innovating on our pallet building and depalletizing to get product into the system. So it's been I mean, reason I do what I do is I love the innovation and I love the fact that we have a team that can do innovation very quickly. That's creating a big noticeable distinction between us and the rest of the market right now. Colin Rusch: That's incredibly helpful on our side. And then just from the human capital, you know, and the competition for talent, you know, we're hearing about a variety of different dynamics on that. Can you talk a little bit about your ability to attract folks and retain them as this market really heats up? In terms of, know, both physical AIs as well as some of the software that you're talking about? Izilda Martins: Yeah. So the reason we went public is because we had to create a compensation system that would allow us to attract people that were used to being compensated in stock. And so we're not doing billion-dollar packages out in Palo Alto, but we're doing pretty good in the Boston market. And in the East. We also have opened an office on the West Coast. We also opened an office in Vietnam because one Omni Labs, was one of the healthcare small healthcare start-ups that we bought, has a lot of Vietnamese people that founded that company and so we've opened an office in Vietnam where there's huge talent. So we're getting more than our fair share of talent and at a faster rate. One of the things that's been interesting is as the EV space falls down some, we are getting people from the EV world that are just disillusioned with some of the things that are happening there. And basically, bot, the way we're approaching it is an electronic vehicle with LiDAR and collision avoidance. It's not passenger carrying, but we do some very complicated things. And so we're able to attract people because they like the problems. We're solving. And our comp is as good as anybody needs to be. We're not gonna compete with ChatGBT, but there's plenty of people that aren't gonna work for them either. Colin Rusch: Excellent. Thanks so much, guys. Operator: Yep. Thank you. One moment for the next question. And our next question be coming from the line of Guy Hardwick of Barclays Capital. Your line is open. Guy Hardwick: Hi. Good evening. It looks like the based on the change in the RPO that there was very strong bookings in the quarter that $600-$700 million Izzy, could you just mix split that out between the Medline, new win, and pricing? Izilda Martins: Just so we, you know, just make it clear, Medline was something we signed in the tail end of the quarter. So Medline is not going to influence really our results in the fourth quarter. Really, Medline's about no different than how we spoken to we recognize our revenue over almost really a two-year period. So I wouldn't put a lot of, call it, pre ins to numbers or how we achieved our fourth quarter numbers with the announcement of a new vertical. I think the fourth quarter is about the momentum that we've created for over months on end on installations and moving, call it, six more sites to operational. That's really what drove it, plus the fact that, yes, we did sign 10 more new appointments. But overall, I would characterize the success of the fourth quarter based on the momentum that we've been working on for months on it. Guy Hardwick: So Medline was not in the RPO. The $22.5 billion RPO at the end of the quarter. Izilda Martins: Yes. It is in the RPO, but it's not any has no significant to the revenue generated in the court. Guy Hardwick: Okay. That so I'm just my question was more, was it material to that increase in the RPO? Because given you would imply that your bookings were at $700 million given the burn in the quarter plus the change in the backlog. So that's a very significant increase compared to, say, previous quarters. So the question is really the mix of that, how much of it was Medline versus increase in pricing. Izilda Martins: Yeah. I would say it's more about the increase in pricing or call it how you consider, you know, we did years ago and how inflation has moved. So that's really the main driver. In the RPO change. But yes, Medline is in there. Guy Hardwick: And just in the 10 ks which you referenced, Izzy, it looks like the 12% of the backlog will be delivered over the next twelve months. That's quite a big increase in the figure back twelve months ago in the 2024 ten ks, you said 10%. It looks like you actually missed that 10%. You came in more at 9%, particularly if you include the ASR R and D revenue. So given what you said also about being a back-end loaded year, 12% of that backlog seems quite a big significant step up on the previous delivery, which you effectively kind of missed slightly. So what reasons should we give us confidence that you can deliver 12% of the backlog in the next twelve months? Izilda Martins: I think it's all about what we said in our prepared remarks. Given that we're seeing call it, improvements from that start of installation to the end line. That's what gives us the, call it, the momentum that we're talking about. Yes, we do have ASR that we built in. During the year, so you're absolutely correct. But I think we need laser-focused on the exit trends and what the new structure delivers. As you know, not only is it more dense, but more importantly, from an installation perspective is that it has call it, somewhat sub-assemblies. That come in that have that process get done in a much faster pace. So quick call out on the ten to twelve I'm really comfortable with the 12% that we have in this year's band date. Thank you. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Derek Soderberg of Cantor Fitzgerald. Your line is open. Derek Soderberg: Yeah. Thanks for taking my questions. On the recurring software fees, I'm wondering if you can share what new customers are signing up for in terms of an annual software fee on a percentage basis. Can you share that at all? Izilda Martins: Unfortunately, that's not an area that we give any more color. I think it's just in general, how you map, call it, what we move to operational, and when we start triggering that software fee. But I would think if you take the a little bit of the exit trend, that's really what we would be expecting. In the near term. Derek Soderberg: Okay, got it. And then, Rick, you mentioned there's about 76 million square feet of distribution centers in the healthcare vertical. I'm wondering if you've done the math internally how many modules does this equate to, or what's for the dollar opportunity? Just wondering if you can help us size that healthcare vertical in The U. S. Thanks. Rick Cohen: I haven't done that, but you can ask Izzy. This call is over. Derek Soderberg: Sounds good. Rick Cohen: Will do. Operator: Thank you. One moment. And our next question will be coming from the line of Jim Ricchiuti of Needham and Company. Your line is open. Jim Ricchiuti: Thanks. Evening. Think late in the quarter, there was an announcement regarding Symbotic working with a I guess a small battery technology company, I think, in The UK, Niabolta. And I'm trying to understand the significance of this. And, if you could talk to you know, how we might think of potential deployments. Is this gonna be on new projects? Is there a plan to move forward? With, you know, with retrofits as the maintenance schedules dictate? Rick Cohen: Yep. So all our new batteries starting I think, from February on have niobate batteries. So we, for the last fifteen years, have used ultracapacitors. An ultracapacitor can take a million charges, but the charge only lasts about eight minutes. Deniable is actually a battery, but it charges the same way as an UltraCap. And it can take a forty-minute charge. Now that may not seem that much to you at home, but the American grid, especially with all the stuff that's happening with AI, is pretty erratic, especially in hot weather places like Florida, Texas, which also had tornadoes. So the ability to go forty minutes is like a lifetime for us in terms of reliability of the bots. So when there's a power flicker, we want our bots to get back to a home station which is on a charge plate, and in the past, sometimes eight minutes wasn't enough. So this is just one more thing that as we show new customers what doing with battery technology, most people are operating their bots with a third rail. It's kind of an electronic wires in the system. And so you have a when you have a flicker, the whole thing is down. But so the progress we've made on battery technology, and we've taken stake in this company, It's very, very exciting, and we can actually use these batteries for other parts of our system, and sometimes actually to help our customers keep uninterruptible pyro supplies in their warehouses. So it's just one more thing of the MARCHER technology that we had a problem. The American grid is pretty bad. Erratic. And so we're thinking, how do we solve this problem for these automation systems? So I think this is really gonna help us in life sciences and a bunch of other areas. But just in general, our systems are way more reliable than they were even two years ago. Jim Ricchiuti: Thank you. Follow-up question. Just as we think about your fiscal twenty-six goals. I'm wondering how does geographic expansion figure into that? Obviously, you've got a site in Mexico that you're working on. And I'm just wondering if there's an opportunity you think, in fiscal twenty-six to perhaps get into Europe? Rick Cohen: Yeah. As a matter of fact, half our sales team is in Europe today. So it's been interesting with Europe because so many of the great automation companies came from Europe because Europe had either tight smaller land spaces more restrictive labor laws. But as we go to Europe, especially with our smaller, denser warehouses, people are really getting interested. We've been doing this long enough that reliability issues are not a problem. So I'm very optimistic about Europe. We see lots of opportunities. Operator: Thank you. One moment for the next question. And our next question be coming from the line of Ken Newman of KeyBanc Capital Markets. Your line is open. Ken Newman: Hey, thanks. Good evening, guys. For squeezing me in. Izzy, I wanted to go back to your comment about the change in the phasing of the revenue. I know you said you expect less pronounced sequential revenue growth in the first half versus the back half. Just looking historically though, I think in the last three years, Sales have typically been down sequentially, high single to low double digits, four q to one q. The midpoint of the guide is assuming something that's a little bit better than flat. So just wanna make sure we're understanding that growth comment for accelerating growth in the back half versus what already seems like a bit of a stronger start versus typical seasonality? Izilda Martins: That's fair. If you take the high end of the range we just gave for the first quarter, we would sort of break the trend that we've been typically seeing, at least from what I saw the last two years. Clearly, that's our main focus. But if you take, call it, the bottom end of the range I gave you, then that's really just about 1% less than where we landed in the fourth. So it depends. But if you take the midpoint, we're kind of flat. To exactly where we achieved in the fourth quarter. But internally, as you can imagine, we're trying to get past this lumpiness and really be continuing on continual improvement. And so although I guided right in between, guided a slightly under where we are in the fourth. So the guide was 06:10 to 06:30. But if you take that midpoint, that's really where I go about this less pronounced sequential improvement. But the overall goal, to be clear, is not to have that lumpiness in the first quarter going forward. Ken Newman: Okay. No, that's very helpful color. I appreciate that. And then, and secondly, for my follow-up, you know, we are hearing some more comments from hardware-related manufacturers around higher DRAM pricing. And memory shortages. Rick, can you maybe just remind us how memory intensive are the Symbot deployments? And just any comments on what you're seeing broadly from chip availability and pricing as it relates to your ability to keep margins stable. Even though I'm sure you're able to pass through the pricing. Is there a risk of, you know, just nominally margins kinda stepping down? Rick Cohen: No. Not for us. I mean, our bots are mean, basically, what our bots are doing is transmitting data back to us, which we then process in the cloud, and with different various algorithms, are mostly proprietary. So yeah, we're buying more cloud storage, but not significantly like the super big guys are. And it's coming down in price. But we're not doing that directly on the bots. What we're doing is we will take the information that the bots transmit back. That's a controllable expense, though it's going up. And then reprogram the bots for different various edge case behaviors. So like a bottle, see something and say, I don't know what to do. And so it'll transmit back to us. But the bots are being trained, but the bots are not truly independent AI machines. We kinda take that information back do the processing, run the algorithms, and then send it back out a software release. So chips are not really a problem for us. As we get bigger and better. I mean, think this time next year we'll have 20,000 bots. So we're a major factor for some of the medium and smaller-sized companies. And even NVIDIA, there's a certain amount of the lower-priced chips are what we're using. We may upgrade some of those chips, but they're not the $25,000 chips that other people are buying. And we don't use that many of them. Ken Newman: That's super helpful. I appreciate that. Operator: Thank you. One moment for the next question. And our next question will be coming from the line of Mike Latimore of Northland Capital Markets. Your line is open. Mike Latimore: Great. Yeah. I guess I'll just build off that last answer. I guess if you're expecting, you know, 20,000 or so bots in a year, you give us kind of a baseline of where we are now? Rick Cohen: Yeah. I mean, we have about 15,000 bots right now. Mike Latimore: Okay. Rick Cohen: So we expect to keep growing, and there'll be different kinds of bots that we'll use. There'll be different versions. The back of store mini system will use a similar bot. So there'll be different versions of our bots as well. Mike Latimore: Yeah. That makes sense. Then I guess just on the new system starts in the quarter, I think you said there were 10. Were there any break packs in there? And I think last quarter, you had guided to sort of, you know, mid single, upper single digits. And you are you or should we still think about that as kind of the run rate for a while? Izilda Martins: So I you know, there's a mix of the 10 in the 10 deployments we had in the fourth quarter. Yeah. There were a couple of breakbacks. Sorry. And your next question was can you repeat your latter part of your question? Mike Latimore: Sure, sure. Sorry. Yes. Last quarter, I think you had guided I think you had guided to system starts being in the kind of mid to high single-digit range, and then you did 10 this quarter. So I guess any new view on the system start number? Izilda Martins: It's something we don't typically guide to is what our, you know, call it system starts are going to be or which ones are gonna be moving into operational. Think the best way to think of it is although I said historically, I wanna get away from the lumpiness in the red I do think, though, sometimes we do have more of a tail end of those deployments in the fourth quarter. And we have a healthy amount that we have throughout all the quarters of next year. But I think it's less about trying to manage what they are and more about, okay, the size and how much is gonna be coming through in the revenue. So more importantly is the guide of the six ten to six thirty in the top. Mike Latimore: Yeah. Okay. Great. Thank you. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Greg Palm of Credit tell him, your line is open. Gregory Palm: Yeah. Thanks. I wanna go back to systems gross margin because that was certainly a highlight, and it sounds like you're pretty confident that that can continue to improve. Anyway to maybe, Azi, if you can sort of break out or bucket out some of the positive impacts happening from an improvement in the quarter? And just sort of broadly, what's standpoint relative to maybe the last, you know, twelve or eighteen months? Izilda Martins: Yeah. I mean, I think we keep going back to what the same thing, but I think we've actually seen it over multiple quarters. And really, the way I would think about it is we thought a little bit of, call it, a in our operation services. But yet, overall, we had a terrific gross margin on the bottom line. So if you just if you go through all the map in our earnings release, and I know it's not the easiest thing to track to, you'll come back to that the systems is really where the powerful improvement is. I think if you unpack the quarters, really what it comes down to, last year at this time, we did have some cost creeps. And I think if you walked the halls here in Wilmington, what everybody reminds me of is that we did have that really disciplined cost management for the entire year. And with no cost creep in how the supply chain supply chain team installed the systems, that's really what's driving the overall systems gross margin. And not to mention what it become as we deploy the more denser system. So even before that, I think that's really what's the highlight. Not only in the quarter, in the highlight of what we feel bullish about what the system's margins will be going forward. Gregory Palm: Okay. Yeah. Makes sense. And I guess, Rick, I'm fairly certain that Medline was a pretty large user of another competitor in the warehouse automation space. So I'm curious does this have potential to be a competitive displacement, something that could be expanded know, from this initial site? Like, I know they've already automated a big chunk of their footprint already. So just wanna hear what the actual opportunity with them could be over the years. Rick Cohen: The answer is yes. Our technology does things that other people's technology doesn't do. We also can augment some of the other technologies that we've seen in some of their facilities. But we would do bigger projects. And I think if they like what we're doing and we I don't wanna mislead anybody. We don't have a contract for any more than one. But if they like what we're doing, I think we have a huge opportunity with them. Gregory Palm: Okay. Fair enough. Appreciate the color. Operator: Yeah. Thank you. And our next question will be coming from the line of Keith Housum of Northcoast Research. Your line is open. Keith Housum: Good afternoon. Hey, Rick. I know it's kind of new news here, but, you know, the largest retailer in The U. S. Is scaling back some of their investments with I guess, a smaller competitor of yours. I guess, any thoughts on what was perhaps driving that? And any does that dampen any of the enthusiasm that you see from your customers about the use of this type technology for the fulfillment centers going forward? Rick Cohen: Yeah. No. Actually, it's actually supercharged. The interest in our technology. So what's happening in the e-commerce space and in the supermarket space in particular is the congestion from all the people picking orders in the store the DoorDash and that stuff, Instacart, was a great convenience. But it's really very confusing and messing up the stores. And so what we're talking to people about is how can you put 20,000 or 30,000 items in 10,000 square feet and deliver in a marketplace or a city that could actually use the fresh produce from the store it's e-commerce is evolving. In the way of, you know, the biggest guy in e-commerce delivers 1.2 packages 1.2 items per delivery. But the retailers in the food space are delivering probably 15 or 20 package order. And so it actually allows them to do a lot of things that you can't do when you're just delivering one or 1.2 eaches. The reason I can't speak fully, I mean, have my own view, but I'll express it here, Why that retailer made a change of mind with that technology, I think what you're starting to see and where is that we can actually use the same bot but pick each and pick each's or use a bring a bot can bring an item or a number of items to a pick station, very similar to what we do in our break pack installs, and actually do customer orders, which is initially, this is what we've been trying to explain to people. Three years ago, we did a break back. Where a bot would bring a tote to a person, the person would pick it, and then we basically batch pick it. The same more or less concept can be in the back of a store, except you're picking a customer order. And so the real problem that people are trying to solve with the e-commerce now is speed of delivery. And much more local. So I think our commitment and our largest customer asks us to develop this for them we're really excited. This is a very, very big market. Keith Housum: Great. Thank you. Appreciate it. Operator: Thank you. And that does conclude today's Q and A session. I would now like to turn the call back over to management for closing remarks. Please go ahead. Rick Cohen: Symbotic and Yes. Thank you, everybody, for joining our call tonight. We appreciate your interest in look forward to seeing some of you in the coming weeks at investor conferences that we'll attend. Goodbye. Operator: Thank you all for joining today's conference call. You may all disconnect.
Operator: Hello, everyone. We'll get started shortly. Hello, and welcome to Zoom's Q3 FY26 earnings release webinar. As a reminder, today's webinar is being recorded. It is now my pleasure to introduce Charles Eveslage, Head of Investor Relations. Charles, over to you. Charles Eveslage: Thank you, Megan. Eric S. Yuan: Hello, everyone, and welcome to Zoom's earnings video webinar for 2026. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be downloaded from the investor relations page at investors.zoom.com. Also, on this page, you'll be able to find a copy of today's prepared remarks, and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. After this call, we will make forward-looking statements including statements regarding our financial outlook for the fourth quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts from a macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations, and product initiatives including future product and future releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today. And actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and financial results which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K, and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make on today's webinar. And with that, let me turn the discussion over to Eric. Who's giving his prepared remarks via Zoom custom avatar. Eric, Eric S. Yuan: Thank you, Charles. We delivered strong results this quarter with broad momentum across products, industries, and customer segments from online to our largest enterprise accounts. This performance reflects the durability of our business driven by the growing value we are delivering for customers as we evolve from a communications leader to an AI-first platform for work and customer experience. Our vision is to be the AI-first work platform for human connection. As we march towards this vision, we are focused on three priorities. Elevating core products with AI, driving growth of new AI products, and scaling AI-first customer experience. Pivoting to our first priority, at Zoomtopia, we unveiled AI Companion 3.0, our next-generation agentic AI that's transforming how work gets done. We're evolving Zoom into an AI-first system of action going beyond summarization to be your agent to proactively prepare for meetings, follow-up on tasks, and drive work forward. AI Companion runs on our federated AI architecture. Which lets customers use Zoom's models alongside their own or trusted third-party models unlike closed systems elsewhere. Spanning meetings, phone, chat, whiteboard, and soon the web Zoom brings intelligent assistance wherever work happens across major platforms. And customers are responding AI companion adoption continued to surge more than four times year over year, underscoring demand for smarter, more seamless ways to work. In tandem with AI companion growth, we saw continued strength across Zoom Workplace, Team chat monthly active users rose 20% year over year. As the canvas for asynchronous work, chat turns meetings into persistent workspaces. And with AI Companion, it provides summaries, composition tools, and easier search capabilities, customers can keep work in context, reduce app sprawl and take action faster. Our employee experience offering continued to shine even as we lapped the strong momentum of our previous Meta partnership, Workvivo logos grew nearly 70% year over year to 1,225 customers spanning mid-market up to the Fortune 10. Last, Zoom Phone surpassed 10,000,000 paid seats early in Q3, marking a major milestone and reinforcing its leadership in unified communications. It continues to perform well with consistent ARR growth in the mid-teens and numerous sizable wins in financial services and healthcare. For example, Rothman Orthopaedics, Platinum Dermatology, and a reputable clinic adopted Zoom Phone for its unified platform, advanced AI capabilities, and healthcare-specific integrations and compliance tools enabling seamless collaboration and better patient care, AI isn't just bolstering our core, it's opening new revenue streams and deeper customer value through customization and automation. Two quarters in, Custom AI Companion is scaling with several Fortune 200 wins and broad interest. Oracle, already a major Zoom workplace and contact center customer, chose to deepen its partnership with us this quarter. As one of the world's leaders in AI and enterprise technology, Oracle adopted Zoom Custom AI Companion to create powerful AI-powered assistants across its global workforce, helping employees turn everyday conversations into actionable insights. We were also delighted to see Salesforce deepen its partnership with Zoom by adding Custom AI Companion. Alongside horizontal momentum, we're extending AI into collaboration adjacent verticals as well. In Q4, we agreed to acquire BrightHire, a leading AI-powered hiring intelligence platform that elevates every stage of the hiring process enhancing one of the most critical business workflows while strengthening our collaboration platform. The same AI innovation powering how teams collaborate also transforming how companies engage their customers and Zoom is at the center. Customer experience is one of our fastest-growing businesses and an important long-term growth vector for Zoom. In Q3, customer experience delivered a phenomenal quarter with ARR continuing to grow in the high double digits. And early in the quarter, we were honored to be included in the 2025 Gartner Magic Quadrant for contact center as a service only three years after launching Zoom Contact Center. Within customer experience, AI has become a clear differentiator, creating additional monetization opportunities. Nine of our top 10 CX deals involve paid AI, such as Zoom Virtual Agent or AI Expert Assist, as enterprises use Zoom to deliver faster, more personalized service. For example, SolarWinds, LegalShield, and Bromcom chose Zoom to replace fragmented legacy systems with one unified AI-first platform. They turned to Zoom for its integrated approach across workplace, phone and contact center, and for the innovation of Virtual Agent 2.0, which helps simplify operations and enable faster, more intelligent customer engagement. We're encouraged by the rapid momentum of our CX portfolio, reflected in external recognition and customer wins, and driven by our AI differentiation and deep workplace integration. This progress advances our platform strategy to deliver a unified solution and expand long-term growth. In summary, we're executing a clear plan. AI-led innovation, platform expansion, and disciplined, durable growth. We're pairing innovation with financial rigor, delivering strong profitability and cash flow while investing for long-term growth. With accelerating adoption and marquee enterprise partnerships, we're turning our AI momentum into measurable value for customers and shareholders. Now let me turn it over to Michelle to take us through the financials. Michelle, Michelle Chang: Thank you, Eric, and hello, everyone. I'm excited to share Zoom's Q3 FY26 financial performance today. In Q3, total revenue grew 4.4% year over year to $1,230,000,000 or 4.2% in constant currency. This result was $15,000,000 above the high end of our guidance. Our enterprise revenue grew 6.1% year over year, representing 60% of our total revenue. Up one point year over year. Our online business continues to show signs of stabilizing, In Q3, average monthly churn was 2.7%. In line with Q3 of last year, and at an all-time low. In our enterprise business, we saw 9% year over year growth in the number of customers contributing more than $100,000 in trailing twelve-month revenue. These customers make up 32% of our total revenue, up one point year over year. Our trailing twelve-month net dollar expansion rate for enterprise customers in Q3 continues to hold steady at 98%. Pivoting to our growth internationally. Our Americas revenue grew 5% year over year, EMEA grew 3%, and APAC grew 4%. Moving to our non-GAAP results. Which excludes stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, net litigation settlements, and all associated tax effects. Non-GAAP gross margin in Q3 was 80% up 117 basis points from Q3 of last year. Primarily due to cost optimization efforts. We remain focused in the near term around balancing investments in AI, with cost efficiencies. Non-GAAP income from operations grew 11% year over year, to $507,000,000. Exceeding the high end of our guidance by $37,000,000. Non-GAAP operating margin in Q3 was 41.2%, up 234 basis points from Q3 of last year. The operating margin improvement was driven by ongoing cost management and timing of spend. Non-GAAP diluted net income per share in Q3 increased to $1.52 on approximately 305,000,000 non-GAAP diluted weighted average shares outstanding. This result was $0.08 above the high end of our guidance, and $0.14 higher than Q3 of last year. The EPS growth reflects strong business performance, effective cost management, as well as anti-dilution, driven by our buyback program, and our disciplined stock compensation management. Turning to the balance sheet. Deferred revenue at the end of Q3 grew 5% year over year, to $1,440,000,000 towards the high end of our previously provided range. In Q4, we expect deferred revenue to be up to 4% to 5% year over year. Looking at both our billed and unbilled contracts, our RPO increased 8% year over year to $4,000,000,000. We expect to recognize 60% of the total RPO as revenue over the next twelve months, down one point year over year. Operating cash flow in Q3 grew 30% year over year to $629,000,000 representing an operating cash flow margin of 51.2%. Free cash flow margin in the quarter grew 34% year over year to $614,000,000. Representing a free cash flow margin of 50%. Up 11 points year over year. The year over year increase in free cash flow margins was driven by improvements in the collection process, as well as stronger billings. We ended the quarter with $7,900,000,000 in cash, cash equivalents and marketable securities excluding restricted cash. Under the pre-existing $2,700,000,000 share buyback plan, in Q3, we purchased 5,100,000 shares for $414,000,000. As of the end of Q3, we repurchased 32,500,000 shares for $2,400,000,000. Turning to guidance. In Q4, expect revenue to be in the range of $1,230,000,000 to $1,235,000,000. This represents approximately 4.1% year over year growth at the midpoint. We expect non-GAAP operating income to be in the range of $477,000,000 to $482,000,000 representing an operating margin of 38.9% at the midpoint. Our outlook for non-GAAP earnings per share is $1.48 to $1.49 based on approximately 305,000,000 shares outstanding. For the full year of FY26, we are excited to raise both our revenue and profitability guidance. Now expect revenue to be in the range of $4,852,000,000 to $4,857,000,000 which at the midpoint represents 4.1% year over year growth. We now expect our non-GAAP operating income to be in the range of $1,955,000,000 to $1,960,000,000 representing an operating margin of 40.3% at the midpoint. In addition, our outlook for non-GAAP earnings per share in FY26 is increasing to $5.95 to $5.97. Based on approximately 308,000,000 shares outstanding. As a reminder, future share repurchases are not reflected in share count and EPS guidance. With the strong free cash flow results in Q3, and increased outlook for operating income in FY26, we now expect free cash flow to be in the range of $1,860,000,000 to $1,880,000,000 for the full year. Which at the midpoint represents approximately 3.4% year over year growth. As indicated in our press release today, we are also excited to announce our board has authorized an incremental $1,000,000,000 share repurchase. This reinforces our board and management team's confidence in Zoom as we continue to leverage our strong cash flow and balance sheet to drive shareholder returns. In closing, we've made progress improving top-line growth, we've sustained best-in-class profitability, and we've reduced dilution. We're executing on our three priorities, with discipline and momentum, and remain committed to building on this success to deliver lasting value for our shareholders. Thank you to our customers, investors, and, of course, the entire Zoom team. For your trust and support. With that, Megan, please queue up the first question. Operator: Thank you, Michelle. We will now begin the Q&A portion of the call. When I read your name, please turn on your video and unmute. As a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question will come from Tyler Radke with Citi. Tyler Radke: Alright. Hey, everyone. Thanks for taking the question. So really nice to see stabilization and acceleration in the business as well as the margin expansion. Just a multiparter here on growth. So can you if if we look at Q4, you know, the outlook looks looks very strong. How should we be thinking about that as a jumping off point? Into next year? And I ask because I know there were some price increases that you took on on the online business this year. How do you think about pricing, heading into next year? And then Know, big picture, you're you're kinda near that 5% growth mark. Certainly, it should be by Q4. What do you need? What are sort of the stepping stones to get back to a 10% growth over the long run? Thank you. Michelle Chang: Yeah. I can jump in and take that one. First of all, we're not we're not sort of at our plan plan planning process, to the stage of giving FY27 guidance We're gonna go ahead and do that as per the normal kind of Zoom process in February. With that said, maybe to touch on a couple of your questions and with more specifics. Any pricing kind of element we would we always try and give real clarity to investors. If we choose to do that, you would also get that. In the February time zone. Maybe let me just pause a little bit and and share some thoughts about how we think about kinda long term growth. First, with this latest forecast, you know, enterprise will continue to be the predominant growth driver. With this latest round, you'll see that, we do expect online to be a slight increase on the full year. And, really, the elements that investors should have, top of mind as they think about growth path for '27 or even beyond that, are the same elements that we've been talking about, first and foremost, stability stability stabilization, excuse me, churn. And then product diversification, moving up market, and really those three priorities are gonna be also, you know, the the predominant drivers and focus of growth going forward. Thank you. Operator: Our next question is from Michael Funk with Bank of America. Michael Funk: Yes, great, great. Thank you for the question. Maybe a related question asked slightly different way. So looking at the enterprise, net dollar expansion you reported, still still below 100%. Clearly an opportunity to help drive top line growth if that does improve Several competitors though noted they're continuing to see post COVID seat based contraction. So, you know, this can you peel apart the pressure on ND and if you're also seeing post COVID seat based contraction if you are, you expect that to turn and maybe contribute to more positive top line growth? Michelle Chang: First, thanks for the question. But we're pleased, you know, after six quarters to see the net dollar expansion stabilizing. We're not gonna get sort of guide to to inflection, but certainly inflection, is is the goal. What I would say in terms of how to think about it, maybe just a continued reminder for investors, that when we have products like contact center, work Vivo, they tend to bring in new customers to Zoom. Those will obviously take a little while, to play through the dynamic of the metric. But but, overall, you know, in terms of your maybe more question about seat count, that's not something that we've seen be a huge element to our quarter, certainly always customers here and there will have see pressures, but we've seen overall a very strong macro demand. Michael Funk: Great. Thank you, Michelle. Thank you, Eric. Eric S. Yuan: Thank you. Operator: Our next question is from Rishi Jaluria with RBC Capital Markets. Eric S. Yuan: Rishi, are you there? Rishi Nitya Jaluria: There we go. So my apologies on that. Thanks so much for taking my questions. May maybe just one simple one for me. Coming out of Zoomtopia, there was conversation around m and a, and I know you've done some two small tuck ins right now. Is this just how kind of how we should be thinking about m and a for you going forward in terms of it'll be more technological a little tuck in in nature, obviously, accelerating your AI road map. Or or, you know, is there a potential for maybe more transformational m and a? Thanks. Michelle Chang: Yeah. Thanks, Rishi, for the question. You know, really, I would say our our thoughts on m and a are very consistent to kind of what I've said previously. Really no change, just to update investors. But let me go ahead and recap them, just for everybody's knowledge. First of all, is that we're gonna be very thoughtful and disciplined in both acquisitions and integrations. We're gonna make sure that they're strategically aligned with synergies. And, obviously, coming with sound financials. And for Zoom, that typically will mean small to medium sized investments. Think of the bonsai and BrightHire. M and a as as small in nature. If helpful. So we'll be in Okay. Helpful. Thank you so much. All the way up to medium. Rishi Nitya Jaluria: Alright. Thank you. Operator: Our next question comes from Josh Baer with Morgan Stanley. Josh Baer: Excellent. Thank you. Thank you very much for the question. Congrats on the beat and race. I wanted to double click on on growth enterprise growth, from one more angle. Just really double clicking on Zoom phone, ARR, which is growing mid teens, customer experience. High double digit growth, WorkVivo, you have rapid growth there. Could you walk through each of those growth areas just wondering how you think about the sustainability of those growth vectors? Michelle Chang: Yeah. Maybe I can take that one. And maybe I'll use the opportunity as well and judge just to call out to investors. We made a slight tweak to the three priorities that we've been highlighting to Really two themes of what we were trying to get across. One, AI in all of our priorities, and two, really just sharpening kinda the language with which we talked about our priorities. So let me, introduce them or reintroduce them the same as what Eric talked about in his script and give an update to sort of get at your product specific question. The first one is really about elevating, workplace with AI. And and, broadly, what that means is AI over the entire meeting life cycle And and the things that I would think about in terms of growth and progress that we saw in three there, our continued progress against churn. Is the fifth consecutive quarter on enterprise for year over year declines on churn, and then you obviously heard the call out, in online for record low churns. But not just that. It's it's the Zoom phone And increasingly, how much AI comes up in our win rates You see it in the 10,000,000 seats in the mid teen growth. Second big priority for us is to drive new products with AI. Oh, I should mention on the previous one, also integral to that that sort of sets up the second one is getting that AI usage going. And so that's where you know, we continue to see four times year over year MAO increase in our AI. When it comes to new products in AI, we have sort of the horizontal that builds off that AI usage, and you see the big in Salesforce and Oracle. Still early days, but pleased to see that in our second quarter end building up the names we shared last quarter. And, certainly, then there's vertical. Be it our ZRA product or our new, BrightHire acquisition. And then last, to kinda get at your contact center question, or comment, is really to, you know, scale AI first customer experience, whether that's agent assisted or virtual agent. Really, they're what you're seeing, you know, called out by Eric in his script, is strong, high digit, double digit, excuse me, revenue growth. Customer growth in the 60 plus percent, and then also just in the nature of the deals strong AI preference. Nine of the top 10 deals pulling AI. Many pulling both virtual and our agent assisted. So a lot that we're excited about is we we pivot to growth going forward. Update on our product side. Josh Baer: Great. Thank you. Yep. Operator: Next up, we'll hear from Ryan Williams with Wells Fargo. Hey, guys. Good to see you again. Ryan MacWilliams: Really cool to see the AI avatar in the in the prepared remarks. You know? Maybe one day, I'll be asking AI Michelle about growth next year. Just just kidding. We'll find our bots, Ryan, to talk to one another. Ryan MacWilliams: So Yeah. AI Mac, I don't know if you can recreate the Philly accent, but just historically. one for Eric, actually. So Zoom is a really strong product blog And as product development time lines shrink even further with agent coding, think this offers Zoom the opportunity to build more product density into your existing products with new features or expand into new product categories? Eric S. Yuan: Well, Ryan, that is a great question. I think in the in the AI era, I think every you know, businesses Right? And are facing the the the similar challenge and also the great opportunities. So the the innovation speed is is unprecedented. Look at the way engineer write a code. Look at our marketing team, how they lab the AI to automate the process. You know, we we go to leverage AI to reinvent everything. The good news, you know, I have a engineer background. Right? And I think, you know, I have to. You know? And also I also determined. Right? To spend way more time than any time in my career to double down, triple down on the product side. I think there's a huge opportunity. You know? Meaning, we have to change the company culture. And make sure every engineers. Right? The way they write a code is totally different. The way they they troubleshoot. Right, the test also is very different. They need to make sure every engineer even if the writer that tens of a thousand lines of code before, they have to embrace AI now. Back to your question, I truly believe the innovation speed will be much faster. You know, to build a new features and new services. Right? I think that's the opportunity. And we are much better positioned Right? And, again, I'm figuring out a way really, you know, spend more time on that. That's the reason why I can tell you I couldn't be couldn't be more excited now. You know, finally, I think, you know, we are going going back to the early days of Zoom. On the product, live the AI, build it in a in a video services. You know? And you are so right. So Ryan MacWilliams: Appreciate the color. Thanks, Eric. Eric S. Yuan: Thank you. Our next Operator: question comes from Patrick Walravens with Citizens. Patrick Walravens: Oh, great. Thank you. Let me add my congratulations. I love the accent that you picked, Eric. Don't know what it was, but it was fantastic. Patrick Walravens: Can you go into some detail and help us understand exactly how the, Salesforce win works? Like, Eric, if you're if you're sitting there with Benny off, how do you how do you pitch it? Right? And then, it just gives us some details on how it changes the experience. For people at Salesforce. Eric S. Yuan: Yeah. So, you know, Salesforce is a good company. Market is good friend, also was our investor. Right? Pretty sure he'd think about AI every day as well. Look at it at Salesforce event. Right? The June force is very successful, the agent force event. Very successful. Right? So they have agent force framework. You know, they also have a customer. How to integrate our AI company. I I mean, sorry, customer and AI company. Right? To integrate with the agent force, you know, the framework. Essentially, we drive productivity. Right? Because, you know, they're they have a genetic, you know, the the framework by Aviso. Our customer company. You know, together, for sure, that's a no brainer, right, to to integrate it together. You know, given our customer, why not, right, to enable this feature? That's how know, this con conversation started. That's the reason why you know, they they they decided to, you know, move forward with the customer company. More and more customer realized the the potential of not only for Zoom Air company, but also the customer to Air company. I think that's the reason why, you know, in the next month, you know, we are going to know, and announce our Zoom AI company, GA. Right? So a lot of opportunity ahead of us. Salesforce, again, just one example. Eric S. Yuan: Alright. Thank you. Eric S. Yuan: Thank you. Yeah. I will invite you to test our AI combined in. Next month whenever we reach GA. So I'm pretty excited. So our employee really like that too. Operator: Our next question comes from Alex Zukin with Wolfe Research. Alex Zukin: Hey, guys. Thanks for having me on. And Eric, I'd love to test out that virtual avatar when when it's ready for GA. Maybe just a quick one for you and a and a quick one for Michelle. For you, Eric, when you think about AI monetization, that you're seeing in the business and in in the quarter, and in the coming quarters. Maybe talk about that a little bit. And then, Michelle, for deferred revenue was a little bit light of your high end of your guide this quarter. But it seems like it's actually a pretty strong guide for next quarter. Was there anything that that shifted from one quarter to to the next or pushed out or pulled in that that maybe explains that? Eric S. Yuan: Yeah. So, yeah, Alex, by the way, the virtual Harvard feature already is there. Right? This is the third know, times I'm using my AI avatar for our earning call. Right? As it free up a lot of my time. I really love that. So back to your question, to monetize the AI as a mission. Right? You look at the few priorities. Right? You know, elevate the Zoom work with this with AI. A double down on those the AI centric product. You look at our horizontal collaboration suite. In AI combining as a mission. Right? Is look at the usage year over year only four times more. But customer AI combining, we can monetize. Form a sales team. And, also, we are gonna have introduced the new SKU to monetize AI company as well online. And that is on on one hand. On the other hand, we also have a vertical services. Like, know, Zoom contact center, right, and virtual agent, right, Zoom AI assistant. Right? Also the Zoom running accelerator for each of those department applications in the vertical market solutions like Zoom workplace for for educators. Right? And clinicians and also for the front end workers. You know, a lot of AI features already built in. We can monetize. Not automation, Zoom AI combined in suite. At all will be ready next month. I think almost everywhere And we can leverage AI, improve productivity, improve the the the feature At the same time, we also can monetize as well. It's not a a single thing. Right? We or single product we want to monetize. Or it's almost everywhere across the entire product portfolio. You know, back to the the the broader high, the acquisition. The reason why we acquired that company also is Lever dot AI. To improve the the hiring as well. So, essentially, AI is a foundation for us. You know, we can monetize, we can innovate. So Michelle Chang: Yeah. And if if helpful, Alex, maybe just tag on to Eric, and then I'll hit your deferred revenue question. We we produced Zoomtopia as sort of a framework of AI monetization because it does kind of, monetize indirectly and directly in in different ways. You know, happy to share that with investors after. And and to Eric's point, as you go through that framework that we shared with investors, progress on every single trend in the third quarter. To your deferred revenue question, look, we ended upper end of the range, gave a very consistent guidance in Q4, so nothing really to call out. Know, results were sort of as expected on the deferred revenue. Thank you, Alex. Operator: Thanks, Alex. Our next question comes from Timothy Horan with Oppenheimer. Timothy Horan: Patient with other. Michelle Chang: Other apps that are really important to kind of improve on your overall productivity strategy. Or software? Thank you. Michelle Chang: First part of the question, I'm so sorry. Cut out. Can you would you mind repeating them just so Yeah. Sure. Sorry, Michelle. Timothy Horan: An important part of the strategy, I think, is to integrate with other productivity software apps Can you talk about some of the most critical ones and where you are in that process? Michelle Chang: Yeah. Eric S. Yuan: Eric, you wanna take that? Eric S. Yuan: Sure. I think, first of all, you know, we have we are way beyond video conferencing. Right? So we have so many other services we would like to, you know, integrate it. And at the same time, you know, it's you get the the ecosystem. Right? We do integrate with Google ecosystem well. And Microsoft ecosystem well as well. And plus, you know, ServiceNow, Salesforce, Right? We all work on the integration. and Atlassian, you know, all those popular productivity tools. Again, this is the open ecosystem. And, also, we listen to our customer very carefully. And whenever know, they tell us, hey. Then, you know, more integration, we also work on that as as well. So Timothy Horan: And is AI making that easier or or harder at this point? Eric S. Yuan: Easy and harder. Meaning, the reason why easy for sure, for a execution perspective, for sure easier. The harder part, because of AI, every cost they want to tell us, hey. The AI error, can you integrate more? Right? Can you release the, you know you know, timely manner. Right? So the requirement also is different. Right? So from that perspective, a little bit harder. But it really boils down to execution. So I I have a confidence our team can deliver. So Timothy Horan: Thank you. Eric S. Yuan: Thank you. Operator: Our next question is from Seth Gilbert with UBS. Hey, thanks for the question. Seth Gilbert: Free cash flow is a bit above what we in the street were model and free cash flow margin hit 50%. I'm curious if you call out anything additional here. Were there any one time benefits to free cash flow? Thank you. Michelle Chang: Yeah. Thanks. Thanks for it. Obviously, we're pleased you know, with the Q3 results, and as such, it made sense to update the the full year guidance as well. So I'm pleased with the overall progress, frankly, that we made since the beginning of the year. Kind of guidance. That said, to your questions specifically on the onetime you know, look, there there are very durable, results as part of that. You see that, obviously, in our in our core financials. The one thing that we did put in script that I would make sure I emphasize with investors is we made some changes as part of our collections process, really looking at that more end to end as a a new CFO coming in. And as a result, we were able to make real notable progress on DSO. Those are sustainable. Changes to our DSO, but but, obviously, you won't continue to see that marked progress as we go forward, meaning it won't continue to accelerate off that. So you can kind of think about that as durable but one time a bit in nature. Eric S. Yuan: Got it. Thank you. Yeah. Eric S. Yuan: Yes. That's by the way, our CFO, she did a great job. Really drive her team. Right? You know, dramatically improve our, you know you know, collection collection process. This is very sustainable. So Seth Gilbert: We agree. Eric S. Yuan: Yeah. Eric S. Yuan: Thank you. Operator: Next, we'll hear from James Fish with Piper Sandler. James Fish: Hey, guys. Thanks for the question. Maybe, Eric, for you on BrightHire, Is this the start of expanding into other mission critical business workflows? Or or how should we think about I'm not asking about the m and a strategy, but more about that sort of broader platform expansion. And and, Michelle, how should we think at this point about, the duration of the overall installed base? Thanks. Eric S. Yuan: Well, this is a great question. So and my great friend, Kramer, you know, he made a comment recently. Right? And he wishes Zoom would be Zoom would become more than just Zoom. Right? And that's actually that's our strategy over the past few years. You know? You know, double down on Zoom Phone, you know, launched Zoom contact center, and leverage our technology, right, to focus on those business mission critical use cases. Or we are already doing that already over the past few years. Broader high a Broader high acquisition is just you know, another way for us. To double down on business mission critical applications. We cannot build everything by ourselves. Right? Why not? Right? So we do not have a greater remote hiring solution to target you know, HR remote hiring use case. Right? Broadhire fits very well to our strategy. You will see that more and more, we are going to elaborate AI because data AI and focus on those business mission critical use cases. We more than just video conferencing, and this is all the orchestrated or the possible past few years, and we are gonna continue that strategy. So your comment is right, hon. Michelle Chang: And just so I I get to your your question on install base was in regards to BrightHire? Or No. I it was a separate question around the duration that you're seeing because it seems as though you guys are doing pretty well on on sort of cross sell of existing products, and and you're seeing that show up also on the long term RPO driving some growth here on the on the overall RPO. So just trying to understand where the duration of the of the enterprise contracts has gone. Michelle Chang: Yeah. Look. I think, you know, look. Many quarter to quarter, you're gonna see fluctuations. We've had a very consistent RPO trend in the current I'm very pleased with the current quarter RPO that went up. Which really reflects a couple large contact center and AI deals in particular. And so look, I would say it it varies from quarter to quarter, but we're very pleased with the upsell progress that we have relative to our upsell base as well as kind of what I was referencing earlier, which is bringing in new customers. To the Zoom ecosystem. And, you know, in particular to the duration of deals, I would say sort of a stabilized. There's obviously AI and contact center that brings in sort of longer term nature of contracts, but a relatively stable trend within. Operator: Our next question is from Mark Murphy with JPMorgan. Mark Murphy: Hey. This is Artie on for Mark Murphy. Thanks for taking my question and congrats on the strong quarter. We recently spoke with a Zoom partner who is very positive on Zoom's products. Pricing, just overall, value prop. And they kinda called out particular momentum within the mid market legacy migrations, adoption of contact center AI products. From where you sit, are you seeing this relative strength in in the mid market segment as well? Thanks. Michelle Chang: Yeah. I would say to that end, I think, we are. We're seeing strong uptick of AI usage as well as strong uptick of use in our three plus products. And, certainly, this is, I would say, is a sweet spot for Zoom from small business down to low end enterprise and and something that we're pleased with the results that we're seeing. Then I think you can see play out, in many of our financial metrics. Eric S. Yuan: Yeah. By the way, to add on to what Michelle's side the reason why that middle market of a sweet spot is, number one, know, those middle market customers, they really embrace technology fast than any other segment. Right? Two, you know, middle market customers really truly care about employee experience. Right? And really they really wanna deploy the the best solution is a much better, you know, total cost of ownership. That's the reason why that's our sweetest sport. That's the reason why we're winning. Over there. So Thank you, Mark. Mark Murphy: Great. Thanks, Eric and Michelle. Operator: Our next question is from Citi Panigrahi with Mizuho. Hi. Thanks, guys. This is Chad TVB on here for Citi. Just wondering if you could touch on sort of the broader demand environment. I know there were some moving pieces earlier in the year, sort of how that shaped out during the quarter? And expectations for the rest of the year? Michelle Chang: Yeah. So, look, I think, in the quarter, we saw further improvement. I think we see it in metrics like our customers over a 100,000, you know, growing at 9%. Look. That doesn't mean that we're not gonna see some, you know, seat pressure like we talked about earlier, where that's certainly our business model, and we won't be immune. But we saw broad consistent demand across both enterprise and online. And full abatement, if that was your specific question to what we referenced in our Q1 earnings. So with respect to our forecast, it assumes, similar conditions to what we saw. In the third quarter. And maybe to end with sort of where Eric left us in the last quest You know, at Zoom, what what we're gonna focus on is not know, any conditions from one day to the next, given we are in a dynamic environment. But on providing sustainable TCO and business value our customers. So sort of in the line of in uncertain conditions, you control what you can control. And to Eric's point earlier, we have a fantastic TCO story that we're leaning in on. Our customers. Chad TVB: Awesome. Thank you. Eric S. Yuan: Yeah. Operator: Next, we'll hear from Jackson Adair with KeyBanc. Jackson Adair: Great. Guys. Good to see you. Thanks for taking our question. Michelle, on the know, call it the nonrevenue top line metrics. You've talked about billings. You've talked about RPO. I'm just curious, like, you know, as you shift more of your business toward the enterprise, when should we expect you know, those those nonrevenue metrics to start to outgrow maybe your your overall revenue metrics. On the top line? Michelle Chang: I mean, in terms of the nonrevenue metrics, I would point to things like our AI usage. I would point to, you know, product momentum type stats to which they already are outpacing our revenue growth. So I don't know. Jackson, correct me if I'm I'm sort of missing your question, but I think those are the sorts of nonspecific explicit revenue drivers that I look at I would say they're already outpacing. Jackson Adair: Got it. No. No. No. That's helpful. Yeah. Just curious about the dynamics there. Michelle Chang: Thanks, Michelle. Eric S. Yuan: Yeah. Just to quickly add, Jackson. You're right. And that's your right. Right? AI usage really number one. You know, the metrics about looking. You know, looking at that every day. The same time, it's CSAT. It's it's not a metric. It's also look at that. Right? The customers are pretty happy. Know, not only for online customers, online bars, SMB, and all the way to enterprise customers. We also manage CSAT as well. So Jackson Adair: Got it. Thanks, Eric. Eric S. Yuan: Thank you, Jackson. Appreciate it. Jackson Adair: See you guys. Operator: Our next question is from Peter Levine with Evercore. Peter Levine: Great. Thank you for taking my question. Maybe just to follow-up, I think, on Jim Fish's question. If you think about Eric, you mentioned a lot about employee experience on a call. And I look at BrightHire. I mean, is this like the on ramp in into, like, Zoom getting into the HR stack if it's interviewing, onboarding, you know, engagement. Just curious if you can maybe just talk about how you view you know, is this beyond what happened to HR? And then if you think about other segments that you can get into, like, can you maybe just help us understand, like, where else Zoom can go, with the platform expansion? Eric S. Yuan: Well, Peter, this is a great question. So look at our core competency. Look at our technology, right, in the collaboration and the productivity suite under the AI. Is our core technology. And how to apply those technologies. Right? Into the use case? That that's kind of every you know, quarter, every year we we are looking to. Right? Now the reason why you know, few years ago, we introduced the contact center. Essentially, to targeted support, you know, IT help desk those kind of use cases department. We also have Zoom revenue accelerator. Right, to target a sales department. Right? We also have Zoom webinar webinar also target a marketing department. You look at HR. You know, HR is, you know, is is the I would say it's a huge use case. We are not gonna focus on every use case at all, but we're focused on the remote hiring. Right? Because we can leverage our technology. That's a very different use case. Right? For those easy department, you know, how to leverage our product AI and data, right, to improve the use case. That's our focus. Including the vertical segment as well. You know, like, educators, clinicians as well. So, you know, you know, if if we understand our strategy, you know, expanding strategy, you look at which department, which vertical market, might benefit from our technology AI and and data. Right? That's kind of thing we are going to focus So, you know, remote hiring, broad hire for sure, you know, fits very well. To our strategy for expansion. So Peter Levine: Thank you very much. Eric S. Yuan: Thank you, Peter. Operator: Our next question is from Tom Blakey with Cantor Fitzgerald. Tom Blakey: Eric and Michelle, thank you for taking questions. I have for you, Michelle. Eric, you were couple of quick ones. Really just one for you, Eric, and a clarification you know, key in leading the charge in terms of, the higher pricing tiers in CX. It's great to see the success you've had you're having there. So another Zoom heritage is just disrupting markets and terms of technology and pricing and products. You have some peers CX market. in CX talking about maybe possibly disrupting the CX market with regard to consumption based pricing. I would love to hear your comments in terms of some forward looking possible kind of statements there in terms of, how how Zoom could compete in a consumption led And just, Michelle, from a from a clarification perspective, think you made some comment about online growth kind of up thinking Off of fiscal three q, maybe possibly in fiscal four q. You know, and there was a decel in enterprise. Could you maybe clarify what we Possibly could expect in terms of that mix would be helpful in fiscal four q? Thank you. Eric S. Yuan: Yeah. Yeah. Tom, thank you for a good question. But just curious, your background is your background or real? I'm so jealous. It's so beautiful. That is that is as fake as it can be. Eric S. Yuan: Oh my god. I even do not know how it I cannot work so well. I I did not realize that's real how people buy. So, anyway, let your yeah. Thank you. So back to your question. So you you are so right, Remember, I was Zoom accounting center general manager for a while. Right? Very excited about our contact center workforce management and portal management. Right? You know, those product over the past few years. Guess what? And because of AI, know, we have Lever AI introduced a new product, which is a virtual agent. It's a chat based agent or the voice agent. You know? I feel like it has become more and more important. Right? And because we have a boats, You know? We have, you know, the the traditional contact center solution. We have a virtual agent solution. Terms of consumption of of the business model, I think it it it fit fit very well. To our virtual agent. Right? And because, you know, like, customer deploy technology. Right? How often the user virtual agent how many times use a virtual agent. Right? So, you know, we gotta do, you know, based on, you know, how happy a customer they are right, for every call. Right? If a virtual agent can truly help address the customer issues, you know, customer should pay for us. Otherwise, they should not. Because you fall back to the traditional the the the agent distribution. Right? I think from that perspective, what indeed are thinking about, the consumption based model for the virtual agent or AI based agent technology. And, yeah, we're working on that. This is a great question. So Michelle Chang: Thank you. Just to clarify, the the virtual agent, well, our agent assisted product is a per user model. Our ZVA product that Eric is referencing is already a consumptive business model. And, certainly, then I think many in the industry talk about tying it more to outcome based, and then, you know, we obviously are are looking into that. But I just wanna make sure it was clear that we are already consented based on our ZBA product. To my to my comments, to clarify on the online, was just with one more quarter clarity and the full year guidance out there, full year guidance of 4.1% at the midpoint. All I was trying to do in my comments is is say that we've used consistent forecast methodology And previously to the investors, we've been saying sort of flattish online revenue. And, obviously, with with now most the year playing out and the results realized in the online, We're just adjusting that to a tweak of slightly increasing. That's all. Tom Blakey: Super helpful. Thank you, Michelle. Thank you, Eric S. Yuan: Thank you, Dom. Operator: Our next question is from William Power with Baird. Great. Thanks for taking the question. I William Power: Eric. Maybe let's stick with your contact center GM hat for a moment. Can you maybe remind us and maybe update us where we are on contact center go to market? Where are you in terms of the opportunity in terms of channel partner reach? And and and I guess if you extend that the opportunity outside The US, US versus international, and I assume international is still on the on the earlier front. Eric S. Yuan: Yes. So William, by the way, I I was the current energy. I'm I'm not that anymore likely. So you know, if I do that and maybe focus on the virtual agent, You know? But, anyway, so back to your question, I think know, for for you know, look at our you know, the the the customers, right, you know, suited to our platform. You know, last quarter, you know, many of them are switching from other cloud vendors. To Zoom Contact Center. Right? That's The Reason Why Channel And Partners Are Becoming A Most Important Go To Market Strategy For Our Content Center Solution. We Are Doubling Down Not Only For US market, for international market as well. Because the content center is very different buyers, and the channels become increasingly important. We already invested there now and also we're going to invest more. Right? And for the know, in terms of the virtual agent, and not only do we leverage the the our sales team channel partners, we're also thinking about the product led growth. You know, guess what? Some developers, you know you know, for, like, let's say, take a SMB customers. You know, they can leverage our API. You know, deploy those virtual agent and technology by Right? That's why I think about how to monetize center to leverage our product led growth to target developers as well. So Michelle Chang: And if helpful, maybe just to punctuate Eric's comments to your GTM question. In particular. We look at top 10 deals in contact center as sort of a of the demand and the customer signal that we see. If helpful, nine out of 10 of our largest deals were channel driven. So a very important investment to us and one that we're very pleased with the results. William Power: Great. Thank you. Eric S. Yuan: Thank you. Operator: Next, we'll hear from Arjun Bhatia with William Blair. Thank you. This is Alinda on for Arjun. A question here on like, what type of customers are adopting custom AI companions in particular, and what incremental value are they seeing from the custom AI companions versus customers using the free AI companions? Eric S. Yuan: I think we you know, for sure, we wanted to, you know, SMB medium size all the way to enterprise customers adopt customer companion as quickly as possible. But to start off is, we focus on the relatively large enterprise customers for customer AI company. You know, the reason why the demand and other reasons is because, you know, look at our you know, the value of a customer We can integrate with customer sort of part applications, You can have a framework and for the the the data search as well. And a lot of functionality features is beautiful. Those are little bit complicated enterprise use cases. Right? And that's the reason why we start from there. So for sure, we do have you know, we want to introduce the SKU or online buyers as well. To empower the a small and a medium sized business as well. So Alinda: Thank you. Thank you. Operator: Our next question is from Catherine Trebnick with Rosenblatt Securities. Andrew King: Hey there. This is Andrew King on for Catherine Trebnick. Thanks for taking the Just since Nick Tidd has come in and started revamping your channel partners program, can you just give us any more color to how that channel partner platform is performing? Obviously, that nine out of 10 is great metric to hear. So any further color there? And then also within that, you were one of the earliest to to a partner led, part a professional services, organization. Can you just give us a little bit of color as to how that may be helping you win certain deals? Michelle Chang: Yeah. Maybe I can lay down on that one. So first, you know, for for a company that's gonna focus on phone and experience, you know, having a healthy, vibrant channel ecosystem is just part of the game. Meaning, it's how customers opt and wanna buy, They're certainly part of the deployment and services after. And so Zoom offers both a a deep direct as well as, a three channel. It's also to Eric's comments earlier. I think one of the questions earlier, interval to sort of our international expansion where Zoom has, opportunity to go. In terms of how to think about success, I I shared the earlier contact center. But, also, we're just very pleased with a lot of the forward looking metrics that we see with our channel ecosystem. Pipe up 30%, The majority of contact center deals I talked about are coming from partner over 50% of our large phone deals coming from partner. And the types of partners, that are transacting with us is also growing. So all in all, you know, it's been a very big investment. And to my earlier comments, something that we're very pleased with the results. Andrew King: Great. Thank you. Operator: Our final question comes from Peter Weed with Bernstein. Peter Weed: Hey, thank you very much. Know, I guess the Peters on this call are at similar mind. I was really interested in in BrightHire and I was appreciated your response around kind of the vertical specific focus that you have, which makes a lot of sense, and and I can understand why, you're excited about that. Should we think about that opportunity? Like, when you think of it at, you know, relative to your existing customer base, how much of this is a more of an upsell opportunity to them versus expanding the the TAM to to new customers? And when you kind of think about the monetization, how how does this add to your your stack and and really could expand the TAM or or generate revenue upside for the business? Michelle Chang: Yeah. Maybe I can take that one. And give you sort of the finance version because Eric talked about BrightHire earlier. First of all, you know, it starts a lot at those critical conversations. One one thing Zoom is fantastic at is really nailing those critical conversations with our customers. And, look, there couldn't be a more critical conversation for our customers than who and how they hire. It also offers, you know, Zoom the ability as AI monetization plays out across different markets to have a very tangible scenario customers where the value point, is very clear and so certainly represents you know, one of those vertical AI monetization scenarios. It's a large and unpenetrated market at roughly $3,000,000,000. And so, certainly, allows us to help them scale. And also then gives us sort of an upsell piece beyond it. And and they're a category leader in in sort of a large TAM that is growing. So it's something we're very excited about. Peter Weed: Thank you. Operator: Alright. This concludes the Q&A portion of today's call. I'll turn it back over to Eric for closing remarks. Eric S. Yuan: So yeah. Thank you. Thank you, Megan. Thank you for every investor customer, and partner's greatest support and trust We truly appreciate. Thank you for every Zoom employee's hard work and dedication. Wishing you all have a wonderful holiday season. Thank you. Michelle Chang: Thanks, everyone. Operator: This concludes today's earnings call. Thank you all for attending, and have a happy holiday season.
Operator: Good morning, and welcome to the Corporación América Airports S.A. Third Quarter 2025 Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the company's website. As a reminder, all participants are in a listen-only mode. There will be an opportunity to ask questions at the end of the presentation. At this time, I would like to turn the call over to Patricio Inaki Esnaola, Head of Investor Relations. Please go ahead, Patricio. Thank you. Patricio Inaki Esnaola: Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Martin Eurnekian, our Chief Executive Officer, and Jorge Arruda, our Chief Financial Officer. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Please note that throughout this call, all references to revenues, costs, adjusted EBITDA, and margin will refer to figures excluding IFRIC 12. Also, all comparisons discussed are year-over-year unless otherwise noted. I will now turn the call over to our CEO, Martin Eurnekian. Martin Eurnekian: Thank you, Inaki. Good day, everyone, and thank you for joining us today. We delivered another very strong quarter at Corporación América Airports S.A. with solid execution across the board. Passenger traffic was up more than 9%, supported by good momentum in other markets. Italy and Armenia reached historical records, and Argentina continued to perform exceptionally well, with double-digit growth in both international and domestic travel. Revenue growth once again outpaced traffic, rising 17% in the quarter. Aeronautical revenues posted solid double-digit gains, and commercial revenues were up 18%, driven by continued strength in cargo, fuel, VIP lounges, and other passenger-related services. We also continue to see healthy traction in revenue per passenger, which increased nearly 7%, reflecting the ongoing success of our commercial initiatives. This strong operating performance carried into profitability metrics. Adjusted EBITDA increased 34% to $194 million, marking a new record for the company, geared mainly by Argentina, Armenia, Brazil, and Italy. The margin expanded over five percentage points, with easier comparisons also contributing to the strong results in Argentina. We also maintain a solid financial position, providing us flexibility to continue moving forward with our investment plans and long-term growth strategy. On the investment side, CapEx program approvals are underway in Armenia and Italy. Last week, the Italian government issued the Environmental Impact Assessment Decree, representing an important milestone in connection with the approval process of the Florence Airport master plan. We also continue advancing our inorganic expansion projects as we evaluate opportunities across our key target markets. All in all, it was another quarter of strong performance and disciplined execution. We are very proud of our team of executives. Turning to Brazil's traffic on slide four, we delivered another quarter of healthy traffic growth across most markets. A total of 23.3 million passengers traveled across our airport network this quarter, up over 9%, supported by solid domestic and international trends. Domestic volumes increased just over 10%, driven primarily by Argentina and Brazil, with additional contributions from Italy. International traffic rose 8%, with growth in nearly all countries, led by strong performances in Argentina, Italy, and Brazil. Let me walk you through performance by country. Argentina continued to stand out, with total passenger traffic up nearly 13%, marking a third-quarter record. Domestic traffic grew nearly 11%, supported by sustained demand and incremental capacity, particularly for JetSmart and Aerolineas Argentinas. International traffic increased 16%, reflecting strong connectivity gains, including new and resumed routes from LATAM, GOL, Copa, and JetSmart, among others. Operations were deeply disrupted by attempts at union strikes and adverse weather, but the overall momentum remained very solid. This strong performance continued into October, with domestic and international passenger traffic increasing by 10% and 15%, respectively. In Italy, traffic was up nearly 10%, reaching a record high. International traffic, which represents over 80% of the total, increased almost 7%, driven by strong results at Florence and Pisa. Pisa also supported domestic traffic, which rose nearly 6%. This positive trend continued into October, with domestic and international passenger traffic increasing by 2% and 8%, respectively. Brazil delivered a growth of over 8% in total traffic, with both domestic and international segments growing at double-digit rates, reflecting improved trends. Traffic in October remained solid, up 10% year-on-year. Uruguay saw a 5.3% decline in traffic, affected by several days of adverse weather as well as a six-day planned closure of the main runway to complete the installation of a new Precision Instrument Landing System. During the quarter, Azul launched a new route between Montevideo and Campinas, which should support traffic going forward. In October, however, traffic recorded a rise of 6.9% versus the same month last year. Armenia continued to perform well, with traffic up just over 6%, reaching a record high. The traffic increase was supported by strong international demand and expanded connectivity from new airline entrants. Wizz Air also established a new base at Zvartnots, adding eight new European routes in October, further strengthening Armenia's positioning as a growing regional hub. As a result, traffic in October rose by a strong 15% against the same period last year. Lastly, Ecuador posted a slight 1% decline in total traffic, reflecting a still challenging security environment and softer international demand. JetBlue and Avianca increased frequencies on several international routes, while domestic traffic was stable. Although operations were temporarily affected by a two-day planned runway closure in September, in October, traffic increased by 1.2% compared to the same month last year. In summary, it was another quarter of broad-based traffic growth across most of our markets, underscoring the strength of our network and the depth of demand across our operations. Moving on to Cargo on Slide five, we delivered another strong quarter, with cargo revenues up 20% year-over-year, driven by a 23% increase in Argentina and double-digit growth in both Brazil and Uruguay. This performance reflected improved pricing dynamics, including the new cargo business model implemented in mid-March in Argentina, which is performing as planned. Looking ahead, we will continue to build this momentum by enhancing our current capabilities and leveraging growth opportunities across our airports while maintaining a competitive and efficient cost structure. I will now turn the call over to Jorge, who will review our financial results. Please go ahead. Jorge Arruda: Thank you, Martin, and good day, everyone. Let's begin with our top line on slide six. Total revenues excluding IFRIC 12 increased 16.6%, nearly doubling passenger traffic growth of 9.3%. This strong performance was driven by double-digit growth in both our aeronautical and commercial revenues, supported by positive contributions across all of our operations, with Argentina, Armenia, Brazil, and Italy each delivering double-digit revenue growth. Our revenue per passenger was up 6.7%, reaching $20.2 compared with $19 in the same quarter last year. Aeronautical revenues increased 15.2%, mainly driven by a strong performance in Argentina, complemented by broad-based increases across most countries, with the exceptions of Ecuador and Uruguay. Argentina was once again the key driver, with aeronautical revenues up 22.1%, mainly reflecting a 15.9% increase in international traffic volumes. Strong momentum continued in Brazil and Armenia, each delivering double-digit growth, while Italy posted a 9.8% revenue increase, all consistent with passenger traffic trends. In contrast, Uruguay and Ecuador reported slight declines in aeronautical revenues due to lower passenger traffic resulting from scheduled runway closures related to the installation of a new instrument landing system in Uruguay and runway repaving works in Ecuador. Commercial revenues were up 18%, well above the 9.3% increase in traffic, supported by higher contributions from cargo revenues and solid growth across VIP lounges, parking facilities, food and beverage services, as well as other passenger-related services. Fuel-related revenues, primarily in Armenia, also supported the increase. Overall, we saw solid performance across all markets. Armenia and Argentina stood out, with commercial revenues up 22% and 19%, respectively, while Italy and Brazil also delivered double-digit growth, highlighting the continuous strength of our commercial portfolio and our ability to drive value beyond the core aeronautical business. Turning to Slide seven, total costs and expenses excluding IFRIC 12 increased 7.9%, aligned with higher activity, but remained well below revenue growth of nearly 17%. Cost of services were up 5%, largely due to a higher concession fee aligned with revenue growth, as well as higher fuel costs in Armenia, consistent with the growth in fuel revenues. This was partially offset by lower services and fees and maintenance expenses. SG&A increased 20%, mainly reflecting taxes and salaries in Argentina. In Argentina, total costs and expenses were up 3.3%, benefiting from favorable comparisons as the same quarter last year had absorbed significant inflation-driven cost increases, along with continued focus on cost efficiency. The comparison was further supported by the faster pace of currency devaluation relative to inflation during the quarter, which diluted peso-denominated costs when translated into US dollars. Moving on to profitability on slide eight, adjusted EBITDA excluding IFRIC 12 was up 34%, reaching a record of $194 million, reflecting strong performance across all countries except Uruguay, with double-digit growth in Argentina, Armenia, and Brazil. Argentina delivered another outstanding quarter, with adjusted EBITDA up 68%, supported by the aforementioned easier comparisons, solid top-line growth, strong passenger trends, and continued momentum in our commercial activities. Armenia also performed very well, with adjusted EBITDA up 25%, driven by higher passenger traffic and improved fuel margins. At Brazil Airport, adjusted EBITDA increased 19%, reflecting healthy traffic growth and strong performance across VIP lounges and cargo operations. Italy posted a 10% increase, or 18% when excluding construction service at Toscana Aeroporti. This increase was driven by higher passenger traffic and solid growth in duty-free, VIP lounges, and parking revenues. In Uruguay, results reflect a temporary operational impact, with adjusted EBITDA down 11% following a six-day planned runway closure to install a new instrument landing system. Finally, Ecuador delivered a 4% increase in adjusted EBITDA, supported by stronger duty-free and retail revenues. Overall, adjusted EBITDA margin excluding IFRIC 12 expanded 5.2 percentage points to 41.2%, driven by significant improvement in Argentina and continued operational efficiency across most markets. Notably, in Argentina, we delivered a 12 percentage point margin expansion, driven by easy comparisons, strong revenue growth, and effective cost controls. Turning to Slide nine, supported by continued strong operating and financial performance, we ended the quarter with a total liquidity position of $661 million, up 26% from the $526 million recorded at year-end 2024. Importantly, all of our operating subsidiaries generated year-to-date cash flow from operating activities, underscoring the strength and consistency of our cash generation across markets. Cash used in financing activities mainly reflected debt repayments in Brazil and Ecuador, as well as dividends paid to non-controlling interests in Corporación América Airports S.A. subsidiaries. Moving on to the debt and maturity profile on slide 10, total debt at quarter-end was $1.1 billion, while our net debt further decreased to $579 million from $718 million in December 2024. Our net leverage ratio also improved, reaching 0.9 times. To wrap up, we delivered another quarter of strong results marked by strong execution and financial discipline. Our balance sheet remains robust, providing the capacity to pursue new growth opportunities, both organic and inorganic, to continue creating value across our portfolio. I will now hand the call back to Martin, who will provide closing remarks and discuss our view for the remainder of the year. Martin Eurnekian: Thank you, Jorge. Let's turn to Slide 12 to wrap up our presentation. This was another very strong quarter for Corporación América Airports S.A., marked by solid performance across our portfolio. We delivered higher profitability with further margin expansion, all while preserving a strong financial position. Overall, the quarter highlights the strength of our portfolio and the quality of our management team. We are also making good progress on initiatives that enhance the passenger experience and expand our commercial offering. In Argentina, we inaugurated a new centralized car rental hub and a new digital mobility platform. In Brazil, the Brasilia shopping mall is on track to open in 2026. Armenia opened a fully redesigned duty-free store, and Uruguay is moving ahead with expanding its duty-free and VIP lounge areas. Strategic priorities across our concessions continue to advance. We continue to make progress in both the AA2000 rebalance in Argentina as well as the approval of the CapEx program in Armenia. In Italy, the government issued the Environmental Impact Assessment Decree last week, marking an important milestone in connection with the approval process of the Florence Airport master plan. Turning to our inorganic expansion pipeline, we recently signed an award agreement for the Baghdad Airport project in Iraq, and the government process continues for the Angola tender. In Montenegro, the government's tenders commission announced the result and ranked Corporación América Airports S.A. in second place. We continue evaluating additional opportunities across other countries. Looking ahead, we anticipate positive traffic trends to continue into the fourth quarter, though with a more moderate pace of domestic traffic growth in Argentina. Overall, we anticipate solid results in the fourth quarter, although not benefiting from the easier comparisons that supported the third-quarter performance in Argentina. In summary, our third-quarter performance reinforces the resilience of our business model, the quality of our assets, and the strong execution by our teams across all markets. Operator, please open the line for questions. Operator: Thank you. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. And if you are using a speakerphone, you will need to lift the handset first before pressing any keys. And out of consideration for other callers on the line today and the time allotted, we ask that you please limit yourself to one question and one follow-up. Thank you. And your first question will be from Guilherme G. Mendes at JPMorgan. Please go ahead. Guilherme G. Mendes: Yes. Thanks, guys. Good morning, Martin, Jorge, and Inaki. My first question is on the rebalancing in Argentina. Martin, you mentioned that these discussions are progressing well. Can you share what are the main milestones that we could expect for the near term? And the timing for the potential approval? And a follow-up on the commercial revenues overall, congrats on the strong performance. What can we expect going forward? Is this a more normalized level, or can we still expect some kind of improvement on the commercial revenues per passenger? Thank you. Jorge Arruda: Hi, Guilherme. How are you? This is Jorge. Thanks for your question. So in connection with Argentina, we continue to make progress both at a technical and political level. It's difficult for us in management to provide a timetable, but the message again is that we continue to make good progress in connection with the rebalance of the concession agreement. In connection with your second question, commercial revenues, commercial revenues in the quarter were up 18% versus last year. It's a very good performance, and as we reported, there are a number of reasons including VIP lounges, car rental, fueling, cargo, etc. We continue to see the same trend. I'm not sure that it is accelerating, but definitely, we will continue to see the trend continue. Guilherme G. Mendes: Very clear, Jorge. Thank you. Jorge Arruda: Thank you. Operator: Next question will be from Andres Cardona at Citigroup. Please go ahead. Andres Cardona: Hi. Good morning. Hello. My question is about any update you could share with us about the Armenia and Italy investment opportunities. If you have any update or visibility about the timeline to provide more details of the projects. Thank you. Jorge Arruda: Hi, Andres. It's Jorge again here, and thanks for your questions. So let me start with the second one. In Italy, as Martin has mentioned, we have recently obtained the approval for the environmental assessment of the project. The next step formally is the so-called Conferenza di Servizi to take place, which is a kind of forum of various government entities led by the Ministry of Infrastructure. We expect that to commence towards the end of the first quarter, and it's a process that should take approximately three months, after which then we would basically be ready to start the work. So that's the current timeline that we have been told. Again, when we are dealing with the government, it's difficult for us in management to set up a precise timetable. But that's our best guess as of today, and we will continue to keep the market updated. In connection with Armenia, we continue to make good progress in terms of discussions and connection with discussions with the government and government officials in general. And again, it's difficult for us to provide a precise timetable, but again, we'll keep the market posted. Operator: Thank you. Next question will be from Daniel Rojas at Bank of America. Please go ahead. Daniel Rojas: Good morning, gentlemen. Can you hear me? Operator: Please go ahead, Daniel. Daniel Rojas: My question was regarding the Baghdad Airport. Can you give us an idea of the size of the opportunity? And what else can you share with us in terms of potential traffic in that airport? Thank you. Jorge Arruda: Hi, Daniel. It's Jorge again. Thank you very much. As we have announced, we signed an award agreement, which is a document that is non-binding in connection with the process. We are expecting to be called by the government to finalize the process and sign the concession agreement. Once that happens, we will inform the market and provide more details about our financial plan in many aspects, including debt, equity, CapEx, etc. But what I wanted to anticipate is that we have a very constructive view in connection with the potential growth of traffic in that country and in that region. Daniel Rojas: Okay. That's fair. Thank you. Operator: Thank you. And at this time, we have no other questions registered. I would like to turn the call back over to Martin. Martin Eurnekian: I would just like to thank everybody for your time and participation and remind you that our team is always available to take any additional questions. Enjoy the rest of your day. Thank you very much. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your line.
Operator: Greetings, and welcome to WeRide's Third Quarter 2025 Earnings Conference Call. Please note that today's event is being recorded. The company's unaudited financial and operating results were released by Newswire earlier today and are currently available online. Joining us today are WeRide's Founder, Chairman and CEO, Dr. Tony Han; and CFO and Head of International, Ms. Jennifer Li. Before we continue, I would like to refer you to the safe harbor statement in the company's earnings press release, which also applies to this call as today's call that includes forward-looking statements, including WeRide's strategies and future plans. These forward-looking statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. The company's actual results could differ materially from those stated or implied by these forward-looking statements as a result of various important factors, and please refer to Risk Factors section of the company's Form 20-F filed with the SEC and announcements on the website of the Hong Kong Stock Exchange for the full disclosure of these risk factors. The company does not assume any obligations to update any forward-looking statements, except as required under applicable law. Please note that all numbers stated in management's prepared remarks are in RMB terms, and we will discuss non-IFRS measures today, which are more truly explained and reconciled to the most comparable measures reported in the company's earnings release and filings with the SEC and the Hong Kong Stock Exchange. With that, I'll now turn the call over to the company's Founder, Chairman and CEO, Dr. Tony Han. Please go ahead, sir. Xu Han: Thank you. Hello, everyone. Thank you for joining us today. I would like to begin by highlighting some of the key milestones we achieved this past quarter. Q3 was a period of extraordinary progress for WeRide. Most notably, we made history in Abu Dhabi by securing the world's first city level fully driverless robotaxi commercial permit outside the United States. And we will begin -- actually we have already started the driverless operation through Uber, which I'm going to detail in the later slides this week. With our recent expansion into Belgium and our inaugural driverless robotaxi license in Switzerland, WeRide has become the only company with autonomous driving permits for 8 countries. By October, we have developed L4 fleet in 11 countries and more than 30 cities with over 1,600 L4 level autonomous driving vehicles in operation worldwide. Abu Dhabi Model and Global Expansion Xu Han: So as mentioned earlier, WeRide has been officially approved to provide full driverless commercial robotaxi service in the UAE's capital, Abu Dhabi. This landmark authorization removes the requirements for in-car safety officer and demonstrates the regulators' strong confidence in our technology. Following this approval, WeRide and Uber jointly launched the region's first fully driverless [wire charging] robotaxi service this week. starting from Yas Island and with a citywide rollout underway. Our commercial operation at Abu Dhabi has begun in last December. Our service now covers roughly 50% of the city's core area. In half of 12 hours, our single vehicle can complete up to 20 trips per day. I think this is a quite exciting progress. In the third midterm -- in the midterm, we aim to extend our service hours to 24/7, increase vehicle utilization to more than 25 trips per day and improve human-to-vehicle ratio to 1:10. These numbers will lead us to a very healthy unit economics. We believe Abu Dhabi will set a global benchmark for large-scale and commercially viable robotaxi operation. And with all of these numbers, I think our unit economics is very, very healthy and can be profitable. So I just want to emphasize this kind of breakthrough is quite exciting, and we work so hard for a whole year to achieve this full driverless robotaxi operation in Abu Dhabi. And this is the first city level outside of United States who are capable -- first city level robotaxi service out of the United States, and it is actually provided through Uber platform. So with all of these important factors, this is unparalleled, and we are so exciting that we are making history. Xu Han: Now let's talk about our current operation in Dubai. In September, we secured a self-driving vehicle trial permit from Dubai's Roads and Transport Authority and have begun road testing for our driverless operation in Dubai. Our goal is to launch supervised trial on Uber this year and the driverless commercial operation in the year of 2026. I mean, next year, we are going to provide driverless robotaxi service in Dubai. Xu Han: Then we are going to talk our current operation in Saudi Arabia. In Riyadh, we began offering robotaxi rides through Uber in October, making our robotaxi service first and only publicly accessible robotaxi service in the Kingdom. With our development in the 3 largest cities in Middle East, that is Riyadh, Abu Dhabi and Dubai, we have more than 100 robotaxi vehicles in the Mid East region. The launch of driverless operation in Abu Dhabi is paving the way to scale the fleet to more than 500 vehicles by next year and tens of thousands by 2030. So we are very excited and very confident -- and very confident and very optimistic about our full driverless robotaxi operation in Middle East. Xu Han: But that's not only our operation region. And I want to talk about East Asia and Europe. First, in Singapore, together with Grab, we received approval from the Land Transport Authority for both robotaxi and robobus in the area called Punggol District. We plan to increase our AV test volume by 4x by the end of this year. We also are integrating our technology into Grab's fleet management and routing system so that in future, we can provide driverless robotaxi through Grab in Singapore, just what we have done in Abu Dhabi through Uber. Actually, this -- all of these efforts will pay the groundwork for commercial service in the next phase. And then let's talk about Switzerland. In Europe, the expansion in Switzerland continues to lead our robotaxi deployment. We received the country's first driverless robotaxi license, enabling our autonomous operation in the Furttal region. A full driverless public service is expected to be launched in the first half of 2026. That is our current operation in Europe and in East Asia and Singapore. Xu Han: And now let's talk about China. In our China market, we continue to expand and innovate. As we scale our commercial fleet, we also launched a 24/7 driverless commercial service in Huangpu District at Guangzhou. This is an area of 150 square kilometers. As of October, we have deployed more than 300 robotaxi in Guangzhou and over 100 in Beijing. All -- for all of this service, you can hail a driverless robotaxi in this region through our WeRide Go app. User value is kept very close to our heart, and we recently introduced China's first free pickup and drop-off feature for robotaxi service we called PU/DO service, allowing our system to intelligently recommend optimal boarding locations. This greatly improved both operational flexibility and user experience, which is well captured by our operational data. In November, each robotaxi completed up to 25 daily trips in Guangzhou and 23 in Beijing, which is a clear evidence of accelerated adoption. Other Applications and Technology Foundation Xu Han: Next, let's talk about our other applications. First, robobus. our robobus obtained Belgium's first Level 4 test permit, and we launched our operation in Leuven, making Belgium the 11th country covered by our service. In Guangzhou, after serving more than 1 million passengers since 2021, we received an order -- received an order for additional 100 midsized robobuses. This is a very exciting achievement. Actually, this is a newly developed robobus. In Hong Kong, we established a partnership with Kwoon Chung Bus Holding to deploy more than 500 Level 4 vehicles over the next 3 years. And for our L2+ Level ADAS system, WeRide and Bosch achieved a major milestone in November with the start of production of WePilot 3.0. This is an end-to-end system. It's just like what Tesla has achieved through their FSD system. Our WePilot is totally comparable to what Tesla can do with FSD. The WePilot 3.0 will debut with the refreshed Chery EXEED ES and ET model and existing owners will receive OTA upgrades. With this kind of new feature, every owner of Chery EXEED ES and ET can enjoy the experience of Tesla's FSD. With this exceptional end-to-end system, WePilot has also been selected as the major ADAS system provider by Guangzhou Automotive Group, GAC, for several of their passenger car models. So that part is actually a very exciting progress, demonstrating WeRide can not only capable of doing L4 level robotaxi, but also are capable of doing L2++ level ADAS for massive production car. Xu Han: This page actually shows -- summarize our footprint in the global. Actually, WeRide's strategy prioritized a balanced development in the global market. I want to explain this slide a little bit. You can see like in these 11 countries, we have different levels of operation. We have tested or we can operate it without a driver. So they are showing in the legend. So you see our multiproduct offering has maximized the value of our strategy, making us the only company whose technology is available in the 11 countries shown here. So we actually have a wide spectrum of applications and service available for the global market. Next, let me discuss about the backbone of our technology. This is called WeRide One Universal platform. By starting from supporting L4 applications alone in early days, WeRide One has grown gradually grown into a more powerful platform that empowers the full spectrum from L2 to L4 while continuously breeding new tools and systems. So one of the most preeminent is our world model, WeRide Genesis. So in our Genesis model, you can see Genesis is a new platform and will allow autonomous vehicles to be tested in a digital twin of the real world safely, efficiently and at a large scale. It features the data loop, algorithm loop and simulation validation loops that are essential for scalable autonomy. This is our world model, and it's seamlessly integrated with our end-to-end system. So this is a unique technology advantage. Our world model can be seamlessly integrated into end-to-end ADAS system and our L4 system can leverage on the data we collected from our L2 level data. So this Genesis form as the core flywheel, actually, we call it a double flywheel. We can actually leverage on L2++ level massive production car data to improve our robotaxi. In turn, our robotaxi data with redundancy can help us to boost the performance of our ADAS system. I want to emphasize in this world, there's only one company WeRide can do so. On one hand side, we have a large-scale robotaxi fleet make WeRide capable of doing leading robotaxi service like Waymo and other companies like they can do in the U.S. so that we can actually capture all the characteristics of full driverless operation. At the same time, WeRide to apply [indiscernible] 3.0 and very advanced ADAS system comparable to the FSD of Tesla, and we can leverage on mass production car data and collect all this kind of data in a very broad sense in all kinds of scenario to help us to improve the performance of robotaxi. We believe we can combine the benefits of L4 and L2+. This hybrid architecture enhance adaptability, reliability, safety and transparency, ultimately enabling robust commercial deployment. We look forward to sharing more about this advantage soon. In summary, Q3 was a quarter of exceptional execution. We expand our global leadership, and we translated technology innovation into commercial reality. With that, I will hand over the call over to our CFO, Jennifer, to discuss our financial performance. Jennifer, please go ahead to discuss about the financial numbers. Financial Review (Xuan Li) Xuan Li: Thank you, Tony. Hello, everyone. Before we dive into the third quarter financials, I want to highlight that all figures are in RMB and comparisons are year-over-year unless otherwise stated. Now let's discuss our third quarter financial performance. We delivered total revenue of RMB 171 million with a year-over-year growth of 144%, driven by our continued fleet expansion and increase in service penetration. The revenue growth also reflects the significant milestone we have achieved during this quarter, supported by our advanced technology, robust deployment and operational capabilities. Our revenue came from both product revenue and service revenue. Product revenue delivered strong growth of 428% to RMB 79 million in this quarter, an encouraging result driven by the increased sale of our robotaxi and robobuses. Service revenue grew 67% to RMB 92 million in Q3, supported by an increase of RMB 29 million from intelligent data service and an increase of RMB 8 million in autonomous driving-related operational and technical services. Service revenue has surpassed product revenue in this quarter, demonstrating a continual growth momentum and healthy business structure. Among our product lines, what really stood out in Q3, same as in the last 2 quarters was our robotaxi businesses. Robotaxi revenue increased 761% year-over-year to RMB 35 million in Q3, accounting for 21% of total revenue in this quarter. With our new federal permits in UAE, we are the first and only robotaxi company that have begun full driverless robotaxi operation in UAE. Removing in-car safety officer is a critical milestone from a financial perspective, which will enable our robotaxi service to achieve unit economic breakeven. The quality of our growth is also compelling. Group level gross profit increased 1,124% to RMB 56 million for the third quarter with a group level gross margin of 33%, demonstrating our industry-leading gross margin as our business continue to grow. We aim to keep delivering business value along with our globalization strategy. Operating expense decreased 51% to RMB 436 million, with R&D expense accounting for 73% of the total operating expenses. To break down further, R&D expense increased by 24% to RMB 316 million in the third quarter of 2025 compared to the same period of 2024. Excluding share-based compensation, R&D expense grew 39% to RMB 288 million as we further strengthened our global data compliance and advanced R&D efforts for our pre-installed robotaxi. The increase in R&D expense was primarily due to an increase of RMB 31 million in service fee for R&D projects, an increase of RMB 21 million in personnel-related expense from headcount increase and an increase of RMB 23 million in material consumption and depreciation and amortization expenses. Administrative expense decreased by 84% to RMB 100 million in the third quarter of 2025 compared to the same period in 2024. Excluding share-based compensation, administrative expense increased by 23% to RMB 74 million. The increase was primarily due to an increase of RMB 6 million in professional service fee, mainly related to legal compliance service and an increase of RMB 4 million in personnel costs as we continue to build necessary supporting function to grow our business. Selling expenses increased 23% to RMB 19 million in the third quarter of 2025 compared to the same period of 2024. Excluding share-based compensation, selling expense increased by 36% to RMB 19 million, which was well below the sales increase. Our commitment to R&D is the backbone of our strategy. We will continue to direct our resource there to pioneer the industry innovation and keep building our competitive advantage. Alongside this, we will strategically grow our global team with a clear focus on region that has accelerated the adoption of L4 solutions. This ensures that we have a world-class talent needed to support our business expansion. Our net loss narrowed by 71% to RMB 307 million in the third quarter of 2025. On a non-IFRS basis, adjusted net loss increased 15% to RMB 276 million, largely due to an ongoing R&D investment and broader operational support required for the expansion of our business. As of September 30, 2025, we had RMB 4.5 billion in cash and cash equivalents and time deposits, RMB 926 million in investment in wealth management products and RMB 18 million in restricted cash. We had short-term bank borrowing of RMB 245 million. Our current liquidity reserve, along with the proceeds from our recent Hong Kong due primary listing in November have enabled us with a resilient position for our R&D-focused strategy and our globalization deployment process. Our fully driverless robotaxi commercial permitting in Abu Dhabi is not just a local milestone. It's a scalable blueprint for the global industry. It demonstrates a viable path for city level full driverless cooperation outside the U.S. along with the potential for profitable unit economics in major international markets. Our strategy is to scale this model globally. We have the complete package, the technology, the operational experience, a proven safety record and regulatory trust. In the next 5 years, we will achieve large-scale L4 deployment, creating a sustainable business and delivering tremendous value of autonomous driving to the shareholders. With that, operator, we are now ready to take on some questions. Question & Answer Session Operator: [Operator Instructions] The first question comes from the line of Tim Hsiao from Morgan Stanley. Tim Hsiao: This is Tim from Morgan Stanley. Congratulations on the strong results and continuous expansion in robotaxi operation globally. I have 2 questions. The first question, we noticed that WeRide officially started commercial deployment of driverless robotaxi in Abu Dhabi, UAE. So in addition to the volume upside to revised fleet sales, as Tony just mentioned, how should we quantify the revenue opportunities of vehicle sales, revenue charge and profit sharing in the long run? That's my first question. Xuan Li: Okay. Thank you, Tim. That's a great question. I'll take the first one. So for the benefit of all listeners, I'd like to briefly elaborate on our robotaxi business model. In domestic China, we mainly own and operate vehicles by ourselves and on our own ride-hailing platform, WeRide Go. So before -- after the UE gets to breakeven point in the next few years in China, we will gradually engage third-party owners and partnership with them. And for now, we pretty much own like all the vehicles by ourselves. And international market is different. From day 1, we collaborate with platform partners such like Uber, Grab, SBB, TXAI, and we generate revenue from 3 main streams -- 3 streams. The first one is revenue share from the ride fare and second one is the annual licensing and third is the sale of the vehicle. So vehicle sale is considered as the product revenue. WeRide can scale up the robotaxi fleet much quicker and in a lighter business model -- like on an asset basis since the robotaxi operation fleet doesn't sit on our own balance sheet. We really just sell this to our partner already. And the revenue share and annual licensing of the recurring service revenue over the whole lifespan of the vehicle, which tend to be 5 to 7 years. In particular, revenue share will become a significant multiplier following the expansion of the fleet size. We'll take [United States] as example. A robotaxi at a human level utilization, which means they can complete like 25 orders per day, can generate an annual like revenue of over USD 90,000 like on the platform. If WeRide take 30% of the revenue share, that will give us USD 30,000 per car per year as service -- as a revenue share. If we can take 70% of the revenue share, that will give us like USD 60,000 per car per year. So if we are moving this one step closer to the goal -- and to see what we have already, let's say, in Abu Dhabi, right now, we have a significant presence with near 100 robotaxi in Abu Dhabi. Now we already cover 50% of the city core area. And the commercial model is we're integrating on platform like Uber. Right now, we are charging at the same price level at UberX and Uber Comfort. In fact, if you get like get on the Uber and to call the robo -- just to call normal ride-hailing car in half of the city, no matter you pick UberX, Uber Comfort or autonomous option, you can all get the ride vehicle. And this demonstrates that our service is competitive as the mainstream like ride-hailing from day 1 on the pricing level. And unit economic is -- on the unit economic side, the most critical metric is utilization. Right now, we already achieved a daily average like 12 order per vehicle in a 12-hour shift. Sometimes we can get to -- on the good days, we can get to more than 20 orders per vehicle per day for the 12-hour shift. and it's already indicating a strong user preference and stickiness. So for your information, for 12 orders per vehicle per day, we can already get to the breakeven threshold in this market. So there's huge profitability potential. Based on our current driverless cost structure and plan to extend the hours to 24 hours next year, we project an average daily order can reach to 25 per vehicle per day. And this level of utilization will lead to a very strong profitability potential next year. So the -- while the specific percentage of revenue share is confidential between different partners and -- but this approach can empower a sustainable win-win partnership for everyone in the ecosystem. Tim Hsiao: My second question is also related to WeRide's global business. So looking forward, in addition to operations in Abu Dhabi and Switzerland, which we just announced, which markets could step up as a key volume driver to WeRide? And does WeRide need to accelerate R&D and selling, spending more aggressively into next year 2026 to finance the company's robust expansion in overseas? That's my second question. Xu Han: Okay. I'll take the question. And so first of all, I think -- so besides Abu Dhabi and Switzerland, which markets would step up as key volume driver. So to us, in our plan is like -- so first of all, in the Middle East, we have 2 major cities in UAE, Dubai and Abu Dhabi currently is already -- we have already got the permit, and we are doing extensive road testing. And UAE is definitely the one country we pay a lot of attention to. It's a very important market. And there's also Saudi Arabia. So you can see major countries in Middle East. So they are part of potential countries. And also Europe and also -- and other developed countries in Asia like Japan, Singapore and Korea, they are all potential markets can help us to drive the volume up. But one thing I want to point out is like you just asked a very good question that is it's also I have been thinking about this over the years all the time that is what are our target markets and which markets can make -- can we make our service and products very profitable. And I think through our tested -- through our operation in Abu Dhabi, we find something so-called Abu Dhabi model, okay? Together with Uber, we found the unit economics is good and give us a very promising projection that we will soon in this region, we can make a good, very profitable service. This Abu Dhabi model actually created a road map for other cities. So with Uber, and I think we will try to copy this kind of model to the similar cities. And also this is a good combination of our current technology, our strategy and compared with our -- and also our collaboration with our strategic partnership. So with this model, I think we tend to copy to Singapore by for another alliance with Grab, also a very important strategic partner to do in Singapore and also potentially all East Asia. And in China, we are focusing on developing a robo testing service based on our own application. And about expansion, although we are increasing R&D investment to build stronger technology platforms, and we want to also try hard to recruit top talent, but we expect the growth of related expansion to be moderate because we want to adopt a satellite model to strike a balance between scaling and investment. One of our very midterm goal is trying to reach the profitability at the same time, maintain a strong market share. And also, we still want to innovate. So we have to strike a balance between investment and expenditure and the development. But with our current progress, I think I'm very optimistic because I have already seen the success of the Abu Dhabi model. And what's next to do is trying to find all the places we can easily copy our Abu Dhabi model to and by gathering all strength from these potential markets, we want to achieve profitability in the near future. Tim Hsiao: Thank you so much for sharing great insight congratulation and looking forward to more exciting project around the world. Operator: The next question will come from Alex Yao from JPMorgan. Alex Yao: I have 2 questions. Number one, what is your take of the robotaxi business in China? How do you envision economics to change in the future for China and for international market, respectively? The second question is how quickly can the driverless milestone of Abu Dhabi operation be replicated in other markets? What can we expect for your fleet expansion plan globally? And what are the catalysts or hurdles for your plan? Xu Han: Okay. Let me try to answer these questions one by one. Although it's claimed to be 2 questions, 2 groups of questions. So first question, if I remember clearly, it's roughly about our -- what do you think about China market and what's our plan for China market and our thoughts on the economics of China market. So first of all, China is a unique market with the largest user base and the dynamic economics. And also, it is a great test ground. It has been both our technology proving ground and ideal operation -- sandbox for our very innovative ideas. But of course, that doesn't mean like we treat them as a lab, okay? We want to -- while we do the robotaxi operation or trial operation, we keep safety as our top priority. But still with all kinds of scenario, all kinds of different climate, different weather conditions, China is a vast country. And we actually -- we tested so many different method, different algorithms. So that part, actually, China is unique and a very big market. But we believe -- but China is also a very -- in terms of development, it's not that balanced. They have a Tier 1 city looks like Paris and New York. There's Tier 4 city looks like rural area. So we believe profitability in Tier 1 cities can be achieved with a combination of 3 elements. Number 1, city level drivers per meet; number 2, average daily order of high double digits. That means like what we try to achieve in Mid East should be achieved in China also, more than 20 orders per day. Number 3, kind of a relatively healthy price, okay? Although these days, the taxi fare in China is still relatively low, but we expect to see the fare to grow a little bit. So it's still kind of relatively healthy. So with these 3 factors, we believe we still need to expand our market in China, mainly in Tier 1 cities. So far, we have achieved, like, as I mentioned before, right, 300 robotaxi in Guangzhou and another 100 robotaxi -- more than 100 robotaxi in Beijing in the areas of 150 kilometers area, and we are continuing to expand that. And also, we have implemented PU/DO, I mean, pickup and drop-off features help us to improve the user experience. And I think we aim at supply better robotaxi service than the traditional taxi service supplied by human driver. Therefore, we can get more orders and also we can give better user experience so that we can be ordered more frequently. And we expect that the economics of all of these markets will help to improve over time. And also, we want to actually learn what we have in China to expand to -- and learn what we have learned in China and use them as our competitive advantage in the global market. Therefore, I think we still treat China as one of the most important market, and we will keep on invest and inject resource in this market. Xu Han: Okay. The second group question is about how quickly we can copy up Abu Dhabi model to the rest of the world, okay? First of all, thanks for asking this question. And we believe we have find this kind of Abu Dhabi model. It's kind of like a Matthew Effect. And WeRide is kind of a unique first mover because we just got a city level driver permit. It is the only one so far out of the United States that you can have a citywide driver permit and you can provide the service through Uber. So that means make the service model be [indiscernible] available. Therefore, I think we can quickly copy to similar market like Dubai in UAE same country, Riyadh in Saudi and same region and Singapore with a Grab support. So we are trying to copy to these kind of countries. And I believe the regulatory condition, all of other factors are quite similar. And we also want to emphasize Europe is a very important market, and we are trying to see whether we can copy to Europe. And about the catalyst hurdles, catalyst is actually because of this Matthew effect, other countries are more prudent to allow our operation, more prudent to give us permit. But at the same time, the hurdles is still the regulatory issues. We want to make sure we use our -- leverage on our current successful experience to get more driverless permit so that we can deploy the service. That's all I want to say about this question. Operator: Next question comes from Ming-Hsun Lee of Bank of America. Ming-Hsun Lee: I have 2 questions as well. So first question, we are seeing more OEMs and the ride-hailing companies announcing to plan -- enter the robotaxi business. What are WeRide's key advantages? And how should we think about the competitive landscape in the future? That's my first question. Xu Han: Okay. So I think these days because of the increasing discussion and the increasing maturity of robotaxi, you see so many car OEMs and platforms -- car hailing platforms start to talk about robotaxi or start to announce their robotaxi strategy. But one thing I want to mention is like robotaxi to do robotaxi is not easy, okay? It takes many years of efforts, technology accumulation, regulatory exploration. And that's why there are so few mature robotaxi company in this world. If you count the mature robotaxi service once they have open to public driverless robotaxi operation, I think you can contact most of 3 or 4, okay? So not so many. So it's not because of while you see a few companies getting mature, then you can announce your strategy, better, you need to show whether you have enough technology accumulation, enough experience to do robotaxi. So our -- WeRide's competitive advantage is still in several areas. First of all, technology, right? WeRide, our ability to massively deploy both L4 and L2++ level mass production vehicle help us to actually, first of all, gain data -- to gather data more efficiently and make our algorithm more generalizable. So that one actually in turn strength our technology. Second, our capability actually for fast iteration is there. And think about for [indiscernible] OEMs, right, they have -- usually, they have a relatively small ADAS system development team. What you can do for L2++ FSD -- L2++ ADAS system is far from what you can achieve in L4 because L4 is a driverless operation. And L2 is just like assisted driving system. For the L2 system, you don't need to take the final responsibility. But for L4 system, you have to be redundant, have to take the responsibility. Over the past 9 years, we have accumulated lots of experience. We -- that's why we can roll out the robotaxi service. And I haven't seen any other car OEMs or car hailing platform be able to do so. So that is one of our advantage. And one thing -- the last thing I want to emphasize is about the core of our company. The core of WeRide is really the AI technology. WeRide since day 1 has been an AI company, and we hire so many top talents and set up our company for the fast iteration in the AI algorithm. I don't think traditional car OEMs or traditional car hailing platform are capable of this kind of faster iteration. So let's wait and see. But so far, I haven't seen any major car OEMs or car hailing platform company have successfully rolled out any robotaxi service, driverless robotaxi service to public, okay? That's my answer to these 2 questions. Ming-Hsun Lee: Sorry, one more question from me. So following the last question, do you think the amount of data and the development of AI models have given OEMs certain age to enter and compete in robotaxi? Is it possible to evolve from L2 to L4? Xu Han: Very good question. So first of all, I want us to think about one thing. So who are the best L2++ or ADAS system company in this world, probably Tesla. In China, I think we can name a few, maybe XPeng, Li Auto. But if you look at their strategy, they are doing L2++ ADAS system, and they talk about robotaxi, but when they come to robotaxi, they always try to attack this problem or approach this project directly from L4 level. Why there's no L3 strategy, okay? Where are the L3 strategy? There's no L3 strategy from Tesla. There's no -- XPeng and Li Auto, they all skipped at L3. Why is that? Because if you directly grow L2++ to L3 and then to L4, they found it's really very, very difficult. It's just like you are climbing a cliff. Instead, you maybe directly solve the problem. That is using what your experience directly solve L4 system level problem. That is just like we have already done for the past 8 or 9 years. The technology has been there. We have used deep learning algorithm based on large language model, a lot of data. But all of this, I want to say, it's based on our past 8 years' experience. Currently, true car OEMs can leverage on the cutting-edge large language model stuff, but there are a lot of infrastructures that are relevant like data simulation and the cloud computing platform. All of this, I don't think the car OEMs have enough accumulation. Still take many years of them to really roll out a simulation platform, to roll out the protocol, to roll out the pipeline to test the driverless robotaxi. One thing I want to emphasize, having a pretty good ADAS system can let you drive for 100 miles without takeover is far from to roll out driverless robotaxi. To roll out a driverless robotaxi, you have to capable of making that car drive back itself more than 10,000 miles. So that is a kind of magnitude of difficulties. So it's just like swimming in swimming pool and then you want to swim then across the English channel, that's different. So I think I'm not saying -- I'm not going to say it's absolutely not possible to gradually grow from L2++ to L4, but it will take a long, long time. Before that, I think first class, the Tier 1 robotaxi company like WeRide will have already taken over the global market has already been very profitable. So time left for this major car OEMs to gradually grow from L2++ to L4 is very, very limited. Operator: We will now take the next question from Liping Zhao from CICC. Liping Zhao: So first, I want to follow the previous technical question. And this question is for Tony because you are quite confident in maintaining the leadership in the industry. What tools and technology approaches help you stay ahead of the curve? Could you please share more color from a technical perspective? And then I'll have a follow-up. Xu Han: Okay. So first of all, just as I have discussed, right, there's only one company in the world to my best knowledge that are capable of doing robotaxi, has already achieved open to public their operation, at the same time, supply ADAS system to mass production car company that's WeRide. And so we have a so-called dual flywheel strategy that is we can gather the data we collected through our robotaxi fleet, all kinds of corner cases and use that to facilitate our L2++ development. At the same time, we can also get what we have collected from L2++ system like AI drive based on navigation and make our L4 system more stable and more generalizable. And so by combining the 2 source of data, 2 source of problem, we actually gradually evolve to a super platform that are capable of robotaxi at the same time with limited hardware and limited HD map and navigation map make us to cover the whole global market. So these 2 parts actually leverage on each other, help us to improve or to iterate our algorithm at a speed cannot be achieved by a single strategy company, okay? So that's one of our advantage. And the other thing is like the globalization. Since we have deployed the fleets in the global market, we can collect the data and also we can get heterogeneous source of data from all over the world. We can have the data that's collected in a very dry climate in Middle East. And sometimes we can get data from very humid tropical area in Singapore and very cold area in Japan and in China. And I can't imagine any other company have this kind of wide spectrum of application area. And with all of this data and also we hired a group of talented engineers, we actually evolve very fast. The other thing I want to emphasize is our Genesis platform. It's actually based on physical AI model and with a lot of considerations on a really world model physical AI world. And it actually seamlessly integrate with our end-to-end system. This kind of simulation platform give us a big advantage to develop. And with combination of all of this kind of algorithm and data, I think this massive effect is here. We have many, many driverless permits in all over the world in many countries, and we have many car OEMs collaborating with us. We have heterogeneous data collected from different country, different level of autonomy. And by combining all of this, I think we can achieve accelerated development speed, which is much faster than our competitors. That's my answer to your question. Liping Zhao: That's very helpful. And my second question is for Jennifer. The Board of the company has authorized USD 1 million share repurchase program in May this year. And could you please update what is the status on this program? Xuan Li: Thank you, Liping. Regarding the USD 100 million share repurchase program, which is authorized by the Board in May, we haven't -- no purchase have been initiated to date. The reason is the preprioratory work for our Hong Kong IPO constituted for a close period under the securities regulation, which -- during which the trading was restricted. As a listed company, we are also required to obtain specific shareholder approval to ratify this program. We are currently preparing to call an extraordinary general meeting to seek approval, which will allow the program to proceed. Thank you. Operator: Our last question comes from Paul Gong from UBS. Paul Gong: Paul Gong from UBS. I have 2 questions. The first one is regarding the robotaxi revenue contribution. We have noticed that while this is about 7x year-over-year growth, it seems to have a little bit fluctuation compared to the second quarter. Could you please elaborate more on this? And my second question is regarding the European strategy. Congratulate for the permit in Switzerland recently. Can you share more on the next step of the company's plan for European expansion? Xuan Li: Okay. I'll take the first question. I think Tony probably want to take the second. So regarding the fluctuation of robotaxi revenue, we will say for the past 3 quarters, you can see our robotaxi revenue made like a 20% -- 22% contribution in first quarter, 36% and 21% revenue contribution for the past 2 quarters, which already showcased a very continuous momentum. The fluctuation was expected given that our delivery schedule is in tandem with the permit upgrade and the corresponding expansion of our operating area. We made a significant step forward by securing the city level driverless operation permit in Abu Dhabi, which will pave the way for accelerating expansion in the entire Middle East going forward. Thank you. Tony, do you want to take the second one? Xu Han: Yes, I will take the second one. Okay. The second question is about our -- actually our -- since we have already got the driverless robotaxi [indiscernible] Switzerland and what's our next step for Europe. Okay. So European market is a great market for robotaxi. I think the taxi fare in Europe is high and also European -- most of the countries in European market, they are short of labor. And that is actually a very, very good scenario or opportunity for robotaxi company to deploy robotaxi service to fill the gap between the shortage of driver and the increasing demand for taxi. These days, we know the numbers that people -- especially after the coronavirus, if possible, people like to take kind of private transportation if possible. So I think there's an actual growing demand for our taxi. So if we can deploy robotaxi as a very cost-effective method, people will love this kind of product. So since in Switzerland, we have already get it. And now we are considering some other countries like we established an office in Stuttgart and also try to explore in Paris. So in the next 12 months, we will solidify our foundation actually with our trial operation in France, in Belgium and also our current operation in Switzerland and talk to all the possible countries. And we also formed a strategic partnership with Uber, with Renault, with SBB, STL, et cetera. And there are a lot of airports in European countries talking to us to explore the possibility of our robobus. So we want to use all of our applications like robobus, Robosweeper to actually help us to explore the possibility to extend to certain countries because in certain European countries, they would like to tend to adopt robobus or Robosweeper first and then try to do robotaxi. And gradually, we want to go to Switzerland, Belgium, Germany, France, Spain and Norway, these kind of countries to extend to more countries. And then, of course, I want to emphasize our approach is dynamic. It depends on availability of strong local partner and also depends on regulatory policy and the local -- shortage of the labours, all of these factors we have to consider. But for sure, we will gradually expand to the aforementioned countries and all other potential countries in Europe. Operator: Thank you. If there are no further questions, I'll conclude the call today. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Xu Han: Thank you very much. Thank you. Bye.
Operator: Good day, ladies and gentlemen, and welcome to the Old Mutual Q3 Voluntary Update [Operator Instructions] Please note that this event is being recorded. I will now hand you over to the Head of Investor Relations, Langa. Please go ahead. Langa Manqele: Thank you very much, and good afternoon to everyone who's joining us, and good morning to those who may be dialing in from the space. My name is Langa Manqele, as introduced. I head up Investor Relations. On the call with me is Jurie, our CEO. He will be leading the call, and Jurie will be assisted during the Q&A and comment session by Casparus, our CFO; as well as Ranen Thakurdin, who is presently our Chief Accounting Officer. I will now turn over the call over to Jurie. Thank you. Johann Strydom: Thanks, Langa. Good afternoon, everybody, or good morning [indiscernible] good to be with you. I think I'm sure you have in front of you the operating update that we put out on the 18th of November. So maybe just by intro from my side, it's been -- I think we had our Capital Markets Day towards the end of October, where we put out the important metrics that we're measuring ourselves on and be reporting on going forward in our medium-term targets. We're not reporting on those metrics in this operating update. But as we put -- as we made clearly the update that from next year onwards, from sort of Q1 numbers onwards, we will be reporting on those. I think internally, since the Capital Markets Day and as we head towards the end of the year, the focus has moved, I think, about as we spoke around taking those targets and operationalizing them into the business planning process. We've managed to catch the planning cycle to be able to do that as well as the scorecarding process. So very much moving from sort of strategy into execution. And so that's the focus, internally, as we ahead towards end of the year. I think just a couple of comments on the operating update we put out. And I think you will have noticed that there's not major changes from the trends that we reported at the half year. So the Life APE sales continuing to, fall by 1% and gross flows flat. A decline in net planned client cash flow for, again the reasons that we reported half year, particularly in the low margin outflows and investments and single big outflow had an impact there. Gross written premiums on the noncovered side are at 5% on the P&C side. And loans and advances also 1% down impacted, there of course, there was a sale of underperforming loan book impact on that. So those are the metrics that we put out there. I think Langa, I'm happy to go to questions for the conversation. Langa Manqele: Thank you very much, Jurie. Judith, kindly open up the call. I do not see yet the queues on the Q&A. Please confirm on your side if you do. But otherwise, if you could just remind the participants on how to put in their questions through. Operator: [Operator Instructions] Our first question comes from Baron Nkomo of JPMorgan. Baron Nkomo: Just 2 questions. Firstly, are you able to give some color on the evolution of your CSM since June 2025? And then secondly, can you comment on Old Mutual Insure's underwriting performance so far in H2 relative to the strong first half performance we saw. Langa Manqele: Thanks. Thank you. Over to you. Casper Troskie: So on the CSM, unfortunately, I'm not able to give you more color on the evolution of CSM since the half year. We'll obviously be able to give you full reconciliation at the year-end. I was trying to assure underwriting margin, we haven't seen any material impacts that still show positive margin, but we obviously reported a very high number at the half year. So I would expect that to normalize more to within our updated range or at the top end of our updated range. Operator: The next question comes from Harry Botha of Bank of America Securities. Harry Botha: Can you comment on the Life APE sales that you're seeing in Personal Finance, excluding guaranteed annuity sales? And you also noted strong growth in retail gross written premium in Old Mutual Insure, if I understood correctly. H1 was up 5%. So it sounds like growth has increased. Can you comment on what's driving that increase? Casper Troskie: Well, your comments specific to -- I'll just deal with it. I guess if do you look at the Personal Finance sales, guaranteed annuities were down close to 40%. So it's the majority of the reduction -- overall reduction [ in 9% ] that you're seeing period-on-period. So that's what's driving that. We are seeing -- we saw a slight uptick in the recurring premium sales. So the biggest move there is guaranteed annuities [indiscernible] pulling the piece of [indiscernible] your second question? Harry Botha: Just regarding the gross written premium in retail segment within Old Mutual Insure, it sounded like it was up more than 5% at June. Casper Troskie: I'll just check on that and come back to you. We can go to the next questions. Operator: Our next question comes from Bradley Moorcroft of Peregrine Capital [Operator Instructions] Our next question comes from Francois Du Toit of Anchor Stockbrokers. Francois Du Toit: Can you hear me? Johann Strydom: Yes. We can. Francois Du Toit: Can you maybe comment on your solvency level, maybe just directionality in the quarter and maybe factoring in buybacks as well. I know you don't like telling us whether you're buying back or not and whether you like the price to buy back or not. But maybe if you can just give a sense of how much you executed in the last quarter on your buybacks? That's the first question. Obviously, that's the solvency level will be a function of that, I guess, as well. Your -- second question, your gross flows, I think, was quite a bit stronger at the half year in terms of percentage growth. Maybe just comment on the reasons for the slowdown. I think you've mentioned the annuity sales, but it seems like there's a further slowdown there since the half year. But nonetheless, the net flows improved from the half year to outflows, but it's not as big outflows level as we had at the half year. So maybe can you just comment on your persistency or client retention in the light of better net flows and whether you're seeing positive lapse experience variances or improved levels compared with the half year. Just a sense of what's behind the improved net flows and weaker gross flows. Casper Troskie: Okay. Let me go to solvency levels first. So Francois, what we -- last I looked, we had done just over 10% of the buyback, and we are obliged to on a regular basis publish what we've done. So that's in the market. So if you just look out for those, you'll see that. And then in the quarter, in terms of solvency ratios, I would expect most insurers have seen a decline in their solvency ratios given the fact that the pre-strike equity shock increased in that quarter. I think it is increased by about 4%, 5%, which means your capital requirements for any equities that you are holding on -- whether they will have gone up. So -- and at an all-time high, I think that the 1% away from the top level of stress that there can be. So I would have expected and we correspondingly, we've seen a reduction in [indiscernible]. Ranen Thakurdin: Just to add to Casper's comments, the share buyback was fully allowed for in the -- as a reduction to funds in our interim numbers. So as we execute the buyback, it won't affect our solvency ratios. Casper Troskie: Okay. On the second -- on gross flows, the second point actually you're right. So the -- the Old Mutual investments had a higher base in quarter 3, 2024. So this year, we are -- so comparing against the higher base that's impacted from the current year growth. And then as we said earlier, we had much lower fee from inflows to the points earlier we made. But we also had muted inflows in wealth, whereas wealth was a really strong performer last year. So we've seen muted inflows in wealth. Hopefully that helps. So overall, [indiscernible] savings were down 1% from a gross flow perspective, and that's the main reason in Old's Mutual investments down 18% from the prior year. Unknown Executive: And just to confirm earlier question, the 5% gross written premium growth of Old Insurance the retail growth rate was quite similar to the total. Operator: Next question comes from Marius Strydom of Austin Lawrence Gidon. Marius Strydom: My question is about OM Bank. At the open day or the Capital Markets Day, you mentioned you had 145,000 clients and you were adding 5,000 a day. So could you please give us some indication of whether you've seen that kind of daily addition maintained since the Capital Markets Day or whether it slowed markedly or any other information you could provide us around your traction? Casper Troskie: So Marius, I think on the weekend, I think to note that we were about 200,000 and that run rate is going at about 300 accounts a day. Operator: Our next question comes from Bradley Moorcroft of Peregrine Capital. Bradley Moorcroft: Can you hear me now? Casper Troskie: Yes.We can. Bradley Moorcroft: Sorry about the issue earlier. Also a question on Old Mutual Insure top line. I noticed that the growth has slowed from 9% at interims to 7%. I mean any further color you can give there in terms of the slowdown, persistency challenges, increased competition would be very helpful. Langa Manqele: Over to you, Casparus. Casper Troskie: I'm trying get a performance [indiscernible] . Langa Manqele: I will come back to you with that detail. Judith, may I check are there still any questions? I can see anyone who is on the queue at the moment. Operator: No, sir. At this point, there are no further questions in the question queue. Langa Manqele: Okay. Thank you very much. I will hand back over to you, Jurie, just to -- I think there's one question that I see. Judith, please check, I think it's right. Operator: Yes, correct [indiscernible] of HSBC. Unknown Analyst: I just had a question probably not related to Q3, but are you planning to take any restructuring charges in relation to your cost program? And will any of that be allocated to full year '25? Casper Troskie: Just to understand correctly. You asked whether we are going to be adding any further restructuring provisions. Is that the question? Unknown Analyst: Correct. Casper Troskie: To the extent that you have to meet quite a lot of conditions to have a restructuring provision. So if you've met all the conditions that are required at year-end for a restructure, i.e. you've identified people, you've made the announcements, then it can be accrued for the year-end. If you're not in that position, you have to incur the cost when you actually do that restructure. So there will be additional costs in the second half relating to headcount reduction, but those have largely been dealt with. So I'm not expecting a large provision outstanding at 31 December, i.e., a restructuring provision for future costs. We'll see the one-off costs coming through in the second half. I hope that helps. Langa Manqele: Thanks, Casper. Could you please just do a final round and check if we have any questions left and let's take those. Operator: [Operator Instructions] We have a follow-up question from Harry Botha of Bank of America Securities. Harry Botha: Just a follow-up around the loan growth issue. I think you noted the sale that had an impact on growth. What is your outlook for growth? How quickly do you see loan growth in Old Mutual Finance improving? Langa Manqele: Than you. Over to you Casper. Ranen Thakurdin: Yes. So Harry, as we mentioned earlier, part of the reason that the loan balances are flat as we were exiting specific pieces of the book. We are expecting to see better growth rates coming out of our loan book as we still very responsibly improve our lending. So we are maintaining tight credit criteria, but we do expect that book to grow going forward. Langa Manqele: Operator, kindly check if we have any outstanding questions. Operator: Our next question comes from Jarred Houston of All Weather. Jarred Houston: Just checking you can hear me? Casper Troskie: Loud and clear [indiscernible]. Jarred Houston: Thanks for the update. Just a question on your investment result, your shareholder investment return. Obviously, in the first half saw a very strong number. Is it fair to assume just given what's happened with markets both locally and in the rest of Africa as well as bond yields, it's fair to assume current run rate is a continuation of that strong trend. Casper Troskie: Yes. I think it's fair to assume. Investors should just recall that we do have collars around -- so we have a protected equity structure. So upside is limited, but we do try and roll those collars on a regular basis in tranches to manage the position over time. But, yes, you should still see strong investment performance coming through in line with the markets... Langa Manqele: [indiscernible] it sounded like you're going to ask a follow-up? Jarred Houston: Yes. Langa, just the comment earlier about the progress on the buyback. I just want to clarify did Casper say only 10% of the buyback has been completed. And then just a question mark on -- we've obviously seen quite a big step-up in market volume as a result of an index outflow. Is the group participating in the higher level of market volume? Or is it just slowly ticking away over time. Langa Manqele: Casper, would like to comment? Casper Troskie: Yes. So obviously, we would participate in the higher market volume, if that's consistently happening. We set -- we have to work within the limits. As an issuer, there are limits around -- so we can't move the market [indiscernible]. So we have to work within those limits. And then we have -- we're doing this buyback with this mandate with 1 or 2 of the large banks. So they have specific parameters to work with them. The 10% was a few weeks ago that might have gone up in the last week or 2. Ranen Thakurdin: Just over ZAR 400 million at the moment. Langa Manqele: Thank you, Casper and Ranen. Operator, I'm comfortable that we round up and maybe take 1 last question. Operator: Final question comes from Marius Strydom of ALG. Marius Strydom: Firstly, your South African Asset Management performance in the third quarter versus the first half. Considering higher AUMs at 30 June and continuing strong market performance, should we expect a decent acceleration in your earnings run rate since the half year? And then the second question, considering the lapse assumption changes that you made and the management actions that you've taken, have you seen some improvements in your lapse experience at MFC? Johann Strydom: Marius, just to remember, very small part of that base is equity half. So really, you're looking at sort of a balanced mandate. The assets that you have, for example, like, we're seeing pressure on credit spreads. So the origination targets are quite there might but on the flows. And then the alternatives, you're looking at much longer valuation cycle. So I would expect the force to increase in the third quarter, but there are quite a few moving parts. Ranen Thakurdin: So Marius, just remember that most of our IFRS 17 products on BFA, we get value in the equity market that goes to the CSM that, it doesn't drop through to earnings. So you will see that largely coming through in the CSM. Marius Strydom: My question is really related to the asset management businesses. So those that are not -- don't form part of the CSM. Langa Manqele: Thank you, Casper. And thank you, Ranen. Marius Strydom: Sorry, Langa, there was 1 more question. Johann Strydom: Sorry, Langa, there was a question from Marius, on MFC persistency. I mean we obviously are progressing with the management actions, but I think it's too early to call a material improvement yet. Langa Manqele: Operator, I don't see any questions I'm comfortable to wrap up here and hand back to you, just to wrap up the call for us. Thank you. Johann Strydom: Okay. Well, thanks for being with us, everybody. Yes, I think there were 1 or 2 questions which we're happy Langa to get back to the individual. But for the rest, thanks for the conversation. Yes, I suspect our next conversation will be in the new year. Langa Manqele: Thank you very much. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Lexin Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised, today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Will Tan. Please go ahead. Will Tan: Thank you, operator. Hello, everyone. Welcome to our third quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on our overall performance and strategies of our business. Our CRO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies today's call as we will be making forward-looking statements. Last, please note that all figures are presented in renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Please kindly note, Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin. Please. Jay Xiao: [Interpreted] Hi, everyone. Thanks for joining us today for our third quarter 2025 earnings call. In the third quarter, we efficiently completed our business adjustments to comply with the new regulation. The smooth transition was mainly attributed to the company's strong risk management capabilities that we've been enhancing over recent years and the resilience of our business ecosystem. This demonstrates our long-term oriented development philosophy and our strong resilience in navigating business cycles, effectively mitigating the impact of industry fluctuations on the company. Against the backdrop of industry fluctuations, we delivered solid performance in the third quarter. Loan volume reached RMB 50.89 billion, revenue reached RMB 3.42 billion. Net profit was RMB 521 million, up 2% quarter-over-quarter and 68% year-over-year. Net profit take rate stood at 2.01%, increasing by 9 basis points quarter-over-quarter and 92 basis points year-over-year. We believe that the implementation of the new regulations will further raise industry entry barriers and drive the industry toward a healthier and more orderly development. Our unique advantages in business ecosystem synergy and customer-centric operation system will position us more favorably in the future. We are confident that our long-term investment in the fundamental capabilities and the ecosystem businesses will gradually turn into our distinctive and powerful advantages. We have always placed great emphasis on shareholder returns. As we announced previously, the dividend payout ratio was increased from 25% to 30% of the net profit starting from the second half of this year. In addition to the cash dividend, the company's share repurchase plan and my personal share purchase plan are progressing well with each initiative, now more than halfway completed. Next, I will walk you through the key initiatives we have made in the third quarter. First, we strengthened user categorization and risk identification and took early actions to address the industry risks. In light of the industry risk trends in the third quarter, we enhanced user categorization and risk identification and took proactive measures to manage risk, effectively balancing business volume and asset risk. During the quarter, leveraging our historical cycle models, we systematically phased out users highly sensitive to cyclical impacts and exhibiting instability and adjusted our risk management strategy accordingly. We further refined our customer segmentation and implemented tailored pricing strategies accordingly. As a result, new assets in the third quarter maintained a balanced risk return profile. Second, we enhanced user experience by adopting a customer-centric approach. In the third quarter, we upgraded our products and management capabilities, and the development of our customer care system has yielded positive results. This allowed us to fulfill the financial and service needs of different customer segments. During the quarter, we collaborated with financial institutions to optimize funding supply and expanded the coverage of flexible repayment solutions, such as flexible borrowing and repayment and bullet loans. In addition, we provided customized reoffer to improve customer satisfaction and loyalty, effectively enhancing user retention. As a result, the proportion and contribution of high-quality customer continued to grow. Third, we accelerated our AI technology deployment leveraged integrated AI agents to drive digital transformation. In the third quarter, we further advanced our AI initiatives. Our self-developed large model, Lexin GPT, has incorporated multidimensional data providing AI agents with stronger decision-making capabilities under different scenarios. This has improved the accuracy of user request identification by over 20% and significantly enhanced request solution efficiency. During the quarter, AI agent has been applied in multiple areas such as risk management, credit granting and repayment, and we'll continue to expand to other areas. [indiscernible] to the industrial integrated AI agent has facilitated data connectivity and task coordination in different scenarios, thereby creating stronger business synergies. We have laid a solid foundation for AI-driven digital transformation, providing robust technological support for improving efficiency, revenue growth and user experience optimization. In the third quarter, different business units within our ecosystem work together to create synergies and collectively reinforce the resilience of our ecosystem. Online consumer finance business targets at high-quality customers and focused on optimizing service experience, significantly enhancing user engagement and retention. Installment e-commerce business targets at young customers in key consumption scenarios. We continue to refine the supply chain system of our e-commerce platform, GMV, for essential daily consumer goods, grew 58.5% quarter-over-quarter and 133.8% year-over-year during the recent Singles' Day Shopping Festival. The total GMV of e-commerce platform increased by 38% year-over-year, with transaction volume for essential daily consumer goods surging by 237% year-over-year. Offline inclusive finance focuses on small and micro business owners in lower-tier markets. The asset quality of inclusive finance business remained stable in the quarter, validating the value of the lower-tier markets. We will continue to increase investments in off-line markets and further improve its operations. Both tech empowerment business and overseas business achieved steady growth in volume during the quarter. The company has always adhered to a user-centric service philosophy, positioning consumer rights protection as a core competitive advantage. In the third quarter, we comprehensively strengthened our consumer rights protection system across multiple dimensions, including policies, products and services. In terms of policies, we integrated consumer rights protection into our sustainable development strategy, implementing measures across all business processes through various mechanisms. In terms of products and services, we actively responded to user needs by leveraging technological means, such as online customer service center and AI-empowered customer support to improve service efficiency and quality. We also proactively gathered user feedback for data analytics aiming to enhance user satisfaction at the sorts. In response to frequent violations of consumer rights by illegal activities, we actively followed regulatory requirements and collaborated with the industry to combat such activities, which has achieved positive results. With the new regulations taking effect in the fourth quarter, the industry is now on a healthier and more sustainable path. Having completed our business adjustments, we are well positioned to capture opportunities arising from the industry adjustments by increasing investments in ecosystem businesses and drive steady growth. Looking ahead, we are confident in achieving stable performance growth. Next, I'll hand over the floor to our CRO, Arvin. Thanks. Zhanwen Qiao: [Interpreted] Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the third quarter. In the third quarter, industry uncertainty remained elevated. With the new regulations officially took effect in October, industry-wide liquidity tightened further on a month-over-month basis in the fourth quarter. Impacted by the broader industry trends, our day 1 delinquency ratio and the collection rate of loan balance saw a minor increase. Thanks to the proactive measures we've taken to enhance risk control and mitigate risk starting from the second quarter. The overall risk volatility remains manageable. In response to the complex industry environment, we have further tightened risk controls over high-risk customers by phasing out risky accounts and reducing credit lines. These measures have helped keep new loan risks manageable and ensure full compliance with regulatory requirements.Meanwhile, we doubled down on serving prime customers to promote the growth of high-quality assets. Let me introduce the key initiatives we've taken in the third quarter. First, during the third quarter, we further enhanced risk control measures for high-risk customers. From a credit model perspective, we enhanced data mining on key variables, such as multiple borrowing, pricing preference and income verification to enhance identification of customers sensitive to industry fluctuations. In the meantime, by integrating the latest risk trends and optimizing our customer credit behavior time series model, we were able to identify anomalous signals accurately and swiftly, further enhancing the identification of high-risk customers. From risk strategies perspective, we continue to intensify management of high-risk assets. We systematically phase out customers with excessive share debt exposure, multiple borrowings and high-risk profiles, and reduced credit line of borrowers with weak repayment capacity or those vulnerable to liquidity tightening. Second, in the third quarter, we continued to enhance our operational capabilities tailored to prime customers. In terms of model and enhancement, we operated multidimensional models, including demand, response and churn models and made targeted investments in our outreach approach, credit line granting and pricing alignment to ensure service quality. Also, we have reinforced our customer-centric approach to enhance the customer experience for prime customers. In terms of credit line, we continue to maintain our offer competitiveness. In terms of pricing, we implemented product-based pricing to reactivate dormant and churned customers. In terms of repayment methods, we introduced tailored solutions like flexible borrowing and repayment and bullet loans for prime customers. Furthermore, we enhanced one-on-one services for prime customers by providing customized re-offers, further boosting customer satisfaction and loyalty. Thanks to these initiatives, loan volumes from prime customer segments achieved month-on-month growth in the third quarter. Third, in the installment e-commerce business, our risk management system has been gradually refined with further strengthened risk identification capabilities. In the third quarter, in light of external uncertainties, we proactively adjusted the growth pace of our installment e-commerce business to strike a balance between scale and risk and to achieve sustainable business development. We've strengthened the risk criteria of our installment e-commerce business, proactively scaling back exposure to high-risk and sensitive customers. At the same time, we selectively provided support for categories such as high-quality consumer electronics by allocating dedicated credit lines, which help drive e-commerce GMV growth. Looking ahead to the fourth quarter, we will dynamically adjust our strategies based on the industry risk trends to ensure steady, healthy and sustainable business growth. Last but not the least, in the development of intelligent risk control tools, we've achieved remarkable progress in building the next-generation smart risk control system. The risk control intelligent agent for credit decision-making empowered by larger scale models has been launched. It enables full process automation and intelligence from customer targeting, segmentation and strategy formulation to results evaluation, marking a paradigm shift from quantitative driven to AI-driven risk management. This has significantly enhanced the efficiency and effectiveness of credit decision-making. In the fourth quarter, the impact of the new regulation is expected to persist, characterized by industry-wide liquidity tightening and risk fluctuations. As such, business volume and risk performance are expected to remain under pressure in the first half of the fourth quarter and may gradually stabilize and improve in the second half. In response, we will continue to strengthen risk identification and enhanced management of high-risk assets in order to ensure risk fluctuations under control, laying a solid foundation for steady and sustainable business operations. Xigui Zheng: Thanks, Arvin. I will now provide a detailed overview of our third quarter financial results. Please note that all figures are presented in renminbi terms, and all comparisons are made on the quarter-over-quarter basis, unless otherwise stated. As Jay mentioned earlier, to proactively adapt to the evolving regulatory environment, we initiated a business adjustment in the third quarter. While this adaptation temporarily led to declines in loan volumes and overall pricing, we leveraged our business ecosystem to effectively mitigate these impacts. Despite ongoing business adjustments and industry credit risk volatility related to the new policy, we delivered steady net profit growth in the third quarter. Our net income grew by 2% quarter-over-quarter and 68% year-over-year to reach RMB 521 million, a record high in the last 15 quarters. Our net income margin increased to 15% from 14% last quarter. Our net income take rate increased 9 basis points to reach 2.01%. We have realized the net income take rate goal of achieving over 2% by year-end ahead of the original schedule as we communicated earlier this year. This underscores the company's results and improved ability to execute on our business objectives. Now let's take a holistic review of our third quarter financial results. First, net revenue of the credit business, which is derived by adding up credit facilitation service income and tech empowerment service income, net of credit cost, including provisions and fair value changes and the funding cost reached RMB 1.9 billion, a 3% or RMB 59 million decrease quarter-over-quarter. The decrease was primarily attributable to an increase in credit costs of approximately RMB 40 million, reflecting continuously strengthened provisioning. Second, net revenue of the e-commerce business, defined by e-commerce revenue. Net of cost of inventory sold increased by 14% or RMB 14 million to RMB 111 million. So the total net revenue summing the credit and e-commerce business added up to RMB 2.1 billion, a 2% or RMB 46 million decrease quarter-over-quarter. Operating expenses, including sales and marketing, R&D, G&A, processing and serving costs decreased by 4% or RMB 57 million to RMB 1.4 billion. Tax and others increased by 1% or RMB 1.8 million to RMB 162 million. The total expenses added up to RMB 1.5 billion, decreased by 3% or RMB 56 million. By deducting total expenses of RMB 1.5 billion from the total net revenue of RMB 2.1 billion, we get net income of RMB 521 million, an increase of 2% or RMB 10 million quarter-over-quarter. Given the backdrop of the pending regulation and the associated industry credit risk volatility, it was not an easy task to achieve this record high profit in the third quarter. During the net profit growth, driving this is the resilience of our business model and the 3 key factors: one, our operational agility demonstrated by smooth transitioning between the capital light and capital heavy models; two, our installment e-commerce steady growth and the profit contribution; three, our solid financial position underpinned by the adequate and prudent provisioning. Next, I'm going to elaborate a little bit more on these 3 highlights. First, our operational agility demonstrated by smooth transitions between the capital-light and the capital-heavy model. In the third quarter, in order to meet the new regulatory requirements, we started to transition our business by gradually reducing capital light business volume. By October 1, we have completely stopped facilitating loans with APRs above 24% and were fully compliant with the new rules. As a result, in Q3, the mix of capital light loan volume further reduced from 20% to 13%, while the ICP business only accounted for 8.5% of the new loans. As the new regulatory framework, we continue to serve a select group of long-tail clients using the capital-heavy model. As such, the mix of capital-heavy loan volume increased from 80% to 87% of the total new loan volume, largely offsetting the decline of ICP volume. Thanks to the smooth transitions between the 2 models, total loan volume only saw a modest decrease of 3.7% compared to the second quarter. As ICP business primarily serves long-tail customers, it naturally bears higher pricing, therefore, the wind-down of ICP business had a negative impact on our overall pricing, which was partially offset by the lower funding costs associated with the capital-heavy model. Driven by the above factors, our tech empowerment service income, which represents income from capital-light model and value-added services, decreased by 45% or RMB 374 million. While our credit facilitation service income, which mainly consists of income from capital-heavy model, increased by 15.3% or RMB 347 million. As a result, revenue from credit business only decreased by 1% or RMB 27 million despite a loan volume decrease of 3.7% in the third quarter, demonstrating our operational agility to navigate regulatory changes. Second, steady growth of e-commerce business and its growing contribution in the third quarter. Despite strong demand driven by limited credit availability for long-tail customer segments since the second quarter, we observed an industry-wide risk volatility in the third and fourth quarter. In response, we prudently slowed down the growth of e-commerce loan volume as we prioritize quality rather than volume of the assets. As a result, our e-commerce loan volume grew by 50% sequentially to RMB 2.3 billion. For the upcoming fourth quarter, we'll continue to keep a close eye on the asset risk performance and strike a balance between the volume growth and asset quality. As a reminder, if you look at the e-commerce revenue in our P&L, it recorded a decline of 29% to RMB 345 million despite the e-commerce GMV growth of 15%. This is caused by the accounting treatment difference due to the continued volume shift to third-party sellers from company direct sourcing model. For third-party sellers, only platform service fee is recognized as revenue, rather than the entire transaction amount and the direct sourcing model. In the third quarter, third-party seller model accounted for 85% of e-commerce GMV compared to 75% from last quarter. As mentioned earlier, our e-commerce business generates 2 profit streams, mainly the gross profit from selling merchandise and interest income from loan installment services. In the third quarter, gross profit reached RMB 111 million, representing an increase of 14%. The growth in our e-commerce business gross profit has not only enhanced our overall profitability, but also expanded our targeted long-tail user segments, thereby further mitigating the impact of our business model transition. Going forward, we will continue to grow our e-commerce operations prudently and fully leverage its unique advantages and the new regulatory environment. Third, we continue to maintain a robust financial position, characterized by adequate and prudent provisioning. Our total provisions saw an increase, while the overall asset quality remained healthy, evidenced by a 15-basis-point improvement of 90-day delinquency ratio to 3.0%. However, as the industry transitions towards the new regulatory framework, we observed an increased volatility in early risk indicators starting from September. While we consider the fluctuations to be temporary, the whole industry may need some time to fully absorb the impact, and we expect the industry-wide risk volatility to continue into the fourth quarter. In response, we have sustained our strategy of setting aside ample provisions to ensure a strong buffer during the transition period. In the third quarter, our credit cost, including 3 provision line items and fair value changes on financial guarantee derivatives, rose 4% or RMB 40 million to RMB 1.1 billion. Due to the net accounting policy we've adopted for the item change in fair value of financial guarantee derivatives and loans and fair value, the actual full provision we set was partially offset by the guaranteed income and recorded as a net amount in our P&L. As such, the reported item only represents part of the actual full provision. If excluding the impact of the net accounting policy and the recovering the growth provision, the full provision ratio of new assets calculated by dividing gross provision by capital-heavy loan volume, increased 6 basis points from the second quarter to 6.97%, well above the historical highs of vintage charge-offs. As Arvin mentioned, we continue to closely monitor asset performance and utilize various post-lending management tools to strengthen collections, while maintaining ample financial buffer to navigate through the credit cycle. As a summary, the above 3 highlights impacted net revenue side of the income statement. In short, total revenue reached RMB 3.4 billion, representing a decrease of 5% quarter-over-quarter. This was mainly due to a 29% decrease in e-commerce platform service income, which was caused by ongoing shift in the e-commerce business model and the corresponding net versus growth adjustment in the accounting treatment. On the cost and expenses side, total operating expenses, which include processing and servicing costs, sales and marketing expenses, R&D and G&A expenses, reduced by 4% to RMB 1.4 billion, reflecting reprioritization of user acquisition costs during the uncertain times of business transition. For balance sheet items, as of September 30, our cash position, which includes cash, cash equivalents and restricted cash, was approximately RMB 4.3 billion. Shareholders' equity remained solid at about RMB 11.8 billion. Looking ahead, as Q4 marks the first quarter after the new regulation framework came into force, we expect industry-wide risk fluctuations to remain for some time before the industry enters into a new normal stage. In light of this, we'll continue to adopt a prudent operational approach, prioritizing regulatory compliance and asset quality over business expansion. For the fourth quarter, we expect to see moderate quarter-over-quarter decline in loan volume. Impacted by the ongoing credit risk volatility, net income and net income take rate will see a sequential decrease. We expect to see more clarity and certainty of credit risks and the profit outlook may be at the close of the fourth quarter. To conclude, I'd like to reaffirm our commitment to enhancing shareholder value. In addition to our semi-annual dividend, we'll continue to execute our share buyback program. As of October, we have repurchased $25 million worth of ADS, alongside the CEO's personal purchase of over USD 5 million worth of shares. On the foundation of current shareholders' return policy, we will continue to evaluate opportunities and explore different ways to ensure we deliver optimal value to our shareholders. That's all our prepared remarks for today. Operator, we are now ready to take questions. Operator: [Operator Instructions] First question today is from Alex Ye from UBS. Xiaoxiong Ye: [Interpreted] First one is regarding the new regulation on the loan facilitation industry, which has come into effect in October 1. Could you share us more color on what impact does it have on the business operations? Second question is on maybe you can share more color on the development strategy and outlook of the e-commerce business? Jay Xiao: [Interpreted] This is a translation for Jay's remarks. In the third quarter, we proactively made business adjustments to comply with the new regulation. On October 1, we have stopped underwriting loans with APR above 24% and ensure the business compliance. All new loans issued by the company carry an APR at or below 24%. After shifting to business with pricing below 24%, we gave up higher risk customers, which have some impact on both business volume and average loan pricing. Following the implementation of the new regulation, industry-wide risks have increased due to tighter funding. Starting in September and October, most platforms stopped offering products with APR above 24%, leading to significant short-term volatilities in risk. Although the overall impact remain manageable, the industry [ needs ] some time to fully digest the associated credit risk. For Lexin, as we have taken effective measures, our risk performance for new loans or existing loan portfolio have shown signs of stabilization and improvement now, validating the effectiveness of our risk management system. In the long run, the new regulation will pave the way for a more compliant, healthy and sustainable stage of high-quality development in industry. When the regulatory framework becomes clearer, market resources will be increasingly concentrated towards leading compliance platform with strong risk control capabilities and stable operations. Lexin has always adhered to a customer-centric business philosophy, prioritizing compliance operations, asset quality and prudent development. Furthermore, it's worth noting that Lexin's diversified business ecosystem has demonstrated strong resilience in adapting to the new regulation. More specifically, our online consumer finance business is progressing steadily and has been included in the wide list of all major financial partners, paving the way for future development. Our offline inclusive finance business focuses on small and micro business owners in lower-tier markets. This asset quality remained stable in the quarter, validating the value of the lower-tier markets. Installment e-commerce business targets at young segments in key consumption scenarios for building the consumption and financing demand of long-tail customer segments through innovative model. Both tech empowerment and overseas businesses achieved stable volume growth in the quarter. Under the new regulatory environment, Lexin will gradually unlock the unique competitive advantages of its business ecosystem. As a crucial component of Lexin's ecosystem, our installment e-commerce business will continue to play a key role in consumer -- in customer acquisition, engagement and expanding our operational values. In terms of business development strategy, over the past year, we have comprehensively upgraded the e-commerce platform supply chain, introduced branded merchants from various industries and expanded lifestyle product categories to meet users' essential daily consumption. In the third quarter, the transaction volume of essential lifestyle product categories increased by 58.5% quarter-over-quarter and 133.8% year-over-year. During the recent Double 11 Shopping Festival, the e-commerce GMV also experienced significant growth. Meanwhile, leveraging the e-commerce platform's independent risk management system, we are able to balance business quality with scale. Looking ahead, we will continue to optimize and expand our product categories on our platform to meet users' consumption and financial needs while effectively managing risk, further expanding our operational model. In terms of development pace, we have consistently adhered to the principle of prudent operation and prioritized asset quality. The third and fourth quarters, as we observed increased industry-wide rate fluctuation, we proactively moderated the growth pace of our installment e-commerce business. In the near term, given the industry rate do require time to stabilize, we will continue to exercise caution in growing our installment e-commerce business. When industry-wide credit rate show size of stabilization, we will gradually resume the growth pace in order to capture the next phase of rapid expansion opportunities. Operator: We will now take the next question. And this is from Judy Zhang from Citi. Judy Zhang: [Interpreted] So during the transitional period before and after the implementation of the new regulation, the industry credit risk has already fluctuated significantly. And the company upgraded the risk control system, how are we managing this round of risk cycle? And what improvements have been made in the risk the management system? Jay Xiao: [Interpreted] After the rollout of the new regulation, we anticipated that it will affect the industry's liquidity supply. This is based on the experience that we accumulated across multiple cycles. This would, in turn, weigh on the industry's credit rate. Therefore, starting from the second quarter, we made an adjustment in our risk management re-identification strategy and also made business adjustments. We proactively identified customers who were vulnerable to tighten industry liquidity based on factors such as high multi-borrowing, high debt exposure, loan income, unstable employment and high exposure to high pricing credit. Based on this re-identification, we utilized automated rescanning robot, clearance robots and credit line robots to improve efficiency and effectiveness of account clearing and credit line reduction. This allowed us to respond early in the risk cycle and control the risk fluctuations to both new loans and existing loan portfolio. At the same time, by enhancing pricing competitiveness, optimizing loan tenor and repayment experiences, we've strengthened engagement with prime customers, promoted the growth of quality assets, adjusted asset structure and improved resilience against recycles. So in summary, we not only controlled the formation of delinquent assets, but also tried to increase the volume and mix of high-quality assets. Thanks to the proactive measures that we have taken, the overall risk fluctuation for both new and existing loans remain under control in the third quarter. For the overall loan book, day 1 delinquency ratio increased by around 5 basis points compared to the second quarter. For new loans, the magnitude of FPD30 -- 30 interest is expected to be 5%. Q4 is the first full quarter after the implementation of the new regulation. So it's expected to be more challenging, not only in risk performance, but also in loan volume and also profit. For the existing loan portfolio based on the latest performance, day 1 delinquency ratio peaked in October due to the combined impact of the new regulation implementation and the long National Day holiday and then exhibited month-on-month improvement in November, showing signs of stabilization. For new loans, as we further tightened credit criteria in October, we expect FPD30 of loans in October to improve compared to the peak in September. So overall, moving into the month of October, the risk performance of existing loans and new loans, both show signs of stabilization. Operator: We will now take the next question. This is from [ Dong Peng Chu ] from CICC. Unknown Analyst: [Interpreted] And let me translate my questions, and I have 2 questions. First, what is the outlook and guidance for the fourth quarter and full year 2026 performance? And second question is, as the company has utilized over half of share repurchase quarter, what are the plans for future shareholders' return? Xigui Zheng: Okay. I guess I will take the first question and ask Jay to take the second. The first one, the fourth quarter is really the first full quarter following the implementation of the new regulation, and our results will be negatively impacted to the similar extent as other leading players in the industry. On the one hand, we ceased facilitated loans with APR above 24% starting October 1. On the other hand, in response to the rising industry-wide risk volatility, we have been proactively controlling the pace of low volume growth. As a result, we expect moderate loan volume decline in the fourth quarter. At the same time, we expect industry-wide risk fluctuation to gradually stabilize towards the end of the quarter. Therefore, along with the industry, our risk indicators will also fluctuate in the fourth quarter, which will push up the credit cost. Affected by these factors, the Q4 net profit will see a sequential decline. To put things in perspective, it is worth mentioning that in the first 9 months of this year, we have achieved a net profit of RMB 1.5 billion, representing a year-over-year growth of 98%, in line with our previous guidance. Although the fourth quarter net profit will see some decline related to the regulation, the company's full year 2025 net profit is still expected to achieve significant year-over-year growth. Looking ahead to 2026. Due to the industry and regulatory uncertainties, it is really hard to pin down a clear guidance at this stage. We are under the same pressure as other leading players. For the same reason, the performance in Q4 cannot be simply taken as a base for predicting 2026 profitability. However, I'd like to discuss several key factors that may impact the net profit of 2026, for your reference. One, the overall pricing impact. After the implementation of the new regulations, the interest rate on new loans are all below 24%. As this portion of the new loans accumulate over time, the average pricing on the outstanding loan book will gradually drop below 24%. So the decline in pricing will put some pressure on the net profit. Two, risk stabilization. When the credit risk in this cycle bottoms out -- when this bottoms out, we're really determining when the volume growth and the profitability pick up. So customers with interest rate within 24% exhibit more stable credit risk profile. Therefore, their credit costs will be lower, which will help offset the declines in pricing to some extent. Three, funding costs trending down. The temporary tightness in the funding supply in Q3, Q4 were gradually eased as the regulations settle in. Therefore, funding costs are expected to follow a downward trend. And at the same time, with a better quality customers who carry lower risks, funding costs will also be lower. Four, the synergies from ecosystem business, i.e., e-commerce. During this period, our e-commerce business has achieved steady growth, enhancing the company's profitability. Our off-line inclusive finance and the tech empowerment businesses have maintained stable risk performance despite challenging market conditions, enhancing the company's operational resilience. So the continued growth of the company's ecosystem business will further strengthen our operational resilience and boost the overall profitability. So in conclusion, Q4 will be a temporary dip in our business and financial numbers due to the regulation. When the recovery will resume depends on the industry risk stabilization and further regulatory certainty. However, given the unique ecosystem business and the past 3 years turnaround effort, we are confident that we are better positioned than many other players. And we will be the first ones to recover when things are more settled, maybe in the early part of next year or so. That's first question. Jay? Jay Xiao: [Interpreted] We have been actively executing repurchase program in [indiscernible]. Both the company's share repurchase program and our personal share repurchase plan have been more than halfway, which is well ahead of the original 1-year schedule. This fully demonstrates the management's strong confidence in the company's outlook, and reaffirms our commitment and capability to enhance shareholders [indiscernible]. Company's repurchase program is fully executed, alongside a dividend payout ratio of 30%. Our total shareholder returns rise above the industry average. The company has always attached high importance on shareholder return. Once the current share repurchase program is fully executed, we will explore more initiatives to further enhance value for shareholders. Operator: [indiscernible] back to management for closing comments. Will Tan: Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]