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Operator: Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Technology Group Third Quarter 2025 Earnings Conference Call. At this time, participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host today, Yuhua Ye, Sunlands Technology Group IR representative. Please go ahead. Yuhua Ye: Hello, everyone, and thank you for joining Sunlands Technology Group's Third Quarter 2025 Earnings Conference Call. The company's financial and operating results were issued in our press release via newswire services earlier today and are posted online. You could download the earnings press release and sign up for our distribution list by visiting our IR website. Participants on today's call will be our CEO, Tongbo Liu, and our financial representative, Hangyu Li. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before I hand it over to the management, I'd like to remind you of Sunlands Technology Group's harbor statement in relation to today's call. Except for the historical information contained herein, certain of the matters discussed in this conference call are forward-looking statements. These statements are based on current trends, estimates, and projections. Therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to our CEO, Tongbo Liu. Tongbo Liu: Thank you, Yuhua Ye. Hello, everyone. Welcome to Sunlands Technology Group's Third Quarter 2025 conference call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is presented on a continuing operating basis, and all figures are denominated in RMB unless specified otherwise. We are pleased to see that the company has now entered a phase of steady and healthy growth. Our performance in this quarter once again demonstrates the resilience of our model and the effective execution of our strategic roadmap. We delivered net revenue of $523 million, coupled with a pronounced acceleration of profitability, as net income surged 40.5% year over year to $125.4 million. This achievement validates the durability and stability of our operations. Our strategic pivot towards high-margin, demand-driven course categories continues to yield tangible financial benefits. The net margin expanded significantly to 24%, primarily attributable to optimized revenue mix and disciplined cost management. Now let's turn to the performance of our major course programs. Our next degree and diploma programs continued to play a stable, supportive role, accounting for approximately 15% of total revenue. The strategic allocation of resources away from this segment has empowered us to aggressively capture growth in more dynamic markets. Moving to our non-degree offerings, including professional certification and interest-based courses, collectively accounted for approximately 73% of total revenue in the third quarter. In this sector, we continuously optimize our services and expand our offerings by launching new programs tailored to diverse user groups. These initiatives aim to provide engaging and interactive experiences, improve learning outcomes, and ultimately create value for our users. Building on this momentum, we continue to deepen our presence in one of our most distinctive segments: senior learning. As an early mover in this space, we have established a strong foundation, particularly in arts education, where our curriculum and pedagogical depth remain unmatched. As the market evolves and competition intensifies, we have deliberately shifted from reactive scale to quality-driven growth, ensuring the long-term resilience of our business. In a recent feature, several of our senior learners shared their enthusiasm and renewed sense of vitality, reaffirming the social and emotional impact of our mission to make lifelong learning both enriching and transformative. We have also successfully cultivated a vibrant private ecosystem for this cohort, which continues to demonstrate exceptional engagement. Our senior learners are not only embracing online learning as a lifestyle but also forming vibrant social ecosystems through our platform. Courses have become gateways to renewed identity and connection. To further enrich this experience, we actively pioneer innovative collaborations across industries. Last quarter, we partnered with a leading television channel to co-host a cultural initiative celebrating traditional arts. They applauded the immersive learning journey that allows senior learners to explore the origins and beauty of Chinese calligraphy. Our pipeline for the coming quarter remains robust, with a series of integrated learning and lifelong enrichment initiatives already in motion. We are launching charity programs in rural schools, participating in the New Year's expos, organizing collaborations, and preparing for Spring Festival events. These activities are designed to help older users rediscover purpose, foster social connections, and shine in every aspect of their lives. This holistic approach not only activates the intrinsic value of our educational offerings but also fuels a powerful and sustainable competitive moat. Parallel to the offline initiatives, we are elevating the learning experiences through an AI-driven transformation of our platform. In response to learners' key needs, extending post-course engagement, preventing knowledge loss, ensuring 24/7 personal support, and bridging the gap to everyday practice, we have introduced two intelligent assistant models powered by large language models. The course intelligence assistant provides real-time reinforcement and precise explanations, while the AI agent enables natural language interactions to transform knowledge into actionable insights. As we continue to advance integration across operations, the results have been encouraging. Our internal data shows that AI-assisted automated grading now covers over 17% of assignments, increasing review efficiency by more than eight times and achieving an accuracy rate above 95%. This has significantly reduced the repetitive workload of instructors and enhanced teaching quality. Looking ahead, the adult education sector is entering a new phase driven by high-quality growth. For Sunlands Technology Group, success is no longer measured by sheer scale but by the balance of efficiency, innovation, and long-term value. We believe that healthy cash flow, organizational agility, and learner-centered product benefits will remain the core pillars of Sunlands Technology Group's competitiveness in the future. We extend our gratitude for your presence today and the continued support that you provide. Thank you. We look forward to your valuable engagement. With that, I will turn the call over to our financial director, Hangyu Li, to run through our financials. Hangyu Li: Thank you, Tongbo Liu. Hello, everyone. The third quarter results reflect the company's focus on profitable growth and operational excellence. Net revenues for the quarter increased by 6.5% year over year to $523 million, primarily fueled by the strong performance of our interest-based courses. A key highlight was the substantial growth in profitability. Gross profit rose 13.1% to $462.7 million, outpacing revenue growth. This, together with a 5.5% reduction in total operating expenses, drove net income to $125.4 million, with the net margin reaching 24%. The company's balance sheet remains robust, with ample cash and cash equivalents and short-term investments. We have also maintained our streak of generating positive net cash from operating activities, underscoring the health of our core business. In 2025, the gross billings per new student enrollment for interest, professional skills, and professional certification courses grew 11.7% year over year, reflecting steady user acquisition momentum despite a more selective marketing approach. This growth indicates that we are attracting more committed users and achieving better monetization from each new cohort. The combination of enrollment growth and improved unit economics demonstrates the effectiveness of our refined strategy, focusing not merely on scale but on sustainable, high-quality growth. Looking ahead, we are uniquely positioned at the confluence of demographic tailwinds and technological innovation. Our leadership in serving the silver economy, backed by a profitable and scalable model, sets the stage for continued value creation for our users and shareholders alike. We extend our sincere gratitude to our team and our shareholders for their continued support. Now let me walk you through some of our key financial results for 2025. All comparisons are year over year, and all numbers are in RMB unless otherwise noted. In 2025, net revenues increased by 6.5% to $523 million from $491.3 million in 2024. The increase was primarily due to a shorter average service period in 2025, resulting in increased revenue recognition year over year. Cost of revenues decreased by 26.5% to $60.3 million in 2025 from $82.1 million in 2024. The decrease was mainly due to declined cost of revenues from sales of goods, such as learning materials and books. Gross profit increased by 13.1% to $462.7 million in 2025 from $409.2 million in 2024. Sales and marketing expenses decreased by 7.7% to $279.7 million in 2025 from $303 million in 2024. General and administrative expenses increased by 4.3% to $36 million in 2025 from $34.5 million in 2024. Product development expenses increased by 48.2% to $8.7 million in 2025 from $5.8 million in 2024. The increase was mainly due to increased compensation expenses related to the expansion of the company's product development personnel. Net income for 2025 was $125.4 million, as compared to $89.3 million in 2024. Basic and diluted net income per share was $18.64 in 2025. As of December 30, 2025, the company had $601 million of cash, cash equivalents, and restricted cash, and $176.5 million of short-term investments, as compared to $507.2 million of cash, cash equivalents, and $276 million of short-term investments as of December 31, 2024. As of September 30, 2025, the company had a deferred revenue balance of $695.5 million, as compared to $916.5 million as of December 31, 2024. And now for our outlook for 2025, Sunlands Technology Group currently expects net revenues to be between $440 million to $460 million, which would represent a decrease of 4.9% to 9% year over year. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimates of market operating conditions and customer demand, which are all subject to change. With that, I'd like to open up the call to questions. Operator: Thank you. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Thank you. Please standby while we compile the Q&A roster. And once again, if you would like to ask a question, you will need to press 11. And to withdraw your question, please press 11 again. And once again, that's 11 for any questions. At this time, we are showing no questions coming through, so this would conclude the question and answer session. And at this time, I would like to turn the conference back over to Yuhua Ye for any closing remarks. Yuhua Ye: Once again, thank you, everyone, for joining today's call. We look forward to speaking with you again soon. Good day, and good night. This concludes the conference call. You may now disconnect your line. Thank you.
Operator: Good morning, and welcome, everyone, to Jacobs Solutions Inc.'s Fiscal Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. On your telephone keypad. At this time, I would like to turn the conference over to Bert Subin, Senior Vice President, Investor Relations. Please go ahead. Bert Subin: Thank you, Audra, and good morning, everyone. Our earnings announcement and 10-Ks were filed this morning, and we have posted a slide presentation on our website which we will reference during the call. I would like to refer you to Slide two of the presentation for information about our forward-looking statements, non-GAAP financial measures, and operating metrics. Now let's turn to the agenda on Slide three. Speaking on today's call will be Jacobs Solutions Inc.'s Chair and CEO, Bob Pragada, and CFO, Venkatesh R. Nathamuni. Bob will begin by providing comments on the business, as well as highlights from our fourth quarter and fiscal year results and a recap of notable awards. Venk will then provide a detailed review of our financial performance, including commentary on end market trends, cash flow, balance sheet data, and our FY 2026 outlook. Finally, Bob will provide closing remarks, then we will open up the call for questions. With that, I turn it over to our Chair and CEO, Bob Pragada. Bob Pragada: Good day, everyone, and thank you for joining us to discuss our fourth quarter and fiscal year 2025 business performance. We delivered strong results for Q4 and are pleased to end FY 2025, the first year of our five-year strategy, on a positive note. Both the quarter and the fiscal year, we drove strong double-digit growth in adjusted EPS supported by solid revenue growth and robust margin expansion. Our consolidated backlog grew 6% to $23.1 billion, setting a new record to close out the year. PA Consulting capitalized on strong demand, delivering double-digit revenue and operating profit growth in 2025. Overall, we are very pleased with our results and we see great runway as we enter FY 2026. Turning to Slide four, we provide a detailed overview of our quarterly and full fiscal year results. We grew Q4 adjusted EPS by 28% year over year, and this was primarily driven by 6% net revenue growth, a record quarterly adjusted EBITDA margin of just over 14.4%, and better below-the-line performance. For the full year, we grew adjusted EPS 16%, largely as a result of mid-single-digit net revenue growth and strong margin expansion. We have also seen a solid EPS tailwind from share repurchases, which we increased significantly during FY 2025. Reflecting on our expectations, last quarter we guided to an adjusted EPS range of $6.00 to $6.10 for FY 2025, and we were able to finish the year above the high end of that range at $6.12. Turning to Slide five, I would like to highlight a few notable infrastructure and advanced facility project awards from Q4. These wins highlight the power of our strategy to redefine the asset lifecycle as we prioritize expanding our addressable market with core clients. We continue to see a positive outlook in water and environmental, particularly in the water sector, which remains one of our most resilient and high-growth areas of our portfolio. Our full lifecycle delivery model, enabled by deep domain expertise and leading digital capabilities, helps our clients address aging infrastructure, scarcity issues, and regulatory changes around the world. Demonstrating the trust our clients place in Jacobs Solutions Inc. to deliver long-term outcomes, we extended our operational intelligence agreement with United Utilities, the largest listed water company in the UK, through 2030. Using our AI-powered Aqua DNA platform, we are helping modernize utility operations and deliver measurable sustainable benefits for millions of people. In the life sciences and advanced manufacturing end market, data centers and life sciences continue to be two of the fastest-growing sectors in our portfolio. Additionally, revenue growth in these sectors is now being complemented by new semiconductor investment. As an example, we were awarded the design for a commercial-scale fabrication facility by a confidential customer. Our scope encompasses the design and engineering of a greenfield semiconductor manufacturing plant along with its related infrastructure and manufacturing support facilities. We are also seeing strong demand across the critical infrastructure end market, with all verticals performing well during Q4. In the UK, together with PA Consulting, we were named to the Crown Commercial Services Management Consultancy Framework. This appointment expands our role advising public sector clients on delivering cleaner, smarter infrastructure and maximizing value from public investment across transportation, cities, defense, and clean energy. In the US, we continue to build on strong momentum in the transportation sector. In New York, we were selected by the MTA, North America's largest transportation network, to deliver the 14-mile transit line connecting Brooklyn and Queens. The project will enhance mobility, reduce travel times, and promote sustainable transit-oriented growth for New York City communities. In summary, these awards reflect our continued momentum and highlight the broad secular tailwinds driving growth across our business. As I reflect on FY 2025, we met or exceeded all of our annual targets, continue to drive robust bookings, stay true to our disciplined capital returns policy, and now enter year two of our strategy cycle on track to achieve our long-term outlook. Now I will turn the call over to Venk to review our financial results in further detail. Venkatesh R. Nathamuni: Thank you, Bob, and good day, everyone. During fiscal year 2025, we delivered on our commitment to drive profitable growth, which consisted of double-digit growth in both EBITDA and adjusted EPS, as well as a 7% free cash flow margin. We are demonstrating our differentiated business model through strong margin expansion, and we see continued opportunity to increase our margin profile moving forward. Now please turn to Slide number six, I will walk through our results for Q4. We finished fiscal year 2025 on a strong note. In the fourth quarter, gross revenue increased 7% year over year, and adjusted net revenue, which excludes pass-through revenue, grew by 6%. Q4 adjusted EBITDA was $324 million, growing 12% year over year. Our adjusted EBITDA margin during Q4 came in strong at 14.4%, which is an increase of 79 basis points versus the same quarter last year. As a result, adjusted EPS rose to $1.75, a 28% increase year over year. Our disciplined cost management contributed to a new record adjusted EBITDA margin both during the quarter and for the full fiscal year. And we are well positioned to build on this momentum in fiscal year 2026. Consolidated backlog was up 6% year over year to a record $23.1 billion, putting our trailing twelve-month book-to-bill at 1.1 times. Notably, gross profit and backlog increased over 13% year over year during Q4, highlighting our strong sales performance. Moving on to Slide seven, I will recap fiscal year 2025 results. Fiscal year 2025 total gross revenue increased about 5% year over year, with adjusted net revenue rising more than 5%. Revenue growth and higher margins resulted in adjusted EBITDA and adjusted EPS increasing by 14% and 16%, respectively. We are pleased to end fiscal year 2025 in a strong position with mid-single-digit organic revenue growth, mid-teens adjusted EPS growth, and a backlog that sets us up well for the future. Regarding our performance by end markets and infrastructure, and advanced facilities, let's now turn to Slide number eight. At a high level, net revenue growth across our three end markets was fairly consistent in fiscal year 2025, with water and environmental and life sciences and advanced manufacturing growing just over 4%, and critical infrastructure about 6%. Focusing on Q4, net revenue increased more than 9% year on year in Critical Infrastructure. Our strong growth was a function of several key programs ramping up in the transportation sector, and continued momentum in energy and power with favorable trends in both the US and internationally. As we look ahead, we believe continued tailwinds in the transportation and energy and power sectors will be underpinned by improvement in cities and places. In our life sciences and advanced manufacturing end market, net revenue grew a little more than 5% in Q4, a modest improvement from Q3. During the quarter, we saw strong net revenue growth in the life sciences and data center sectors, but had tougher comps in the industrial portion of the portfolio. Positively, we are on track to fully lap these tougher comps and are seeing semiconductor programs ramp up, which we believe will benefit our setup in fiscal year 2026. Net revenue for our water and environmental end market was roughly flat year on year in Q4. Demand across this end market was mixed, with continued strength in the water sector offset by softer revenue performance in environmental, particularly in the US, where both public and private clients moderated spending more than anticipated. Looking ahead to fiscal year 2026, we expect water to remain a key growth driver, and on the environmental side, opportunities are reemerging as we position for a return to growth. In summary, we are seeing favorable trends in each of our end markets and believe we are entering the new fiscal year with solid momentum. Moving on to Slide nine, I will provide a brief overview of our segment financials. In Q4, Infrastructure and Advanced Facilities operating profit increased 16% year on year, with a modest tailwind from FX. In fiscal year 2025, operating profit increased 13% year over year and on a constant currency basis. Infrastructure and advanced facilities results were aided by both revenue growth and margin expansion. Now moving to PA Consulting's performance. Revenue increased 10% year on year in Q4. This contributed to a 17% increase in operating profit, or 13% in constant currency, on a strong operating margin of 23%. PA continued to benefit from rising demand for services in the public and national security sectors, driving double-digit growth in their backlog. For fiscal year 2025, operating growth for PA was in line with Q4 performance. As we look ahead to fiscal year 2026, we anticipate PA's revenue growth will be similar to our consolidated growth rate. Turning now to Slide 10, we provide an overview of cash generation and our balance sheet. For fiscal year 2025, free cash flow generation came in at $607 million. As a reminder, this does not add back the impact of restructuring or other charges. Good free cash flow generation and our high-quality balance sheet enabled us to repurchase $754 million of our shares and pay out $153 million in cash dividends. As a result, we returned approximately 150% of our free cash flow during the fiscal year. Adding in our dividend of Momentum shares distributed in May, we returned $1.1 billion to shareholders in fiscal year 2025, a company record. We also paid down debt, ending the year with $1 billion in net debt, yielding a net leverage ratio of 0.8 times on LTM adjusted EBITDA, which is below our 1.0 to 1.5 times target range. Our balance sheet strength supports continued investment in the business, along with continued returns to shareholders through share repurchases as well as long-term dividend growth. Our commitment to return capital to shareholders is evidenced by a recently approved $0.32 per share dividend, representing 10% year-over-year growth, and our material increase in share repurchase activity this year. Finally, please turn to Slide number 11 for our fiscal year 2026 outlook. We expect adjusted net revenue to increase 6% to 10% year over year, adjusted EBITDA margin to range from 14.4% to 14.7%, adjusted EPS to range from $6.90 to $7.30, and free cash flow margin, which is free cash flow divided by adjusted net revenue, to be in the range of 7% to 8%. Notably, our outlook for fiscal year 2026 implies 16% year-on-year growth in adjusted EPS at the midpoint. We provide relevant assumptions on the right side of the page to help with your modeling. One item to be mindful of is the fact that fiscal year 2026 will include an extra week during Q4, adding just over a point and a half to our net revenue growth rate. Additionally, as it pertains to Q1, we are forecasting 5.5% to 7.5% net revenue growth and a low to mid-thirteen percent margin. Note that Q1 is typically our seasonally slowest quarter due to holiday timing. In summary, fiscal year 2025 was a great first year in our strategy cycle. We executed to our 13.9% EBITDA margin target, which puts us well on our way to reaching 16% by fiscal year 2029. We grew the top line mid-single digits, demonstrating resilience in a dynamic macro environment. In addition, we returned record amounts of capital back to our shareholders. As we enter fiscal year 2026, we believe we are very well positioned to build on our fiscal year 2025 performance. With that, I will turn the call back over to Bob. Bob Pragada: Thank you, Venk. In closing, we are proud of our continued strong execution in FY 2025. With a record backlog, expanding margins, and healthy demand across sectors we serve, we are entering FY 2026 with significant momentum. Operator, we will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. Keypad to raise your hand and join the queue. We ask that you please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question. We will take our first question from Sangita Jain at KeyBanc. Thank you for taking my questions. Can I start with the federal government shutdown? And if you think that had any impact on your fiscal 2026 bookings to date? Bob Pragada: Fiscal 2026? Or '25? Sangita Jain: Well, the fiscal 2025 ended and the shutdown started. So I am trying to see if you had any impact in the early part of this year from the shutdown. Bob Pragada: No. We did not. The bookings trend was those awards in the federal government happened before the shutdown. So short answer is no, Sangita. Sangita Jain: Alright, great. And then can you give us an update on PA and how that process is unfolding? Bob Pragada: Sure. Sure. So our negotiations continue and I would say they are progressing. We have said from the beginning that we would be making a decision on that on or before March '26. And we are on track to do so. Sangita Jain: Great. Thank you. Appreciate it. Bob Pragada: Thank you. Thank you, Sangita. Operator: We will move next to Andrew John Wittmann at Baird. Andrew John Wittmann: Yes, great. Thanks for taking my questions. I guess my first question is just on the water and environment portion of your business. Obviously, we saw some deceleration here, Bob. You mentioned the environmental business has been a little weaker. I was hoping maybe you could just drill into that. It seems like the water side is strong, but what was it about the environmental side that caused a little bit of softness? Would you tie that to anything? Maybe the administration change or something else? Venkatesh R. Nathamuni: And then what are the indications that you have today? You made some comments that you see that improving going forward, and I am just wondering kind of what that is based on. So you could drill in a little bit more there. Thank you. Bob Pragada: Yeah. Absolutely, Andy. Maybe just I will start with the positive. So the water sector continues to be strong. The pipeline is up double digits as well as our booking trends. So we still see high single-digit growth in the water sector moving forward into FY 2026 and beyond. And that is global, all major geographies are participating in that. In the environmental sector, kind of two dynamics that played out during the year, well, actually during Q4, accentuated in Q4. One was we did have a one-time event, a positive on last year's comp. So that was one. But from kind of the core of the business, the regulatory volatility right now within the environmental world has put a bit of a pause for our private sector clients. And so until those kind of settle down, our private sector clients are tending to pull back a bit of spend that we saw traditionally, and these are some of the larger industrials as well as chemical folks. On the public sector, it really was about disaster relief. The traditional, the kind of the switch of FEMA funding and application down to the state level. There was a bit of a pause on how the states were going to, especially after the O triple B was passed, how states were going to reorganize their budgets. And so we saw some delays in awards as well as a pullback in FEMA. Andrew John Wittmann: Was the FEMA the one-time item for the prior year, or you are saying that affected this quarter? Bob Pragada: No, prior year, the Q4 of FY 2024 one-time event was a federal agency outside of the US that we had a one-time event. Andrew John Wittmann: Got it. Okay. And then just for my follow-up, maybe for Venk. Saw the guidance here on free cash flow. Just the bridge, you are now doing it a percentage of revenue, but if you convert it back to the old way of doing it, it is under the 100% targets. And I was wondering what the items in the '26 outlook are that bridge you because obviously the business fundamentally is equipped to deliver at a 100% or greater. And so that means something is kind of unusual or included in this number that we should know about it. I thought maybe you could expand on that a little bit more. Venkatesh R. Nathamuni: Yeah. Thanks, Andy, for the question. I would say, you know, first of all, I would point out that as we stated at Investor Day, cash flow margin of 10% target, we are well on track for that. 7% this year and we are guiding to between 7-8%. What we have imputed in that guidance is that there is a kind of a one-time tax event unrelated to our continuing operations that we are expecting sometime in '26. So we just want to, you know, give transparency to that. And then on top of it, you know, as Bob alluded to in response to Sangita's question, you know, we are expecting resolution on our combination with PA, and we are just assuming some cash expenses associated with that. So those are the things that we want to factor in. We feel really good about our free cash flow margin expansion. And we think that will be a true indicator of the efficiency of business. And you are absolutely right. Our efficiency has been improving and we see continued growth in that in fiscal 2026 and beyond. Bob Pragada: Okay. Thank you. Andrew John Wittmann: You are welcome. Operator: We will move next to Jamie Cook at Truist. Jamie Cook: Hi, good morning and congrats on a nice quarter. I guess my first question with regards to the margin performance in Infrastructure and Advanced facilities, we saw a nice improvement there. Anything unusual in the margins and how to think about cadence of margins in that segment as in 2026? And then my second question, Bob, to you sort of more strategically, your peer, one of your public peers, came out this week talking about their competitive advantage on AI and what that means for margin for them over the longer term. You have similar business models. Just wondering how you are leveraging AI? And is there a margin opportunity outside of what you have already announced given your peers came out with much more bullish margin targets longer term? Thank you. Bob Pragada: Great. Thanks, Jamie. On the first part with regards to margins in I and AF, I will let Venk take that and then I will address the AI question. Following. So Venk, please. Venkatesh R. Nathamuni: Great. Hey, Jamie, thanks for that comment. So I would say in terms of our margin performance in I and AF, continues to go up into the right, really solid performance across the entirety of our business. Also a good job of improving our cash collections and so forth. I would say as we guided to in the prepared remarks, when it comes to Q1, there will be a sequential slowdown and a seasonal slowdown. By a couple of factors. One is fringe as it relates to things like medical insurance costs and health benefits that typically have an impact in Q1, but you get the recovery in subsequent quarters. So we will see a linear progression in margins throughout the rest of fiscal year 2026. But we wanted to make sure that we were transparent in terms of how to model it for fiscal Q1. So that is number one. And as it relates to the overall free cash flow margin target of 7% to 8%, imputed in that as I mentioned earlier is the fact that we are continuing to see operational improvements in the margin performance combined with some of the one-time items we expect to happen in fiscal 2026. And all of that is imputed in our margin guidance. Bob Pragada: And then on the AI question, Jamie, we have been very vocal about this since dating all the way back to 2021. In fact, if you remember in our '19 and 2022 strategy, we and it was the origins of the partnership with PA Consulting as well. This is a journey we have been on for over five years. How it has transpired? We see it as an accelerant, a differentiator, a space that we continue to use to primarily provide greater solutions externally for our clients. And that has realized itself, and these are things that we have highlighted in the past. All the way back to 2021, being able to deliver a transformational effort for Intel as they were expanding their business model into a foundry model back in 2021 that was done through machine learning. And digital replication. That then led to our partnership with Palantir and all of the water platforms that we have developed since 2022 in reference one in Aqua DNA as well as intelligent O and M that is really creating differentiated position to gain efficiencies for our clients. Most recently, we announced a partnership with NVIDIA, where we are utilizing AI enablement platforms as well as digital cleaning technology. To simulate gigawatt plus type data centers and creating a reference design for NVIDIA clients and even going all the way up to today where streetlight data is providing unbelievable transportation analytics for major metropolitan areas around the country. In fact, over 26 state DOTs are utilizing the Streetlight platform. And so kind of you look at that portfolio and it is creating a differentiated position for growth in the market. And it is contributing to our margin expansion as we continue to go up the value chain. Jamie Cook: Thank you. Congrats on a nice quarter. Bob Pragada: Thank you. Operator: We will move next to Andrew Alec Kaplowitz with Citi. Natalia Bach: Hi. Good morning. This is Natalia on behalf of Andrew Alec Kaplowitz from Citi. Bob Pragada: Andrew? Natalia Bach: Congrats on the quarter. Maybe first question I will start off with, you cited that transportation was a contributor to growth. I am just curious how the funding visibility under IIJ is progressing? Are you seeing any delays or accelerations as new money flows through the states? Bob Pragada: We are not. Not. That continues to be a catalyst. But I would say, you know, that that transportation number we are seeing globally. It is not just in the US. But nice growth that we experienced in Europe, Middle East as well as in Australia and New Zealand. So it is something where and again, it goes to the previous question too, differentiated position utilizing strong transportation analytics and driving mobility concerns. So it is I would say, IHA is a component. Budget clarity in the UK is another component. Growth in the Middle East as well as Australia continues to be a really strong market for us in the transportation space. Natalia Bach: Got it. That is super helpful. Maybe just continuing on the strength that you see globally in transportation. More maybe more so just curious about the regional performance across your end markets, which regions outperformed expectations and which ones are you expecting maybe to be a little into 2026? Sunny? Bob Pragada: Yeah. We are seeing growth across the board, Andrea. It is our business domestically in the US has got some strong tailwinds behind it. But we are not seeing let me say it in the positive. Our business outside the US and internationally is in growth mode. We have got double-digit growth going on in the Middle East. Europe is going through a nice recovery. And Southeast Asia and Australia and New Zealand are really being buoyed by strong transportation and water growth. So it is pretty uniform for us across the globe. Venkatesh R. Nathamuni: And if I could add to just what Bob said, I mean, that is true of the PA business as well. We are seeing some good solid momentum in the PA business, especially in the UK and Continental Europe. Natalia Bach: Got it. Thank you. Helpful. Congrats on the quarter. Bob Pragada: Thanks. Venkatesh R. Nathamuni: Thank you. Operator: We will go next to Steven Fisher at UBS. Steven Fisher: Thanks. Good morning. Wonder if I could just follow-up on Jamie's on the margin in terms of bridging the expansion in margins between fiscal 2025 and fiscal 2026. You can kind of be a little more specific on some of the major puts and takes, be it cost savings, operating leverage, any specific investments that you are making to support AI and digital, anything that you can help us sort of bridge within? Thank you. Venkatesh R. Nathamuni: Yeah. Thank you, Steve. So as we mentioned, in the prepared remarks, fiscal 2025 solid performance in terms of 110 basis point margin expansion and we are guiding for between fifty and eighty basis points for fiscal 2026. A lot of what happened in fiscal 2025 was driven by some of the operating leverage and cost actions as well as some early improvements in margin. As it relates to gross margins, we see a much bigger contribution especially on the gross margin line going forward, by three things that we outlined at Investor Day. Global delivery being a big component of it. As we look at the mix of business across the globe, we see that there is tremendous adoption of global delivery across our various end markets. So that should be a meaningful driver of margin expansion for us this year. And then we talk about commercial models and how, you know, with the adoption of AI that is increasing, across the multitude of end markets that Bob talked about that also makes a meaningful contribution to margin expansion. So I would say multiple levers on the gross margin front. And then we are committing to maintaining our operating leverage, meaning we want to grow our OpEx at a slower pace than our revenue growth. And that is driven by both efficiencies as well as what we do internally as well as externally for our clients. So a multitude of factors, we feel really good about our margin expansion story and we are guiding for 65 basis points at the midpoint. After 110 basis point expansion in fiscal 2025. Steven Fisher: Very helpful. Thank you. And then Bob maybe on the data center side, since I think you guys have a pretty interesting perspective and role in the industry. Being on the front end of things. I am curious if you could talk about the changes in the assignments that you are getting this year versus a year ago. What are your customers you that is different this year? What are the proud of project is different? Is there anything more international or more domestic? Any changes there? Just curious your perspective on how things are different entering '26 versus '25? Bob Pragada: Sure. Well, let me start with the geography and then go to how our scope is expanding in that area. We are seeing interest now in data center starts in the Middle East and in Europe. In addition to the US. The US continues to be the strongest of the three. So but it is expanding into Europe, into the Middle East. As well. From a scope standpoint, our scope has traditionally been within the white space. The white and the gray space are now merging. And so this especially the work that we are doing now for NVIDIA is translating into more innovation happening within the server rack in that white space area. And then broadly, solutions around the power requirements behind the meter. As well as reclaimed water that we are expanding our scope on that front too. So all of that put together has really been a net benefit. Just another data point, Steve, in the last quarter, our pipeline in the data center space has gone up 5x. And so we are actually being selective on how we deploy that talent and growing that talent not just in the US but in the Philippines and in India as well. Steven Fisher: Very helpful. Thanks a lot. Operator: We will go next to Michael Stephan Dudas at Vertical Research. Michael Stephan Dudas: Good morning, gentlemen. Venkatesh R. Nathamuni: Morning, Mike. Michael Stephan Dudas: Bob, maybe tailing off your last comment on pipeline, which is important. Maybe you could share, you have put out, I guess, in your investment, a two-year pipeline outlooks and you of the segments, maybe you can refresh on that, how that looks today versus a year ago. What areas should we be looking at as monitor on bookings and progress as the year goes through? Is there a certain couple areas? I mean, just touched on some of them, but well, for the pipeline and whether the conversions are going to happen sooner rather than later that might drive the fixed percent to 10% range of the 26 numbers? Bob Pragada: Sure. Maybe I will kind of segregate it into two categories. One, by sector and then second by geography. By sector, I would say the fastest growing pipelines and I can quote some numbers here in the data center world just mentioned pipeline is up 5x. In the semiconductor world, we are seeing more growth there after some flatness over the course of last year. And it is really centered around high bandwidth memory for the American client. In the US, semiconductor pipeline is up 20%. Life sciences continues to be strong. And in all those areas, that we mentioned before. That is really been driven in the US. That pipeline is up 50% and the water sector. Water sector continues to be a strong sector for us globally and that is up 50%. So overall, the pipeline is looking really, really strong as we go into FY 2026. The reason why I mentioned those four sectors is because that is where we will see fastest conversion of that pipeline. In 2026 and in early 2027. From a geography standpoint, it is the Middle East. You know, we just announced the award for a new Merabah, specifically the Mukab component of that. That is a huge really good job for us. We are now on the Expo and we have got a few opportunities at Abu Dhabi and if you had rail that could convert here shortly. So across the Middle East region, we are seeing good growth leading up to not just the Expo but also the World Cup coming up too. Michael Stephan Dudas: Took me the visit in Washington to speak, from the Saudi certainly can add to that visibility, I would assume. Venkatesh R. Nathamuni: It did. It did. Second yeah. Michael Stephan Dudas: Course. The second question, Venk, just as we think about cadence through 2026 on free cash and share repurchase, just 2025 had a lot of opportunistic one-time issues. But how do we think about as you allocate that cash relative to share repurchase and whatever, maybe target on relief or what have you as we look through '26? Venkatesh R. Nathamuni: Yeah, Mike. Thanks for the question. So on I will answer the margin question first, which is and as we guided to expecting a linear progression in margins, Q1 being probably the slowest in terms of margins and then a steady increase right through the rest of the year. Such that we feel good about the 50 to 80 basis points for the full year. As it relates to our use of cash, as we pointed out, our net leverage ratio is right now at 0.8x. We do want to maintain the optionality for additional deployment of cash for a potential increase in our stake in PA. As we have been stating all along. But outside of that, we want to be regular buyers of our stock. We truly believe in the value of being predictable in terms of buying back shares. And we will do it at a regular quantum. And it will not be at the same level as it was last year 150%. But we made the commitment at Investor Day to return at least 60% of our free cash flow in the form of share repurchases and dividends and we are committed to that. Bob Pragada: Excellent. Thanks, John. Michael Stephan Dudas: Thank you. Operator: And we will take our final question from Jerry Revich at Wells Fargo. Jerry Revich: Yes. Hi, good morning, everyone. Kurt. Thank you. Hi. Given the top line outlook you have for the year and Uvenk, what you shared for the first quarter, you could be exiting if you hit the high end of the range. With, call it, 13% type pipeline growth in the fourth quarter. Can you just talk about if you do hit the high end of the range given the color you provided earlier, Bob, which end markets I think we need to see that pipeline turn into bookings if we are talking about the high end of outlook being feasible and exiting at that teams growth rate in the fourth quarter if that plays out? Venkatesh R. Nathamuni: Yes. Jerry, I will take the first part of the question and then Bob can add a lot more color. I would say in terms of the sequential nature of the growth profile as well as the margin profile, you expect we expect to see, you know, continued momentum right through the year. And as we stated, Q4 is the one which will have the extra week. So that will have an extra oomph, if you will, in terms of both revenue contribution as well as margin contribution. But in terms of the end markets, it is pretty broad-based and maybe Bob can add more color on how we expect that to play out? Bob Pragada: Yes. The ones that would drive the high end of the range, Jerry, would be life sciences and data centers clearly. And really, that is a matter of those sectors moving at pace. That would not have to be accelerated. Just need to move at pace. And that would be a big contributor. We are seeing semiconductor fabrication facilities start to move. And so if that were to accelerate, that would definitely be a tailwind. Momentum, I think on Citi's question with regards to transportation that international transportation market would provide some momentum as well. And then major prospects, we are seeing major prospects in cities and places in the Middle East, but also we are now starting at the LA Olympics as well as FAA and a few other kind of larger initiatives that would drive the higher end. Jerry Revich: And then Bob, on data center specifically, you mentioned a fivefold increase in that pipeline for you. Obviously, that market is very hot, but I do not think it is 5x. Are you folks expanding the scope of what you are doing within data centers? Or is it people are looking further out to lock in services? Can you just expand on that fivefold comment? And if you are willing to share off of what base from a Jacob's standpoint? That would be helpful. Bob Pragada: Yeah. Just to put in perspective, it is about a $200 million business for us today. And over time, I will not be specific on time, that business could be as big as our life sciences business today in a few years. So that is kind of where it is headed. I would say it is across the board. It is hyper scalers. It is what we call kind of the neo cloud providers as well as multi-tenant players as well. And it is in just sheer numbers of people that are coming into the market. Our scope has expanded from a content standpoint. Going within the battery limits of the data center into the water requirements as well as power needs. And that is a nice kind of adjacency with our energy and power group. And then alternative delivery. So similar to what we do in the life sciences sector where we as well as in the water sector where we do not just design but program management for the delivery of the facility. We are now in that mode in the data center space. As well. Jerry Revich: Super. Thank you. And anything you could do to improve traffic in the New York area? A lot of us on the call would be grateful. So everyone. Okay. Bob Pragada: We are working on it, Jerry. Operator: And that concludes our Q and A session. I will now turn the conference back over to Bob Pragada for closing remarks. Bob Pragada: Well, thank you. Thank you everyone for joining our earnings call. We look forward to engaging with many of you over the coming days and weeks as we go on the road. And I hope all that are celebrating the US Thanksgiving have a happy holiday. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to Construction Partners Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you. You may begin. Rick Black: Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review fiscal fourth quarter and year-end financial results for fiscal 2025. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of constructionpartners.net. Information recorded on this call speaks only as of today, 11/20/2025. So please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that statements made in today's discussion are not historical facts, including statements of expectations, or future events or future financial performance, are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call that, by their nature, are uncertain and outside of the company's control. Actual results may differ materially. Please refer to our earnings press release for our disclosure on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted net income, adjusted EBITDA, and adjusted EBITDA margin. Reconciliations to the nearest GAAP measures can be found at the end of our earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. And now I would like to turn the call over to Construction Partners' CEO, Jules Smith. Jules? Jules Smith: Thank you, Rick, and good morning, everyone. We appreciate you joining us on the call today. With me this morning is Greg Hoffman, our Chief Financial Officer, and Ned Fleming, our Executive Chairman. I'd like to begin today by thanking the more than 6,800 employees in our family of companies for their hard work and dedication in fiscal 2025. A truly transformational year at CPI. Early in the year, we entered the states of Texas and Oklahoma through strategic platform acquisitions, and in May, we established a platform company in Tennessee. We also acquired two substantial subsidiary brands in the dynamic markets of Mobile, Alabama, and Houston, Texas. These five acquisitions, along with organic growth of 8.4%, transformed our top line with 54% total revenue growth. Even more importantly, we transformed our bottom line with a 92% increase in EBITDA year over year and a record EBITDA margin of 15%. Finally, we ended fiscal year 2025 with a record project backlog of $3 billion. Our people and the culture they create and maintain are the key to our business and the primary differentiator for CPI in our more than 100 local markets, and as a buyer of choice for new acquisitions. As a family of companies, we strive to live out our core values: family and respect, which create an incredible place to work together each day. In addition, our growth strategy delivers on our core value of opportunity by providing numerous pathways for teammates to advance their careers and build better lives. Our final core value is excellence, the daily challenge to do ordinary things extraordinarily well. And our entire team truly delivered excellence in 2025. Turning now to the New Year, I'm pleased to report that fiscal year 2026 has commenced at full speed with two large and significant acquisitions completed in the month of October. On October 20, we announced the acquisition of P and S Paving in Daytona Beach, Florida. P and S has dominant market share in a very fast-growing part of our country, the East Coast of Florida. They're led by a great management team, Tim Phillips and Curtis Long. Under their leadership, we are well-positioned to grow organically north and south along Florida's dynamic East Coast. P and S is a great example of our strategy to get into the right markets with the right partner. Now let's shift and talk about Texas. We began fiscal 2025 with the acquisition of Lone Star Paving, which was clearly a big step for CPI to enter Texas. Lone Star is a platform company that has an excellent management team who is ready to take advantage of the growth opportunities in the fastest-growing state in the country. In August, we entered the Houston market with the Durwood Green acquisition. Durwood Green is led by an excellent management team whose President, Brad Green, along with Jonathan and Daniel Green, are all third-generation leaders and owners of the company. The Houston Metro Area population is more than many states. In addition, the geography is broad, and its growth rate is number two in the country. Again, we invested in the right market with the right partner. In October, we were able to significantly expand our Houston operation under Durwood Green by acquiring eight hot mix asphalt plants and construction crews and equipment from Vulcan Materials. This transaction builds scale in the market and provides the ability to have even more throughput and margin at the liquid asphalt terminal in Houston. In the span of three months, we entered and then tripled our relative market share in Houston, creating an excellent opportunity to grow margins in that market. Last month, on October 22, we hosted our second-ever Analyst Day in Raleigh, North Carolina. The webcast and presentation from that event are still available on our site. During our presentation that day, we reported that CPI eclipsed the Roadmap 2027 goals set forth in our five-year plan just 24 months prior. We achieved our goals two years earlier than planned, and we felt it was important to provide updated goals to the market. A five-year strategic plan called Road 2030. Same strategy just as it was for Roadmap 2027. Road 2030 positions CPI for continued growth and margin expansion. After a 23% budgeted growth year in 2026, we target to double the company again to more than $6 billion in revenue by 2030. We expect to expand EBITDA margins by 30 basis points in fiscal year 2026 and 30 to 50 basis points annually thereafter, reaching a 17% EBITDA margin by the end of the plan period. With margins expanding and the top line compounding, our adjusted EBITDA is projected to grow from $423 million in fiscal year 2025 to more than $1 billion by 2030, an 18% compound annual growth rate. Road 2030 more than doubles the size of our company while staying in the Sunbelt reflects the strength of our business model, the demand across the Sunbelt, and the opportunities we continue to unlock through pursuing both operational excellence and strategic growth initiatives. Looking ahead to 2026 and supporting our five-year plan, our four macro trends that you've heard us talk about but they're still powerful, and we believe will continue to drive growth for our company. The first is the continued migration to the Sunbelt that has accelerated since COVID. Both people and businesses moving to CPI states. This drives demand for private construction, including not only factories and corporate campuses but numerous data center projects. That CPI is well-positioned to build out a complete site infrastructure. As the private economy grows, our states are making sure that public infrastructure investment keeps up with the growth. This week, I attended a panel discussion of Sunbelt state governors talking about the importance of infrastructure staying ahead of the growth and the proactive measures they were taking to successfully support and fund the infrastructure of a growing economy for the foreseeable future. The second macro trend that is driving this growth is the reshoring of companies moving their manufacturing facilities and business to the Sunbelt because they want to strengthen their supply chains and avoid tariffs. This reshoring trend in America will mean continued growth in the Sunbelt, and CPI is well-positioned to build those projects. The third macro trend is related to funding. Both the federal and state governments are investing in infrastructure, and that's going to continue. We see strong public contract bidding throughout our eight states and over 100 local markets. Expect contract awards in FY '26 to increase approximately 15% over FY 2025. This is particularly true for the small recurring maintenance projects that represent a large majority of the company's work. Supporting this strong environment are healthy state infrastructure budgets, including many supplementary state programs as well as local city and county infrastructure programs and the IIJA federal program funds that will still take a few more years to be spent. On Capitol Hill, both houses of Congress continue to work with Secretary Duffy on the five-year reauthorization of the surface transportation program. We expect this bill to be voted on by Spring as this administration continues to prioritize hard infrastructure investments and decreased permitting delays, necessary to support a growing economy. And the final trend is part of our acquisition strategy. Which is we operate in a very fragmented industry of local market players composed primarily of family-owned companies. And this industry is going through a generational transition. As many private owners are getting to retirement age, CPI's opportunity to have conversations with sellers throughout the Sunbelt continues to grow. Before turning the call over to Greg, to review the financial results for FY 2025, I want to emphasize that as we begin in fiscal year, we remain focused on executing our record backlog in the field and evaluating growth opportunities throughout our Sunbelt footprint. We also remain focused on the crucial long-term challenge of attracting and retaining the best workforce. We will continue to create a competitive advantage by providing our employees with both attractive career growth and a distinct family of companies culture. At CPI, we know that our people are the key driver to grow our business and create outstanding shareholder value. I'd now like to turn the call over to Greg. Gregory A. Hoffman: Thank you, Jules. Good morning, everyone. As Jules mentioned, we had a strong finish to our fiscal year with a great fourth quarter that represented revenue of $900 million, an increase of 67% compared to the same quarter last year, of which 10.4% was organic revenue growth. Adjusted EBITDA in Q4 was $154 million, which was twice as much as Q4 last year. Adjusted EBITDA margin for Q4 was 17.1%. Now I will review our key performance metrics for the fiscal year before discussing our outlook for fiscal 2026. Revenue was $2.812 billion, an increase of 54% compared to last year. The breakdown of this revenue growth for the year was 8.4% organic growth and 45.6% acquisitive growth. Gross profit in fiscal 2025 was $439.1 million, an increase of approximately 70% compared to last year. As a percentage of total revenues, gross profit was 15.6% compared to 14.2% last year. General and administrative expenses as a percentage of total revenue in fiscal 2025 decreased to 7.1% compared to 8.1% last year. Net income was $101.8 million, an increase of 48% compared to last year. Adjusted net income was $122 million, an increase of 73% compared to fiscal 2024. Adjusted EBITDA was $423.7 million, an increase of 92% compared to last year. Adjusted EBITDA margin was 15%, compared to 12.1% in fiscal 2024. You can find GAAP to non-GAAP reconciliation of net income and adjusted EBITDA financial measures at the end of today's earnings release. Turning now to the balance sheet. We had $156 million of cash and cash equivalents and $303.5 million available under our credit facility at fiscal year-end, net of a reduction for outstanding letters of credit. As a reminder, on June 30, we amended our credit agreement by providing for a total facility size of $1.1 billion consisting of a term loan in the amount of $600 million and a revolving credit facility in the amount of $500 million. We utilized the proceeds from the increased term loan to pay down the then-outstanding balance on the revolving credit facility, realizing the full availability on the facility as of June 30. In addition, the amendment extended the facility maturity date to June 2030. As of the end of the quarter, our debt to trailing twelve months EBITDA ratio was 3.1 times. We remain on pace with our strategy of reducing the leverage ratio to approximately 2.5 times by late 2026 to support sustained profitable growth. In fiscal 2025, cash flow from operations was $291 million, up from $209 million in fiscal 2024. We continue to expect to convert 75% to 85% of EBITDA to cash flow from operations in fiscal year 2026. Capital expenditures for fiscal 2025 were $137.9 million, within the range we provided of $130 million to $140 million. We expect total capital expenditures for fiscal 2026 to be in the range of $165 million to $185 million. This includes maintenance CapEx of approximately 3.25% of revenue, with the remaining amount invested in high-return growth initiatives. Turning now to our outlook. As we reported last month, here are the ranges for our fiscal year 2026. Revenue in the range of $3.435 billion. Net income in the range of $150 to $155 million. Adjusted net income in the range of $158.1 to $164.2 million. Adjusted EBITDA in the range of $520 million to $540 million. Adjusted EBITDA margin in the range of 15.3% to 15.4%. Consistent with historical seasonality, we anticipate the first half of the fiscal year to contribute approximately 40% to 42% of annual revenue and 30% to 34% of adjusted EBITDA. In the second half of the year, during our peak construction season, we expect to deliver the remaining 58% to 60% of revenue and 66% to 68% of adjusted EBITDA. Lastly, as Jules mentioned, we entered the New Year with a record project backlog of $3 billion at 09/30/2025. We have approximately 80% to 85% of the next twelve months' contract revenue covered in backlog. And with that, we will open the call to questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset. Our first question is from Kathryn Thompson with Thompson Research Group. Please proceed. Kathryn Thompson: Good morning. Jules Smith: Good morning. Kathryn Thompson: You've done a very nice job of meeting the financial goals that you outlined in your previous investor day and late 2030 goals out in late October. And part of that is M&A, which you talked about several acquisitions that you completed recently. So as you build momentum with your growth trajectory and consolidation of the market, could you talk a little bit more about what you're doing in terms of integration and maybe what's different today versus, say, five years ago as you're going down this growth path? In terms of smooth integrations? Thank you. Jules Smith: Yes, Kathryn, 2025, as you noted, was a transformational year for us. And a lot of that was the acquisitions we did. We've been busy, but the strategy that we talked about in October hasn't changed. We're gonna look for the right markets with the right partners. The sellers continue to be a generational consolidation. You know, one thing I will say has been busy this year. And Ned, who's with us, he's been right there with us on a lot of these acquisitions. So I'd love just to turn that question over to him and get his thoughts on just our acquisitions and strategy. Kathryn, thank you. Thank you for your support. I think that a couple of things start at the big picture. We've got a great team that really looks at all the acquisitions. They understand the strategic benefits of each acquisition. They know how to do diligence so that we end up generally knowing more about the business than the people we've purchased it from. They understand the organizational fit and the financial fit. So I think it all begins with having a really a from the opportunity standpoint, we see more opportunities today than we did five years ago. I think it's important to note that. I think that has to do with the generational transition that's happening. But the opportunities today, we actually, as we look at it through our acquisition working group, we see more opportunities now than we did five years ago, three years ago, and four years ago. And that in large part is directed because we have a great team that's out there in the marketplace that people trust. From an integration standpoint, we've always had a theory that if we buy the right companies that have a good cultural fit with management teams that are, I think, good listeners and good learners, that's easier to integrate. But the other thing that we've always done, and we're better at it today than we've ever been, is we've included people throughout the company in that integration. It's not just one group. These people will get to know people that they're gonna work with through the integration. They'll get to have people they can call to answer questions in the integration. So for us, I think not better at integration, it's smoother today than it ever was. It's also become a real honor for people to get to work on the integration team throughout the company. So you may have somebody that's gonna do the same position that you are as we acquire you that you'll get to know in the process, and you'll have somebody that actually does that job that you can call and get to know. The last piece of it is that Jules and Greg have done a terrific job of making sure that all the leaders of these businesses have gotten to know each other. They get together quarterly throughout the year to make sure it differs and with different focuses so that everybody knows each other. So when there's an issue or a problem, it's not just solved by corporate. It's solved throughout the organization. And that's been a real important piece of it as we've gone there. But I would just say I am so impressed with the team that Jules put together that acquires these businesses and how we've incorporated people throughout the company to integrate it. Greg and Jules are happy to talk more about that, but I think as a board, or to speak for the board, I would just say we see it being smoother and better than it's ever been, and we see more opportunities than we ever have. Kathryn Thompson: Thank you for that. It sounds like you've been building your muscle, had a good footprint, but also are building that muscle for integration with the companies you acquire. One follow-up question, then I'll hop back in the queue. Is just with, you know, the government was shut down for a regular amount of time, but just confirm did that impact your business? Where do you see it going forward in terms of how you plan your business? Thank you. Jules Smith: Yeah, Kathryn. The government shutdown, you know, we're glad that everything's over and we're back to normal. But the reality is it didn't really affect our industry because the funds go through the Highway Trust Fund. So we didn't really see any revenue impact or bidding impact for the forty days that the government was shut down. Kathryn Thompson: Okay. Perfect. Thanks so much, and best of luck. Jules Smith: Thank you. Operator: Our next question is from Tyler Brown with Raymond James. Please proceed. Tyler Brown: Hey, good morning, guys. Jules Smith: Morning, Tyler. Gregory A. Hoffman: Good morning, Tyler. Tyler Brown: Hey, Jules. I know you addressed it a little bit upfront, but what is the confidence level around getting to a vote on that reauthorization bill by spring? I'm just curious if you're hearing that from lawmakers. Just it sounds like there's some real momentum there, but just any other color would be really helpful. Jules Smith: Sure. Yeah. Tyler, the reality is, as we've often said, is the most bipartisan thing in Washington. So that continues to be true. In September, I would have told you that, and this is something I've heard from politicians on the hill, they were running ahead of schedule compared to where they historically are on the five-year reauthorization. They were well ahead of schedule. There was momentum. I think the government shutdown has gotten that lead back to where they normally are. So what I'm hearing is that both chambers are working on in committee the bill. They then will turn to, you know, what the pay fors. How they get it paid for, highway trust funds, the major thing, and then the question is how they make up the difference. They're working with this administration. You know, I've heard good things about just what this administration is prioritizing. They know that they need to spend the money wisely on infrastructure projects that are gonna support the economy. So from what I reported in my prepared remarks is just what I'm hearing is that they're now shooting for voting to be, you know, done this spring in anticipation of, you know, an October 1 new fiscal year that this five-year plan will start to fund. Tyler Brown: Okay. That is extremely helpful. Thank you for that. Greg, quick modeling or housekeeping item. But how much rollover M&A revenue should we be modeling just again based on deals that are done to date? And will those be neutral, accretive, or dilutive to margins broadly speaking? Gregory A. Hoffman: Yeah. So let's kind of break it down by 2025 acquisitions and then 2026 acquisitions. So the 2025 acquisitions will carry over about $240 to $250 million in revenue. And then acquisitions that occurred here in '26 will be another $200 million. And I would say that the combined impact of those are neutral to our current margin position and what we projected for '26. Tyler Brown: Okay. I would say so. The, you know, just as we said at our Analyst Day, Tyler, you know, the reason our margins have grown, you know, in addition to what our legacy business would have done, these acquisitions we made in 2025 had good margins. And I would say that, you know, we had continued to expect that the businesses we closed in 2026 will be the same way. Tyler Brown: Okay. Yep. No. Very helpful. And then just if I can squeeze the last one in here on cash flow. So I think it was a little bit slow maybe here late in the fiscal 2025. But it sounds like, Greg, you expect cash from ops to be, again, roughly 80% of EBITDA or in that 75% to 80% range. Right? Gregory A. Hoffman: Yeah. That's right. 75% to 85%. As a matter of fact, the last three years on average, were 80% when you total those up. You know, the positive '25 due to really great weather, really great performance. All also caused really large billings and large cash outflows. So, you know, the cash will come. It's just, you know, being pushed into the following year. Tyler Brown: Okay. Great. And then conceptually, and I know we'll get the detail in the K, but do you still expect to be kind of a de minimis cash taxpayer over the next few years? Is there any change in that big picture? Gregory A. Hoffman: No. There's not. You know, we talked a little bit about maybe in the last call, about the one big beautiful bill and what that did to our cash taxes. We talked that maybe that was, like, a $15 to $20 million dollar savings for us this year. And yeah, when you see the 10 K, you'll see that it was about $5 million in cash taxes where we thought it was gonna be higher because we projected maybe not having, you know, some relief there. But, obviously, we got it. And, yes, going forward, be more of the same. Tyler Brown: Okay. Alright. Thank you, guys. Appreciate it. Jules Smith: Thanks, Tyler. Operator: Our next question is from Michael Feniger with Bank of America. Please proceed. Michael Feniger: Yes. Thank you, gentlemen, for squeezing me in and taking my question. I apologize if I missed it. You guys have done some transformational M&A. Just Jules, is 2026 a little different in terms of the type of M&A? Is it more bolt-on versus platform? I guess the genesis of the question is, you know, is the focus on '26 to get that leverage to that two and a half by late '26, and then you rev up the M&A engine back up again? Or are you kinda trying to fly two planes at once? I think that's kind of the genesis of the question. You know, given some of the strong M&A you guys have done in the last year or so? Jules Smith: Yeah, Michael. Good question. I don't know if we're trying to fly two planes at once. That sounds a little dangerous. We're just trying to execute on our strategy. Yeah. Fair. But the reality is 2025 was a, when we say a transformational year, you know, that's not a normal M&A year. It was a great year. I mean, to do three plus platform acquisitions in one year, that's not typical. But we just saw the opportunities present themselves with Lone Star, Overland, and PRI. And so, you know, frankly, our guidance for 2026, some of this transformational year is carrying over and affecting our new year in a positive way. You know, for us to be growing 23% already. Our M&A strategy, we continue to talk with a lot of sellers. I would say right now, we're having conversations in all eight of the states we're in at different stages. We'll continue to try to make good decisions. You know, we don't close every deal or that with the people we talk with. We try to study and pick the best ones. I would say for 2026, you're gonna see us continue to do bolt-on acquisitions where we think that the strategy is, the strategic positives are just too much to pass up on. At the same time, as Greg said, we are focused on deleveraging. As the cash flow and the EBITDA rolls through, that should naturally happen. The goal is by late 2026 to be back around that two and a half times leverage. Michael Feniger: Perfect. And, Jules, just my follow-up, just you kinda talk about what you guys are seeing on the cost inflation side? I would think liquids have been pretty tame. And really, you're seeing on the pricing side, so that price-cost spread, as you guys kinda roll over into 2026, how you guys are feeling about that? Thanks, everyone. Jules Smith: Yeah. You know, Michael, it's 2025, you know, after a couple of years a few years ago of record inflation, 2025 was about the most benign inflation year, you know, we've seen in a long time. The construction material cost went up a normal amount, but that's stuff that we put in our estimates as pass-through, and there were no surprises. There were no real spikes. And then, I'll let Greg answer for energy. He tracked that pretty closely, but it was really just a very normal year, I would say. Gregory A. Hoffman: Yeah. I would say that, you know, when you said it, Jules, when you're talking about inflation and if you see spikes, those are difficult to pass through, but it was pretty steady all year. And energy was no different. Liquid AC, a pretty big component of our cost, was pretty stable all year. Diesel was relatively stable all year. So I think that it was a pretty stable year overall. Jules Smith: Right. And Michael, I know we've talked about labor costs. You know, our labor costs now are going up what you would think in a typical year. That three to 4% that we can easily put in our estimates and predict. Michael Feniger: Thank you, Jules. Jules Smith: Alright. Thank you, Michael. Operator: Our next question is from Adam Thalhimer with Thompson Davis and Company. Please proceed. Adam Thalhimer: Hey. Good morning, guys. Jules Smith: Morning, Adam. Adam Thalhimer: Actually, I wanted to continue on Michael's pricing question. When you look at recent bids, does it feel like your competitors are pretty full and pricing still healthy? Jules Smith: I would say so. Yes. You know, the bidding environment, we're always in a competitive market. And that's not that's been the case since we were founded 22 years ago. I will tell you it helps to be in growing markets. And so that's why when we say we wanna get to the right markets with the right partner, we'd rather be bidding in a growing market where everyone has a chance to fill their backlogs and to bid, you know, patiently. And so feel like that continues to be the case. You know, have a record backlog. But at the same time, you can tell in our guidance that we're expecting margins to expand and grow. And you can't do both of those if you don't have healthy markets to bid in. Adam Thalhimer: Sounds good. And then, Jules, when you pull your operating guys, what do you hear back from them on private construction demand? How uniform are their responses on that? Jules Smith: Yeah. The private economy, Adam, I would say, you know, when Greg and I look at the backlog each quarter and we say, okay. What's the revenue split? I would say, you know, it's been pretty consistent. Maybe it's ticked up a little bit a percent or two toward public versus private, but we still got a very healthy, you know, 34 to 35% of our backlog is private. In all 100 of our markets, they're different economies, microeconomies, to speak. But we still see a lot of demand, as I said, you know, from people and businesses migrating to the Southeast. So we get a lot of opportunities to bid commercial projects. So that really hasn't changed a lot. You know, we monitor it. We know we're gonna get asked. But we're blessed to be in the Sunbelt where there's still the private economy is growing. Adam Thalhimer: And just lastly for me, the other thing happening in the Sunbelt is just massive data center construction, and we're hearing that some of these campuses are just getting larger and larger. And it's a bit off the wall for you guys, but I'm just curious if those are big enough to actually pull some paving work. Jules Smith: Oh, yes. You know, I mentioned that in my prepared remarks. You know, we get asked about data centers a lot. That's not something that we go around specializing in. You know, we're organized in local markets. But there are data centers being built in a lot of our markets, and we participate in those. We put in the site infrastructure. We build the roads. And you're right. Some of them are pretty large projects. But for us, they're similar to, Amazon warehouse or, you know, a distribution facility. The site has to, you know, be cleared, graded, the utilities have to go in, the stormwater has to be maintained, and they have to have a good access road. So, you know, for us, data centers are a good opportunity to build when we can reach them in our local markets. Adam Thalhimer: Thanks, Jules. Good luck in Q1. Jules Smith: Alright. Thank you, Adam. Operator: Our next question is from John Valises with D. A. Davidson. Please proceed. John Valises: Good morning. Jules Smith: Morning, John. Gregory A. Hoffman: Morning, John. John Valises: Outside any reauthorizations coming from Washington, are there any potential revenue-raising initiatives or ballot measures like a gas tax or sales tax you guys are monitoring across your core markets? Jules Smith: Yeah, John. I was just, you know, studying that this week. Every one of our states, all eight states in the last year have had multiple ballot initiatives to fund infrastructure. Tennessee had probably the most. We had eight different initiatives. I was just talking to the governor of Tennessee a few days ago about just what his state saw and with the growth and the need to get ahead of it. So they passed the Transportation Modernization Act, which, you know, put billions of dollars toward transportation. They did a one-time transfer of a billion dollars from the general fund this past year. And then things like, they put a tax, like a 1¢ tax or some percent tax on the sale of new and used tires to go toward transportation. And all of our states in some way have taken steps to fund infrastructure to invest in it. And that's why I mentioned just in the Sunbelt, they see the growth coming there. They don't wanna fall behind. And so they're taking supplemental measures to what the gas tax gives them and what Washington through the surface transportation program gives them. John Valises: Makes sense. Thank you. And sorry if I missed this. Because you guys talked a little bit about energy pricing and all. But can you perhaps provide a little more color about oil mix prices? And what sort of levels are you guys currently seeing now? And what do you guys expect for fiscal 2026? And is that in any way contemplated in your outlook? Jules Smith: John, could you repeat that? You broke up a little bit. What specifically were you asking about as far as pricing? John Valises: Yeah. No problem. I was just asking about what sort of asphalt mix prices are you guys currently seeing today? And what are you expecting in 2026? And then is that in any way contemplated in your fiscal 2026 guidance? Gregory A. Hoffman: Yeah. So our asphalt, you know, we manufacture it. And so, you know, for us, we're going to raise prices as we get higher input costs. And, you know, as we can pass that through in our projects. I'll let Greg speak to what he's seeing in terms of liquid asphalt, which is a major input cost and aggregates. But for us, hot mix asphalt is, you know, the key thing we produce. Gregory A. Hoffman: Yeah. As Jules said, we will pass through as we understand what pricing does. With liquid asphalt specifically, the, you know, obviously a pretty big component of our asphalt mix. Most of our states have a liquid AC index that's pegged to the day you bid the job. So certainly, gives us some cost stability there that we can count on. But, certainly, we're escalating costs as needed based on, you know, the extent and duration of the job in order to make sure that we've got our costs covered in a bid or if we're pricing out to a customer that's buying our asphalt third party. Operator: We have reached the end of our question and answer session. I would like to turn the call back over to management for closing remarks. Jules Smith: I just wanna thank everyone for being with us. We're excited that FY 2026 is off and running. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Ladies and gentlemen, good day everyone and welcome to Vipshop Holdings Limited Third Quarter 2025 Earnings Conference Call. At this time, I would like to turn the call over to Ms. Jessie Zheng, Vipshop Holdings Limited's head of investor relations. Please proceed. Jessie Zheng: Thank you, operator. Hello, everyone, and thank you for joining Vipshop Holdings Limited Third Quarter 2025 Earnings Conference call. With us today are Eric Shen, our cofounder, chairman, and CEO, and Mark Wang, our CFO. Before management begins their prepared remarks, I would like to remind you that discussion today will contain forward-looking statements made under the safe harbor provisions of The U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our safe harbor statement in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call, such as non-GAAP operating income, non-GAAP net income attributable to Vipshop Holdings Limited shareholders, and non-GAAP net income per ADS, are not presented in accordance with US GAAP. Please refer to our earnings release for details relating to the reconciliations of our non-GAAP measures to GAAP measures. With that, I would now like to turn the call over to Mr. Eric Shen. Eric Shen: Good morning and good evening, everyone. Welcome and thank you for joining our third quarter 2025 earnings conference call. Our third quarter results demonstrate tangible progress on our path back to growth. We are pleased with the clear top-line expansion, led primarily by notable improvement in customer trends across our core categories. Total active customers regained year-over-year growth. Super VIP membership continued to deliver double-digit growth. In the third quarter, active super VIP customers grew by 11% year-over-year, contributing 51% of our online spending. This sustained growth was primarily driven by continuous upgrades to SVIP exclusive product and service benefits, coupled with more targeted engagement initiatives, which effectively convert regular customers. In terms of category performance, we saw accelerated momentum in apparel-related categories throughout the quarter. Our team successfully delivered a powerful blend of quality, value, and style. This was achieved through a merchandising strategy that highlights high-value brands, trending categories, and popular selling points, all of which are deeply aligned with customer priorities. Against the dynamic industry backdrop, we are navigating this operational environment with agility and efficiency. We are strategically realigning the organization for long-term success, implementing changes to strengthen our unique position as an off-price retailer for brands. We focus on reinforcing the flywheel from merchandising, customer engagement, to operation. At our core, we are a merchandising-led company. We compete through offering affordable and differentiated assortments, continuing to enhance our leadership in deep discount product offerings. We are deepening our category specialization to curate product offerings that deliver great relevance and distinct value. We start to see new momentum in customer and sales by acting upon engaging bright spots and customer performance. As an example, we are rebuilding our maternal and child care division to better integrate relevant apparel and non-apparel categories. This reshaped assortment is designed to foster cross-category growth and create lasting value for customers as they journey through different life stages. We are bringing this level of specialization across each category in our business. Additionally, we have an opportunity to scale through our differentiated product portfolio. One is Made for Vipshop Holdings Limited, which again delivered strong sales growth in the quarter. We are deepening our collaboration with more high-value brand partners. The team is capitalizing on our category insights to motivate brands to allocate and create more in-season and on-trend supply at competitive prices. A compelling case in point is a leading running shoe brand, which drove 50% of its September sales on our platform from Made for Vipshop Holdings Limited after making select popular items exclusive to us. Another case is a leading women's apparel brand, which built sales momentum by customizing more deep discount, high-demand offerings from its inventory fabrics. The other line I would differentiate is a carefully curated portfolio of popular items, which we proactively source from both domestic and global brand partners. We see strong momentum when we offer the right brand of quality, value, and style, giving fashion relevance to young and middle-class customers who increasingly come back to enjoy the fun of flash sales and treasure hunts. Beyond merchandising is how we do better to appeal to customers. In addition to sustaining strong mindshare with our core customer cohorts, we are actively experimenting with new marketing formats such as in-app content and short-form dramas. By adopting an integrated strategy across marketing, growth, and engagement, we are seeing early wins. This approach enables a differentiated balance of cost efficiency and strategic reinvestment, improving our performance in acquiring, activating, and retaining customers. To further engage our customers along their journey, we focus on facilitating the broadening and discovery of a broader range of new and existing offerings. A notable area of improvement is search and recommendations. Our systemic upgrade of relevant models, algorithms, and product operations have translated into measurable gains. In the third quarter, enhancements in our search and recommendation systems led to a tangible increase in conversions, directly contributing to sales growth. We also continue to elevate the experience for our SVIP customers. We want them to feel special, valued, and delighted with every visit, and we are delivering on this promise more consistently. In the third quarter, we launched a series of by-invitation private sales. SVIP customers were granted exclusive access to a curated selection of major brands at deep discounts, which delivered a powerful sense of value and successfully boosted membership loyalty. Lastly, we expect technology to play a strong role in tapping into the potential of growth and efficiency. We are clear on the path to accelerate AI application across our business. Our immediate focus is on deploying AI agents to enhance key areas including search, recommendations, customer service, external marketing, and business analytics. We expect these innovations to create more engaging customer experiences, empower brands with advanced tools, improve marketing efficiency, and generate actionable business insights. As an example, we are seeing good adoption of our try-on AI feature. Customers really enjoy using it to virtually try on clothes, save looks, and share with friends before buying. We are also gaining traction with AI ads, as a growing share of campaigns now leverage AI to upgrade marketing creatives and media placements, boosting customer acquisition efficiency. We are encouraged by the momentum in our business. Our operations are better aligned, and our teams are collaborating at new levels to unlock synergies. We continue to adapt to stay ahead of market trends and customer expectations. The entire organization is leaning into the opportunities ahead of us. We have great confidence in our long-term roadmap for sustainable profitable growth. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results. Mark Wang: Thanks, Eric, and hello, everyone. I am pleased to report a set of healthy financial results for the third quarter. Total net revenues turned to growth and exceeded expectations, along with solid earnings expansion. This performance validates our disciplined model to balance growth investment with value creation, upholding our long-stated goal of achieving high-quality growth. Our strategic yet prudent growth investment focuses on value-driven opportunities in merchandising expansion, especially into the differentiated portfolio, consumer-facing marketing, better engagement with customers, as well as AI-centered technology advancements throughout our operations, all aligned with our long-term roadmap for success. We make sure everything we do should be powering our virtual flywheel within a business that translates into sustainable and profitable growth. As Eric stated, we are seeing the benefits of recent strategic changes. We are encouraged by the progress made so far and expect to see the impact of our initiatives build into the rest of the year and beyond. We have great confidence in our long-term outlook and our capabilities to deliver value for all stakeholders. Again, I would like to reaffirm our commitments to shareholder returns in 2025, which is no less than 75% of the RMB9 billion full-year 2024 non-GAAP net income. So far this year, we are firmly on track with that. We have returned a total of over $730 million to shareholders through a combination of dividend payments and share buybacks. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in renminbi, and all percentage changes are year-over-year changes unless otherwise noted. Total net revenues for 2025 increased by 3.4% year-over-year to RMB21.4 billion from RMB20.7 billion in the prior year period. Gross profit was RMB4.9 billion compared with RMB5 billion in the prior year period. Gross margin was 23% compared with 24% in the prior year period. Total operating expenses were RMB3.9 billion compared with RMB3.8 billion in the prior year period. As a percentage of total net revenues, total operating expenses were 18.5% compared with 18.2% in the prior year period. Fulfillment expenses were RMB1.9 billion compared with RMB1.7 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses were 8.7% compared with 8.4% in the prior year period. Marketing expenses were RMB667.2 million compared with RMB617.8 million in the prior year period. As a percentage of total net revenues, marketing expenses were 3.1% compared with 3% in the prior year period. Technology and content expenses were RMB438.6 million compared with RMB454.2 million in the prior year period. As a percentage of total net revenues, technology and content expenses were 2.1% compared with 2.2% in the prior year period. General and administrative expenses were RMB984.6 million compared with RMB957.8 million in the prior year period. As a percentage of total net revenues, general and administrative expenses were 4.6%, which remained stable as compared with that in the prior year period. Income from operations was RMB1.26 billion compared with RMB1.33 billion in the prior year period. Operating margin was 5.9% compared with 6.4% in the prior year period. Non-GAAP income from operations was RMB1.6 billion compared with RMB1.7 billion in the prior year period. Non-GAAP operating margin was 7.5% compared with 8.2% in the prior year period. Net income attributable to Vipshop Holdings Limited shareholders increased by 16.8% year-over-year to RMB1.2 billion from RMB1 billion in the prior year period. Net margin attributable to Vipshop Holdings Limited shareholders increased to 5.7% from 5.1% in the prior year period. Net income attributable to Vipshop Holdings Limited shareholders per diluted ADS increased to RMB2.42 from RMB1.97 in the prior year period. Non-GAAP net income attributable to Vipshop Holdings Limited shareholders increased by 14.6% year-over-year to RMB1.5 billion from RMB1.3 billion in the prior year period. Non-GAAP net margin attributable to Vipshop Holdings Limited shareholders increased to 7% from 6.3% in the prior year period. Non-GAAP net income attributable to Vipshop Holdings Limited shareholders per diluted ADS increased to RMB2.98 from RMB2.47 in the prior year period. As of September 30, 2025, the company had cash and cash equivalents and restricted cash of RMB25.1 billion and short-term investments of RMB5.9 billion. Looking forward to 2025, we expect our total net revenues to be between RMB33.2 billion and RMB34.9 billion, representing a year-over-year increase of approximately 0% to 5%. Please note that this forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A. Operator: Thank you. We do ask you to translate your question into Chinese if you are bilingual. And our first question will come from Thomas Chong with Jefferies. Your line is open. Thomas Chong: Thanks, management, for taking my question. My first question is about the online shopping competitive landscape. Can management comment about the latest trend as well as the potential impact coming from quick commerce? And my second question is about the monthly GMV momentum quarter to date. How is the performance we are seeing in October and November? And how should we think about the 2026 outlook? Thank you. Eric Shen: Okay. So first, in response to your question on quick e-commerce, I think we are definitely not going into quick e-commerce. But we are looking at what appeals to those attracted to quick e-commerce. Convenience is something that matters, but that matters more in grocery shopping, food delivery, and some household essentials that are not apparel-related categories, which consumers typically do not care so much about fast delivery. But, anyway, we have made progress with convenience as part of our value proposition to customers. I think, for example, there are a few notable things. One is the delivery metrics. Next-day delivery has been rolled out for certain standardized categories of products in some cities. Second is accelerating the delivery of apparel products in some key cities. And lastly, the logistics trajectories are actually optimized for customer returns to our warehouse, etc. So these efforts are still focused on driving refined supply chain management to support business growth as well as operating efficiency. Secondly, in terms of the recent GMV sales trend, if we look at October and November to date, actually, we are seeing a decent growth momentum. During the entire 11.11 promotional period, we actually recorded a decent year-over-year growth. So we are reasonably positive on the business performance of the fourth quarter, which we have guided to 0% to 5% revenue growth. And for 2026, we do see there are opportunities in off-price retail for brands. On the other hand, we do expect consumer sentiment to normalize a bit more. So we will still have reasonable expectations for growth, but we are preserving a roadmap for balanced growth and profitability. So that is the roadmap for our long-term success and distinctly high-quality development. Operator: Thank you. And our next question is going to come from Alicia Yap with Citigroup. Your line is open. Alicia Yap: Hi. Good evening, management. Can you hear me okay? Mark Wang: Yes. Yes. We can hear you. Alicia Yap: Okay. Yeah. Thanks for taking my questions. The first question is, can management elaborate on the details, changes, and restructuring of your merchandising team, and do these changes help the latest quarter performance? Are these mainly on improving your predictions of customer preferences, or is it for improving your relationship on securing better merchandise that fits the super VIP members? And how do you anticipate the changes could help the financial performance? And the second question is, can you also elaborate on how AI has been helping Vipshop Holdings Limited in terms of your financial growth? Can AI help to target churn users and also attract them back to the Vipshop Holdings Limited platform? Thank you. Eric Shen: Okay. So first, the recent organizational changes, simply put, we have realigned the entire organization for the long-term environment. Actually, it is not one department change; it is across the entire organization, among different teams, including merchandising, customer operation, and technology, etc. I think the major purpose of this organizational change is to infuse more agility and efficiency into our business model, especially as our founders are much more hands-on in daily operations. So the team can make quick decisions and turn these decisions into action. Also, we have replaced some of the senior leaders of the major merchandising team with new talent. So, basically, we have refreshed the entire organization and made consistent upgrades so that teams can collaborate at new levels to unlock synergy. For example, on the merchandising side, as we mentioned on the call, for some of the divisions, we are trying to build reshaped assortments, including apparel and non-apparel categories, to bolster cross-category purchases and customer engagement. We have actually adopted an integrated approach from marketing, growth, and engagement so that we can become more efficient in attracting, activating, and retaining customers through a series of adjustments. On the technology side, we focus on building the teams into the next phase of technology advancement, etc. So we are implementing all these changes so that we can always stay ahead of market trends and customer expectations. On the second question about AI, definitely, we are trying to accelerate AI across our business. It is just a simple fact that AI application can be very vital to driving business growth and efficiency. For example, we have added a lot of visualized model backgrounds to facilitate customer experience in virtually trying on clothes and making better choices, etc. So, actually, AI has brought benefits to conversion, directly contributing to sales growth. Also, we have made a lot of effort on AI advertising. A growing share of our marketing campaigns actually leverage AI-generated content to upgrade marketing creatives and media placement. This has actually improved customer acquisition efficiency. Of course, we are also experimenting with AI agents to be used in solving problems like customer churn or how to keep customers engaged on our platform, how to improve their customer experience with our platform. We do believe AI has a lot of potential in driving efficiency as well as supporting our long-term growth. Operator: Thank you. And our next question will come from Andre Chang with JPMorgan. Your line is open. Andre Chang: Thank you, management, for taking my question. I have two questions. The first question is about the operation. We noticed the company delivered decent net profit growth in the third quarter. However, the operating profit and the operating margin still delivered some decline year-on-year. Now management mentioned before that increasing the GMV and the revenue should help economies of scale in the margin recovery. So we want to know when and whether management expects that the operating margin and the operating profit can return to positive year-on-year growth. The second question is about the recent news talking about the management of the company thinking about a Hong Kong listing. We wonder if there is anything management can share on this front. Thank you very much. Mark Wang: Hello, Andre. Thanks for your question. Your first question is regarding our gross margin. Actually, our gross profit margin declined in the third quarter and reflects our efforts to provide more customer incentives, especially for SVIP and other high-value customers and standardized products, to maximize sales and revenue growth. For the longer term, we expect gross profit margin to be comparable to the level in 2024 and largely stable around 23%, depending on the change of product mix from the third quarter. Regarding marketing expenses, we also increased a little bit to attract more customers. We think that in the future, those merchandising capabilities, AI technology applications, and marketing expenses will be the main triggers for our GMV growth. For your second question, we have been closely following the changes in the capital market. If there is any progress, we will update the market. Thank you. Operator: Thank you. And our next question will come from Wei Xiong with UBS. Your line is open. Wei Xiong: Thank you, management, for taking my question. Firstly, we have seen the active customer number and revenue growth have turned positive this quarter. Should we expect continued sequential improvement in the fourth quarter? What are our investment plans and operational focus for users and customers at the moment? How should we think about user growth and revenue growth for next year? Secondly, just wondering, what are our latest thoughts on the shareholder return program for next year? Thank you. Eric Shen: So let me first translate your response to your question on customer and revenue growth for 2026 and beyond. For the longer term, we always stay focused on achieving steady growth in customer revenue and earnings. We believe the sustainable and profitable revenue growth model should be driven by high-quality growth in customers as well as ARPU. For the near term, we do expect customer growth will accelerate. For example, in Q4, as compared to Q3 in terms of year-over-year growth. For 2026, we continue to believe that revenue growth should be driven by growth in customer numbers and in addition to ARPU. We have made a lot of efforts in driving customer growth and have been experimenting with a lot of new ways, whether it is marketing formats or channel investment, etc. All these efforts are oriented towards acquiring new high-quality customers, activating dormant or inactive customers, as well as continuing to expand our SVIP high-value customer base. We do have confidence that for the long term, we can drive top-line growth on the basis of both customer growth and ARPU expansion. Mark Wang: Okay. For the second question regarding the total return to shareholders, our return to growth demonstrates our disciplined capabilities to manage the business to achieve balanced goals. We are more confident that we can achieve relatively stable and healthy profit and cash flow levels. In the past, we have returned over $3.4 billion to shareholders since April 2021 in the form of buybacks and dividends. For 2025, we are on track with our commitment to returning no less than 75% of the full-year 2024 non-GAAP net income to shareholders. As of the date we published the third quarter results, we have returned a total of over $730 million through dividends and buybacks. For next year, we will continue to invest in our business to grow, improve profit, and generate cash to support our dividend payment and buyback. We will evaluate the appropriate level next year. Thank you. Operator: Thank you. And I show no further questions in the queue at this time. I would now like to turn the call back to Jessie Zheng for closing remarks. Jessie Zheng: Thank you for taking the time to join us today. If you have any questions, please do not hesitate to contact our IR team. We look forward to speaking with you next quarter. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the ZIM Integrated Shipping Services Ltd. third quarter 2025 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Elana Holzman. You may begin. Elana Holzman: Thank you, operator, and welcome to ZIM Integrated Shipping Services Ltd.'s third quarter 2025 Financial Results Conference Call. Joining me on the call today are Eli Glickman, ZIM's President and CEO, and Xavier Destriau, ZIM's CFO. Before we begin, I would like to remind you during the course of this call, we will make forward-looking statements regarding expectations, predictions, projections, or future events or results. We believe that our expectations and assumptions are reasonable. We wish to caution you that such statements reflect only the company's current expectations and that actual events or results may differ, including materially. You are kindly referred to consider the risk factors and cautionary language described in the documents the company filed with the Securities and Exchange Commission, including our 2024 annual report on Form 20-F filed with the SEC on March 12, 2025. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to ZIM's CEO, Eli Glickman. Eli? Eli Glickman: Thank you, Elana, and welcome, everyone. Thank you for joining us today. Q3 2025 unfolded against a backdrop of continued uncertainty driven by geopolitical and trade tensions. While the shipping industry has always been characterized by volatility, we are now experiencing events and changes with greater frequency and intensity than in the past, amplifying the challenges and requiring us to be even more agile than ever. Despite these headwinds, our team has navigated a volatile rate environment with resilience, maintaining service reliability, optimizing our cost base, and delivering solid Q3 results. Slide number four. Consistent with our expectation, we generated revenue of $1.8 billion and net income of $123 million. Q3 adjusted EBITDA was $593 million, and adjusted EBIT was $260 million. We suggested an EBITDA margin of 33% and an adjusted EBIT margin of 15%. We maintain total liquidity of $3 billion at September 30. Slide number five. ZIM's board of directors continued to prioritize returning capital to shareholders and as a dividend policy in 2021 and 2022 aiming to reward long-term shareholders. Additionally, when financial results have exceeded expectations, the board has promoted the special dividend distribution to further reward shareholders. Accordingly, under this policy, the board of directors declared a dividend of 31¢ per share or a total of approximately $37 million, representing 30% of third-quarter net income. Throughout 2025, ZIM distributed a total dividend of $9.09 per share, including the dividend declared today, or a total of approximately $1.1 billion. Since the IPO, we distributed a total of approximately $5.7 billion as dividends of $47.54 per share, including the dividend declared today. Turning to our guidance, the fourth quarter is trending weaker than originally projected when we provided guidance in August. However, despite the considerable uncertainty, our nine-month results have enabled us to refine our full-year guidance, regions, and increase midpoints. As such, based primarily on our performance year to date, we now expect to generate adjusted EBITDA between $2 billion to $2.2 billion and adjusted EBIT between $700 million and $900 million. Xavier, our CFO, will provide additional context in our underlying assumption for our 2025 guidance later on the call. Slide number six. In a highly dynamic environment, we continue to take proactive steps in line with our strategic objectives during the third quarter and into the fourth quarter. Capitalizing on the versatility of our fleet, we have been able to adjust capacity quickly as market conditions have evolved. On the Transpacific, we have continuously adapted our network to account for changes in cargo flow patterns resulting from the ongoing US-China trade standoff. The recent US-China trade agreement marks a positive development potentially reducing market uncertainty and enabling our customers to plan with greater confidence. The tariff reduction on Chinese goods announced as part of this trade agreement could support demand going forward, though the extent of its impact remains uncertain. Nonetheless, the long-term trend toward economic decoupling between China and the US is likely to persist as both countries continue efforts to diversify their export and import markets. ZIM's long-term strategy, which we have previously discussed, is closely aligned with this trend. Expanding and diversifying our network so we can capture new opportunities as global trade patterns evolve. Two critical focus areas for us are Southeast Asia and Latin America. As manufacturers diversify production away from China, countries like Vietnam, Korea, and Thailand have increased their share of US imports. Our expanded presence in Southeast Asia continues to be an important strategic advantage for ZIM. By establishing a strong foothold in this market, we have been able to capture new trade flows and partially offset the reduction in transpacific cargo from China to the US. We have also strategically focused on expanding our presence in Latin America over the last two years. In Q3, we continue to grow our volumes and still see meaningful opportunities in this region, supported by the steady expansion of trade between Latin America and key markets, including the United States and China. Overall, regional diversification enhances our network flexibility, broadens our customer base, and reduces our dependence on any single trade lane. Our ability to capitalize on this opportunity is a direct result of our cost-competitive fleet and agile deployment strategy. Following the delivery of 46 new builds in 2023 and 2024, which significantly improved the efficiency of our operated capacity with a transformed fleet of larger modern vessels well-suited to the trades in which we operate. We remain diligent in keeping our fleet modern and competitive. Earlier this year, we secured a significant charter agreement for 10, 11,500 TEU LNG dual-fuel vessels scheduled for delivery in 2027 and 2028. This continued investment in our fleet is central to our growth strategy, enhancing both the sustainability and competitiveness of our capacity. The versatile size and design of these vessels will further enhance our operational flexibility and support long-term profitable growth. In addition to strengthening our core fleet, we continue to prioritize flexibility and optionality in our fleet strategy. As part of this approach, we actively manage our operated fleet to align with evolving market conditions. During the third quarter, we continued to redeliver vessels to owners, which Xavier will discuss in more detail. Our approach to renewing charters this year signals a cautious outlook, particularly as the market fundamentals still point to supply growth outpacing demand moving forward. As such, we anticipate continued pressure on freight rates during the remainder of the fourth quarter and into 2026. Overall, we remain confident in our strategy and competitive position. Today, approximately 60% of our capacity is new build, and 40% of our fleet is LNG-powered, reflecting our early investment in cost and fuel-efficient vessels and commitment to sustainability. With the addition of the ten 11,500 new LNG-powered vessels by 2028, we expect to operate not only the youngest fleet in our segment but also the greenest, with the largest proportion of LNG-powered capacity, further strengthening our leadership in sustainability and operational efficiency. Looking ahead, we intend to build on our progress to date, maintaining and further enhancing our competitive advantages while capitalizing on attractive opportunities that will ensure our fleet remains modern and cost-effective. We believe our nimble commercial approach, coupled with prudent investment in fleet equipment and technology, continues to drive resilience across ZIM's business and position us to deliver long-term value for our shareholders. Before turning the call to Xavier, I would like to address our view on the Suez Canal. Ensuring the safety of our crew, customer cargo, and vessels remains our highest priority. While the current ceasefire in Gaza is encouraging progress, a return to the Suez Canal will require further assurance regarding the durability of this ceasefire, and we are monitoring the situation closely. Having said that, we believe that a return to the Suez Canal in the near future now appears increasingly likely. Therefore, we are preparing an operational plan to support this transition once the security situation is stabilized. Resuming passage through the Suez Canal represents both opportunities and risks. While it will allow improved fleet efficiency and generate operational cost savings, it will also increase effective supply currently tied up by longer routes around the Cape of Good Hope, adding pressure on freight rates. With that, I will turn the call over to Xavier, our CFO, for a more detailed discussion of our financial results, 2025 guidance, as well as additional comments on the market environment. Xavier? Please. Xavier Destriau: Thank you, Eli. And again, on my behalf, welcome to everyone. On Slide seven, we present our key financial and operational highlights. We delivered solid profitability in Q3 despite a volatile operating environment. Third-quarter revenues were $1.8 billion, down 36% compared to last year, reflecting both lower freight rates and lower volume. Total revenues in the first nine months of 2025 of $5.4 billion were down $840 million, or 13% year over year. The average freight rate per TEU in the third quarter was $1,602 compared to $2,480 per TEU in the third quarter of last year. Q3 carried volume of 900,000 TEUs was 4.5% lower year over year, mostly due to lower volume in Crossways and Atlantic, but 3.5% higher sequentially. Revenues from non-containerized cargo, which reflects mostly our car carrier services, totaled $78 million for the quarter. That is compared to $145 million in 2024, attributable to both lower volume as we operated two fewer vessels in the current quarter, as well as lower rates. Our free cash flow in the third quarter totaled $574 million compared to $1.5 billion in 2024. Turning to the balance sheet, total debt decreased by $369 million since the prior year-end. As previously noted, total debt is expected to continue to trend down as repayment of lease liabilities exceeds lease additions and extensions until we start receiving new build charter capacity in 2026. Next, the following slide provides an overview of our fleet. Eli covered key aspects of our fleet strategy, but I would like to add a few more data points that we believe are important to consider. ZIM currently operates 115 container ships with a total capacity of 709,000 TEUs. This reflects a decrease of approximately 80,000 TEUs lower than our peak after having received all 46 newbuild vessels in early 2025. Approximately 70% of this capacity we consider as our core fleet, and it includes the 46 newbuild vessels which were received throughout 2023 and 2024, with the last vessel delivered in January 2025. These vessels carry charter durations from five to twelve years, and another 16 vessels are owned by ZIM. To remind you, we opted to secure these new builds and long-term duration contracts rather than continue to rely on the short-term charter market. And this accomplished multiple key objectives. First, we ensured access to larger vessels better suited to the trades in which we operate, thereby improving our competitive position. These vessels are generally not available in the shorter-term charter market. Second, the longer-term charter periods contribute to improved predictability in our cost structure. Moreover, for 25 of the 28 LNG vessels, our core strategic capacity, we hold options to extend the charter period, as well as purchase options giving us full control over the destiny of these vessels very much as if we were the vessel owners. We also have an option to purchase the 10, 11,500 TEU LNG vessels that Eli mentioned earlier following the twelve-year charter period. The remaining 30% of our fleet, approximately 192,000 TEUs, allows us to maintain important flexibility. By the end of 2026, there will be a total of 20 vessels up for charter renewal, with three vessels of 5,600 TEUs still up for renewal in 2025, and 17 vessels or 55,000 TEUs of capacity up for redelivery in 2026. This optionality to keep the capacity already delivered to owners allows ZIM to adjust its capacity according to changing market conditions or shifts in our commercial strategy. We have opted to redeliver 22 vessels this year based on our cautious outlook moving forward, as spot freight rates have come under pressure during the second half of the year. With respect to our car carrier capacity, we currently operate 14, down from 16 car carriers last year, and we expect to redeliver another vessel by year-end. As we previously communicated, we expanded our car carrier capacity in the past few years to benefit from favorable market trends, but we maintain optionality with no long-term commitments on our chartered tonnage. We continue to assess our level of participation as car carrier market dynamics evolve. Moving on to slide nine, we present ZIM's third quarter and nine-month 2025 financial results compared to last year's third quarter and first nine months. We delivered solid profitability in Q3. Adjusted EBITDA in this year's third quarter was $593 million and adjusted EBIT was $260 million. Adjusted EBITDA and EBIT margins for the third quarter were 33% and 15%, respectively. That compares to 55% and 45% in the third quarter of last year. For the first nine months of 2025, adjusted EBITDA margin was 34%, and adjusted EBIT margin was 16%. This is compared to 44% and 30% in 2024. Net income in the third quarter was $123 million, compared to $1.1 billion in the same quarter of last year. Next, on Slide 10, you see that we carried 926,000 TEUs in the third quarter compared to 970,000 TEUs during the same period last year, a 4.5% decline. Compared to the prior quarter, so Q2, carried volume was up 3.5%. The year-over-year decline was mainly attributable to weaker volume on Crossways and Atlantic. Transpacific volume this quarter stayed robust, down just 1.5% compared to the same period last year, which saw exceptionally strong demand in the US. Sequentially, transpacific volume increased by 17%. In Latin America trade, we also continued to see growth with a 2.4% increase in volumes year over year. Next, we present our cash flow bridge. So for the quarter, our adjusted EBITDA of $593 million converted into $628 million net cash generated from operating activities. Other cash flow items for the quarter included $451 million of debt service, mostly related to our lease liability repayment and a dividend payment of $37 million. Turning now to our outlook. We have narrowed ranges and increased 2025 guidance midpoints. Specifically, we are raising the lower end of our adjusted EBITDA range by $200 million and now expect to generate adjusted EBITDA between $2 billion and $2.2 billion. We have also updated adjusted EBIT guidance to reflect a narrower range, lowering the high end of our prior outlook. Today, we expect to achieve adjusted EBIT in the range of $700 million and $900 million. To reiterate Eli's earlier comment, these increased midpoints reflect primarily our performance year to date. We note the continued high degree of uncertainty related to global trade and related to the geopolitical environment. With respect to our assumptions, our view on freight rates has softened since our August guidance, while our assumptions about operated capacity, carried volume, and also bunker rates remain unchanged. Before we open the call to questions, just a few more comments on the market. The outlook for container shipping remains cautious, as growth in supply is expected to outpace the growth in demand in the foreseeable future. The order book has continued to grow and now stands at 31%. While the growth in supply is expected to slow down in 2026, when we compare to 2025, deliveries are projected to surge again in 2027, to more than 3 million TEUs of capacity, exceeding the record set in 2024. There are, nevertheless, mitigating factors to consider even if their impact may not be immediate. First, vessel scrapping has been minimal over the past five years, this trend cannot last forever, and at some point, vessel deletion will increase. Second, the industry's decarbonization agenda. Carriers will move forward to meet their own emission targets and expectations from customers to offer greener shipping solutions, even if the regulatory framework has met a roadblock, and these efforts may also accelerate scrapping of older vessels, which will become increasingly less economically viable, especially in comparison with the significant new build deliveries in the post-COVID era. On the other side of this supply-demand equation, global container volume is forecasted to grow by about 4% this year, largely driven by robust Chinese exports. However, the question is whether this growth is sustainable into 2026. It's also important to note that the increase in Chinese exports has not been uniform as US imports from China were negatively affected by the tensions between the two countries. Looking into 2026, it remains to be seen whether the trade agreement announced earlier this month will lead to a recovery in cargo flow on this trade lane. The supply-demand imbalance in 2026 will likely be exacerbated by the industry's return to the Suez Canal, which will, after a period of adjustment, significantly increase effective capacity. And as Eli mentioned, the reopening of Suez offers some benefits, allowing for improved fleet efficiency and operational cost savings, but it will also most likely add pressure to freight rates. On that note, we will open the call to questions. Thank you. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Omar Mostafa Nokta with Jefferies. Your line is open. Omar Mostafa Nokta: Hi, Eli and Xavier. Really good commentary. Lots, I think, to discuss. I have a few questions, but you know, just maybe first off, on ZIM and maybe just the broader governance side of things. Can you give a comment on, obviously, the market chatter regarding a management buyout? Is that something still being explored? And related to that, how should we be thinking about the changes to the board composition you disclosed yesterday? I recognize a lot of this is sensitive, but is there anything you can share? Eli Glickman: Hi, Omar. First, the board is managing the process of board member changes. Two of the board members decided to resign, and as such, the board has chosen two new highly professional board members that meet the requirements, and we have a full scale of eight board members in the company. What was the next question? What is the next question, please? Omar Mostafa Nokta: Yeah. Just in terms of, I guess, the broader management buyout potential. If that's something that's still being explored. Eli Glickman: For this, we have no comment. Going to be a comment for sure. The board will decide when, how, and no comment for discussion. Omar Mostafa Nokta: Understood. Thank you. And then just wanted to ask about the Red Sea. You made some very interesting comments on that. And wanted to ask in terms of how you're viewing the return. I know you're in the early planning stages in the process of that. I guess for ZIM, you know, the Asia-Europe routes had not been really a major focus. Do you see this shifting as a Red Sea return or at least what you're evaluating? Is this an opportunity for you to grab market share and build a presence that you haven't had before in that leg? Eli Glickman: The answer is yes. We are actually waiting for the insurance company to approve our return into the Red Sea. So it's. And we're looking forward to going for shorter trade than the Cape of Good Hope as fast as we can. Omar Mostafa Nokta: Okay. Thank you. And then just a final one, and I'll pass it over. Xavier, you were kind of highlighting the shifts you've returned this year. We can see the cost coming down as a result of that. Are you able to give any quantification or some expectations on, say, 2026, how you think costs would look relative to what they've averaged this year? Xavier Destriau: Look, I think from a vessel or fleet profile perspective, depending, of course, as to what 2026 will look like from a rate dynamic perspective, but maybe there are risks in this respect. It is likely that we will return and continue to return vessels that are coming up for renewal and focusing on, at the end of the day, continuing to operate the larger ships, the more efficient tonnage, the newer and greener capacity that we have received over the course of the past couple of years. So today, I think 2025 was clearly a downward trend in terms of operated tonnage. We started the year at around 780,000 TEUs. We say that today, we are 710,000 TEUs, and we need to acknowledge that the charter market is still to date elevated, so it's expensive to reach out to tonnage. At a time when the revenue per TEU carried is under pressure. I think for as long as this situation continues, it is more likely than not that we will redeliver the vessels that come up for renewal as opposed to trying to recharter them. Omar Mostafa Nokta: Got it. Okay. Thank you, Xavier, and thank you, Eli. I'll turn it over. Operator: Your next question comes from the line of Marco Limite with Barclays. Your line is open. Marco Limite: Hello. Thank you very much for taking my question. My first question is on the dividend. So implied Q4 for your guidance implies that the income in Q4 will be negative. And given the outlook you're providing, probably we're going to have negative income for a few quarters at least. So can you just remind us what is your dividend policy? So as long as the net income date is negative on a quarterly basis, does that mean that you won't pay dividends? So this is, let's say, maybe the last CV for a while? Second question, so on this Red Sea reopening, you've been very helpful in giving your view. But if you want to dig out a little bit more in how much visibility you have got on timing over there at sea, have you got any strong conviction or visibility? I don't know. Have you been discussing with authorities? Or other companies? So, yeah, what is the kind of visibility you have got there? And the third question is a bit more technical. You haven't changed the upper end of the EBITDA guidance, but you have reduced the upper end of the EBIT guidance. What's that? And so sorry to stick another one, but when we think about 2025, clearly, there have been issues with the US ports and the Asian ports, China ports in Q4 probably, so is the China port fee included in your Q4 guidance? And are you able to estimate how much have you got in terms of one-off this year that are now recurring next year from all the issues with the US and Chinese ports? Thank you. Eli Glickman: I will begin with the first two questions and then we'll go. Since the IPO, we have distributed about $5.7 billion in dividends. The last two years, more than $1 billion. And this is about and more than 25 times the amount we raised in the IPO in January 2021. ZIM's dividend policy is to distribute 30% per quarter from the net profit and once a year, in the end of the year, this coming March, with a catch-up up to 50% of the net profit of the year. As for your next question, about the next quarter, we haven't published results yet. But hopefully, this quarter will be profitable as well. So we have the policy. And I just want to mention here that the board has the ability to decide on a special dividend as we did two times two special dividends. First one, on September 2021, $2 per share. And then again, December 2024. So the board has the authority on top of the policy to decide on a special dividend. And this is its authority. I cannot speak for the board. I believe in the end of the next quarter, the board will take a decision. Or anytime, it can decide to take a decision on a special dividend. As for the Red Sea, we are according to the announcement of the Houthis and the Egyptian authorities, as I said before, Omar Mostafa Nokta, willing to go as fast as we can to change the direction of vessels to go through Bab el-Mandeb and the Suez Canal. According to our policy and according to our responsibility, first, we have to have approval by the shipowner and insurance company. And this is what we are going to do. Bottom line, as soon as we can, we'll go through the Suez Canal. Xavier Destriau: Right. And I will take maybe the last two questions, Marco. If you allow me. So you're correct in terms of EBIT guidance. The original guidance range suggested a $1.25 billion difference between the two metrics, EBITDA and EBIT. So $1.25 billion of depreciation and amortization. And it was there's a little bit of rounding going on here. Now we say 1.3. It was obviously not exactly 1.25 to start with. It was a little bit more than that. Now we are tinting towards the rounding of 1.3 billion. A few things explain it. First, the two vessels that we acquired in the course of 2025 have some effect on the amortization in the tail of the year, in the second half of the year. Also, some equipment and we have taken the opportunity of maybe the equipment in terms of boxes, containers, are cheap to acquire today, and it's a good opportunity to continue to renew our fleet and maintain a very efficient fleet of equipment and let go of the older boxes. And there is also on top of that a bit of IT cost that got capitalized and finds its way in terms of depreciation towards the end. That's the reason. A mix of quite a few small things that add up to rounding to the 1.3 as opposed to 1.25. With respect to the last part of your questions, now that we are in a situation, and we've been in a situation since the announcement from both the US administration and the Chinese Ministry of Transport, there is no such thing as an extra levy that we are subject to in any jurisdiction when we call in the US or in China. Eli Glickman: I would like also to take the opportunity because of the question about the dividend. I want to emphasize to the best of my knowledge, didn't check it solely. So there's no company in history that returned in two years more than 20 times the amount that we raised in the IPO in January 2021. And by today, more than 25 times the amount that we raised, $204 million net dollars in the IPO. So in this, we made history. Maybe it's our company who raised more money. But there are no other companies that return such high or distribute such high dividends in such a short time. Please, next question. Operator: Your next question comes from the line of Alexia Dogani with JPMorgan. Your line is open. Alexia Dogani: Yes. Good afternoon. Thank you for taking my questions. Just firstly, on cost savings. In the previous downturn, you looked at kind of resizing the network, taking kind of some more efficiency measures. Is this something that you are currently considering? And what could be the potential scope? And secondly, can you give us an update on your CapEx commitments in terms of cash, but also new lease inceptions? And based on your comment that you are not looking to renew charters or are expiring, how much of the asset base do you expect will kind of roll off in the next twelve to eighteen months? And then finally, are there any financial leverage parameters that your team works towards even if there's a potential downturn, mindful that most of your debt is kind of lease debt or kind of charter debt? Thank you. Xavier Destriau: Thank you, Alexia. I'll try to take your questions in the orders that you raised them. First, you were asking about the cost savings and resizing potentially the network. Clearly, the company is always looking at trying to respond with agility to the changing market conditions. What I think is very important again, to reemphasize, and I think that links with your third question, is that the vessels that we are committed to in terms of a long-term charter are the most efficient ones today that we operate. And so we will keep those ones and those the ones that potentially we will let go again depending on what the markets look like. We'll de facto be the ones that are less efficient, older, you know, not LNG-powered, and more expensive. So I think this is very important when we think about the capacity that we end up operating. The efficient tonnage is with us for the longer term. And in terms of percentage, we need to link again with your third question, how much does it mean in terms of asset base or right of use asset? As you indeed rightly said. When we look I don't have the exact number, but maybe to assist here in trying to get the picture. We, in terms of total capacity today, out of the 710,000 TEU that we operate. You know, 70% of that capacity, even maybe closer to 75%, of that capacity is either long-term charter or owned. Leaving 25% of the amount of our right of use asset give or take on our balance sheet. Being the one capacity that can be returned. In terms of next year, 2026, this is we have, again, two hundred ninety thousand TEUs of capacity that is chartered on what we define as short-term charter out of which I think we said we have something like 80,000 TEUs that could be redelivered in 2026. So that's the way, I mean, I think to look at the math and come up with the best assessment of the asset base that could be redelivered. With respect to your second question, so we had not ended up taking them in the order as you raised them. The second question on the cash CapEx, we don't have much commitment in this respect. Very much because we are chartering as opposed to anything else. So very limited. The cash CapEx that we have is more related to sometimes equipment, but we've been as I just mentioned in the prior comment, we've been very active in already renewing our fleet of containers. So there is limited need especially if we do not grow our fleet in the coming years. I think we are set in this respect with regards to our fleet of equipment, by the way, including the reefers that we operate. So very limited cash CapEx. It's always high and maybe there will always be some from an equipment perspective, but limited in the years to come. Alexia Dogani: And if you allow me to ask a follow-up question on the point about chartered vessels versus owned. You hopefully put the chart around oversupply in the deck. We've clearly noticed that in the past four to five years, a lot of operators have increased the shared part sorry. The part of ownership of their vessels compared to charters. How does that kind of impact you think competitive dynamics and discipline in the market? Does it make it easier for people to take capacity out or harder? Thank you. Xavier Destriau: I think it depends on the capacity, and there is not, I think, one straight answer to that question because then I think we need to deep dive into the vessel segment. So whether we're talking about the large capacity vessel or the smaller one. And then also with respect to their age, and finally with respect to their environmental footprint. As well. So but by and large, I think what we are seeing and what has been, I think, very much motivating the company to shift its strategy, you know, after the IPO of the 12/21, 2022, the COVID era days. Is that, we felt that we could no longer rely on the, you know, short-term charter market to source the vessels that we needed. And, hence, we had to go seek that capacity for ourselves. And, we went through the avenue of partnering with vessel owners to go to shipyards, order the ships that were the ones that we needed, and agree with those vessel owners on a financing solution. At the end of the day, that's one way of looking at it. And I think nowadays, when we look at the order book, for the new tonnage that is on order, it is very much carrier orders that we can see, or if it is not carriers and non-vessel operators, there is very often already at the time of placing the order a charter attached. So a pre-agreement between that vessel non-vessel operator and the potential lessee that will take those vessels on charter. So we feel that we did operate the transition timely. In 2021-2022, got the vessels in 2023-2024, and now we feel much more confident in our ability to continue to operate the right tonnage in the years to come, having less dependency on the short-term charter market. Alexia Dogani: Thank you. Appreciate it. Operator: Your next question comes from the line of Chloe Xu with Citi. Your line is open. Chloe Xu: Hi. Thank you for taking my questions. My first question is on the route diversification. You have mentioned that you're adding to the Southeast Asia and LatAm markets. And I just wanted to ask, in the current rate environment, which looks like sub-breakeven overall, which route is more profitable for you at the moment and which is less profitable? And how quickly can you adjust those capacities as you see opportunities appear? And my second question is that obviously, you mentioned that you anticipate rates pressure in Q4 and 2026. As we know that the new capacities are coming in the next five years, where do you see that the rates will recover? And what do you think will be that pivoting moment in your perspective? Thank you. Xavier Destriau: Thank you. The diversification that you are referring to, and it's true that we've been, historically, and we continue to be very exposed to the transpacific trade. We are no stranger to the trend that was initiated between the two countries, China and the US, and we have taken actions already over the past years to increase our footprint in Southeast Asia to capture the cargo that is moving from China to the neighboring country in Southeast Asia. And whether those find their way in terms of countries of destination, to the US or elsewhere. And you're right in saying that also outside of this pure Southeast Asia market, we do see and believe that there is a growth opportunity on the Latin America trade. Now which one are the most profitable trade? You know, this is a very question that depends on when we ask the question. The volatility of our environment and trade by trade, the dynamic may differ as well. You know, we see positive signs in one trade in a given week or given period, maybe a couple of weeks, and then we see something else happening and the trend changing. So it is really much a moving environment, and I don't think we can look at it that way. I think it is also important for us to when we build the position in a trade where we may we were maybe not such a significant player in the past. We need to do it gradually. We need also to make sure that when we come and open a service we guarantee to our customers the reliability that they need. So, we need to provide a service that is reliable. Sometimes it means investing a little bit, irrespective of what the market dynamic does. In order to capitalize on that. And I think a very good illustration of that is the success that we've had on the Pacific Southwest with our expedite service that we initiated in 2020, June 2020, and which now is highly recognized by the market as a very reliable and successful service. So we need to really look at it as well. I think from a customer vantage point. And then to your next question, I think very difficult for me to answer when the rates or dynamic will change. Clearly, what we can see today are the threats, which come most specifically with the order book and the capacity that is about to hit the trade with the market, the water. We also talked about the Suez Canal reopening and emphasizing that this comes with opportunities and risk. And the risk is indeed clearly an influx of tonnage that may not be absorbed by the market. And as a result, putting additional pressure on the freight rates, on the rate environment. In front of that, at the end of the day, the liners always have capacities to manage the end of the day, the capacity that is being deployed to better adapt to the demand and to the changing demand. We are clearly also leveraging the, you know, operating together in order to reduce cost at the end of the day. We also will need and we need to see at some point, as we mentioned, vessels being retired, aging capacity being taken out of the trade. So that has yet to start. And I think when the situation changes on that front, we should start to see rates stabilize and potentially come back to higher levels. Operator: Thank you. This concludes our Q&A session today. I will now turn the call back over to Eli Glickman for closing remarks. Eli Glickman: Slide number 17. To conclude, despite continuing uncertainty in the market, our solid Q3 results reflect the agile nature of our commercial strategy, as well as the advantages of our modern upscale fleet of cost-efficient vessels. We remain disciplined and proactive, navigating headwinds with resilience and maintaining service reliability for customers while optimizing our cost base. We continue to share our success with investors and declare a dividend of $0.31 per share for a total of $37 million, consistent with our dividend policy and capital allocation priorities. Looking ahead, the first quarter is trending weaker than originally projected. However, based on our strong performance year to date, we've increased the midpoints of our 2025 guidance ranges. Overall, we are confident even against the backdrop of a highly volatile rate environment. That our differentiated strategy and enhanced industry position will drive sustainable growth over the long term. I would like to thank ZIM employees around the globe for their professionalism and dedication, as well as our customers and shareholders for their continuous trust and support. We look forward to sharing our continued progress with you all. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2025 Earnings Conference Call for VNET Group, Inc. After the management's prepared remarks, there will be a question and answer session. Please note the Chinese line is in listen-only mode. If you wish to ask questions, please dial in through the English line. Participants from our management include Mr. Ju Ma, Rotating President, Mr. Qiyu Wang, Chief Financial Officer, and Ms. Xinyuan Liu, Head of Investor Relations of the company. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Ms. Xinyuan Liu. Please go ahead. Xinyuan Liu: Thank you, Operator. Hello, everyone, and welcome to the Third Quarter 2025 Earnings Conference Call. Our earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services. Please note that today's call will contain forward-looking statements made under the safe harbor provisions of The US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward-looking statements except as required under applicable laws. Please also note that VNET earnings press release and this conference call include the disclosure of unaudited GAAP and non-GAAP financial matters. VNET earnings press release contains a reconciliation of the unaudited non-GAAP matters to the unaudited GAAP measures. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at ir.vnet.com. Next, I'd like to alert you that we will be utilizing text-to-speech technology powered by neulink.ai, to deliver this quarter's prepared remarks by Mr. Ju Ma, our Rotating President, and Mr. Qiyu Wang, our CFO. The management team will join the Q&A session in person. Additionally, this conference is being recorded. A webcast of this conference call will also be available on our IR site at ir.vnet.com. Now let's get started with today's presentation. Mr. Ma, please go ahead. Ju Ma: Good morning, and good evening, everyone. Thank you for joining our call today. I'll start with an overview of our major accomplishments during 2025. Let's turn to slide four. We delivered another strong quarter demonstrating our strategy's effectiveness in capturing opportunities. On the operational side, our wholesale IDC business sustained its robust growth trajectory driven by our rapid delivery capabilities and customers' fast-moving pace. As of 09/30/2025, our wholesale capacity in service grew by 16.1% quarter over quarter to 783 megawatts, an increase of around 109 megawatts. Wholesale capacity utilized by customers rose by 13.8% quarter over quarter to 582 megawatts, an increase of around 70 megawatts while the utilization rate was 74.3% reflecting customers' continuous demand for our high-quality high-performance AIDC services. Our retail IDC business continued to progress smoothly, benefiting from growing AI-driven demand. This quarter, our retail MRR per cabinet increased for six consecutive quarters, reaching RMB 8,948. On the financial side, our total net revenues increased by 21.7% year over year to RMB 2.58 billion for the third quarter. Wholesale revenues remained our key growth driver reaching RMB 956 million, a significant year-over-year increase of 82.7%, fueled by the rapid growth of our wholesale IDC business. Our adjusted EBITDA for the third quarter also increased by 27.5% year over year to RMB 758 million. In addition, building on the increase we announced to our full-year guidance before Q2 earnings this year, we are further increasing our full-year revenue and adjusted EBITDA guidance this quarter. Thanks to faster than anticipated move-ins among wholesale IDC customers and ongoing operational efficiency gains. Supported by our premium wholesale and retail IDC services, we continue to capitalize on strong customer momentum and secure new orders in the third quarter. I'll share more on the next slide. Moving on to our new order wins on Slide five. In the third quarter, we secured three wholesale orders totaling 63 megawatts. Specifically, in addition to the 20-megawatt order from our JV project we mentioned on our last call, we won a 40-megawatt order from an Internet company as announced in September and a three-megawatt order from an intelligent driving company. All four data centers in the Greater Beijing area. Entering the fourth quarter, we are seeing continued order momentum, including a 32-megawatt wholesale order we just secured from an Internet company for a data center in the Yangtze River Delta. Furthermore, driven by growing demand from customers for intelligent deployment, we secured a combined capacity of approximately two megawatts in new retail orders across multiple retail data centers from customers in the cloud services, local services, and financial services sectors. During the quarter, rapid AI development and a broader adoption of AI applications continued to fuel growth in China's IDC industry. We saw sustained momentum in AI-related investments, especially from hyperscalers that are executing strong CapEx expansion plans. This has further accelerated demand for high-performance data centers driven by AI training and inference needs. AI has become the core growth driver of the IDC industry, propelling the industry's business model evolution from project-based resource delivery to platform-based services that provide integrated AIDC solutions. Meanwhile, customer demand and critical resources such as power are increasingly concentrated among leading IDC players. As an industry pioneer in AIDC development, we are leveraging our acute insights, strong resources, and premium reliable services to seize these structural growth opportunities by quickly meeting customers' needs. Now let's delve into our business updates, starting with our wholesale business on slide seven. Our wholesale business maintained strong growth momentum, with capacity in service increasing by around 109 megawatts quarter over quarter to 783 MW, and utilization rate remaining stable at 74.3%, mainly attributable to our delivery capacities at our NOR Campus 02 and NHB Campus 01a and faster than expected move-ins at our NOR Campus 01. Our mature capacity utilization rate also reached 94.7%, a relatively high level. We have a clear growth path for our wholesale data center capacity. Let's move on to Slide eight. As of the end of the third quarter, our total wholesale resource capacity was around 1.8 gigawatts. Specifically, our capacity under construction was around 306 megawatts. Capacity held for short-term future development was around 414 megawatts, and the capacity held for long-term future development was around 291 megawatts. These secured resources represent a significant advantage in light of the IDC industry's limited effective supply and are in line with our optimistic view of AI-driven demand's long-term growth potential. Moving to our retail IDC business on Slide nine. Our retail business continued to progress smoothly in the third quarter. Retail capacity in service was 52,288 cabinets with the utilization rate increasing slightly to 64.8% as of September. As I just mentioned, our retail MRR per cabinet has increased for six consecutive quarters, reaching RMB 8,948. Turning to our delivery plan on slide 10. With our strong and efficient delivery capabilities, we successfully delivered a total of around 109 megawatts in 2025, bringing our total deliveries around 297 megawatts as of September. We currently have seven data centers under construction, with six in the Greater Beijing area and one in the Yangtze River Delta. We plan to deliver around 306 megawatts of capacity over the next twelve months, or around 132 megawatts during 2025 and 2026, and around 174 megawatts during 2026. This delivery plan reflects our view as of September, but we may update these estimates as we gain greater visibility over the next couple of quarters. In conclusion, our strong third-quarter results showcase our ability to identify opportunities and our readiness to seamlessly meet evolving market demand. Our visionary hyperscale 2.0 framework has positioned us to lead under the new global AI-driven paradigm, supported by advantages across high-density deployment, delivery speed and quality, and cutting-edge sustainable technology. As AI-related demand grows, we will continue to advance our effective dual-core strategy and hyperscale 2.0 framework, seizing opportunities to further unleash our growth potential in the AI era. Now I will turn the call over to our CFO, Qiyu Wang, for further discussion of our operating and financial performance. Thank you, everyone. Good morning and good evening, everyone. Qiyu Wang: Before we start the detailed discussion of our third-quarter performance, please note that unless otherwise stated, all the financials we present today are for 2025 and are in renminbi terms. Furthermore, unless otherwise specified, all the growth rates I am reviewing are on a year-over-year basis. Let's turn to slide 12. In the third quarter, we continued to pursue high-quality business. Our total net revenues increased by 21.7% to RMB 2.58 billion, mainly driven by the rapid growth of our wholesale business. Our adjusted cash gross profit rose by 22.1% to RMB 1.05 billion, while our adjusted EBITDA also grew year over year by 27.5% to RMB 758.3 million. Let's look more closely at our top line. As you can see on slide 13, in the third quarter, wholesale revenues, our key revenue growth driver, increased significantly by 82.7% to RMB 955.5 million, and the rapid growth was mainly attributable to the NOR Campus 01. Retail revenues increased by 2.4% to RMB 999.1 million. Our non-IDC business revenues increased by 0.8% to RMB 627.1 million. During the third quarter, we maintained solid margins thanks to our continuous efforts to enhance overall efficiency. As shown on slide 14, our adjusted cash gross margins improved to 40.7% from 40.6% in the same period last year. Our adjusted EBITDA margin rose to 29.4% compared with 28% in the same period last year. Moving on to liquidity on slide 15. We maintain robust and healthy liquidity bolstered by a net operating cash inflow of RMB 809.8 million during the third quarter, bringing our net operating cash flow for the first nine months of the year to RMB 1.37 billion. Our cash position remains solid, with total cash and cash equivalents, restricted cash, and short-term investments reaching RMB 5.33 billion as of 09/30/2025. Next, let's take a look at our debt structure on slide 16. We maintained our prudent approach to debt management. As of 09/30/2025, our net debt to the trailing twelve months adjusted EBITDA ratio was 5.5 and total debt to the trailing twelve months adjusted EBITDA ratio was 6.7, both remaining at healthy levels. Our trailing twelve months adjusted EBITDA to interest coverage ratio was 6.5. We prioritize long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayment. Currently, the company's short and medium-term debt maturing in 2025 to 2027 comprises 41.4% of our total debt. Turning now to CapEx spending. As you can see on slide 17, for the first nine months, our CapEx was RMB 6.24 billion, with the majority allocated to the expansion of our wholesale IDC business. We still expect our CapEx for the full year 2025 to be in the range of RMB 10 billion and RMB 12 billion. The increase is mainly to support our planned delivery of 400 to 450 megawatts in 2025. Now moving to our full-year guidance for 2025 on slide 18. As we expect faster than anticipated move-ins among wholesale IDC customers and ongoing operational efficiency gains through the end of the year, we have further increased our full-year revenue and adjusted EBITDA guidance. We now expect total net revenues to be in the range of RMB 9.55 billion to RMB 9.867 billion, a year-over-year increase of 16% to 19%, and adjusted EBITDA to be in the range of RMB 2.91 billion to RMB 2.945 billion, representing a year-over-year increase of 20% to 21%. If the RMB 87.7 million of disposal gains on the EJS 02 data center were excluded from the adjusted EBITDA calculation for 2024, the year-over-year growth rate would be 24% to 26%. Please note our updated guidance factors in the impact of the private REIT transactions we issued early this November and excludes the target IDC project's financials from our consolidated financial statements. Before I conclude, I'd like to briefly update you on our ESG efforts. Our outstanding sustainability performance has once again earned recognition from a leading global rating institution. In 2025, our ESG score improved to 73 from 70 last year, ranking among the top 8% of the IT service industry globally. We stand out in areas including risk management, information security, environmental management, and customer relations, underscoring our comprehensive capabilities in sustainability development. This quarter's strong growth and enhanced profitability are yet another testament to our high-quality growth strategy. Looking ahead, we will continue to consolidate our core strengths and capture growth opportunities, delivering sustainable long-term value for all stakeholders. This concludes our prepared remarks for today. We are now ready to take questions. Xinyi Wang: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please ask your question to management in English and then repeat in Chinese. Your first question comes from Tom Tang from Morgan Stanley. Please go ahead. Tom Tang: Thanks, management, for this opportunity to ask questions, and congrats again on a very strong quarterly result. I have two questions. So first question is more on the 2026 outlook. So we're hearing that there has been some expansion in the domestic chips and capacities. Just wondering what is our current outlook for the overall auto tendering in 2026. Second question is about private REITs. So we noticed that we have filed another private REITs with a size of almost RMB 10 billion. So just wondering what will be the timeline of this private REITs execution, how much cash flow is going to recycle, and what will be your impact on the financial statements. Ju Ma: Thank you very much. You know, as we are approaching the end of the year, we are engaging our customers and trying to learn about their development path. This would put us in a well-positioned to plan our resources accordingly. So according to our communications with the clients and also the current status quo of the pipeline, we believe that the market will be fairly stable with a moderate increase for the year 2023. According to our conversations with our clients, we feel that they are having very detailed expansion plans or growth nationwide. Therefore, we have to plan carefully in order to accommodate the user's needs. Because they are requiring us to deliver the capacities at a faster pace with a higher requirement. So that's why we are planning accordingly as well. And so the overall rating for the next year is that the market is going to be stable with a moderate increase. And with regard to your second question on the domestic chip, so we, VNET, are tracking and monitoring the development of the domestic chips very closely. We know that the sector is evolving very quickly, with a lot more options available. And we believe that in 2026, you know, we're going to see intensive competition among domestic chip players other than the two to three major players, there are more upcoming players coming into the market. So we're going to see significant growth and development in this sector. So that will give us give the customers a lot more choices with more certainty again, that would push the development or, in return, drive the development of our business. Qiyu Wang: Thank you. I will take your second question with regard to the REITs projects. So these two REITs projects followed on the heel of our first private REITs projects. So the underlying project for our first REITs project was retail IDC, whereas the underlying project underlying assets for these two REITs projects are wholesale IDCs. So this would be the first time that we have scaled private REITs issuance with the underlying assets of wholesale. So if these issues were too successful, this would officially mark so that we have completed the full closed-loop financial capital cycle of development holding, partial exit, as well as the long-term operation. These two REITs projects are currently being reviewed by the exchanges. And the expected valuation multiples would be better than the first REITs project. Once the two REITs projects were successfully issued, we will, unlike the first REITs project, we will consolidate the financial statements of these two projects into the group level financial statements. So therefore, it wouldn't impact the group level financial statements, specifically the revenue or EBITDA data. We are planning to adopt a similar approach with future private REITs projects with underlying assets of wholesale IDCs. And our goal is to complete the issuance by Q1 next year. Xinyi Wang: Next question, please. Thank you. Your next question comes from Timothy Zhao from Goldman Sachs. Please go ahead. Timothy Zhao: Great. Thank you, Madam, for taking my question. And congrats on the very solid results. Two questions here. One regarding I think this earlier mentioned that ran I think so receive more orders for hello? Xinyi Wang: Yeah. We can hear you now. Timothy Zhao: Okay. Yeah. So I was in the appears to be we need more orders in your wholesale campuses in Hebei and Jiangsu. From the geographical location perspective, how do you think about the customer preferences, and what kind of does each campus serve differently? That's my first question. My second question is regarding the pricing. It's just for the wholesale business. I noticed that for this quarter, there is some fluctuation in the wholesale and MRR. Just wondering how do you think about the pricing trend into the fourth quarter and next year? Ju Ma: I'll take your first question. Actually, the client takes specific considerations with regard to their orders for their business across different regions, they do not have very particular preferences. I think the major considerations on their end are first, the type of business and product offerings. Second, the distance or proximity to their headquarters. And the third is how convenient it is to scale up the existing capacity that they have with us. And take VNET Us For Example. So We Have Observed That The Client Have Different Types Pays With Regard To Their Requests Across Different Regions. And It Would Vary Quarter By Quarter. We Have A Lot Of The Demand Coming From The Greater Beijing area as well as the Yangtze Delta area. However, we do have upcoming new demand from customers for campuses in Hebei province as well as the Wuhan Chapel campus. Like I said, the major considerations on the client side are their type of current product offerings and the proximity to their headquarters as well as how convenient it is to scale their existing capacity with us. So that's the major considerations on their end. And based on that, they are varying their requests quarter by quarter. And with regard to the pricing of our wholesale IDCs, according to what we have observed, the pricing for Q3 was fairly stable. Qiyu Wang: I would like to elaborate on that. First, customers are moving in faster than we expected. Therefore, the IRR of these projects is better than we expected. And number two, frankly speaking, in areas where the dynamics of the supply and demand is in tight balance, VNET does not engage in the beatings with the low prices. Therefore, we are able to secure fairly stable order or contract price. Thank you. Next question. Xinyi Wang: Thank you. Your next question comes from Daley Li from Bank of America. Please go ahead. Daley Li: Hi. Management. Thanks for taking my question. Congrats on the strong results. I have two questions here. First one is, in our last earnings call, we mentioned we have a few projects, and we are participating in the tendering. And, could you update us on the progress and, how we complete, you know, all the, projects ongoing, or are we how many projects we are dealing with our clients? And in future, how do you see the, seasonality of mold tendering in future? My second question is about the new land and the power resources. You need to call with the our total resources on hand. Is likely stable. And, in future, where would we to which area will be our focus to, find more resources? Land, and power? Ju Ma: Thank you for your questions. You know, as we have observed for the first three quarters, that different customers are coming up with different requests at different paces. And for us, we follow their paces closely. And I have done a very brief summary of what we have achieved, in terms of the new orders that we have secured for the past twelve months, that was 331 megawatts. Looking ahead to 2026, based on the services we are offering to our client as well as the understanding of our clients, we are confident that we are able to sustain this growth momentum. And so with regard to the wholesale ID we have been, you know, following closely, the client AI development trend. We have noticed that customers are actually balancing their inferencing and training demand. And we have captured that change the customers are pivoting more towards the inferencing, and we are deploying resources accordingly to meet that customer's needs. So therefore, we are repurposing some of our cabinets and acquiring GPUs in advance. So this would put us in a good position to accommodate our users' needs. And you know, particularly with these orders from the key clients, we are confident in that with the efforts on our end, are able to accommodate users' needs as the AI growth momentum continues to unleash. And with regard to your second question on resources that we're planning to acquire in the future, that's something that the company values a lot and put a lot of thoughts in. Based on the service that we offer to our clients as well as the understanding that we have, on them, we are planning our resources for the next year. On top of that, we have extended our planning over to a five-year horizon rather than on a yearly basis. So this would allow us to plan more strategically to accommodate users' needs. And to break it down, we carefully weigh three factors. One is the split the demand split between generic computing power versus the smart computing power, and the second is the geolocations and the third is the AI-related chips development. And more specifically, with regard to next year, we are going to focus number one, the Greater Beijing area, particularly Wulan Chabu, Hebei, and Beijing surrounding areas. Second, number two, the Yangtze River Delta areas. We are starting to acquire resources for the next five years. To accommodate our users' demand. And, additionally, we are exploring the resources outside of these two major areas that I've mentioned. Thank you. Xinyi Wang: Thank you. Your next question comes from Sara Wang from UBS. Please go ahead. Sara Wang: Thank you for the opportunity to ask a question. I actually only have one question. So I recall earlier this year, management had shared that one of the top priorities from Habitco customer is the time to market. So has that changed? And, also, as interest demand is going to be the growth driver into next year, is there any change in the like, customer's consideration in terms of new order release? And if we talk about more workloads by inference, that that mean maybe user latency will be a relatively more important configuration factor going forward. Ju Ma: I would take I'll answer the second half of your question. Yes. We have observed that inferencing will become a major growth driver for next year. So that means that the customers have higher requirements in terms of latency. So the lower latency the better. Therefore, we are in a very good position to meet customers' needs with our campuses in the Greater Beijing area, particularly Hebei province as well as the Wuhan Jiangbo campus. And with regard to the first half of your question, yes, it is quite a trade-off that we have to face. So we are facing significant challenges in terms of how fast the customer wants to move in with the capacity that they have secured with us. And there are three approaches that we are taking to meet customers' demand. Number one, we are planning early in terms of civil engineering and external power supply. Number two, we are consolidating our capacity in terms of supply chain management. Number three, we are adopting electromechanical modularization as well as other standardized construction solutions to meet customers' needs. As you know, the general timeline that the customer expects is t plus six, which means they want to move in within six months after signing the contract. Yes, we are able to accommodate user needs in terms of the horizon. In one particular case, we're even able to accommodate or deliver within three months after signing the contract. Just so you know. Xinyi Wang: Thank you. Next question, please. Shuyun Che: Thank you. Your next question comes from Shuyun Che from CICC. Please go ahead. Shuyun Che: Hi. My name is management. Congratulations on the company's strong earnings, and thank you for taking my question. My first question is about the wholesale IDC and the delivery piece for the IDC business is very fast and has the company set the utilization rate target for the next two years? My second question is about the retail IDC business. We have seen the retail business IDC business, MRR has been grossing for several quarters. And what are the main drivers behind this trend, and how to view this sustainability in the future. Ju Ma: With regard to the utilization rate, of course, the customers are demanding to move in at a faster pace. For our mature IDCs, the utilization rate is inching closer to 95%. And with regard to the specific target on the utilization rate, I think it's partly that depends on the capacity that's going to be delivered in the next two years. We will disclose more information in the Q4 financials, and we are in the long run, we are confident that the utilization rate will steadily increase. And thanks for your attention on our retail ID business. As you know, the wholesale IDC business has been growing fairly quickly in contrast to the Retail IDC. We are very pleased to see the MRR of our retail business continue to grow quarter over quarter for several consecutive quarters. As you know, the competition landscape in this sector is fairly intense. I think the growth hardly boiled down to a couple of factors. Number one, in terms of the needs of customers, they are adding a smart computing on top of storage plus generic computing. And we are proactively repurposing our cabinets in order to meet their demands, in order to capture on this growth momentum and need. And the factor number two on our side, on top of the hosting service we offer to clients, we are providing incremental value-added services on the software level. Let's say, networking, as well as storage networking, services? And another factor is the initiative of repurposing the retail cabinet into higher density cabinets. And clearly, we are benefiting from these efforts and initiatives. Last but not least, should the demand from customers in terms of storage generic computing plus value-added services sustain, we're confident to sustain the growth momentum of our retail business. Thank you. Xinyi Wang: Next question, please. Andy Yu: Thank you. Your next question comes from Andy Yu from DBS. Andy Yu: Hi. You, management, for taking my questions, and congratulations on the solid results. So I have two questions. So your key peer has announced plans to expand into regions with lower electricity costs to capture AI training demand. So how do you see the supply-demand dynamics will evolve in these regions where VNETs currently have a first-mover advantage? And secondly, the government stand on data center CVITs has become more positive with a shorter timeline for new asset in post IPO. Do we expect our serial application to accelerate? And apart from these projects, what will our funding strategy be going forward? Ju Ma: Thank you. I'll take your first question. I think different companies are adopting different strategic growth approaches with regard to their own reading on the market dynamics as well as their development legacy. So they are actually deploying resources, you know, based on all of these factors. However, I would like to elaborate on how we go about it. Like, we iterated many times, over the next three to five years, AI is going to be an increasingly more important growth driver. On the corporate level, our reading is that the training of foundational models that type of demand will be increasingly concentrated to one or few top capable deep-pocketed players. So that's the first reading that we have on the market. And number two, we believe that inferencing and private deployment will continue to sustain its growth momentum. As you know, it can be avid or confirmed from Jensen Huang's remarks. And number three, we believe over the course of the next five years as the GPU grows domestic GPU chips grow, there is going to be more demand from the inferencing private deployment, as well as many emerging group intelligent agents. So these are the growth areas or customer demands that we are paying closer attention to. So in a nutshell, we, VNET, will adhere to the principle of a coordinated balanced development. So using our resources, to meet users' varying demands. Thank you. So our C rate is still underway. However, I am not in a position to disclose any information at the moment, and we wish to update you later as we see more progress. So other than the C rates or public rates, we are proactively advancing the holding type ABS, also known as private REITs. And we have successfully issued one. And we are hopeful that this would allow us to recycle a major sizable asset fund. Or capital. From such types of issuance. And, additionally, I am happy to share that one of the operating entity domestic operating entity, Beijing VNET, has just got a triple-A rating from a domestic rating institution. Which is rare among private-owned companies. Non-state-owned companies. So with this rating, favorable rating, so we are actively advancing the issuance of domestic corporate bond particularly the Science and Tech Innovation Bond which comes with a very favorable interest rate. So should it be pulled through, we are going to benefit from a lower interest rate with a widening channel of financing. Xinyi Wang: Next question, please. Edison Lee: Thank you. Your next question comes from Edison Lee from Nomura. Please go ahead. Edison Lee: Okay. Thanks, management, for taking the question. So only one quick question. So how do you see the trend for our unit CapEx spending? Because I noticed that for the first nine months, the total CapEx plan, there was around RMB 6 billion versus our full-year guidance of RMB 10 to 12 billion. So it looks a bit behind schedule versus our capacity delivery schedule. And so just wondering if management can provide some colors on this and also for next year's CapEx, what's our outlook? And potential sources for funding our next year's CapEx? Ju Ma: So the majority of our CapEx is on the wholesale IDC. And the CapEx per unit megawatt for our wholesale IDs campuses are gradually trending down. And we are still in the process of putting together our CapEx for next year, and we are preparing a similar size of funding and the proceeds or the sources of the funding would mainly come from asset securitization as well as the issuance of corporate domestic corporate bonds. So a quick number that I want to share with you. So through the pre-REITs, private REITs, and development fund, that issued in 2025, we have successfully recycled RMB 2 billion to the equity assets. And our goal is that we're going to beat this number in 2026. There are a lot of tools in our toolboxes. Financing toolboxes, I would say. And we are confident that we're able to fund our CapEx while keeping the leverage ratio within a secure range. Safe range. Xinyi Wang: Next question, please. Anthony Leng: Thank you. Your next question comes from Anthony Leng from JPMorgan. Anthony Leng: Hello. So I have two questions regarding the full-year update 50 guidance. So the full-year guidance is five four q on revenue. Appears to be down a little bit. So they should based on the midpoint. And on the what's be the potential reasoning given the strong fat customer moving rate, is there a potential upside to the full-year guidance further? Second question is regarding the three q reported take the margin. This be there was a sequential decline versus two q despite a very strong customer moving rate. What's the potential driver to cost this decline? And what would be the next few quarters EBITDA margin trend? Ju Ma: Let me take your question. As always, we have been consistently prudent in terms of offering our full-year revenue guidance. I think we are going to watch closely, the pace of our customers moving in as well as the electricity used by them. Because they are closely related to the revenue. Looking to the quarter-over-quarter growth, I think there's very little likelihood that the Q4 revenue will decline sequentially. I would advise you to refer to the upper end of our full-year revenue guidance range. And with regard to the EBITDA margin, I would say it's within a reasonable range because the majority of our offerings is, you know, revenue is from the wholesale IDC business. And because of the rising temperatures in Q3, therefore, we are seeing more tariffs for Q3. Given that these are actually reflected in our P and L, in terms of the tariffs that we pay. However, with regard to our costs, they are consistent. We do not see huge fluctuations. And with you know, so I would see this is reasonable seasonal fluctuations. Xinyi Wang: Thank you. Operator: Thank you. Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may now disconnect your lines.
Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew Inc. Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note today's call is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Jeremy Ji, head of corporate development. Please go ahead, sir. Jeremy Ji: Thank you. Hello, everyone, and welcome to ATRenew Inc.'s Third Quarter 2025 Earnings Conference Call. Speaking first today is Kerry Chen, our Founder, Chairman, and CEO, and he will be followed by Rex Chen, our CFO. After that, we will open the call to questions from the analysts. The third quarter 2025 financial results were released earlier today. Earnings press release and investor slides accompanying this call are now available at our IR website ir.atrenew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts on our quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will participate during the Q&A session. Please note our Safe Harbor statements. Some of the information you will hear during our discussions today will consist of forward-looking statements. And I refer you to our Safe Harbor statements in the earnings press release. Forward-looking statements that management makes on this call are based on assumptions as of today, and ATRenew Inc. does not take any obligations to update our assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release, which contains a reconciliation of non-GAAP measures to GAAP measures. Finally, please note that unless otherwise stated, all figures I mention during this conference call are in RMB, and all comparisons are on a year-over-year basis. I would now like to turn the call over to Kerry for business and strategy updates. Kerry Chen: Hello, everyone, and thank you for joining ATRenew Inc.'s Third Quarter 2025 Earnings Conference Call. We are pleased to update you on our strengthened operating results, share the progress of our three-stage development strategy, and address key topics of interest. In the third quarter, we once again achieved new breakthroughs across multiple operational measures. Total net revenue reached a new record high of RMB5.15 billion, representing 27.1% year-over-year growth. Our 1P product revenue sustained strong growth momentum, rising 28.7% year-over-year to RMB4.73 billion, while 3P platform service revenue increased 11.6% year-over-year to RMB420 million, demonstrating continued healthy growth. Non-GAAP operating profit reached a record high of RMB140 million, up 34.9% year-over-year, with our non-GAAP operating profit margin achieving 2.7%, demonstrating steady improvement both year-over-year and quarter-over-quarter. During each third quarter, we strategically prepare for the mid to late September launch of flagship devices from leading manufacturers while building operational capacity to support uptake in new device shipments throughout October, providing users with better reflecting and trade-in experiences. Looking closer to our third quarter performance, within our 1P business, we have successfully expanded our product acquisition through trading programs and our AHS Recycle brand. We have effectively leveraged our proprietary combined refurbishment capabilities to deliver premium curated products to consumers through retail channels, including AHS Selection and Pipai. This strategy delivered impressive results, with compliant refurbished product revenue surging 102% year-over-year in the third quarter. 1P2C revenue sustained robust growth of over 70% year-over-year, and the 1P2C proportion expanded to 36.4%. We believe that strengthening our retail capabilities will enhance our pricing power in the recycling end and effectively strengthen end-to-end value throughout the industry's supply chain. On the supply side, we focused on building stronger customer awareness and recognition from the AHS Recycle brand. Orders through the AHS official website maintained a solid 30% growth, while JD.com's trade-in program continues to be a preferred choice for users looking to recycle and upgrade their devices. We also significantly expanded our offline fulfillment capabilities, building customer trust through personalized face-to-face services that offer both convenient and competitive pricing. Our AHS store network grew to 2,195 locations across both self-operated and joint-operated sites, supplemented by a workforce of 1,962 team members who either provide full-time or part-time two-door service. This comprehensive approach ensures that recycling and trade-in services are easily accessible to customers. In top-tier cities, we are positioning AHS Recycle as China's leading recycle brand, promoting AHS Recycle through our self-operated stores. We have extended our asset-light platform to high-value categories like luxury goods, gold, and premium liquor, creating more user value while improving store unit economics. In mid to lower-tier cities, we partner with local merchants who understand their markets, helping them evolve from single-store franchisees into city partners with multiple AHS stores. We support these partners with standardized quality inspection and pricing tools, official traffic, and social media guidance to build a local customer base. This collaboration drives mutual success. Stronger store performance enables franchisees to expand locally and scale their business, creating a win-win effect that benefits everyone. Our commitment to win-win collaboration with merchants is evident in the performance of our platform business. In the third quarter, service revenue maintained strong double-digit growth with an overall take rate of 4.89%. Breaking this down across three key platform segments. Kerry Chen: First, in B2B, PJT Marketplace continues to provide an inclusive trading environment for small and medium-sized merchants. By the end of the quarter, the number of contracted merchants on the platform quickly surpassed 1,370,000. This was driven by two factors. On one hand, the number of sellers representing product supplies continued to grow rapidly, thanks to PJT Marketplace's strong infrastructure and merchant service capabilities. On the other hand, with the rapid onboarding of small-sized merchants, such as those leveraging the specialty buyer model of the win, accelerated supply chain enhancement for these merchants. To ensure a positive buyer experience during this expansion, we temporarily allowed more flexible post-sale rights and made a strategic adjustment to PJT Marketplace's take rate. We remain confident in PJT Marketplace's long-term monetization potential, not only because of its maturing trading infrastructure but also because of its flexibility to innovate, expand user reach, optimize services, and create more value over time. Second, in B2C, Pipai's user service and monetization capabilities achieved another year-over-year improvement. While maintaining POP open platform functionality further strengthened consignment services for small and mid-sized merchants. Under this model, merchants no longer need to worry about product management, store operations, traffic, or after-sales as Pipai provides standardized end-to-end operational solutions. In the third quarter, GMV for consignment grew 180% year-over-year, and the take rate continued to trend upward in the high single-digit range, reflecting strong merchant recognition of our service value. Third, our asset-light platform for multi-cash flow recycling services sustained rapid growth, with transaction volume increasing by 95% year-over-year, and user experience continues to improve. As of September, 878 self-operated stores and 131 franchisee locations had activated multi-category capabilities, expanding geographic coverage. Newly enabled stores typically stabilize performance within two to three months after allocating front-end and fulfillment costs. Multi-category services deliver an average monthly contribution profit of RMB7,000 per store, optimizing the unit economics of AHS stores. This model supports customer acquisition, repeated orders, and the disciplined rollout of additional high-quality stores. We continue our strategic adoption of automation and AI technologies to drive excellence in operation and experience. As our business scales, automated inspection systems at both the recycling and operational centers generate significant economies of scale and help optimize our fulfillment expense ratio. Beyond the AI-powered automation inspection capabilities for recycling of secondhand luxury goods discussed last quarter, we have also deployed AI applications in customer service inquiry handling and training. These initiatives are enhancing the user experience and building robust capacity to handle peak demand areas, such as major promotional events. That concludes our review of third-quarter operating results. Next, I would like to take this opportunity to continue sharing our three-stage development strategy for the next two to three years. Kerry Chen: The first stage is to continue translating the core capabilities of the second-hand consumer electronics. ATRenew Inc. has already become China's largest platform for second-hand consumer electronics transactions and services. We have interpreted the entire industry chain across C2B, B2B, and B2C, industry-leading end-to-end capabilities, and maximizing value for both users and the industry. Going forward, we will reinforce this foundation in four ways. First, by enhancing scenario capabilities and deepening trade-in collaboration in new device sales channels with partners such as JD.com and Apple, enabling low-cost, high-efficiency access to firsthand supply. Second, by strengthening fulfillment capabilities through our nationwide AHS store network and through our service teams to ensure a superior user experience. Third, by enhancing the capabilities of retail sales, combined refurbishment, and a high proportion of retail sales, to achieve an end-to-end loop and improve supply chain value. And fourth, by advancing technology capabilities, leveraging automation and AI technology, to unlock scale efficiencies over the long term. The second stage is to accelerate the growth of AHS Recycle as China's leading recycling brand. By combining our in-store-based fulfillment capabilities with an asset-light platform model for multi-category recycling, we aim to increase user engagement and frequency of service usage. At the same time, the ecosystem extension of AHS Recycle is expanding into extensive community scenarios across major cities. The AHS Recycle brand will partner with more consumer brands to promote REVIVE initiatives based on high-frequency scenarios, using brand incentives to encourage broader participation in recycling and the circular economy across China, so that everyone can benefit from the sustainable consumption model we advocate. With this, we strengthen consumer awareness of our recycling capabilities, improve our active user base of consumer electronics with high-frequency daily grain disposal activities, and promote a closed loop of grain recycling and grain consumption. We are dedicated to building differentiated competitive edges for AHS Recycle. The third stage is to prepare for an international strategy that shares China's green story globally. Over the past fifteen years, we have built deep expertise in standardization, automation, and platform capabilities for second-hand consumer electronic products. The rapid increase in domestic recycling penetration is driving a growing flow of used smartphones to overseas markets, representing a clear trend. On the one hand, we are actively engaging in the development of export standards and international mutual recognition for China market products. For instance, we participate in the expert committee for the cross-border export standard for secondhand goods, a joint initiative of the China Quality Certification Center and the International for Standardization. On the other hand, we are channeling high-quality China-sourced devices of earlier generations into the international market. Hong Kong, among others, as a key global trade hub for used electronics, facilitates this flow, allowing us to successfully address the demand abroad. Recently, the monthly export of China-sourced devices has exceeded 10,000 units. Looking forward, as domestic recycling penetration rates increase and standards become further clarified, we believe there will be more exports. We also look forward to replicating our efficient platform capabilities abroad to create an international version of the PJT Marketplace, connecting global sources of premium consumer electronics with global merchants. Simultaneously, we will, at the appropriate time, integrate with the international layout of our strategic partners to provide solutions and jointly explore the broader retail opportunities in the global markets. Looking forward to 2026, we remain confident in the healthy development of the second-hand industry and the strong growth trajectory of our company. We are also proud to share international recognition. This year, ATRenew Inc. is a finalist for the prestigious Earthshot Prize, a global environmental award founded by His Royal Highness Prince William. The prize recognizes outstanding contributions across five categories aimed at repairing our planet. ATRenew Inc. was highly recommended by the committee in the "Build a Waste-Free World" category for its practices in advancing the circular economy through pre-owned product transactions and services. Moving forward, we remain committed to our founding mission of giving a second life to idle goods and will continue to contribute to the circular economy in China and globally. Now I would like to turn the call over to CFO, Rex Chen, for financial updates. Rex Chen: Hello everyone. We are pleased to report outstanding financial performance in 2025. We continue to capture opportunities from targeted trading scenarios, enhanced fulfillment and supply chain capabilities, and elevated AHS Recycle brand presence. Total revenue in the third quarter was at the high end of our guidance, increasing by 27.1% to RMB5.15 billion. Adjusted operating income grew by 34.9% to over RMB140 million. Before taking a detailed look at the financials, please note that all amounts are in RMB, and all comparisons are on a year-over-year basis unless otherwise stated. In the third quarter, total revenue growth was primarily driven by continued net product revenue growth. Net product revenues increased by 28.7% to RMB4.73 billion, largely attributable to the growth in online sales of pre-owned consumer electronics. Net service revenues were RMB420 million in the third quarter, representing an increase of 11.6%. The increase was largely driven by Pipai Marketplace and multi-category recycling business. The overall take rate of our marketplace was 4.89% for 2025. During the quarter, our multi-category recycling businesses contributed nearly RMB53 million of revenue, accounting for 12.5% of service revenue. Now let's discuss our operating expenses. To provide greater clarity on the trends in our actual operating-based expenses, we will mainly discuss our non-GAAP operating expenses, which better reflect how management views our operating results. The reconciliations of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-Ks furnished with the U.S. SEC. Merchandise costs increased by 26.3% to RMB4.1 billion, in line with the growth in product sales. Gross profit margin for our 1P business was 13.4% compared with 11.7% in the same period last year. The gross margin improvement in our 1P business was primarily driven by high-efficiency C2B recycling scenarios, compliant refurbishment capabilities incorporated in our supply chain, and an increasingly diversified retail channel mix. This allowed us to increase the proportion of higher-margin retail sales. 1P2C revenue accounted for 36.4% of product revenue in 2025, up from 26.4% in the same period last year. Meanwhile, our international business operation efficiency has improved with continued improvement in both scale and gross margin. Fulfillment expenses increased by 25.9% to RMB440 million. Non-GAAP fulfillment expenses increased by 25.6% to RMB430 million. Under the non-GAAP measures, the increase was mainly driven by higher personnel and logistics expenses, reflecting a greater volume of recycling and transaction activities compared to the same period last year in 2024. Additionally, operation-related costs rose as we expanded our store network and enhanced operation center capacity in 2025. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.4% from 8.5%. Rex Chen: Selling and marketing expenses increased by 15.4% to RMB360 million. Non-GAAP selling and marketing expenses increased by 40.6% to RMB360 million. The increase was primarily driven by higher advertising and promotional campaign-related spending, as well as an increase in commission expenses associated with channel service fees. As a result, non-GAAP selling and marketing expenses as a percentage of total revenues increased to 7% from 6.3%. General and administrative expenses increased by 6.9% to RMB74.1 million. Non-GAAP G&A expenses also increased by 17.7% to RMB5.2 million, primarily due to an increase in tax and surcharges, as well as an increase in consultant fees. Non-GAAP G&A expenses as a percentage of total revenues decreased to 1.3% from 1.4%. Technology and content expenses increased by 19.5% to RMB61.1 million. Non-GAAP technology and content expenses increased by 23.2% to RMB61.1 million as well. The increase was primarily driven by elevated personnel expenses. Non-GAAP technology and content expenses as a percentage of total revenue remained stable at 1.2%. As a result, our non-GAAP operating income was over RMB140 million in 2025 compared to non-GAAP operating income of RMB100 million in 2024. Non-GAAP operating profit margin was 2.7% for this quarter, compared to 2.6% in 2024, representing an increase of 16 basis points. During 2025, we repurchased a total of 4.5 million ADSs for approximately USD2.1 million. We will continue to evaluate our overall profitability and update the shareholder return programs at the appropriate time. As of September 30, 2025, cash and cash equivalents, restricted cash, short-term investments, and funds receivable from third-party payment service providers totaled RMB2.54 billion. Our financial reserves are sufficient to support reinvestment in business development and shareholder returns. Now turning to the business outlook. For 2025, we anticipate total revenues to be between RMB6 billion and RMB6.18 billion, representing a year-over-year increase of 25.4% to 27.4%. For the full year 2025, we estimate total revenues to be between RMB20.87 billion and RMB20.97 billion, representing a year-over-year increase of 27.8% to 28.5%. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions. Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. When asking a question, state your question in Chinese first. Then repeat your question in English for the convenience of everyone on the call. And the first question will come from Wan Jiao with CICC. Please go ahead. Wan Jiao: Thanks for taking my questions. My first question is we know that recently we are having some changes to the national subsidy policies. Could you please share the impact on your business? And the second one is, could you please give us more color about the outlook for Q4 and next year? Thank you. Kerry Chen: Thank you for your question. The first question is about national subsidy. That is a very good question. Let me address it by analyzing the growth drivers of our 1P business in the context of the national subsidy. The national trade-in subsidy directly promotes the sales of new devices. However, these subsidies are only applicable to new devices priced under RMB6,000. Therefore, a significant portion of consumers purchasing premium models do not utilize these subsidies. Given that our 1P business primarily focuses on premium brands, the proportion of trading orders utilizing national trade subsidies was actually quite limited this year. Nevertheless, the national subsidies have effectively stimulated upgrades within the pre-owned consumer electronics industry. Benefiting from our mature trade-in supply chain this year, we collaborated with JD.com to create the best-in-class trading user experience. We also worked with brands like Apple, Huawei, and Xiaomi, facilitating device upgrades for more users through trade-in offsets. This approach, combined with specific subsidies offered by e-commerce platforms and manufacturers in trading scenarios, helps users upgrade their devices at a lower cost. We estimate that AHS Recycle achieved a trade-in penetration rate exceeding 10% on JD.com this year. The penetration rate is consistently increasing, driving precise conversions within JD's core human electronics business. Furthermore, we see significant potential for further growth in this penetration rate. As the retail prices of new devices from brand manufacturers continue to trend upwards, trading programs are gaining favor among users as a more cost-effective upgrade path. Simultaneously, these programs help manufacturers protect the retail pricing of their new devices, creating a win-win situation. The scenario of new device retail presents an important source for us. We will continue to collaborate closely with our e-commerce and manufacturing partners to optimize the trading pricing algorithm, operational processes, supply chain, and user experience, increasing the penetration rate of trade-in services over the long run. Regarding the second question, we expect total revenue growth in the fourth quarter to be between 25.4% and 27.4%. The major electronics brands we serve have launched more attractive products this year and achieved considerable sales, stimulating stronger consumer demand for device upgrades. Based on our fourth-quarter outlook, we forecast total revenue for the full year 2025 to be between RMB20.87 billion and RMB20.97 billion, representing a year-over-year increase of 27.8% to 28.5%. This suggests a possibility for us to grow faster than our internal budget at the beginning of this year. We anticipate accelerated revenue growth this year compared to last year, primarily driven by three factors. First, the national trading initiative has promoted e-commerce platforms and brand manufacturers to actively build or enhance their trade-in service capabilities. An integrated trade-in supply chain can efficiently provide users with a best-in-class operating experience. Second, we are rapidly expanding our fulfillment network, having established a more granular presence in nearly 300 cities across China, ensuring a superior user experience. Third, we are actively building the AHS Recycle brand, recognizing that brand influence delivers long-term value. For 2026, we are actively preparing our internal annual budget. We expect to maintain a relatively rapid year-over-year growth rate, driven by increased penetration of trading programs, enhanced brand power and fulfillment capabilities of AHS Recycle, and the improvement in our overall supply chain efficiency. Thank you for the question. Operator: The next question will come from Wei Fadi with DBS. Please go ahead. Wei Fadi: I will recap in English. So good evening management and congratulations for the astonishing third-quarter results. So two questions from our side. The first one is what is the store opening pace for the fourth quarter and for the year for ATRenew Inc.? Thank you. Kerry Chen: I will take the first question. For the full year 2025, we maintained our target of accelerating store openings. As shown in our store structure and capabilities, the number of self-operated AHS Recycle stores in Tier one and Tier two cities has grown steadily. For self-operated stores, we prioritize quality development, focusing on delivering a superior user experience through enhanced fulfillment capabilities. Nearly 88% of these self-operated stores are now equipped with multi-factor services. Regarding joint-operated standard stores, to build capabilities together, we actively collaborate with local market partners. Based on empowering them with our capabilities and traffic support, we work with city partners to serve local users and rapidly advance our store opening goals. In some franchised store scenarios, we are prudently exploring service capabilities for high-value categories, with gold reduction already taking initial shape. Moving forward, the pace of new store openings will be dynamically balanced with the expansion of our two-door service team to ensure the efficiency of both our physical locations and personnel. Wei Fadi: So my second question is what are the plans and targets for the multi-category business in the future? Thank you. Kerry Chen: In terms of the multi-category business, it has maintained a record development trajectory this year, benefiting from our quick improvements in several metrics, including service coverage, baseline pricing capabilities for various categories, and user experience. Our multi-category recycling business operates on an asset-light platform model, which is less susceptible to policy changes and emphasizes compliant operations. It focuses on core user experience metrics such as transaction efficiency and pricing within the C2B model. In the third quarter, against the backdrop of rapidly rising gold prices, we prioritized user transaction experience by reducing our take rate. This approach provided users with tangible value and benefits while also ensuring the rapid growth of our transaction volume. Looking ahead, leveraging the strength of our AHS Recycle brand and our store network, we will prioritize developing high-value categories that are convenient for users to bring to our store for transactions. We aim to integrate user demographic profiles, including age and gender, to solidify the consumer mindset of AHS Recycle's go-to destination positioning. Wei Fadi: Thank you. Operator: The next question will come from Michael Kim with Zacks Small Cap Research. Please go ahead. Mr. Kim, your line is open. Michael Kim: Hi. Can you hear me? Kerry Chen: Yes. We can hear you. Michael Kim: Okay. Curious to get your perspective on the uptake of enhanced services across your marketplace businesses and how maybe a more favorable mix might impact take rates? And then just related to that, how has the mix trended more recently as it relates to multi-category transactions? Thanks. Kerry Chen: The take rate for PJT Marketplace remained stable at over 6%. The slight variation in the platform take rate in the third quarter was primarily due to phased adjustments in our merchant service policy, where we allow buyers more flexible return exchange options. PJT actively introduced innovative transaction models such as the specialty buyer model and expanded platform supply chain connectivity to Douyin. This provides more influencers and small business owners with access to industry supply sources, simplifies secondhand transactions, and offers consumers better products and greater value. Within the Pipai Marketplace, the consignment model has shown initial success, driving its take rate into the high single-digit range to 9%. There remains room for optimization in both the sales categories and take rate structure for consignment. This standardized model effectively addresses operational challenges for small merchants by offering a simpler store setup experience, higher transaction efficiency, and better pricing and sales channels. As the consignment business scales, both the revenue structure and take rate of the Pipai Marketplace have the potential for further optimization. Our report volume comes from gold reflecting, which is more standardized and operates with a low single-digit take rate. The service take rate for the secondhand luxury category comes to exceed 10%. For future category expansion, we will prioritize high-value categories that offer greater service value and potential for higher take rates. Michael Kim: Got it. Thanks for taking my question. Operator: As there are no further questions at this time, I would like to turn the conference back over to management for closing remarks. Jeremy Ji: Thank you. Thank you all again for joining us. A replay of today's call will be available on our IR website shortly, along with a transcript when ready. If you have any additional questions, please feel free to email us at ir@atrenew.com. Have a good day. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the CULIC and SOFA Fourth Quarter twenty twenty five Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Senior Director of Investor Relations for Kulic Ensafa. You, Mr. Elgindy. You may begin. Thank you. Joseph Elgindy: Thank you. Welcome, everyone, to Kulicke and Soffa's Fiscal Fourth Quarter 2025 Conference Call. Lester Wong, Interim Chief Executive Officer and Chief Financial Officer, also joins me on today's call. Non-GAAP financial measures referenced today should be considered in addition to, not as a substitute for or in isolation from our GAAP financial information. GAAP to non-GAAP reconciliation tables are included within our latest earnings release and earnings presentation. Both are available at investor.kns.com along with prepared remarks for today's call. In addition to historical information, today's discussion contains forward-looking statements regarding our future performance and outlook. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that may cause actual results to differ materially. For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial condition, please refer to our latest Form 10-K and upcoming SEC filings for additional information. With that said, I will now turn the call over to Lester Wong for the business overview. Please go ahead, Lester. Lester Wong: Thank you, Joe. Good morning, everyone. Before discussing this quarter's business performance and outlook, I want to briefly discuss recent organizational changes we announced on October 28. I have taken over as Interim CEO due to Fusen Chen's recent retirement and will continue my existing duties as the Company's Executive Vice President and Chief Financial Officer. Fusen is actively recovering and doing well, and we appreciate everyone's thoughts and concerns. While a search for a permanent successor among external and internal candidates is underway, we are fortunate to have a deep bench of talented leaders in the executive team and an involved Board of Directors who are committed to ensuring the continuity of leadership, stability and strategic focus of the Company. We expect this transition to be seamless and customers can expect continued innovation, global support and strong commitment from K&S to serve the evolving needs and to enable next-generation devices. I want to thank Fusen for his leadership over the past 9 years. Under his guidance, we pursued meaningful new business opportunities and expanded our market access by securing a foothold in several high-potential technologies. We have also dramatically increased the volume of customer engagements and improved time-to-market execution. In doing so, we have accelerated the growth of our advanced portfolio of solutions, which enabled meaningful share gains in leading edge logic and has paved the path for additional expansion in DRAM, power semiconductor and advanced dispense. Fusen's legacy is an organization defined by growth, agility and close customer focus. We appreciate that he has agreed to provide advisory support over the coming year and believe his vast experience and industry knowledge will be a useful resource to the company as we extend our leadership in advanced packaging and adapt to industry transitions such as the rise of chiplet architectures and heterogeneous integration. I, along with the entire organization, would like to wish Fusen a happy and healthy retirement. I am confident we will continue to win market share and grow the business over the long term. As all of our end markets are showing signs of improvement, we have recently begun to prepare for higher production while continuing to aggressively drive several exciting technology transitions. Additionally, in my role as Interim CEO, I am grateful to have met many customers in person over the past month and look forward to meeting with many others over the near term. We are fully committed to consistently providing customers with best-in-class capabilities and high-performance solutions they expect from K&S. Turning to our recent business results. We are encouraged by improved order activity, supported by favorable utilization trends in general semiconductor and memory end markets while we continue to execute on key initiatives. Within our fourth fiscal quarter, we generated revenue of $177.6 million, GAAP earnings per share of $0.12 and non-GAAP earnings per share of $0.28. We remain focused on operational efficiency as we expand our reach within thermocompression, vertical wire, advanced dispense and power semiconductor transitions. From an end market standpoint, utilization rate for high-volume general semiconductor and memory applications continue to improve, while dynamics within the automotive and industrial markets are now showing early improvement. General semiconductor revenue increased by 24% sequentially, driven by technology and capacity needs, which increased thermocompression and ball bonder demand during the September quarter. We estimate utilization rates are currently over 80% for this key end market. Memory has also improved sequentially, similar to general semi in both utilization and revenue. Memory-related revenue increased by nearly 60% sequentially to $24.4 million and was driven predominantly by NAND-related capacity additions. Historically, our memory solutions were tailored for high-density NAND assembly, although we remain closely engaged in supporting advanced packaging transitions within DRAM. We continue to expect the growth in high-performance edge application like on-device AI or AI on the edge will begin to accelerate this trend. Order hesitation within automotive and industrial has continued into the September quarter with a relatively sharp sequential decline. While the broader automotive market has been softer, we anticipate a sequential improvement during the current December quarter and are pleased to report a more positive outlook through fiscal 2026. As a reminder, we remain an active technology partner, providing many new innovations within power semiconductor, which are supporting long-term transitions within the EV and other clean tech markets. Last, APS has increased by 17% sequentially, which aligns with improving utilization data and more distinctly highlights increased production activity across our high-volume installed base. We are optimistic about fiscal 2026 and remain encouraged by improving end market dynamics along with strong traction we are seeing across our growing set of advanced packaging, advanced dispense and power semiconductor opportunities. Within advanced packaging, we continue to support the industry adoption of advanced thermocompression and vertical wire applications and remain closely engaged with multiple leading customers on these exciting initiatives. First, within Fluxless thermocompression or FTC, we continue to directly address the needs of advanced heterogeneous logic applications. We are pleased to see growing demand across our customer base, driven by the increasing capacity needs of IDM, foundry and assembly and test customers. Our operational and supply chain teams are actively preparing for a production ramp through fiscal 2026 as adoption for our FTC process begins to accelerate. Additionally, we are preparing to ship our first HBM system within the current December ending quarter. Within the HBM market, we continue to anticipate advanced thermocompression capabilities such as FTC, provides an attractive assembly alternative as bandwidth requirements increase with future HBM standards. On the mobility side of DRAM, we continue to expect on-device AI applications to demand high level of bandwidth and increase the need for new vertical wire-based assembly over the coming years. This is a great example of how advanced packaging techniques are directly supporting power efficiency, performance and form factor improvements, helping to offset the rising costs of traditional transistor shrink. We remain engaged with a broad group of memory customers who are actively preparing for this transition. Our vertical wire market expectations into fiscal 2026 remain consistent, and we continue to anticipate a shift to higher-volume market production by the end of the year. Longer term, we anticipate stacked DRAM or mobile HBM will continue to grow aggressively with high-volume edge-related applications. Next, with advanced dispense, we are pleased to release our recent dispense system, ACELON during Semiconductor Taiwan in September. ACELON leverages our unique and high-precision dispense capabilities with a highly robust architecture platform, which has been proven in critical production environment. Transitions in many of our end markets are increasing demand for high precision and more capable dispense systems. We continue to receive recurring purchase orders as well as new customer purchase orders for our growing line of advanced dispense systems. Finally, while the current automotive and industrial market remains dynamic, we continue to develop innovative solutions to address increasing level of assembly complexity surrounding power semiconductor applications. In summary, we continue to expand our market presence on multiple fronts and remain cautiously optimistic as key regions and end markets show signs of cyclical improvement. We are pleased to see ongoing general semiconductor capacity digestion and expansion within our key regions as well as memory technology transitions and pricing improvements, which are all promising indicators and that increases our confidence in the outlook. We continue to navigate a uniquely exciting time in semiconductor assembly with the potential to capitalize on a wide set of opportunities in the industry. With that said, I will now provide a brief financial update. My remarks today will refer to GAAP results unless noted. We delivered revenue above guidance, continue to execute on close customer engagements and maintain an ongoing focus on cost control. Gross margins came in at 45.7%, and we delivered $0.28 of non-GAAP earnings. Total operating expense came in at $80.3 million on a GAAP basis and just below $70 million on a non-GAAP basis. We continue to remain focused on operational efficiency while we support a growing set of opportunities. We continue to anticipate non-GAAP operating expense to be around $70 million over the coming quarters, which provides a strong foundation for operational leverage as demand for our solution ramps. Tax expense came in at $0.3 million, and we continue to anticipate our effective tax rate will remain above 20% over the near term. During the September quarter, we continued our repurchase program and deployed $16.7 million to repurchase 464,000 shares. Over fiscal year 2025, we repurchased 2.4 million shares, representing nearly 5% of shares outstanding for $96.5 million. Looking ahead, end market improvements within general semiconductor and memory are becoming more evident, supported by regional utilization improvement and a strong sequential increase in APS demand. While automotive and industrial was previously expected to create an ongoing headwind into fiscal 2026, we are pleased to now anticipate sequential improvement into the December quarter. For the December quarter, revenue is expected to increase by approximately 7% sequentially to $190 million with gross margins at 47%. Non-GAAP operating expenses are expected to be $71 million with GAAP earnings per share targeted to be $0.18 and non-GAAP earnings per share of $0.33. While we remain focused on production readiness and key growth opportunities, we have also strengthened operational and development efficiencies over the past few quarters. We are confident that these efforts position us to emerge from the extended soft demand period, a leaner and more growth optimized organization. Today, we're either a dominant incumbent leader or are aggressively taking share in every key markets we serve. We continue to ensure our highest potential opportunities are well resourced and our customer development efforts are on a positive trajectory. Looking into fiscal 2026, we anticipate that half of our incremental growth will stem from technology transitions and share gains in new markets. At the same time, the other portion of sequential growth is increasingly encouraging due to the anticipation of ongoing cyclical recovery over the coming quarters. We look forward to ongoing execution and progress on advanced packaging, advanced dispense and power semiconductor opportunities as we prepare for the broader core market recovery. In closing, we remain focused on executing our strategic priorities, are confident in our capabilities and technology leadership and prepared to navigate the near-term macro environment. This concludes our prepared comments. Operator, please open the call for questions. Operator: Today's first question is coming from Krish Sankar of TD Cowen. Sreekrishnan Sankarnarayanan: Good luck to Fusen and definitely going to miss him. I have 2 questions left. The first one, it looks like based on your guidance, pretty much sequentially all your 3 segments, general semi, memory and auto industrial should grow. Is that the right way to think about it? And how to think about it into the March quarter and any kind of seasonality effects? And then a follow-up. Lester Wong: Thanks, Krish, and I appreciate your sentiment Fusen, I will definitely pass it on. As far as the 3 segments are concerned, I think as we said, general semi and memory are actually very strong. Utilization for both is over 80%. Auto and Industrial is still lagging a little bit, but we do -- we're very optimistic about it because we do see improvements, and we think there will be sequential growth into Q1. So I think as far as how we want to look at the March quarter, we think March will probably be -- probably flat to Q1. So we don't see any seasonality into the March quarter. Sreekrishnan Sankarnarayanan: Got it. And then as a quick follow-up, one of your Taiwan competitors spoke about their FTC plasma solution for chip-to-wafer has passed final call as being used with a leading foundry. So I'm kind of curious, what is your status there? And do you think they could split the business or you're not in pole position anymore? Lester Wong: Well, Krish, I think we're still the only one at the foundry doing high-volume production, right? I won't comment on our competitors. I mean we were qualified a long time ago. So I think we continue to feel very strongly about our solution. Our solution now has both formic acid and plasma. So it gives the customer a lot more optionality to do it. We have single head, we have dual head. So we think our FTC solution is basically best-in-class, and we feel very, very competitive at the foundry as well as anywhere else we compete against the competitors. Operator: The next question is coming from Charles Shi of Needham & Co. Yu Shi: Lester. Maybe the first one. You talked about shipping a system to the HBM customer. I know the team has worked on this for a while, and it's finally shipping. So it's definitely going to be good news I think by most of the investors. But kind of wondered if you can provide a little bit more color on this shipment. What's the nature of the shipment? Where -- I mean, as much as you can provide color where you are shipping the system to? And what's the next milestone? Lester Wong: Thanks, Charles. Well, we're shipping the system to the -- somewhere in the United States, right, without being too specific. As far as the next milestone is once it's installed, they're going to start running wafers through it, and we're going to look for qualification. So we hope to get -- share some news a few months after the system has been installed at the customer. Yu Shi: Do you have any insight into which generation of HBM this qualification is targeted at? Lester Wong: I would say it's probably 4E. Yu Shi: Okay. So maybe the next question, you talked about growth for fiscal '26. Half of that is coming from tech transitions, share gains, the other half from cyclical recovery. But wondering if you can put some quantitative color into that, like how much -- how many percentage points do you think can come from both areas? And any directional -- I mean, hopefully, it can be a little more quantitative that would be great. Lester Wong: Sure, Charles. As you know, we don't guide beyond the quarter. But I think we're very comfortable with the -- for FY '26, we're very comfortable with the consensus number, which I believe is around $730 million, $740 million. And then again, as I said in my remarks and as you just repeated, we think half the incremental growth will be from technology transition like FTC, like vertical wire, like advanced dispense as well as power semiconductor. And then the other one would be from the cyclical recovery led by the very high utilization rate, which we see out there, which is about 80% right now. Operator: The next question is coming from Tom Diffely of D.A. Davidson. Thomas Diffely: Lester, I was wondering if you could talk a little bit more about the NAND market. We're hearing obviously strength in high-bandwidth memory, and that's using up some of the DRAM capacity. But I haven't heard anybody talk about strength or improvements in the NAND markets until you mentioned it earlier today. Maybe just a little more comment on the NAND market. Lester Wong: For sure. I mean I think we -- what we're seeing is we're seeing very high utilization rates in memory. It's over 80%, about 82%, 83%. We're also seeing, I guess, purchase orders increasing in that market as well, particularly in China. Again, China itself, it's driven by general semi and memory and China utilization is actually close to 90%. So that's basically what we're seeing in the field, Tom. Thomas Diffely: Okay. And would you still -- you said there wasn't much in the way of normal seasonality, but would you still expect more of a ramp to happen post Chinese New Year kind of the normal cycle as far as incoming new orders? Lester Wong: Well, we're actually, again, already seeing orders now into Q2. So I think it'll probably be flat. I think this year, FY '26 probably would be a little more linearity throughout the entire year. So I think, again, I don't see a huge uptick after Chinese New Year, but it'd be nice if it happened. Thomas Diffely: Yes. And I do want to echo your comments on Fusen. I've been covering the company on and off for 25 years. And when he came in several -- many years ago, there was really a sea change in the productivity of the company and the outlook of the company. So I wish him all the best. Lester Wong: Thank you, Tom. Thank you. As I indicated, Fusen transformed K&S and expanded our portfolio of advanced products. And a big part of this incremental growth from technology transition is due to his vision and his strategy. So we all wish him well in his retirement. Operator: [Operator Instructions] Our next question is coming from Dave Duley of Steelhead Securities. David Duley: Please relay my best wishes on retirement to Fusen as well. Lester Wong: We do, Dave. David Duley: First question, I think in your slide deck, you talked about increasing market share in the HBM market. Could you just elaborate a little bit further on that? Is that just what you were referring to is shipping an HBM tool for thermocompression bonding? Or is there something else to that commentary? Lester Wong: So Dave, I think actually the slide referred to increasing market share in DRAM, not specifically HBM. As I think I said in my remarks as well as responding to Charles' question, we are going to ship our first HBM machine to a customer in the U.S. for qualification. David Duley: Okay. So that commentary is just wrapped around the HBM shipment to a thermocompression bonding tool, nothing else? Lester Wong: Yes. For now, we are very -- as you know, we started our thermocompression focus on logic. We are the market leader in logic for thermocompression. But again, we're just entering the HBM market now. But we're very optimistic. We believe the tool is very well suited to HBM. And we think as standards change and as well as density increases, I think the tool -- the [ Fluxless ] thermocompression compression tool will do really well. David Duley: Now do you think at this customer, you'll be trying to displace a Fluxless -- a standard thermocompression tool? Or will you be -- are you up against a hybrid tool? Or what do you think kind of the -- how this unfolds as far as the qualification goes and what you're competing against? Lester Wong: Well, I think we're basically competing against other thermocompression bonders, right? Not so much hybrid for now. I think hybrid still, as we've spoken before, for HBM, hybrid is a little bit off for now. So I think mainly the competition will be other TCB. David Duley: Okay. And then you mentioned vertical wire ramping in the -- I think, in the back -- in 2026. Could you just elaborate a little bit more on what exact -- why is that ramping now? Is it tied to specific handset model or some end market? And then maybe help us understand what expectations you have for that new business in 2026? Lester Wong: Sure. Well, I mean, we've been working on vertical wire for a while. And now we've had calls and we have tools at many customers, both in China as well as outside of China. As the calls progress, we believe that the first high-volume production will be in the latter part of CY '26, which means we start shipping tools in the latter part of our fiscal '26, right? So I think that's basically sort of the color around what we think. And as far as our expectations, we still think FY '26 is going to be the beginning. So I think somewhere around the neighborhood of $10 million, and then we think it will ramp significantly in '27 and beyond. David Duley: Okay. And do you have -- as far as your core business goes, usually, it's somewhat tied to unit volume growth in the general semi market. I was just wondering if you had an idea about how fast units are growing in 2025 or a prediction for unit growth in 2026? Lester Wong: Well, yes, we have used that before, and I think it's probably 5%, 7%. But again, I think what is really giving us confidence is the utilization rate, which is, as I said, over 80% in both memory and general semiconductor and then 80% overall. Also, again, a lot of our core business is in China, and that utilization rate is almost close to 90%. Operator: The next question is coming from Craig Ellis of B. Riley Securities. Craig Ellis: Lester, good luck in the role and good luck to Fusen as well with health issues. I wanted to start and admittedly, I missed the first part of the call, but I wanted to start better understanding the dynamics that you're seeing in the memory market. Lester, do you think this is just a steeper slope that you're seeing in memory as utilization and orders have improved? Or is it really just a different timing for what might be a typical seasonal move up in memory ahead of second half build. So the question is really on the trajectory of the recovery that you're seeing. Lester Wong: Well, as -- so Craig, I think right now, memory utilization is very high. I mean sales are increasing there. They're still obviously lagging general semi. So I think right now, I do think this is a ramp in memory, and it will continue into FY '26. Craig Ellis: Yes. And can you talk about the potential for memory in '26 to get back to historic revenue levels? And then because general semi is rebounding and it's doing so against a slightly improved but not significantly improved high-volume PC and smartphone market. What do you think is really driving the improvement in general semi? Lester Wong: Well, I think it's still smartphone and high-performance computer, right? I mean it's cyclical. I think for a long time, we've -- as you know, we've had almost 3 plus 4 years of a downturn, right? And this is the digestion of the tremendous amount of inventory that was built up in '21, '22. So I think actually, this is almost back to a normal cycle, right? And it is the beginning of the recovery, which I think we've all been waiting for. Craig Ellis: Okay. And then lastly, I think you did mention in prepared remarks that we're not yet seeing any signs of uplift from the auto and industrial market. But as you talk to customers in those end markets, are you getting any indication that they could begin to see an upturn sometime in the first half of calendar '26? Or is it still just very low visibility and an absence of any signs of improvement? Lester Wong: So Craig, I think when we talk to customers, we actually get a sense of optimism, right? I think while there is still a little bit of headwinds, it's definitely improved significantly. And we expect our auto industrial revenue to increase sequentially in Q1 from Q4, right? And then I think going forward, we do see -- it's lagging general semi and memory a little bit, but we do see it coming back, right, particularly maybe our customers in Southeast Asia as well as in China. So -- and one thing I think, Craig, as you know, we are sort of involved in sort of a technology transition on power semi, which is basically, again, for cleantech as well as for EV. So I think with all those factors, we definitely think FY '26 will be a much better year for auto industrial. Operator: At this time, I would like to turn the floor back over to Mr. Elgindy for closing comments. Joseph Elgindy: Thank you, Donna, and thank you all for joining today's call. Over the months, we'll be participating at conferences in New York and Phoenix. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone. Operator: Ladies and gentlemen, thank you for your participation. You may now disconnect your lines or log off the webcast. Have a wonderful day.
Operator: Morning, everyone, and welcome to the MediWound's Third Quarter twenty twenty five Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. And at this time, I'd like to turn the floor over to Dan Ferry of LifeSci Advisors. Please go ahead. Daniel Ferry: Thank you, operator, and welcome, everyone. Earlier today, pre-market opened, MediWound issued a press release announcing financial results for the third quarter ended September 30, 2025. You may access this press release on the company's website under the Investors tab. I would ask you to review the full text of our forward-looking statements within this morning's press release. Before we begin, I would like to remind everyone that statements made during this call, including the Q&A session, relating to MediWound's expected future performance, future business prospects or future events or plans are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today, and MediWound assumes no obligation to update or supplement any forward-looking statements, whether as a result of new information, future events or otherwise. This conference call is the property of MediWound and any recording or rebroadcast is expressly prohibited without the written consent of MediWound. With us today are Ofer Gonen, Chief Executive Officer of MediWound; and Hani Luxenburg, Chief Financial Officer; Barry Wolfenson, EVP of Strategy and Corporate Development, is also participating on today's call. Following our prepared remarks, we will open up the call for Q&A. Now I would like to turn the call over to Ofer Gonen, Chief Executive Officer of MediWound. Ofer? Ofer Gonen: Thank you, Dan, and good morning, everyone. The third quarter was another strong period for MediWound, as we executed across our strategic clinical and operational objectives and continue to position the company for its next phase of growth. The three strategic priorities I'd like to emphasize today are our EscharEx VLU trial, our NexoBrid manufacturing expansion and our ability to fund our strategy. We have made meaningful progress on all those fronts. EscharEx Update (Chronic Wounds) Ofer Gonen: Let's start with an update on EscharEx, our late-stage enzymatic debridement therapy for chronic wounds. Enrollment in the VALUE Phase III trial in venous leg ulcers (VLU) continues to progress, with a target of 216 patients across roughly 40 sites in the United States and Europe. U.S. site activation proceeded as planned, while several EU sites required additional adjustments to meet ancillary-related regulatory requirements. Overall, the majority of sites are now active and enrolling. At this stage, we cannot yet assess whether these EU-related adjustments will impact the overall study timeline. We are actively monitoring enrollment trends, and we'll update our guidance, if needed, as visibility improves. The trial's co-primary endpoints are the incidence of complete debridement and the facilitation of wound closure, both measures in which EscharEx demonstrated strong results in previous Phase II studies. A prespecified interim sample size assessment will be conducted after 65% of patients complete the treatment. We have also made progress on the diabetic foot ulcer (DFU) program. We have received positive FDA feedback and we are now awaiting EMA scientific advice. The company plans to initiate the study in the second half of 2026. As our VLU and DFU programs move forward, the market around us is also shifting in ways that highlights EscharEx's potential. Medicare recently lowered reimbursement rates of skin substitute products which is expected to put significant pressure on that category and close a long-standing payment loophole. In contrast, EscharEx is a biologic regulated under the BLA pathway and aims to enter the enzymatic debridement segment, where a single legacy product generates roughly $370 million annually. Together, these market changes makes EscharEx increasingly attractive to potential strategic partners. To quantify this opportunity, we completed an updated U.S. market access and pricing assessment with an independent global consulting firm, incorporating also input from health care professionals and payers. The analysis supports a higher potential U.S. price per course of therapy and estimates annual peak sales of about $831 million. These updated estimates reflect EscharEx's robust clinical data, along with modeled health economic benefits derived from earlier wound closure. So with the VALUE study advancing a clear regulatory path for DFU and strong commercial validation, EscharEx is positioned to drive MediWound to the next phase of growth. NexoBrid Update (Severe Burns) Ofer Gonen: Now let's turn the attention to NexoBrid, our innovative enzymatic therapy for severe burns. Most notably, we completed the commissioning of our expanded NexoBrid manufacturing facility, a major milestone that strengthens our ability to meet the rising global demand and maintain reliable supply. The process was not simple. We worked through a 2-year war, drafted personnel and import delays on specialized equipment, but the result is transformative. Our production capacity is now 6x larger, providing a strong foundation for future growth. We expect to reach full operational capacity by year-end 2025, with regulatory review and approval, determining the timing of commercial output. In the United States, our partner, Vericel, reported NexoBrid's record quarterly revenue since launch, up 38% year-over-year and 26% sequentially. Vericel noted broad utilization across more than 60 burn centers and plans to pursue a permanent CPT code, which would take effect in 2027. Internationally, the TGA in Australia approved NexoBrid for use in both adult and pediatric patients, bringing the total number of approval market to 45 countries worldwide. This approval, together with NexoBrid's prominent presence at the recent European Burn Association Congress, where it was featured in 36 scientific presentations, highlight its expanding clinical recognition and global momentum. Regarding the collaboration with BARDA, on an RFP covering stockpiling, development of room temperature stable formulation and evaluation of an enzymatic debridement product for trauma and blast injury indications. This multiyear program was scheduled to begin on October 1. As Vericel noted in the recent earnings call, the government shutdown caused all related activities to pause. Now that the shutdown has ended, we expect BARDA to resume normal operations and move forward with the planned development and procurement activities. The pause also created some uncertainty around the exact timing of BARDA and DOD-related revenue in Q4. We are actively working on these components, but the final outcome will depend on how activities progress through the remainder of the year. Overall, the advancements we have made with NexoBrid position us as a durable and meaningful growth driver for MediWound. Financial Summary Ofer Gonen: From a corporate standpoint, we recently strengthened our balance sheet with $30 million of equity financing from high-quality health care investors. This transaction provides us with the resources and flexibility to execute on our long-term growth strategy with focus and momentum. Given the discussion around the recent financing, this is a perfect point to transition the call to the financials. Hani? Hani Luxenburg: Thank you, Ofer, and good morning, everyone. Let's turn to our financial results for the third quarter of 2025. Revenue for the quarter was $5.4 million, up 23% year-over-year compared to $4.4 million for the same period in 2024. The increase was primarily driven by higher development services revenue, including additional contracts with DoD. Gross profit for the quarter was $0.9 million or 16.5% of revenue compared to $0.7 million or 15.5% in the prior year period. R&D expenses were $3.5 million versus $2.5 million in the third quarter of 2024, reflecting increased investment in the EscharEx VALUE Phase III study and related clinical activities. SG&A expenses totaled $4 million compared to $3.2 million in the same period last year. The increase was primarily due to marketing authorization holder expenses. Operating loss for the quarter was $6.5 million compared to $5.1 million in the third quarter of 2024. Net loss was $2.7 million or $0.24 per share compared to a net loss of $10.3 million or $0.98 per share in the prior year period. The improvement was mainly driven by noncash financial income from the revaluation of warrants this quarter compared to noncash financial expenses from warrant revaluation in the third quarter of last year. Adjusted EBITDA loss was $5.4 million compared to a loss of $3.7 million in the third quarter of 2024. Hani Luxenburg: Looking at our performance for the first 9 months of the year. Revenue for the period was $15.1 million compared to $14.4 million in the same period of 2024. Gross profit was $3 million or 19.7% of revenue compared to $1.7 million or 12% in the first 9 months of last year. The margin improvement was driven by a more favorable revenue mix. R&D expenses were $9.8 million compared to $5.9 million in the same period of 2024. SG&A expenses were $10.6 million versus $9.1 million in the first 9 months of 2024. Operating loss for the period was $17.5 million compared to $13.3 million last year. Net loss for the first 9 months of 2025 was $16.7 million or $1.53 per share compared to $26.3 million or $2.72 per share in the same period of 2024. The reduction in net loss was primarily driven by noncash financial income from the revaluation of warrants in 2025 compared to noncash financial expenses from revaluation of warrants in the same period of 2024. Adjusted EBITDA loss for the first 9 months was $13.9 million compared to $9.9 million in the prior year period. Hani Luxenburg: Now turning to our balance sheet. As of September 30, 2025, we had $60 million in cash, cash equivalents and short-term deposits compared to $44 million at year-end 2024. During the first 9 months of the year, we used $15.8 million in cash to fund our operating activities. In addition, our balance sheet reflects the completion of a $30 million registered direct offering and $3.5 million in proceeds from Series A warrant exercises. We believe our current cash position provides the financial flexibility needed to advance our key programs and continue executing on our strategic priorities. That concludes my review of the financials. Ofer, back to you. Ofer Gonen: Thank you, Hani. To summarize, the third quarter was defined by consistent execution and strategic progress across our programs and operations, clinical advancements with EscharEx, commercial expansion with NexoBrid and operational readiness for manufacturing infrastructure. With these accomplishments and a solid financial foundation, MediWound is well positioned for 2026. Operator? Question & Answer Session Operator: [Operator Instructions] Our first question today comes from Josh Jennings from TD Cowen. Joshua Jennings: Congrats on continued progress. I have two questions on EscharEx. Just first on the -- just new U.S., I think peak sales estimate $830 million range, up from $725 million. Can you just share any more details just in terms of some assumptions that are baked in there? Is any pricing changes or, I guess, just volumes or patient opportunity assumption deltas from the prior calculation? Ofer Gonen: Yes. So Josh, really good to speak to you. Barry, can you address that? Barry Wolfenson: Yes. Josh, thanks for the question. So this analysis that we did was more market access focused. So the respondents are skewed more towards payers than they did health care providers as opposed to the previous assessment that we did. Because of that, the focus was really specifically on pricing. So nothing changes with regard to the number of patients, the adoption rates, none of that changes in the model, it all remains the same. The only thing is the pricing. . And really, what we focused on was incremental pricing that we would be able to take relative to HEOR benefits. So in the initial assessment that we did where we landed at $725 million for revenues. The price that we used was the baseline price, which was a 15% increase over SANTYL. And we had heard that previously. We had heard it [ earlier ], and we heard it in this most recent market research as well that, that base case without any HEOR benefits of 15% over SANTYL would stand when we add in the HEOR benefits, however, it changes a bit. And what we found is that the max could go up to as much as 50% over the price of SANTYL, and this is the price of the total cost of therapy per patient. And what we've done is basically taken what we consider to be a conservative kind of slice of it, somewhere in between the base case and the top case. And when we put that into the model, it yields this $831 million of peak sales. Joshua Jennings: Understood. And the DFU study looking to kick off enrollment in the second half of next year. You mentioned over some constructive feedback from the FDA. And anything to share just on any nuanced design -- trial design updates? And will the same centers that are enrolling the VLU study be investigator sites for the DFU study? Ofer Gonen: Yes. So let me address that. So we are not -- the easy part is that we are not addressing the same centers. We are working on centers that are specializing with -- for VLU and there are centers for DFU that we are looking at different ones. As for the protocol, as I said in my prepared remarks, we are waiting for EMA feedback with the scientific advice and we will ultimately ensure alignment in both regulators as we finalize the study design. We expect it to happen in weeks. And therefore, we will be able to update about that in the next call. Operator: And our next question comes from RK from H.C. Wainwright. Swayampakula Ramakanth: This is RK from H.C. Wainwright. So I'll go back to the question Josh asked a minute ago, but a little bit different nuance. So of that $830 million that you're projecting now, just trying to understand the breakdown between DFU and VLU opportunities, so that we and the market understand what and how much weightage you're giving to each of these 2 indications. Then I have a couple more questions. Ofer Gonen: So Barry, maybe you will start with that and let's see what RK has else to ask. Barry Wolfenson: Sure. RK, there are more diabetic foot ulcers than there are venous leg ulcers. But the reason why we're doing venous leg ulcers was first is, frankly, because of the pain issue. They're very, very painful, and it makes it so that they're less likely to be debrided with surgical debridement. And so our alternative provides a really good solution. We do believe even though DFUs could be debrided with surgical debridement and they more often than not have peripheral neuropathy and so the pain is not an issue that because EscharEx reduces the time to complete debridement dramatically versus the enzymatic debrider that's in the market right now that there will be share gain there as well. I think if you look at the split with the puts and the takes, it comes out to roughly even with a little bit of an advantage -- a little bit of a weighting on the venous leg ulcer side. Swayampakula Ramakanth: Then Ofer in your remarks, at least the way I understood your commentary on the RFP with BARDA is it looks like you're almost met with success or it has been successful. Is that true? And then now I understand the U.S. government has not been helpful having had the shutdown. But is there any indication as to how soon this could start for you folks? And then the last question for me is on the CPT code itself. Any nuances you can give us about how not having a CPT code, is it impacting any adoption at all? Or this just adds more help once you get the CPT code on board? Ofer Gonen: So let me break down the answer into two parts. I will start with BARDA and Barry will speak on the code. So in BARDA, I'll tell you the maximum that I'm allowed to share. So as you all know that in August 2025, BARDA issued an RFP covering stockpiling, room temperature stable formulation and trauma blast injury solutions. We were ready to start the program on October 1. It's a program that is supposed to extend for up to 10 years. Vericel holds the commercial rights of NexoBrid in the United States. So they are leading the effort in the United States, and MediWound is providing a full support for that. Now when the shutdown ends, we expect BARDA to resume the normal operations and move forward with the planned development and procurement activities. Other than that, I cannot tell you a time, hopefully very soon. And Barry, do you want to speak about the CPT? Barry Wolfenson: Yes. From a CPT code perspective, RK. I guess, first, let me preface this by saying that Vericel, while they mentioned the fact that, a, they have a temporary CPT code that went into effect, I think it was July 1 and that based on the utilization that they're having, which has been strong, they believe that they'll be able to in 2026, apply for a permanent CPT code that would then be activated in 2027, if all goes well. They haven't really talked about what those benefits are and provided those nuances that you're looking for. So these are just our thoughts on it, how those could be helpful. And I guess what I would say is, generally speaking, we all know that these procedures are done inpatient, which is through the DRG. But CPT codes do help in a couple of different areas, really about providing legitimacy. One is, it provides legitimacy nationally, at the national level, which can drive physician adoption. And what I mean by legitimacy, it provides those CPT codes provide a standardized language for the procedure, it helps with internal approval pathways, credentialing frameworks and also just with workflow legitimacy, all of that, this legitimacy boosts physician acceptance. And so when the physicians are more confident that they could do a procedure and that it's going to have the right coding associated with it, it could increase patient use, again, even though the payment mechanism is DRG based. Secondly, it drives institutional acceptance. So having these CPT codes in place -- I mean, without them, institutions might hesitate to put on contract any new technologies. And so they're helpful, having them in place with the P&T committees, the value analysis, EMR pathway creation. And so having the CPT codes just makes it easier for burn centers to approve NexoBrid. I know that Vericel talked about 60-plus burn centers, and there are around 100 of these sort of Grade A burn centers that they're targeting. So there's a little bit more to go. And maybe as they get a permanent CPT code, it will just make things easier to get the laggards on board and have NexoBrid on contract. So that's the way that we see it is they've got a temporary but a more permanent CPT code just adds to that legitimacy and would help drive both physician adoption and institutional acceptance. Operator: Our next question comes from Jeff Jones from Oppenheimer. Jeffrey Jones: A couple from us. Is -- can you provide any additional visibility on the breakdown of the $5.4 million in revenue? You noted increased margin based on Vericel sales, I assume, but just the breakdown between product services and revenues. Hani Luxenburg: Jeff, thank you for the question. So in the third quarter, we only give the press release with the condensed numbers of P&L. We do not give a full financial statement. Only in the second quarter and of course, at the end of the year. So I cannot tell you more than that. But anyway, I can tell you that the gross margin is a much -- as you know, the gross margin this quarter was around 20%. It was up from 12% last year. This improvement is reflecting a more favorable change in our revenue mix. And in any way, our gross margin also affected by a mix of revenue from product sales and the R&D services. And we expect that our gross margin to move, as you know, gradually towards the 25% in full capacity. Jeffrey Jones: Appreciate that, Hani. Two additional questions. Just on the U.S. government contract discussions, with BARDA, obviously, that is with Vericel. Just for clarity, the BARDA contract hasn't been awarded correct, the second quarter... Ofer Gonen: Yes. There was an RFP for a 10-year contract covering stockpiling, room temperature stable formulations and trauma blast injury solutions. Vericel disclosed in their previous earnings call, they submitted a proposal to the U.S. government, and we are waiting for the contract to be signed. Jeffrey Jones: Great and look forward to finding out about base options and sort of period of work there. Just any update on the commercialization plans and expansion into Europe? Ofer Gonen: So currently, as you know, we are capped by our ability to manufacture. We have much more demand that we can basically manufacture and ship towards the territories. Having said that, we expect that by year-end 2025, our manufacturing facility will be fully, fully operational, and we can start actually manufacturing for the markets. As the demand is extremely higher, we believe that after that, we can disclose our commercial plans for that. . Operator: [Operator Instructions] Our next question comes from Michael Okunewitch with Maxim Group. Michael Okunewitch: I guess to start off, I just wanted to follow up on some of the previous questions around the pricing and the new health economic analysis. And in particular, what endpoints are most relevant to the health economic benefit? And then are there any specific thresholds in the Phase III that we should look to that could justify that upside pricing? Ofer Gonen: Michael, thank you for joining the call. I see that Barry wants to answer that. Right, Barry? Barry Wolfenson: Yes. That's a great couple of questions there. So let me do the best I can to answer. The -- basically, all the HEOR that we've looked at in this assessment or that, frankly, the payers guided us to really think about, is this benefit that will be associated with early wound closure. And so when you think about it, if you've got a wound that's open for 6 to 10 weeks longer, whatever the time frame is, there's all sorts of whether it's the nursing time, physician time, the product time and then all the risks that are associated with it, infection, hospitalization, anything else that needs to be done, any kind of corrective treatments that come up due to the wound not progressing well. So all of those costs bundled together represent some amount of savings. There's already a pretty good publicly available published information on what is considered to be the average cost per week of an open venous leg ulcer. And so between what we generate in our -- from our endpoint of early closure data that we generate because we will look to create our own set of data around the cost of an open leg ulcer. That in combination with what's already been published will drive this total amount. As far as the cap is concerned, I will say that consistent feedback that we got from payers is that the product that's -- the legacy product in the market right now, SANTYL, has taken a price increase very consistently. I don't know that it's been every year, but it's been somewhat consistently such that, for example, a 30-gram tube has gone from roughly, again, an estimate around $100 for a 30-gram tube to around $300 over the course of these last 10-plus years. And so there was some feedback that there would be a cap at this roughly 50% premium over SANTYL even though that additional amount might only be a small portion of the actual HEOR benefits that are derived. So that's how we're modeling it. And again, what I said earlier is we're taking a conservative approach to that even. And for our own modeling and this number that we've pushed out at $831 million, it really isn't that top price. It's a price that's in between that top price of 50% premium over SANTYL and the 15% premium over SANTYL. Michael Okunewitch: And then just one more for me and I'll hop back into the queue. Just in light of the recent updates to your market research, I want to ask a bit of an opposite question. We all on this call know the significant benefits that would draw converts over to EscharEx. But what are the factors that would lead people to -- or lead physicians to opt for other methods like sharp or autolytic, I'm trying to understand if there are any hard limits for EscharEx in this setting beyond that 22.3% conversion estimate that you use? Ofer Gonen: So Barry take this as well. Barry Wolfenson: Yes. Yes, thanks. Listen, I think that there are still going to be situations, in particular, as I mentioned earlier, due to peripheral neuropathy in the diabetic foot ulcer segment where it just might be easier for physicians to clean up a wound once or twice with a knife as opposed to several days of drug application. So on the sharp side, it is the standard of care now. We do estimate taking around 10% and of that of the utilization from sharp debridement, but there's still going to be a market for sharp debridement. This is not as one-to-one analogous as NexoBrid is in -- with burns where it can completely obviate the need for surgery. This is a little more soft in the chronic wound space. And so again, that's why I say we estimate around 10% on the sharp side. On the autolytic side, it's just -- autolytic debridement is so much less expensive that it depends on the setting, the case situation, the patient's insurance. There's still going to be a market for autolytic debridement. Again, we believe that we're going to take a significant share from current autolytic debridement. Right now, the legacy product relative to autolytic debridement, you can look it up in the published literature, whether there's an advantage or not, but there's certainly a significant pricing differential. We believe on that sort of ratio of price per clinical efficacy that we're going to hit a sweet spot and that it's going to encourage much more widespread adoption. But there'll still be a market for autolytic. Michael Okunewitch: I really appreciate the additional insights. Once again, congrats on all the progress this quarter. Operator: And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Ofer Gonen for closing remarks. . Ofer Gonen: So thank you, everyone, for joining us today, and we look forward to updating you again on our next quarterly call. Operator: And with that, ladies and gentlemen, we'll be concluding today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.
Operator: Welcome to the Liquidity Services, Inc. Fourth Quarter of Fiscal Year 2025 Financial Results Conference Call. My name is Liz, and I will be your operator for today's call. Please note that this conference call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Michael Patrick, the services vice president and controller. Michael Patrick: Good morning. On the call today are William Angrick, our Chairman and Chief Executive Officer, and Jorge Celaya, our Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. The following discussion and responses to your question reflect management's views as of today, November 20, 2025, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in filings with the SEC, including our most recent annual report on Form 10-Ks. As you listen to today's call, please have the press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliations of these measures with their most comparable GAAP measures. Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. This supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I will turn the presentation over to our Chairman and CEO, William Angrick. William Angrick: Good morning, and welcome to our Q4 earnings call. I will review our Q4 performance and the progress of our business segments. Next, Jorge Celaya will provide more details on the quarter. Our outstanding Q4 results reflect the depth, scale, and liquidity of our proprietary e-commerce marketplaces, value-added software solutions, and our team's customer-focused culture. Our ability to connect buyers and sellers in the circular economy across hundreds of diverse categories, ranging from multimillion-dollar industrial and construction assets to vehicles and retail consumer goods, is a key competitive advantage and positions us well in any economic climate. We continue to expand and enhance our capabilities, including our recent integration of a new payment solution to improve the buyer experience and operational efficiency of our marketplaces. Our growth in Q4 reflects the strong operational execution of our RISE strategy, as GMV, adjusted EBITDA, and our adjusted EPS grew 12%, 28%, and 16% year over year, respectively, all above our guidance range. Our Q4 adjusted EBITDA margins as a percentage of direct profit grew over 310 basis points over the prior year to 32.8%, reflecting a continued mix shift to higher-margin consignment and software solutions and the operating leverage of our technology platform. For the full year fiscal 2025, Liquidity Services made strong financial and strategic gains, and we see a clear path to our midterm goals of $2 billion in annual GMV and $100 million of annual adjusted EBITDA. Let me now cover some of the key highlights from our fiscal year 2025. We achieved a record $1.57 billion in GMV in fiscal 2025, eclipsing the $1.5 billion GMV milestone for the first time and achieved revenues of nearly $477 million, up 31% year over year. We achieved these marks with an increasingly diversified business as every Liquidity Services business segment grew both its top and bottom line during the year. Our strategy has prioritized low-touch consignment services and software solutions with recurring revenue characteristics that are creating substantial value for customers within a $100 billion-plus GMV market opportunity across the government, industrial, and retail sectors. Second, we generated strong profitability and free cash flow during fiscal 2025 with adjusted EBITDA of $60.8 million, up 25% year over year, our highest EBITDA in eleven years. Our asset-light business model and operational efficiencies, including the increasing use of AI-assisted technologies, allowed us to generate $59 million of free cash flow during the year, providing strong flexibility to execute our strategic plan. Our buyer base and liquidity continue to be a strong competitive advantage for Liquidity Services, and during fiscal 2025, we eclipsed 6 million registered buyers for the first time on our platform and set a new record of 4.1 million auction participants on our platform. We continued our expansion and diversification of our GovDeals segment during the year, which achieved a record $903 million of GMV, up 8% over the year, eclipsing the $900 million GMV threshold for the first time, driven by consistent growth in the number of new sellers, active sellers, and record vehicle and equipment sales volumes. We have further segmented our North American territories, identified government-adjacent markets, and added capacity to our GovDeals sales organization to drive further growth. We also continue to expand our CAG heavy equipment fleet category during fiscal 2025, which grew GMV 35% organically during the year. Our strong buyer base, sell-in-place service model, and user-friendly experience have allowed us to develop and grow relationships with national equipment fleet owners with recurring sales volumes. This has propelled this category from zero a few years ago to a run rate of more than $100 million of GMV, resulting in higher and more consistent growth and profitability within our CAG segment. Our retail segment grew GMV 30% year over year by securing new recurring program flows from existing and new clients and leveraging the strength of our multichannel buyer base and agile operating footprint. Additionally, we recently launched our new localized consumer auction channel, RetailRush, to drive higher recovery for our clients and value for consumers. We also further scaled our Machinio classified and dealer management software business in fiscal 2025. In addition to achieving record revenue and EBITDA during the year, our Machinio segment has expanded our Machinio sales capacity and developed platform innovations to target new growth opportunities within the heavy equipment, marine, and service industries. We completed the purchase of auction software in January 2025 to expand our software development capacity to grow our SaaS offering with existing and new customers and to provide a platform for the launch of our new consumer online auction channel, RetailRush. We are excited by the opportunity to accelerate and expand our innovations in the circular economy with our new auction software team and technology platform, which anchors our new software solutions business segment. During fiscal 2025, we continued to advance our Liquidity Services product roadmap with several innovations. For example, we deployed our new seller asset management or SAM tool in Canada on our GovDeals and AllSurplus marketplaces. The new SAM tool incorporates mobile responsive design templates, AI-assisted listening tools, and asset verification tools to enhance the speed and quality of our customers' daily usage on our platform. We are well underway in rolling these new tools out in the US market to our over 15,000 sellers. During fiscal 2025, we also deployed new payment processing capabilities as a value-added service. We expect this to improve the convenience and choices of payment for our buyers, but also to enhance our margins over time. Finally, we have benefited during fiscal 2025 from strong employee engagement, collaboration, and recruiting new talent this past year. Our human resources team sourced 51 management and functional support new hires during the year, and for the first time in our history, did so without using external recruiting agencies. Nearly 20% of our total new hires have been referrals from existing Liquidity Services team members, reflecting the pride we have within our organization. In summary, our role as the leading global provider of e-commerce marketplaces and software solutions powering the circular economy is a strongly differentiated valuable business. Our resilient, diversified platform provides stability for our customers and investors alike amid ongoing economic uncertainty. With our proven service offerings and continued investment in innovation, we are uniquely equipped to empower our buyers and sellers and drive sustainable long-term growth in the large and fragmented circular economy market. With over $186 million of cash on our balance sheet and zero debt, we continue to evaluate M&A opportunities in the large fragmented circular economy market that is still early on in digital transformation. I will now turn it over to Jorge Celaya for more details on the quarter and business outlook. Jorge Celaya: Good morning. For the full year fiscal year 2025, we surpassed $1.5 billion of GMV, setting a new annual record. We exceeded our rule of 40 goal with solid double-digit top-line growth and strong adjusted EBITDA growth of 25% to $61 million, the highest profitability in over a decade. And on the heels of the past four years, where we consistently grew adjusted EBITDA steadily from $43 million to $48 million, fiscal year 2025 reflected our capacity for operating leverage with our resilient diversified business model that delivered the $61 million this year in adjusted EBITDA, which was a 300 basis point improvement in our adjusted EBITDA margin as a percent of our segment's direct profit. Our cash flow performance also remained strong, generating $66.8 million in operating cash flow and achieving significant free cash flow conversion, which on average over the last five years has exceeded 100% where free cash flow is operating cash flow less CapEx. Our business model is focused on key financial objectives, including growing our segment's direct profit, a metric that serves to equalize the effect of growing consignment versus purchased GMV streams. We therefore also focus on adjusted EBITDA as a percent of our segment's direct profit. Consistently serving our customers with reliability while providing technology-enabled solutions and seller access to our significant buyer base globally has enabled our market share gains. Investing in our marketplaces and embedding leading technologies into our platform, including AI enhancements, reflects our commitment as industry leaders. Our fiscal year 2025 financial results are highlighted by strong year-over-year growth across each of our key metrics. Our consolidated GMV increased 15% and revenue grew 31% to $476.7 million, reflecting the significant purchase volumes in our retail segment earlier in the year. Our segment's direct profit in total grew 13% year over year. GAAP net income of $28.1 million increased 41%, resulting in earnings per share of $0.87 for fiscal year 2025. On a non-GAAP adjusted basis, earnings per share for the year was $1.28. Our effective tax rate for the fiscal year 2025 was 28.8%, and we spent $7.8 million in CapEx for the year. Our non-GAAP adjusted EBITDA was $60.8 million, up 25% versus the prior year. Our fiscal year 2025 was capped by a very strong fourth quarter, led by our GovDeals and Retail segments. While for this fourth quarter, the Retail segment's revenue was down sequentially from the fiscal third quarter, from lower purchase volumes which we guided to at the end of last quarter, GMV was sequentially up and the segment's direct profit and overall profitability also improved. Our consolidated results for our 2025 include GMV of $404.5 million, up 12%, revenue of $118.1 million, up 10%, resulting in a revenue to GMV ratio of 29% for the quarter with a lower mix of purchase flows in retail during the second half of the quarter. Our GAAP earnings per share was $0.24, up 20%. Our non-GAAP adjusted earnings per share was $0.37, up 16%. And our non-GAAP adjusted EBITDA was $18.5 million, up 28%. During the fiscal fourth quarter, we generated $38 million in cash flows from operations, conducted $16.1 million of share repurchases, and ended the quarter with $185.8 million in cash, cash equivalents, and short-term investments. We continue to have zero debt, and we have $26 million of available borrowing capacity under our credit facility. At the end of the quarter, we had $1.5 million of authorization remaining to perform share repurchases, and we have since received authorization from our board for an additional $15 million. Specifically comparing segment results from this fiscal fourth quarter to the same quarter last year, our GovDeals segment's GMV was up 12%, revenue up 17%, and direct profit up 19%, driven by high dollar value asset sales. The GovDeals segment direct profit of $22.3 million set a new quarterly record. The Retail segment was up 8% on GMV, up 6% on revenue, growing consignment programs, which offset the anticipated lower purchase volumes. Retail direct profit increased 19%, also setting a new quarterly record of $20.3 million, reflecting improved recovery rates on select purchase model programs, the mix and flows, and lower transaction processing. Machinio and software solutions combined to increase revenue by 29% and direct profit by 24%, driven by increased Machinio subscriptions and pricing for its services and the new software solutions business, which offers online auction solutions under our SaaS model. Moving to our outlook for 2026, our guidance range includes double-digit year-over-year growth in our profitability metrics, driven by the continuation of our recent higher-margin business mix combined with operational discipline. Despite last year's fiscal first quarter consolidated GMV and revenue growing 26% and 72%, respectively, GovDeals, CAG, and the Machinio and Software Solutions segments are expected to continue to reflect top-line growth year over year. While comparatively lower expected inventory purchase by our retail or RSCG segment may result in tempered year-over-year consolidated GMV and revenue, however, retail is expected to reflect higher segment direct profit margins and improved overall profitability compared to the fiscal first quarter of last year. On a consolidated basis, consignment GMV is expected to continue to be in the low 80s as a percent of total GMV. Consolidated revenue as a percent of GMV is expected to be slightly below 30%. And the total of our segment direct profits as a percent of consolidated revenue is expected to again be in the mid to high 40% range. These ratios can vary based on overall business mix, including asset categories in any given period. We will continue to focus on growth in our segment direct profits and our adjusted EBITDA, targeting our Rule of 40 through optimizing product and service mix and long-term operating leverage to improve margins and maintain strong cash conversion. Our business model is focused on our financial objectives while we emphasize serving our customers with reliability and innovation, enabling market share gains with technology-enabled services. Management guidance for 2026 is as follows: We expect GMV to range from $370 million to $405 million. GAAP net income is expected to range from $5 million to $8 million, with corresponding GAAP diluted earnings per share ranging from $0.15 to $0.25 per share. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.25 to $0.35 per share. We estimate non-GAAP adjusted EBITDA to range from $13.5 million to $16.5 million. The GAAP and non-GAAP earnings per share guidance assumes that our effective tax rate will be similar to fiscal year 2025 and that we have approximately 32.5 million to 33 million fully diluted weighted average shares outstanding for 2026. We expect CapEx will remain consistent with our recent levels of approximately $2 million per quarter, and our free cash flow conversion to remain in line with historical patterns. As has been our typical seasonal pattern, we expect the fiscal second half of the fiscal year to show higher GMV and higher profitability than our first half of the fiscal year. Thank you, and we will now take your questions. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press 11 on your touch-tone phone. If you wish to be removed from the queue, please press 11 again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Gary Prestopino from Barrington is on the line with a question. Gary Prestopino: Good morning, William and Jorge. Several questions. Hey, William, you know, good margin improvement here. You mentioned a new payment solution that is lowering, I guess, your cost of transactions. Could you maybe go into a little more detail on that and some of the things that also, you know, are positively impacting that adjusted EBITDA margin you are generating? William Angrick: Sure. Thanks for the question. I think one is just inherent operating leverage we are generating and putting more volume through our fixed cost, Gary, which is the beauty of a two-sided marketplace once you get the scale. Additionally, this is all with respect to the margin question. Like many firms, you know, we are studying and integrating AI-assisted technologies to maintain or improve quality of service but also reduce cost or efficiencies. We are seeing that play out in a number of areas: customer service and customer support, onboarding, identifying, recruiting, and onboarding employees, the payment solutions process, which does incorporate both some internally developed and third-party functionality to streamline and enhance how buyers pay. You know, we want to make sure that buyers have the full range of payment options, ease of sign-on, ease of payment, tracking their invoice. And because we are able to spread that investment over now $1.6 billion of GMV, you know, every basis point of savings is starting to multiply and reflect in our EBITDA margin. Also, we will see continued enhancement of our search and the matching of assets to buyers based on predictive analytics and also the historical record of bidding and buying. We are also introducing AI tools with regards to seller asset listing processes. We can enhance and improve and streamline that process for both third-party seller organizations and our internal organizations, which just means that we are enhancing and automating the data that is tagged to the assets being uploaded. It is a lot less manual and a richer description, and this is a huge opportunity in a business like ours where, you know, each asset has some unique provenance or unique condition categories. So we are excited about that. Part of that is in the seller asset management tool set I mentioned on the call, SAM, which touches every seller in our government business and our industrial CAG business. We rolled that out in Canada as a phase one to get feedback from clients on what they like, what they would continue to put in our suggestion queue, and with that feedback, we are now taking aim at the much larger US market. So that is another part of the lift of EBITDA. So there is just a ton of opportunity for our business, combining continued scale, continued enhancement of the buyer and seller experience, and then the use of AI. Gary Prestopino: Okay. But when you say a new payment solution, you are not, like, now allowing, you know, some of your buyers to use something like, say, a buy now pay later. You got a better rate on a credit card or credit agreement. These are all internally developed things. William Angrick: These are payment processing capabilities. We are not providing credit or a new payment solution like you mentioned, you know, buy now, pay later. That is not what this is about. This is about taking the combination of third-party available technologies, integrating them into our processes, and so it is a software-driven upgrade. It has nothing to do with providing financing solutions. Gary Prestopino: Okay. And then your guidance for consignment sales as a percent of GMV is about, what, 82% for Q1. As the company is evolving, do you think that can stay in the low eighties because that definitely also leads to some margin improvement, obviously, because... William Angrick: Yeah. I would expect that to tick up over time, Gary. Gary Prestopino: Okay. And then lastly, RetailRush. I think you said you were doing this in Columbus. Is that right? Are you expanding this nationwide? William Angrick: We have a single fulfillment activity in Columbus. It is an online consumer auction experience, and we are testing it in Columbus. As the customer, the winning bidder on the platform is responsible for picking up the item that they won. And we are using our own internally developed software to, essentially, on an expedited basis, screen and list and then make available for customer pickup in a location in Columbus. There absolutely is application for both internal and third parties to use the software and the platform nationally, but we are working on a prototype and a test in a single location prior to expanding beyond the single location. Gary Prestopino: Okay. Thank you. George Sutton from Craig Hallum is on the line with a question. George Sutton: Thank you. Nice results. So, for those listening or reading the transcript versus listening, recognize that William has a cold. So I am curious. You mentioned diversification of GovDeals in a variety of different routes that you are taking there. Can you just walk through what is the goal with GovDeals? How broad do you see that being? When you talk about government adjacent, what kinds of things are you talking about? William Angrick: Sure. Well, the public sector agencies that sell on GovDeals have a recurring flow of assets, and in some cases, they may use assets that they do not own. And in that case, we would be using the platform to service lessors who own the assets that the governments might lease or service providers that may take possession of assets at some point in the process. And when you look at the used vehicle market, the construction equipment market, which is a big part of GovDeals' historical liquidity and volume, adjacent sellers in the markets that we are serving, when I say markets, you have physical locations. They are asking us, hey, how can we get involved here? And so we are very deliberate on who we can invite and support in the marketplace. And we do segregate the account management when a commercial seller comes on board. So if you are leasing equipment, maybe it is construction equipment, and you have some government accounts, you may be interested in selling with us. And when I highlighted that our heavy equipment category in CAG for commercial sellers has grown from essentially a startup to over $100 million of GMV, that is a great example of a government-adjacent market. Sellers on AllSurplus, they have government clients and commercial clients, and they have a lot of used equipment, and they want to have a great experience and good recovery. So we are basically giving the same value prop to them that we have delivered successfully for over twenty years on the government side. George Sutton: Gotcha. Okay. That is helpful. One other question on retail. And just want to make sure we understand the focus on consignment versus purchase. You mentioned new recurring program flows. I assume you are referring to consignment flows. Can you give us kind of a broader picture of the competitive landscape and why you are heading in this consignment direction? William Angrick: Well, people who followed our business for a long time know that when we started in this business, we offered a consignment-only solution. And the market spoke and said, we want value-added services. We have some accounting reasons or SOX control reasons. We want to be able to use a purchase model arrangement. And so from really the beginning of the business, we have been agnostic. We will provide the bundle of services and different pricing models depending on what you need. And we will share the data. We will give you our advice, and the advice has always been you, the seller, you can make more money selling on consignment with our platform because you are sharing and retaining most of the upside. And I think people that have become more comfortable with our scale and service and transparency are more comfortable with consignment. You know, the old SOX rule was if you have your inventory leaving your facility, you are losing physical custody of that. You might only allow that to happen if you have a purchase invoice. And that really has nothing to do with the economics. It has to do with financial controls, account controllership. So I think that is the bias that has existed in the retail world for a long time. We have changed the narrative there because, you know, we can track that license plate of every item, and the client can see that virtually on their dashboard. And when we sell it, you know, they keep the majority of that net proceeds. And that is where I think the market is going. We facilitated that transition because of our success and ability and willingness to share data. And so, I would say the majority of new client programs coming online with us are consignment-oriented, and we are excited by that. George Sutton: Perfect. Okay. Thanks, guys. Appreciate it. Operator: That will conclude today's question and answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.
Andrew Coombs: Good morning, everybody, and welcome to today's presentation of Sirius Real Estate's Interim Results for the Period Ending September 2025. My name is Andrew Coombs. I'm the Chief Executive Officer of the Sirius Group, and I'm joined this morning by Chris Bowman, who is the Group Chief Financial Officer of Sirius Real Estate. Together, we will take you through this morning's presentation. As you all know, we are an on-balance sheet, best-in-class owner and operator of mixed-use light industrial business parks on the edge of key towns in Germany and the United Kingdom. Please remember that Sirius operates in both the German and the U.K. markets under the brand of Sirius in Germany and BizSpace in the U.K. The group currently operates over EUR 3 billion of property, 90% of which is wholly owned by the group. This consists of 160 sites in total, 77 in the U.K., 76 in Germany and 7 sites within the Titanium joint venture in Germany. Let's now turn to Page 4 and look at the highlights for the period. The Sirius Group is a rigorous, well-run and very importantly, growing organization. We have proved the resilience and the reliability of the business model during COVID, during the gas crisis in Germany and most recently, through a period of rising interest rates in Europe and the U.K., during which we have successfully protected valuations in spite of yield expansion. In that time, we have continuously, without exception, grown our revenues. We have continually, without exception, increased our dividend payments. And as I said, we have made sure that the value of our properties goes up, not down. In the period to September '25, we successfully grew like-for-like rent roll by more than 5%. And as a result of the acquisitions in the period, we have grown the total rent roll by more than 15%. We have done this by maintaining occupancy in Germany and increasing it by just over 1% in the U.K. And we've increased like-for-like pricing in both markets by more than 4%. As a result of this, we are announcing a dividend of EUR 0.0318, which at per share level is a year-on-year increase of 4%. So let me now ask you to turn to Page 5, and Chris will take us through the income statement. Chris Bowman: Thank you, Andrew. Good morning, everybody. As Andrew said, over the next 4 pages, I will run through some of the highlights of the P&L and also the balance sheet, just picking out some of the key items. So on Page 5, just starting at the top, very pleased that the -- that increasing like-for-like rent roll of 5.2% has underpinned growth in rental income of 7.7% for the first half versus the first half last year. So you can see there, we've achieved EUR 112.6 million of rental income. That has translated to a 4.9% increase in net operating income. As I've mentioned in the past, as we have acquired assets, we're in acquisition mode, very active acquisition mode. As we've acquired assets, some of those assets tend to have higher service charge leakage than in our existing core portfolio. So there is a small drag, which we turn around relatively quickly on service charge costs that you can see there. That is obviously upside for the future to come through. Looking down at EBITDA, you can see of that 7.7% top line, we've achieved 9.7% increase in EBITDA. So very pleased to achieve some operating leverage there. As we grow the asset base, and we grow the income base, we are keeping a very tight control of our costs and to then improve our margins. Specifically within that corporate costs and overheads dropping from 24.8% to 22.7%. We have been very careful from a headcount perspective and found efficiencies. We've also tightened up and had various initiatives internally to improve our cash collection that has allowed us to be tighter on provisioning and again, has provided upside there. Moving on. I'm going to be -- unfortunately, I'm going to continue to talk about headwinds of finance cost, unfortunately, for the next 2 or 3 years. We do have the finance cost headwind that we continue to outrun. So you can see there our net finance expense goes from EUR 6.3 million to EUR 9.4 million, and -- but still, we more than have outrun that with the growth in -- at the EBITDA level to achieve an FFO, up 6.6% of EUR 64.7 million. As I think those of you know us already, FFO is what we -- is our core target in the business. It's the cash flow, it's the profitability of the business that we really focus on. We are an operationally focused business. We are not trying to guess the property markets or play valuation yields. We're focused on providing profits -- growing profits to provide growing dividends. So very pleased to achieve that 6.6% increase in FFO. I've included the detail all the way down to profit after tax on this page because there are three items that I think need further explanation. One, headwind, and two, tailwinds. So within the foreign exchange, you can see there EUR 14.3 million, there is a EUR 14.2 million of that is what is classed as a realized FX loss, which relates to sterling cash balances, which we held at the beginning of the period in anticipation of that cash being placed into U.K. assets -- U.K. investments. So it was a very busy first half for acquisitions. We acquired over EUR 200 million worth of property in the U.K. We held the appropriate level of cash in sterling to do that. When that cash converted from the cash line into the investment properties line, it was mark-to-market at the FX at that moment. So it is -- unfortunately, it does all flow all the way through EPRA earnings. So you'll see it, but it is a one-off, and I'll happily take questions further on that. On the upside, we have EUR 14.4 million of valuation gain. So that is purely for the first half. I would expect to achieve better than that in the second half. But again, that's with virtually no yield contraction. We'll come on and talk about later. That's really valuing the increase in rent roll that we've achieved. And then further down the page, you can see the profit after tax is materially up 56.8% at EUR 87 million. And part of the fiscal stimulus that Germany is -- has enacted is the reduction in the corporation tax rate from 15% to 10%. That goes down by 1% a year from 2028. What that means is that our deferred tax liabilities on the gains in our property portfolio reduce. So you can see there's a EUR 29.8 million reduction in deferred tax liabilities that flows through the P&L and hence drives that profit after tax number up. Going over the page to Page 6, just reflecting that on a per share basis. We have the EUR 98 million of NOI converts to EUR 0.0652 per share. These numbers all still have the impact of the additional shares that came into the share count from July '24 equity raise. So prior year, there was a weighted average number of shares, now this is on the full number of shares that is outstanding. And the interest and current tax equates together to EUR 10.8 million. That's a EUR 0.72 cost line gets us to the EUR 0.043 of FFO. Below the FFO line, really the thing I would flag is that EUR 14.2 million foreign currency translation that then has an impact on the adjusted earnings and EPRA earnings, but as I say, is noncash. If you look at our cash flow statement, our operating cash flow broadly correlates with the FFO. We have paid out in dividend EUR 0.0318 or proposing to pay out EUR 0.0318, as Andrew said, up 4%. That equates to a 74% payout ratio for the first half. That will start to transition down going forward, and we will settle around 70% payout ratio in the next 3 to 4 years as we go through the financing windows. On to Page 7, just looking at the balance sheet. At the top line, you can see that our investment properties have increased by EUR 300 million. So within that, you have the EUR 295 million of acquisitions that we actually completed on in the period. You've got EUR 14.4 million of valuation gain across the group and then a disposal of some smaller sites in the U.K. is the balance. The cash balance has come down to EUR 424.9 million, of which EUR 389 million is ours, excluding the deposits of tenants. The EUR 179.9 million movement is net of the bond tax that we did in the period of EUR 105 million. And then on the bottom half of the balance sheet, really, the only thing to flag there is that the debt outstanding is at EUR 1.416 billion. Bear in mind that we have the repayment of the June '26 bond coming up for EUR 400 million, hence, why the cash balances are relatively inflated and also the debt balance is relatively inflated as well, but those two net each other off. Just a reminder, we also put in place EUR 150 million RCF during the period, which provides that liquidity to repay that debt. Looking down NAV, reported NAV is up 0.8%, benefiting from that valuation gain. Adjusted NAV is down 0.9%, roughly EUR 0.011. Again, there is a foreign exchange unrealized currency translation there of EUR 29 million, which in simple terms is just converting our U.K. assets into our reporting currency of euros. Bear in mind that if you then convert the entire NAV back to sterling, our sterling is up on a sterling base -- our NAV is up. On to Page 8, just quickly just running through the waterfall of NAV from EPRA at each end from March to September. I think EPRA NAV going from EUR 117.6, we target ourselves on adjusted NAV, EUR 118.89. As I say, the EUR 0.02 headwind is the unrealized FX of EUR 29 million. We achieved EUR 27.5 million recurring profit after tax in Germany. We had EUR 17.7 million upside in valuation in the German portfolio as well as then EUR 19 million of profit after tax in the U.K., which is EUR 1.27, a small valuation loss after CapEx of EUR 2.2 million in the U.K. Net of the dividend gets you back down to EUR 117.84. So really, the delta in there, the movement is the FX, which without the FX, we would have been up in NAV terms. I'll hand over to Andrew on Page 9. Andrew Coombs: So Page 9 deals with the organic growth in Germany. And just before I delve into the numbers, let me give you a little bit of the narrative because if I cast my mind back to the beginning of the period, the first quarter of this financial year, so April starting quarter, it's easy to forget that the German government had only just taken power in April of this year. And I think it's probably fair to say that the new government was still establishing itself and certainly hadn't gained any momentum at that point. And we certainly felt that in the trading. The first quarter of this year in Germany was a tough quarter. We made our numbers, but the effort and the workload that we had to put in to achieve that was certainly much greater than it normally is. We saw the momentum start to establish itself in the second quarter. And I'm pleased to tell you the 6 weeks following the end of the period, we very much feel that, that momentum is gathering pace. I would describe Germany, at the moment, is in a transitionary phase. And it's quite confusing because when you look at numbers like the numbers on German manufacturing, you don't see any substantial increase at this point in time. Lots of people, therefore, turn around and say, what's happening in Germany and are things good in Germany. What we see on the ground is we see reorganization. So we see factories stopping production. We see things being reorganized. And they're typically being reorganized towards defense. But the problem right now is that you have to stop producing what you produce in your factory in order to strip it out and prepare the production lines to produce defense-related items. And that's what I mean by a transitionary phase. And that's why the production numbers are going down. But what is happening is the preparation is being laid for -- in a couple of quarters' time, those production lines to be up and running and operating not just one shift as we often see here in the U.K., but typically a continental shift pattern of three shifts every 24 hours, at least six days a week. So what we believe is that Germany is preparing to substantially increase its output. We've seen this before in previous years. We've seen it where they've used in the past, furlough or kurzarbeit as they call it in Germany, where suddenly what happens is the economy appears to flip. Some have called it in the past, the German economic miracle. It's no miracle at all. It's Germans preparing before they flip the switch. That is exactly what we see happening in Germany at the moment. And in that period, what we were able to do is we were able to grow the like-for-like rent roll by EUR 7.2 million, so 5.3%. We were also able to increase the overall annualized rent roll by 12%. But the difference between that 5.3% and the 12% is, of course, acquisitions. We were able to increase pricing by 4.7%. Would you believe it? That's a little bit more than we wanted to do. We are in an occupancy-led strategy here. What that means is that we want to control our pricing to about 4% and get the rest of the effect out of increase in occupancy. When you've got a workforce who've been used to putting prices up, not only do you have to get your processes and your systems to do the right thing, you've got to get people to do what is the opposite of what we've been asking them to do for years, which is put prices up by less. And actually, in that regard, we slightly failed because our occupancy remained constant and price, we were aiming for 4%, price nearly hit 5%. You can see that in doing that, what we did is we had to lower our move-in rate, and what we achieved was a move-in rate that was just marginally higher than the move-out rate. So move-in at EUR 7.66 versus move-out at EUR 7.52. But all of that was successful in lifting the underlying like-for-like rate per square meter in the portfolio as a whole from EUR 7.38 per square meter per month to EUR 7.73 per square meter per month. So a delicate balance largely due to the first quarter, but successful in as much as we continue to push rate up in the portfolio. And in doing so, we've been able to make sure that we at least maintain our occupancies. We go across the page, and we look at that rent roll movement, you can see the EUR 7.2 million is reflected in the difference between EUR 135.3 million and EUR 142.5 million. What we faced was EUR 19.5 million of move-outs and the way in which we compensated for that was really the EUR 6.2 million of CapEx-assisted move-ins together with the EUR 14.1 million like-for-like move-ins. Those two gave us a total of EUR 20.3 million, so EUR 800,000 above the move-out effect. And then the uplifts, the pricing at 4.7% gave us 6.4%, and that 6.4% together with the 0.8% gets you to the 7.2%. But really, the exciting thing is those acquisitions in the right-hand column. And bear in mind, the last EUR 40 million of acquisitions in Germany that completed only last week, not included in these numbers. But what you've got is you've got over EUR 9 million of second half effect to come from those acquisitions. That EUR 9 million will build closer to EUR 10 million. So that's a EUR 20 million annualized effect that's going to bake through into next year's numbers. Now half of it will get eradicated by increased interest rate, and Chris will talk about that. But we've got sufficient acquisitive growth here to be able to deal with the increased interest and still have EUR 10 million of FFO growth. Put on top of that, the 5% organic growth. And I hope what you can see is rather than using interest rate increases as an excuse to go backwards, what we've been able to do through careful planning and careful execution over the last 18 months is put ourselves in a position where we can outgrow next year's problem. If I go across to the following page, we can talk about valuations. So the first thing that I would draw your attention to is on the right-hand side above the total assets black headline, net yield shift of 1 bp. That shift is the yield coming in, not going out. Why the valuers would have bought us in by 1 bp, I cannot imagine, but I would suggest it is a signal. And the signal is clearly that the direction of travel is that the yield is shifting in, in Germany, not out. Clearly, it's made very little, if any, difference because we started in March '25 with a valuation of EUR 1.890 billion, and we get to September '25 on EUR 1.921 billion, clearly, a EUR 31 million shift there. That EUR 31 million shift comes from EUR 2.3 million of additional rent roll valued at a gross yield of 7.4%. And what you can see in the bottom right-hand corner of this page is you can see after the acquisitions that we're talking about have been made, the yield at a gross level goes up slightly and the capital value per square meter goes down. That is because we are buying vacancy. That is because we are buying lesser quality rent roll because that is exactly our runway to put our machine across the top of it and improve it. So the reason that you are seeing that gross yield go out is because of the opportunity that we're buying and the belief that we can do something with that opportunity by putting it over our platform. If I go across to the inquiry stats, what we can see here is the number of sales, the number of customers we have acquired is 3% down. The sales volume that we've acquired compared to same period last year is 2.5% down. However, what we are pleased about is sales conversion is at 14.6%, up from 12.8% and close to our long chased target of 15% sales conversion. We are at last beginning to hit those numbers on a regular basis. What this shows is it shows the pain in quarter 1 of the first half, and it shows our ability to work the platform harder in the form of sales conversion in order to make what we've got count and drop more frequently to the bottom line. So this reflects the first quarter, but it also reflects the strength of the platform to deal with issues as and when they arise. If we go across to some of the acquisitions, I'm not going to go through every single one because they've been covered previously in lots of different announcements. But I draw your attention to Dresden. Dresden is, we think, one of Germany's best kept secrets. Silicon Saxony, where there is the most incredible amount of inward and foreign investment going in. Tim Lecky and I were in Dresden a few weeks ago. What did we count something like 17 cranes on the horizon and not 17 static cranes, 17 working cranes within the eye line in Silicon Saxony building things. Lubeck. Lubeck is in the area that benefits from the biggest infrastructure spend that is currently going on in Germany. And if we go across the page, we see Dresden again, no surprise. And we see Feldkirchen on the right, just outside Munich. This is an asset where 1/3 of the rent roll is a defense supplier, a defense supplier who specializes in the manufacture and development of optical devices, most notably night vision technologies for the military. If I go across to Page 15, let me hand across or hand over to Chris. Chris Bowman: Thanks, Andrew. And so just on Page 15, I just thought it would be good to update everyone on the current status of the portfolio and also on the next 2 pages on CapEx as well. Really, Page 15, I think, is the kind of secret sauce in Sirius for the growth of Sirius. That is how do we take the Sirius platform, put it to work on our property portfolio and take assets which have value creation opportunity and capitalize on that value. How do we create that value for shareholders? Now we break down our portfolio into the 2 buckets of value-add and mature. You can see there that the -- roughly speaking, it's 1/3 mature, 2/3 value add. And really, the value-add piece is the piece where we go to work on these assets to essentially try and mature them to try and put them into the mature bucket. And what -- why do we do that? We do that because of the opportunity to drive value. So you can see the average yield -- gross yield is 6.8% on our mature assets, 7.9% on our value add. Importantly, the gap between net and gross yield, the leakage on service charge is 90 bps on value add versus 30 bps on mature and also how the valuers then value that greater income and better performance. On average, we are at EUR 1,277 capital value per square meter in the mature versus EUR 868 in the value add. You can see what we have to achieve to get from one to the other in terms of occupancy, on average, 78.9% versus 94% and also the upside from rate. So by improving our assets that have this opportunity in them, we get many benefits, not only additional rent roll, but how -- but also then better net operating income because better management in terms of property expenses. We get valued better by the valuers. And obviously, we've achieved higher rate as we improve the quality of the site as well. It becomes an ever-improving cycle essentially on those assets as we improve them. Now we have overall 336,000 square meters of vacancy to power the growth in the business. On average, we typically look to improve roughly 100,000 square meters a year. That links into our CapEx plans each year. And so you have at least a 3-year runway of growth in the business. And obviously, as we're acquisitive at the moment, we are continually replenishing that opportunity. Over the page, just looking at where we are really putting capital to work to help on that journey from value-add to mature. In the first half, we have invested EUR 18.6 million in our CapEx programs, roughly split 2/3 Germany, 1/3 U.K. The value-add CapEx is that piece of the pie that really generates the high returns. We put a minimum 30% return on investment. So that's cash return on what we spend. So we're looking for a 3-year payback on incremental rental income from all of our value-add CapEx spend. You can see again, it's split roughly 2/3 Germany, 1/3 U.K. On the right-hand side, you can see some of the pictures of where we've actually put that capital to work. Bottom right, Vantage Point, when the range -- when we moved the range out of Vantage Point, essentially, there was three large halls left for us to tackle. We have already refurbished one of those halls. We put EUR 1.5 million of CapEx into that hall, and we have let it to Big Doug, which was an existing tenant on the site. I think for those of you who have been to Vantage Point, I remember we visited them before they were moving into the new space. Pleased to say they have now moved in. And the effect of that EUR 1.5 million spend allowed us to achieve double the rate on that space that it previously was achieving. New builds, we are in a cycle here where we have just finished the new builds at Gartenfeld. So on the top right there, you can see 1 of the 3 halls we built at Gartenfeld. So just EUR 800,000 went into just final completion of that hall. We've rented all three of those halls at Gartenfeld at far better rates than we expected. And then from a works perspective, just under EUR 10 million spend on works. So we keep a very, very tight lid on our -- that's essentially the maintenance CapEx. That's often the likes of renewing lifts, for instance, that type of spend. But within there, there is EUR 2 million of spend on ESG, which is principally PV solar in Germany as well as EUR 2 million in the U.K., which relates to EPCs and our continuing drive towards C and B. Over the page, Page 17, just to -- I've rolled this forward essentially. So I'm looking back over the last three years, what is our spend, and how are we performing. We have put 293,000 square meters of vacancy. We have put CapEx into value-add CapEx. That equates to EUR 31 million of spend, on average, EUR 106 per square meter. So this is not what I'd describe as kind of high-risk CapEx. We're not -- as a norm, we're not completely rebuilding or knocking down space. We are typically refurbishing space. The most complicated it tends to get is subdivision and the fire safety regulations that come with that. But it's very much low-risk and low-cost refurbishment. We've achieved EUR 12.7 million of rent improvement of that. So -- and at the moment, the occupancy is 74%. That continues to build as the CapEx we've spent in the most recent period, some of that space continues to be let up. And we're achieving rates of EUR 4.91, which gives us a return on investment of 41% cash return. Just conscious of time, move on to Slide 18. As I say, new builds, we have just come to the end of the A, B and C halls at Gartenfeld, and I would highlight that we've achieved a yield on cost there of 9% on a site which is valued at 5.5%. So obviously, as that income is valued at 5.5%, we've achieved 21% IRR on those developments, which is on surplus land at Gartenfeld. In the pipeline, there is an additional EUR 25 million of projects. That's spread across. There's a site in Dresden -- there's two sites in Dresden where we have opportunity for development. And there is also another space at Gartenfeld as well where there is further development. I'll hand back to Andrew to talk about U.K. Andrew Coombs: Okay. I've got switching to U.K. mode now and think about the U.K. picture, which is a different picture from the picture I described in Germany. So let's start firstly with the annualized rent roll. The annualized rent roll, which obviously benefited from acquisitions. Many of you have seen Hartlebury, was up 21%. 5.1% of that comes from the like-for-like rent roll. And as you can see, what happened here was we were more successful in convincing our sales force to be able to lower price and in doing so, raise occupancy by 1.2%. However, you've got a slightly different situation here with your move-ins and your move-outs. We actually dipped below the move-out rate on the move-ins, but we were still successful in that equation in terms of lifting the like-for-like underlying rate in the portfolio by 4.1%, namely from 14.38p (sic) [ GBP 14.38 ] per square foot to GBP 14.97. How did we do that? Well, we did that with our expansion initiatives. As you can see, what happened is we had 344,000 square foot move out, 302,000 move in. But what we were also able to do is to work the existing base of customers to get some of them to take more space and some of them to take more products. So we've had to work very hard here in the U.K. in order to be able to get that 1% of occupancy and also to be able to not just maintain, but increase price by at least 4%. That 4% is important because we know inflation in the U.K. isn't as much as 4% at the moment, but it could be soon. And we don't want to be caught out by that. We don't want to be trying to catch the inflation. We want to make sure that we are in a process in the U.K., where we're always ahead of inflation in terms of the way in which we manage that rent roll of customers. So rate per square foot is up by 4.1%. Move-outs are at GBP 18.44, which is 57p or 3% lower than the move-outs. That's had about a 1% overall effect because your new business affects about 1/3 of your total. It's your renewals that affect typically the other 2/3. And what we're seeing in the U.K. in contrast to Germany is we're seeing the U.K. get harder. Germany is getting easier. U.K. is getting harder. We are not panicking about that. We believe that the platform in the U.K. is now well enough developed and strong enough to be able to overcome that market effect, and that's exactly what you're seeing in the figures on this page in front of you now. If we look at the way it's built, you can see GBP 59.3 million rent roll moves in September '25 to GBP 60.4 million. You can see that the move-outs and move-ins that the move-outs are not quite covered by the move-ins. But look, that pricing uplift of GBP 3.8 million becomes so, so important because that's what gives you the final edge. And then if you look at acquisitions, GBP 14.4 million coming from acquisitions. As you know, in the last 6 months, the acquisitions have been slightly more weighted to the U.K. than Germany. That will change now going forward. We are going to be looking at a predominantly German-only effort, at least until May, June of next year. If we have a look at what that looks like in a valuation perspective, net yield shift of 4 bps. Well, that's going out, not coming in. So again, the 4 bps don't really make much difference, but the signal from the values is that -- in the U.K. yields continue to widen. If we look at the bottom right-hand corner and you see the assets being included not just on a like-for-like basis, but the acquisitions that have been made in the period, you see the opposite to what I described in Germany. You see a gross yield coming in to 12.3%. At March 25, it was 14.1%. And you see the net yield coming in from 9.5% to 8.8%. That is reflective of the quality of assets we've been buying in the U.K. When you think about Hartlebury, when you think about Vantage, when you think about Chalcroft, I could go on. We have consistently been buying higher quality assets than the assets we inherited when we bought the business. They typically have longer lease lengths. That's not long lease lengths. That's longer lease lengths. So what we're doing in the acquisition program that we've conducted thus far in the U.K. that we are going to be pausing on until at least June of next year. What we've done is actively gone out to increase the overall quality of the portfolio, and that's reflected by what you see in the bottom right-hand corner. If we go across the page, what we can see in the U.K. is we've been able to attract more inquiries. A little bit deceiving there because we're not passive. It's not like we just sit there and say, what does the market give us in inquiries. We have worked much, much harder to acquire more inquiries that we've -- then been able to convert into sales. Please don't look at these numbers and think U.K. market is going up, because this lead flow reflects what is happening when you just passively sit there and try and collect whatever the market gives you. These numbers are misleading if you read them like this. We have had to work a lot harder to increase that inquiry flow in the U.K. If we go across to the acquisitions, I've talked about Hartlebury in the middle here. Bedford on the left-hand side, interesting enough, 1/3 of the rent roll in Bedford is underpinned by a company that manufactures parts for ejector seats for the defense industry. In fact, they make parts for the ejector seats in the F-35, Typhoon Eurofighter. So when you see these orders being announced by U.K. defense industry, that factory is one of the beneficiary of those orders. Chalcroft, I'm delighted to tell you that we've had very strong interest from a major supermarket. So Chalcroft next door to it has got hundreds of new houses currently being built. And we're in advanced discussions with a major supermarket to develop on the front land of that site, one of the big four supermarkets to serve that residential area. So call that a stroke of luck, call it whatever you like, but that's going to be quite good for us. Let me hand over to Chris. Chris Bowman: So I don't intend to -- just on Page 24, I won't go through these line by line, but I think the highlights, obviously, on -- in aggregate, we have acquired an 8.1% gross yield. You've seen earlier that our existing portfolio is valued around 7.4, 7.5, and in aggregate, we have acquired EUR 338 million, of which EUR 295 million completed in the period. Feldkirchen just at the bottom there in November, completed last week. So that is also now on balance sheet. I think if you look at timing, then just to reiterate Andrew's point earlier, the majority of these acquisitions actually completed towards the end of the first half. So really, that annualized rental income of EUR 25.8 million has yet to actually flow through into the P&L, but there is significant growth to come through, which is in the tank for future periods. On the disposals, Pfungstadt, we have notarized the recycling of that asset, EUR 30 million in Germany, that completes at the end of this financial year, so at the end of March for EUR 30 million. Just to head off, I'm sure I got a question on Tyseley, why have we sold an asset in Tyseley at 16.6% gross yield. There was also significant maintenance cost there and getting straight to the point, it needed a new roof, which would have been an additional EUR 3 million spend. So from a business planning perspective, it made sense to realize that asset at this time. And it's also linked to the continued consolidation of the U.K. portfolio. We're just looking to exit some of the non-core smaller assets, and you'll continue to see us do that. Page 25. Andrew Coombs: Okay, folks. So just before I introduce Page 5 (sic) [ Page 25, ] let me remind you that we are currently within our stated mission to get to EUR 150 million. And according to consensus, we should get there at the end of the '28 year. We obviously want to do it earlier, but we should get there at the end of the '28 year. Now if you look at this page on the left-hand side, it picks stuff up at the end of the financial year last year, so March '25, when we did EUR 123 million of FFO. As you know, consensus is that we'll do north of EUR 133 million this year, and we are trading in line with those expectations. So when you come out of this year at EUR 133 million, looking at doing something beginning with EUR 140 million next year, you then need to start thinking beyond your EUR 150 million goal. There is no point in a long-term business like property or wait until you get there and then go, let's pause, congratulate ourselves, start again after we've had a holiday and a bit of a break because you lose the momentum. You've got to start thinking far enough ahead about what you do now that determines your result in 3 years' time. Think about it, we buy a property now. And in some cases, it becomes -- you really get into the value add next year. But in a lot of cases, it takes 2 or 3 years to get into that sweet spot of value creation. And therefore, unless you're thinking about it now, you're not going to be there in 3 years' time. So it should be no surprise that now that we are in the EUR 133 million a year, moving into the EUR 140 million-something a year, that what we do is we start to plan beyond the EUR 150 million. And this is not just for shareholders. This is internally in the company. We are having meetings with people, and we're saying, what's next? Are we properly resourced? Do we have the right sites? So what you're seeing for the first time on this page is you're seeing us publicly talk about the next leg of the journey. Now beyond the EUR 150 million, the ambition will be EUR 200 million. But the first leg of the journey from EUR 150 million to EUR 200 million will be the leg to EUR 175 million, and that's what you see laid out here. And one of the things that you should take great comfort from is if you look at that pillar that says EUR 40 million, well, half of that is already done. Half of that has been executed, closed off, in the bag, in our control. What we need to focus on is the other half of it. And this EUR 175 million, when we get to this EUR 175 million, this should be driving a dividend at roughly a 70% payout ratio, a dividend that's somewhere in the region of about EUR 0.075. So at the moment, we're heading towards EUR 0.064. This EUR 175 million takes you to EUR 0.075. Now it does matter the detail of how you get there. But at the moment, it kind of doesn't because at the moment, it's about the aspiration. It's about the mindset. It's about the shape of your thinking to be pushing towards that EUR 175 million, to be able to realize the value creation and the value benefits that come from that. And that's why we're laying it out in public because we've already started to talk about it internally and plan for it. But what you should take some comfort from is the mindset of this company is to grow. And in spite of the headwinds that Chris has spoken about, those headwinds are not a reason for us to stop. They are a reason for us to accelerate. They are a reason for us to expand our thinking because if we're going to achieve the growth trajectory that we're used to, we need to think beyond the problem of the finance headwinds, which I hope we've demonstrated thus far, we are capable of overcoming. Let me turn to the next page and let Chris take you through financing. Chris Bowman: So yes, just on Page 26, just on financing, just as a reminder, on the balance sheet, we have EUR 1.21 billion of unsecured borrowings. That is in 3 bonds. So June '26, EUR 400 million comes due. That is essentially refinanced. We have the cash plus RCF to be able to repay that, and we have that cash earmarked for that. So that is done. November '28, we have EUR 465 million outstanding at a 1.75%. That is our last refinancing of what I call legacy debt. It's been great. It's been fantastic, but we need to take that journey back up to market. So EUR 465 million comes due in November '28. I would guide you now to we will refinance that in autumn of '27. And that is factored into all of our forecasting, et cetera, to still outrun that, still grow FFO and get through that journey. January '32, we have EUR 350 million outstanding at 4%. That was a bond we issued in January this year for which we had around EUR 2 billion of demand. So we've got great support from the debt capital markets. And obviously, we also tapped the '28 bond in the summer for EUR 105 million. Again, great support for that issuance. We do remain below a benchmark issuer. So we're having investment-grade rating that was reaffirmed by Fitch. But in the bond markets, over EUR 500 million gets you to benchmark issuer size. The reason I flagged that is because at the point that we become a benchmark issuer, you should expect our marginal cost to start coming in a little bit as well as we essentially become an issuer that investors need to look at as we go into those indices. On the secured side, EUR 232 million with Berlin Hyp and Deutsche pbb that is secured out to 2030 on a portfolio of German assets at 4.25%. Net LTV is up at 38.3% at the period end, reflecting the acquisition activity during the period. Interest cover over 4.5x. Net debt- to-EBITDA 6.7x, well below 8x where we target. As I say, we also signed a EUR 150 million RCF in the period with BNP, HSBC and ABN AMRO. There is an accordion feature in there to be able to increase it by another EUR 100 million. I have verbal indications of wanting to do that from banks. So we are in a strong position liquidity-wise. And as well, as I said, we have a bond tap in the period. Page 27. I'll just summarize before handing over to Andrew to conclude. So I think what have we seen in this period, we've seen fantastic strong organic growth as well as acquisitive growth that is in the tank, which has partly come through in the period, but will really start to accelerate our performance in the second half and beyond. So 6.6% FFO growth, underpinned by that 5.2% like-for-like rent roll, but the 15.2% increase in total rent roll gives you the marker as to where we are heading. U.K. and Germany, both performing well as discussed. And acquisitions, we've touched on. We've increased the dividend by 4%. That is ahead of expectations. I think the market was only expecting between 1% and 2%. I think you should take that as a sign of confidence from Andrew and I and also our Board in the future performance of this company. We want to continue to focus on generating cash flow, which we reward shareholders with through dividends. So I'd guide you to that kind of level of increase going forward as well. We're in a strong position on the balance sheet side, EUR 389 million of unrestricted cash plus the RCF that's undrawn, 38% LTV, and we've touched on the bond and RCF earlier. I'll hand over to Andrew on 28. Andrew Coombs: Okay. So really, the sort of second and third point here are all about the 5% growth. I just want to sort of cover something that I think is quite important because the group continues to trade in line with management expectations for the full year, but the cynics around the table might possibly look at the 5.2% like-for-like growth and compare it to the same period last year at 5.5% and think actually, it's less than it was this time last year. And of course, factually, you'd be absolutely correct. I wouldn't draw a great deal from that at all because when we say that we're trading in line with expectations, we mean we're trading in line with expectations. And I would draw your attention to the half year in 2022, where in the first half of the year, we achieved 2.4% like-for-like growth. But what actually happened when we looked at the full year is we came out at nearly 6.5%. What we always do is try and make sure that our problems are stacked into the first half. If we have a lease that is a big move-out that's due to go on March 31st, we'll try and push it years before it happens into April. When we're signing something new, if we know that it's a high proportion of a site, we will tend to make sure that the lease can only terminate in the first half of the year. We deliberately try and stack our problems into the first half to get a better and accelerating run in the second half. And if you look historically at our performance in H2 versus H1, you will see time and time again that our momentum accelerates in the second half. We would plan to be somewhere in between that 6% to 7% like-for-like for the year, probably somewhere around the midrange of that. Please do not think that because we're 5.2% this year and 5.5% last year, that there is some kind of slowing effect here. That is not what we are seeing, particularly given the momentum that we're anticipating in Germany. We accept things are going to get more difficult in the U.K., but we believe that will be balanced out in Germany. And please let's not forget that what we have done here in this last 6 months is not just gone out and acquired EUR 340 million of property, but we have continued to operate the company and do so well with a decent set of numbers. So one has not distracted the other. We have demonstrated the ability of the portfolio to do both and to do both well. And what I'd like to finish on is the 10-year track record of performance and growth where this company is concerned, and particularly at the top, the dividend, where we are now paying our 24th consecutive increase in dividend. And as Andrew Jones would say, dividend aristocracy is, I think, 25 years of progressively increasing dividend. We are now reaching the halfway point on that journey. Thank you very much. Happy to answer any questions people may have. Timothy Leckie: Tim Leckie, Panmure Liberum. Just two questions. I think one for Andrew, one for Chris. Andrew, the 15% sales conversion from inquiries, what's behind that? Is 15% the number you -- is that a final point, or do we push on? What is your thinking there? And then after that, for Chris, you mentioned the margin improvement once you hit the EUR 500 million. Could you just perhaps remind us where you see your current spread, and what the improvement might be at that higher volume? Andrew Coombs: So when we consistently get to 15%, yes, we definitely will push higher. When I started this company, sales conversion was less than 3%. And when we started to target over 10%, there was almost rebellion because people said it's impossible. We're now touching 15%. And once we get above 15%, that target will increase. How have we done that? Well, we've done that by working out the component parts that make up sales conversion. And despite it not being broken, taking them apart, dismantling them and looking at every individual piece and working out how we can do it better. And specifically, the piece that we are doing better that is improving our sales conversion is self-storage. And what we have worked out, and I'm not suggesting that we worked out a better way of selling self-storage and self-storage specialists, not at all. But we have worked out a better way of doing it than we've been doing it in the past. And that is beginning to have a material difference on the overall sales conversion of everything we sell. Chris Bowman: Chris here, on the margin, if I just take 5 years -- 5-year money, for instance, in the bond market, we are -- because we are sub-benchmark and the margin has tended to move around a little bit in the range of 160 to 190, and it's been particularly volatile over the last week or 2, given macro. I think the opportunity for us once we're into benchmark is to be at least probably 10 basis points tighter, but also less volatile. So -- and we will, I would expect, start to come in towards the lower end of that margin range. So that's the margin over 5-year swaps. Thomas Musson: It's Tom Musson at Berenberg. Yes, just again, a question on conversion as it relates to the U.K. business, which I think is slightly under 9%. Have you got the same 15% conversion target for the U.K. as well? And is sort of achieving that a realistic prospect over time, or are there perhaps any sort of structural differences between the platforms, and how they operate in the two different geographies? And then the second question, now that the U.K. business is larger and so FX becomes more of a consideration, would you consider using hedging instruments going forward? Andrew Coombs: I take the first part if you take the second. So firstly, the U.K. business has a 10% target. We didn't get to 15% from 3% in Germany by saying the target is 15%. We got there in incremental steps, and we broke the journey down. And we're into the journey to 10% with the U.K. business. The U.K. market is a different market from the German market. The U.K. market is more intermediated. And from that perspective, getting control of initial inquiry is more competitive than it is in Germany. But interestingly enough, the U.K. inquiry market is changing, and it's changing faster than it's changing in Germany. And it's changing specifically and faster because of the use of AI. So what other operators may or may not realize is 25% of the property-based Google traffic of 12 months ago is now going through AI. And what that means is that a broker's life, particularly a web broker, is much, much harder. What that means is whereas web brokers used to spend time talking to customers, customers are spending much less time talking to brokers and more time talking to AI. And when I say talking, I mean talking. Instead of typing and tapping into a screen, people are talking to their phones and the AI mechanisms are bringing back the kind of conversation that normally would have happened in a call center broker-type environment. So that whole thing in the U.K. is shifting. The only piece that isn't shifting is pay-per-click, PPC, because AI is not touching PPC at the moment because it's not tried to monetize itself. And what you really need to be doing if you are a smart operator that wants to keep control of your inquiry flow is you need to start understanding this because this is now moving, and it's changing the passage of an inquiry, particularly inquiries for flexible space, an inquiry that instead of going through a web broker is going through, not in every case, but in 1 in 4 cases, going through AI. And you've got to work out how you deal with that because that is going to change the marketplace. So of course, we're concerned about getting to 10%, et cetera. But actually, in the U.K., what we're more concerned about is how we continue to capture inquiries because prospective inquiries of a certain size are now more interested in talking to an AI machine than they are talking to a broker or a call center. Still predominantly the broker and the call center has control, but that control is tipping out of the brokers' and the providers' interest and towards what I call mechanical AI systems. And we're going to need to know how to compete with that. So that will come to Germany, but it hasn't started to touch that market properly yet. You can see it much more clearly in the U.K. market. And that's why I say, don't be confused about the fact that our inquiry numbers are going up. Our inquiry numbers are going up, not because we're sitting there, our inquiry numbers are going up because we're going out and working other channels and doing things whereby we can take control earlier on rather than watch AI steal the bread from our table. Chris? Chris Bowman: Okay. I've spent a lot of time on investigating hedging and my conclusion is that it's brought with danger. So -- and it's a drug which once we -- if we got into, it will be very hard to come off. So I think to manufacture hedging, be it buy forward euros, let's, for instance, say, buy forward the entire U.K. portfolio to fix the value at the end of the financial year, for instance, and at that point, I would have to realize at the end of the financial year, a gain or loss on the portfolio on that forward, and I'd have to almost certainly roll that hedge, and there'll be a significant cost to putting that hedge in place. And ultimately, we are a business exposed to two markets. So I'd be trying to manufacture the exposure to the U.K. out of the balance sheet when in reality, we are exposed to two different markets. So going and putting in place some sort of derivatives to try and manage hedging, I've seen lots of CFOs get into all sorts of trouble trying to go down that road. And I don't want to be sitting here talking about the mark-to-market of derivative instruments every time I come and talk to you. So we have a shareholder base, which is spread across euro, sterling, rand, and I'm sure some are dollar-denominated as well. So investors who invest in us, I largely leave it to them to deal with hedging. Now the only structural piece of hedging that could, at some point, make sense is simply to put sterling debt into the balance sheet. So match the debt with the asset base. And I completely understand that challenge and that question. There's two points I'd say. Number one, in euro terms, we are still maturing on the balance sheet as an issuer in the debt capital market. So there is still upside in terms of the cost of our euro-denominated debt versus in sterling, we are certainly subscale to go into the debt capital markets for debt. So we will be forced down the secured lending route, which obviously creates much less flexibility from a balance sheet perspective. And obviously, the difference in cost between euro and sterling, I'm sure, has probably blown out even further in the last few days, but was 200 basis points. Let's say, it's between 200 and 250 basis points. There is a funding benefit to us through the FFO, and we are ultimately cash flow focused from an FFO perspective. And what I'd also say is then when you look at the portfolio, we're split, I think, 71%, 29% at the moment between Germany, U.K. With the acquisition activity that we expect going forward, which we expect to be more German focused, that balance will start to push more towards Germany again. So we will continue to be very much a minority exposed to the U.K. So I think my answer is no. I'm not going to get down the kind of manufacturing hedging. At some point in the future, it will make sense to put sterling leverage in, but we're on a journey at the moment. And I know it's difficult at the moment given the FX effects that you see on the balance sheet that -- to sort of have a knee-jerk reaction and say, "Oh, we must hedge." I think that's brought with danger. We're not going to go there. Matthew Saperia: It's Matt Saperia from Peel Hunt. I'm also going to ask one question to each of you, if I can. Andrew, I think on Slide 9, you talked about the 4.7% like-for-like rate growth as a failure and -- as much as it was above the 4% that you were targeting. Are you going to ask your colleagues to do things differently going forward, or are you still happy for them to push rate ahead of what you might be targeting when it comes to new demand? Andrew Coombs: Well, specifically, what we are saying more in the U.K. than in Germany is we need to increase our sales volume. And if we have to reduce price within certain parameters and corridors to do so, that's what we must do. And what we're seeing is we're seeing a lot of people sort of nod to that, but then kind of still favor price over occupancy. And therein lies our challenge because I think as things tighten in the U.K., what we're seeing is we're seeing tenants look for smaller spaces than they normally would. And what that means is we have to win more customers than we normally would to maintain and increase our occupancy. And to do that, you either have to get more inquiries and/or you have to improve your sales conversion. And one of, not the only thing, but one of the ways you improve sales conversion is loosen on price a little. Now all of that is in a very controlled environment, where we make sure that people can't lower the price so much that we start to bring the average rate per square meter or square foot in the U.K. of the portfolio down. But whereas we used to be in a very nice world where you just said, as long as you sell higher than they move out, it all works. Now you're having to operate in a corridor whereby you do sometimes have to sell at lower than the move-out rate, and you better make absolutely sure that you can make up for that in your renewals and expansions. Otherwise, you're going to start ticking the average rate per square meter of your portfolio down. So this is quite a delicate area. And in the U.K. rather than Germany, this is going to get kind of more detailed going forward. And some of that is because the average size that people in the U.K. are inquiring about is getting smaller. So what you have to do is work the platform harder to get more customers. So this is not a sort of -- you set it and leave it for 6 months, this is daily management. We have a professional sales force that's properly trained in specific methods with specific processes and systems that are managed on a daily basis, and we're continually pushing buttons and pulling levers where this is concerned. It's quite intense. Matthew Saperia: And Chris, on Slide 18, you talked about a EUR 25 million potential future new build program. Chris Bowman: Yes. Matthew Saperia: Two parts. One is sort of what time frame are you talking about? And the second part, I'm assuming that's not exhaustive across the whole portfolio. There must be... Chris Bowman: No, no, no. So that's specifically four opportunities, that is one at Gartenfeld, two at Klipphausen and one at Dresden site, MicroPolis. The Gartenfeld opportunity new build is likely to tangibly start in the new year. The Dresden MicroPolis site is probably going to depend on -- not necessarily a firm pre-let, but at least some very strong indication. And the Klipphausen site, I think we've talked about Klipphausen in the past, it's been a sort of poster child for us of success, and we have development land around the existing site, which we acquired at the time of original acquisition, and there is opportunity to build additional production holes there. Net-net, I think I'd guide you to the EUR 25 million of opportunities, you're probably looking at EUR 10 million per year actually coming through. So it is a separate bucket to our business as usual CapEx. It's capital that has to compete with acquisitions for use essentially. Sarim Chaudhry: Sarim Chaudhry from Jefferies. Just a quick one. I think this is for Chris. On the divi, you got mid-70s payout and then you doing medium-term guidance of 70%. I think previously when we've spoken, that was going to be in the mid-60s. So what's that change? Chris Bowman: So we absolutely still have the aim to be at 65% payout ratio of FFO. And the model being 65% payout ratio plus the CapEx broadly equates to FFO as a whole. So we are, therefore, self-sustaining as a business. Actually, we are getting tighter and tighter on CapEx. So actually, we do have a little bit of headroom from CapEx versus dividend there. But we also flexed the payout ratio between 65% and 75% off the back of the fund raise, the equity fund raise last year and prior year to reflect the short-term dilution to FFO per share as we put the capital to work. So at the moment, you're essentially at kind of max. You're about 74% payout ratio. You should see that come down even at the end of the year, and you should see it come down and settle around 70%. What I'd also then say is that I think we are so confident and the Board is so confident about the growth prospects of the business going forward that we're also mindful that we're having to go through the financing headwinds as well over the next 3 years. So we are flexing within that 65% to 75% and saying that we want to settle around 70%, and we'll get there over the next 18 months, and we're happy, comfortable staying there through out to FY '29. On that chart, you saw the waterfall to get from EUR 123 million to our new target of EUR 175 million. The additional interest expense of EUR 34 million is all of the additional interest expense. So that is the journey of refinancing done. And in fact, there is an additional small amount of additional debt in there as well. So that is -- there is no more kind of headwinds to come beyond that essentially. And then obviously, once that journey is done, the results will be free to really outperform. Andrew Coombs: So can I just pick up on that because there's nothing new in this. We have always, for over a decade, operated in that 65% to 75%. We've always made sure that when we are facing things like deployment of capital, other types of headwinds that we flex up to 75%, knowing that we can come back down to 65% again. We're doing exactly the same. The difference is what we are saying is that we recognize that we are unlikely to get back down to the 65% until such time as we've overcome that interest rate challenge. And that ultimately won't be until the year ending March '29 because in December '28, we have another low interest bond to overcome. So realistically, we're going to be in that 70% to 75% corridor until we overcome that second bond. But once we do, the growth profile of this business will no longer have the headwinds. So therefore, you will really see the top come off it, and we'll then be able to return back to 65% in a very -- whereas to try and do it in this period, we think that that's unnecessarily kind of ambitious in terms of getting back to that 65%. So we're operating in the same way as we've operated for a very, very long time. We're just trying to give guidance to say, in the past, we've got down to 65% like really quickly. Because of these successive headwinds, we are probably going to be in that 70% to 75% bracket until we get to '29 and then we can put it back down to 65%. Still a very well-covered dividend. Maxwell Nimmo: Just a quick follow-up question. I think you talked -- sorry, it's Max Nimmo at Deutsche Numis. You talked a bit about the U.K. previously and saying we kind of just need to wait until we get through the budget. But it sounds like from what you're saying now that it's actually a bit more of a longer-term structural issue that's harder -- and so investment in this market is unlikely to be until, I think you said, next summer and that... Andrew Coombs: Let me tell you why that's changed. That's changed as a result of Thursday of last week. It's changed because what we can all see now is the leadership of the current government is under threat. And I don't care if they all came out and said, we've made friends, and we're all going to live happily ever after and not stab each other in the back. I won't believe it until I see the results of the May elections next year. And that roughly coincides with the announcement of our end of year results. So I'm not saying that we might not make the odd exception for a very small amount of money if it was something to do with defense or self-storage in the U.K. But unless it's in like a really exciting vertical for an amazing price, as far as I'm concerned, we are paused in the U.K. now until we understand the political outcome until at least the middle of next year. Clear? Maxwell Nimmo: Very clear, year. Andrew Coombs: Folks, thank you very much indeed.
Operator: Good morning, and welcome to Shoe Carnival's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded and is also being broadcast via webcast. Any reproduction or rebroadcast of any portion of this call is expressly prohibited. Management's remarks today may contain forward-looking statements that involve a number of risk factors. These risk factors could cause the company's actual results to be materially different from those projected in such statements. Forward-looking statements should also be considered in conjunction with the discussion of risk factors including in the company's SEC filings and today's earnings press release. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. The company disclaims any obligation to update any of the risk factors or to publicly announce any revisions to the forward-looking statements discussed on today's conference call or contained in today's press release to reflect future events or developments. I will now turn the call over to Mr. Mark Worden, President and CEO of Shoe Carnival for opening remarks. Mr. Worden, you may begin. Mark Worden: Good morning, everyone, and thank you for joining us today. With me are Kerry Jackson, our Chief Financial Officer; and Tanya Gordon, our Chief Merchandising Officer. This is a pivotal moment for our company. Last week, we announced that our Board of Directors unanimously approved changing our corporate name to Shoe Station Group, Inc., subject to approval of the name changed by our shareholders at our annual meeting to be held in June 2026. That decision reflects our Board's conviction about where this company is headed. We're building a stronger, more focused and more profitable company. Today, I'll walk you through our third quarter performance, update you on where we are in executing the strategy and provide context for fiscal 2026 and 2027. Let's start with the quarter. We delivered a strong third quarter. EPS of $0.53 and net sales of $297.2 million, both exceeded consensus expectations. Gross profit margin expanded 160 basis points to 37.6%, driven by disciplined pricing and our continued shift toward the higher-income Shoe Station customer. We achieved positive comparable sales during August back-to-school with margin expansion. That's significant, given the promotional intensity across family footwear retail and the continued pressure on lower income households. Athletics represented 51% of total sales in the quarter and delivered low single-digit growth overall. At Shoe Station specifically, our focus on premium brands and higher transaction values drove double-digit athletic growth in both Q3 and year-to-date. Our nonathletic categories represented 43% of Q3 total sales with a mid-single-digit comp decline overall. Similar to prior quarters, Shoe Station outperformed in every major category versus Shoe Carnival. The story beneath these numbers is what matters most. Our two banners delivered very different results in the third quarter. Shoe Station net sales grew 5.3%. Shoe Station product margins expanded 260 basis points. Meanwhile, Shoe Carnival net sales declined 5.2%, reflecting continued pressure on lower-income households earning under $40,000 annually. That's a 10.5 percentage point performance gap between our two banners. This divergence isn't new. We've been discussing it for quarters. What's different now is the scale of the gap and our conviction that it will persist. Shoe Station's core customer, median household income, $60,000 to $100,000, is choosing premium product, seeking elevated service and responding to our brand positioning. The traditional Shoe Carnival customer is under economic pressure and the competitive response in that segment is driving margins down across the industry. This quarter, we maintained pricing discipline instead of propping up traffic from a lower-income customer, a segment we are strategically shifting away from. As a result, Carnival also expanded product margin. We are not chasing unprofitable sales. Third quarter EPS included a $0.22 impact from planned rebanner investments. Year-to-date, that's $0.58 per share. These are planned investments to convert underperforming locations into the Shoe Station format that's demonstrably winning. We expect to recover these investments within 2 to 3 years following each store's conversion. Let me give you the numbers on our progress. We completed 101 store rebanners during fiscal 2025. We now operate 428 stores, 144 Shoe Station locations and 284 Shoe Carnival locations. This evolution started with test and learn, moved to scaling across the Southeast and is now a full chain rollout. We acquired Shoe Station in December 2021 with 21 stores. We started this fiscal year with Station representing just 10% of our fleet. Today, Station is 34% of the total store fleet. By back-to-school 2026, it will be 51%. That 51% threshold is the inflection point when Shoe Station becomes the majority of this business and we expect to return to comparable sales growth. Based on what we have learned through 101 store conversions this year, we now expect that well over 90% of our fleet will operate a Shoe Station before the end of fiscal 2028. The remaining locations will be evaluated for rebannering, outlet repositioning or closure. Why consolidate to one brand? Running two distinct banners with different customer targets, different merchandising strategies and different operating models is inefficient. Every quarter this year, the sales performance gap between Shoe Station and Shoe Carnival has exceeded 10 percentage points. We're leaving value on the table by maintaining dual infrastructure when one banner is clearly winning. What makes Shoe Station different comes down to three things: the customer. Station serves the American median income household, $60,000 to $100,000, stable everyday workers, value-conscious but not price-driven. Carnival serves a value-focused customer facing economic pressure. The product approach. Station offers premium brand access, higher transaction values and strong full price selling. Carnival focuses on opening price points and a promotional model. The experience. Station is modern and approachable, low-profile merchandising, easy to shop, service-oriented. Carnival is high energy, treasure hunt promotional intensity. Both models work for their customers, but consumer preferences are shifting toward best brands, premium product and quality over lowest price. That's the Shoe Station customer. Consolidating to one brand creates significant structural advantages. By the end of fiscal 2027, we expect $20 million in annual cost savings and operating efficiencies. We expect comparable sales growth to resume as Shoe Station becomes the dominant banner. And we're executing this on a foundation of financial strength. We're debt-free with over $100 million in cash and securities, funding this entire program from operating cash flow just as we've funded operations and growth for 20 consecutive years. We're building one team, one infrastructure, one P&L. Now turning to inventory and the value we're unlocking. We bought [ HEVI ] this year to derisk tariff volatility. It worked. We delivered positive comps during back-to-school. We're fully loaded for fall, holiday and spring. Now we plan to sell through this extra tariff-related inventory and move to the next phase. By the end of fiscal 2027, we'll free up $100 million in working capital. This isn't about cutting corners. It's a fundamentally different operating model. Shoe Station unlocks this capital through superior merchandising. Station presents product clearly, curated, organized, easy to browse and shop. Station generates higher transaction values, which means we need fewer units to deliver strong sales performance. The Carnival model is stack it high and let it fly, requiring deep inventory to maintain towering displays and promotional volume. Shoe Station delivers a superior customer experience with less inventory per store. Better merchandising drives better turns, better margins and capital efficiency. That's $100 million we plan to deploy toward growth. Let me walk you through what's ahead in the key milestones. Fiscal 2026 is our inflection year. We're converting 70 stores to reach the critical 51% Shoe Station threshold by back-to-school. That's the milestone when Station becomes the majority of this business and the dominant driver of our results. First half of 2026 will see similar dynamics to 2025 as we work through rebanner conversions. Second half, we crossed 51% and expect to return to comparable sales growth. This requires P&L investment in fiscal 2026. One brand synergies begin, but the full benefit comes towards the end of fiscal 2027. The end of fiscal 2027 is when the full picture comes together. We expect $20 million in cost savings, $100 million freed from inventory reduction, comparable sales growth restored and EPS expanding. Bottom line, we're investing through 2025, all of 2026 and into 2027. We see modest gains beginning in 2027 and meaningful acceleration in 2028. Kerry will give you more specifics on fiscal 2026 and 2027. Let me bring this together. The performance gap tells the story. Shoe Station outperformed Shoe Carnival by more than 10 percentage points this quarter. Station margins expanded 260 basis points. The industry is declining, but we're growing where the consumer is headed, premium brands, better experience, customers who value quality. We're executing this from a position of strength, debt-free, over $100 million in cash and securities, 20 consecutive years of self-funding our growth. We have the financial flexibility to invest through this transformation and build for the long term. When our Board approved changing the corporate name to Shoe Station Group, it wasn't about branding, it was about conviction, conviction that this strategy is right for long-term value creation and building a stronger company. This isn't a rebrand, it's a repositioning of this entire company around what's winning. I'll now turn the call over to Kerry for the detailed financials, our fiscal 2025 outlook and perspective on '26 and 2027. After Kerry remarks, I'll have brief closing comments before we open for questions. Kerry? W. Jackson: Thank you, Mark, and good morning, everyone. Let me start with the quarter performance, then walk you through our outlook and the financial framework for fiscal 2026 and 2027. Net sales totaled $297.2 million, down 3.2% versus $306.9 million last year. Comparable store sales declined 2.7%, including approximately 0.5 percentage point of headwind from the 56 stores rebannered during the quarter. The banner divergence Mark described is the critical story. Shoe Station net sales grew 5.3% with mid-single-digit comparable sales growth. Shoe Carnival net sales declined 5.2% with mid-single-digit comparable sales decline. Rogan's generated $21 million in net sales, consistent with our integration plan. Three category highlights worth noting. First, men's and women's athletics, 35% of our business, delivered breakeven comps overall, but Shoe Station's athletic business grew high teens. Second, kids footwear, 22% of Q3 sales, delivered low double-digit athletic growth at Station. Overall, for the company, kids was down low singles for the quarter due to weakness in kids nonathletic footwear. Third, the boot season started modestly, but we were well positioned with inventory depth as we move into the heart of the season. Rounding out the categories, men's and women's nonathletic categories both declined mid-single digits compared to Q3 last year. Athletics across our men's, women's and kids categories was 51% of our business in the quarter, up from 49% in Q3 last year and was key to our overall comp positive results in back-to-school August. Shoe Station's athletic sales have strong comparable store growth every quarter this year as our premium brands continue to resonate with higher-income consumers that the Shoe Station banner attracts. Non-athletics was 43% of our total sales in Q3, down 1% from last year, again, reflecting the strong athletic cycle we are in. Gross profit margin expanded 160 basis points to 37.6%, exceeding the high end of our guidance. Merchandise margins increased 190 basis points, driven by disciplined pricing, favorable mix shift towards Shoe Stations higher-income consumers and our strategic inventory investments. This more than offset 30 basis points of deleverage in our buying, distribution and occupancy costs. SG&A was $93.2 million or 31.3% of sales compared to $85.9 million or 28% of sales last year. The 3.3 percentage point increase breaks down as follows: 2.5 points reflects banner reinvestments, including store closing costs, new store construction depreciation and customer acquisition costs. The remaining 0.8 points is the deleveraging on lower sales. The rebanner P&L investment in Q3 was approximately $8 million. Year-to-date, we've invested $20 million in operating income or $0.58 per share towards this transformation. Net income for Q3 was $14.6 million or $0.53 per diluted share compared to $19.2 million or $0.70 per share last year. This year-over-year decrease of $0.17 primarily reflects our rebanner investments, which we estimate impacted Q3 by $0.22 per share. In the quarter, our EPS otherwise grew by $0.05. The 2- to 3-year payback of these rebanner investments we've consistently discussed remains on track. Shoe Station's net sales were up 3.8% year-to-date compared to Shoe Carnival's net sales down 8.5%. Said differently, year-to-date through Q3, Shoe Station's net sales growth has outperformed Shoe Carnival by 12.3 percentage points. These results support the One Banner strategy time line Mark just outlined and our view of the long-term profit potential from doing so. Our balance sheet continues to strengthen. We ended the quarter with over $107 million in cash, cash equivalents and marketable securities, up 18.2% versus last year, and we remain debt-free with $100 million of available credit. Based on strong Q3 results and continued rebanner momentum, we updated our full year outlook. We are reaffirming our net sales guidance and continue to expect net sales of $1.12 billion to $1.15 billion. We are raising the EPS guidance range to $1.80 to $2.10, increasing the low end by $0.10. We continue to expect gross profit margin of 36.5% to 37.5% and now expect SG&A in the range of $350 million to $355 million, down $5 million from previous guidance. For Q4 specifically, we are forecasting net sales of $240 million to $270 million, ranging from down 7% to up 2% compared to Q4 last year, with the midpoint down 3%, consistent with Q3 trends. Our Q4 net sales range is wider than typical, given macroeconomic volatility, consumer behavior in nonevent periods and fourth quarter weather uncertainty. We expect Q4 EPS in the range consistent with consensus prior to our earnings release in a range of $0.25 to $0.30. Q4 EPS in that range targets full year EPS at the lower end of our annual outlook. The higher end of our outlook assumes stronger holiday selling and improvement in lower-income consumer spending. Regarding our One Banner strategy, we have rebannered 101 stores in fiscal 2025, including 56 in Q3 and 1 additional store after quarter end. We anticipate no further rebanners this year. The Rogan's acquisition is now fully integrated into Shoe Station. And beginning in Q4, we'll report Rogan's results as a part of the Shoe Station banner. Year-to-date rebanner CapEx is approximately $31 million with minimal additional CapEx expected for the remainder of the year. Full year P&L investment remains on track at approximately $25 million. For Q4, we expect rebanner investments of $0.10 to $0.12 per share, bringing the full-year impact to $0.68 to $0.70 per share. Looking ahead to our fiscal 2026 and 2027 framework, while we're not providing detailed fiscal 2026 guidance today, that will come in March, we can provide transparency on what to expect. As Mark has clearly identified, it's critical for our financial success to reach the milestone of 51% of our stores banner at Shoe Station, our inflection point. To achieve that goal, fiscal 2026 will be a year of continued investment. We believe that next year's investments will lead to a return to sales and earnings growth in fiscal 2027 and further accelerating in fiscal 2028 as we complete the rebannering program. Let me detail our future expectations for sales, SG&A and inventory reductions. Sales trends will mirror what we've seen in fiscal 2025. The first half will be challenging as Shoe Carnival's mid- to high single-digit declines more than offset stations growth. The inflection comes in the second half when station crosses 51% of the fleet. We expect flat to very low single-digit growth in the back half. Overall, for fiscal 2026, we expect net sales and comparable sales will be down, but improved compared to the 6% year-to-date declines we have seen so far this year. With respect to SG&A for fiscal 2026, we expect rebanner investments to range from $25 million to $30 million for the entire year. Given the timing of the rebanners in fiscal 2026, we do expect costs in fiscal 2026 to be more front-loaded. In addition, we continue to recognize costs associated with stores rebannered in fiscal 2025 as we continue to educate customers in those markets and as CapEx investments made in fiscal 2025 are depreciated. As a result, we currently see significant SG&A investment in Q1 and Q2 of fiscal 2026 compared to 2025. And we expect those headwinds to moderate post back-to-school as fiscal 2025 costs become comparable and the $20 million of expected synergies and efficiencies from implementation of the One banner strategy begin to be realized. Overall, we do not expect SG&A to decline in fiscal 2026 compared to fiscal 2025 and may increase. Given the impacts on sales and SG&A, we expect fiscal 2026 EPS to be lower than fiscal 2025 with more significant decreases in Q1 and Q2 compared to the prior year. Now for more insight on expected inventory reductions driven by the One Banner strategy. We expect higher inventory for the remainder of fiscal 2025 and for inventory at the end of fiscal '25 to be flat to up from the Q3 balance, inclusive of additional buys in Q4 to support launching new athletic assortments and styles next year. The level of inventory we are carrying this year has been intentional given the tariff backdrop and the opportunistic buy of seasonal merchandise and in-demand product. These opportunistic purchases were key to our 160 basis point gross profit margin increase in Q3 and 270 basis increase in Q2. We expect our inventory position will also drive a margin increase in Q4 of over 100 basis points. We expect tariff-related increases in our inventory to moderate in fiscal 2026, assuming there is more tariff certainty. As Mark stated, we are planning for more dramatic shifts in inventory as Shoe Station becomes our dominant banner, which is expected to free up $100 million of cash through inventory reduction over the next 2 years. This inventory reduction comes from Shoe Station's fundamentally different operating model, which requires 20% to 25% less inventory per store compared to Carnival's model. When we get to 51% of our stores operating the Shoe Station model, we expect a $50 million to $60 million reduction by the end of fiscal 2026. As we transition the inventory model, we expect some near-term gross margin pressure from selling through legacy Carnival inventory, partially offset by the lower-cost opportunistic purchases we made in fiscal 2025. This inventory reduction will more than fully fund our rebanner capital needs over the course of the year, maintaining our debt-free position at year-end. We expect rebanner capital expenditures between $25 million and $35 million to be concentrated in Q1 and Q2, while inventory reductions may be more gradual and more focused on the back half of the year. The payoff comes in fiscal 2027 and accelerates into fiscal 2028. By the end of fiscal 2027, we expect to see the full $20 million in annual cost savings from reduced dual-brand complexity, the full $100 million in working capital freed from inventory reduction, a return to annual comparable sales growth and EPS growth resumes in fiscal 2027 and expand significantly in fiscal 2028. We'll provide more specific fiscal 2026 and 2027 guidance in our March earnings call. With that, I'll turn the call back to Mark for closing remarks before we open the call for questions. Mark Worden: Before we open for questions, let me put this quarter and this transformation in context. We're not at the beginning of this journey. We're at the acceleration point. Shoe Station was 10% of our company when we started this fiscal year. Today, it's 34%. 8 months from now, it will be 51%, the inflection point where this business returns to comparable sales growth. Now we're scaling Shoe Station across the fleet. This transformation unlocks significant value, $20 million in annual cost savings by the end of fiscal 2027, $100 million in working capital freed from inventory reductions. We're building a company positioned for sustained growth while funding this entire transformation from a debt-free balance sheet with over $100 million in cash. The performance gap between our two banners continues. Station outperformed Carnival by more than 10 percentage points every quarter this year. Station margins are 260 basis points higher than Q3 last year. Consumer preferences are shifting toward premium brands and quality over price. We're aligning our entire company with where the market is headed. Our Board's approval to change the corporate name to Shoe Station Group reflects conviction about this path. We're investing through fiscal 2025, 2026 and into 2027 to capture gains that begin in 2027 and accelerate into 2028. This isn't a rebrand, it's a repositioning of this entire company around what's winning. Now I'd like to open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Mitch Kummetz with Seaport Research. Mitchel Kummetz: Welcome back, Kerry. You guys provided a lot of color around the rebannering and kind of the cadence of those impacts. I was hoping you might be able to boil it down a little bit more. So I think you said that for this year, the drag on earnings is $0.68 to $0.70. Can you say what the additional drag will be next year? And then help us kind of think through what happens in 2027 and '28. How much of that you get back in '27? And by '28, will all of that kind of flow back to the P&L? And I've got a few follow-ups. W. Jackson: Well, what we said -- Mitch, thank you for the welcome back. I appreciate it. It's good to be back with my friends. We said $25 million to $30 million in rebanner expenses are expected next year to kind of help you understand what those are going to be. And we said they're going to be front-loaded because we're going to be doing approximately 70 stores in the rebanner of those stores next year. The effect of that, we will continue to have rebanner costs as we have store closing costs, the depreciation on the investments of the CapEx in the stores, along with customer acquisition costs will continue as we go through those multiple years. However, an important point on that is that when we look at each store individually and the time frame that we make those investments, we're seeing -- we're expecting to get those monies back in a 2- to 3-year time frame in the profitability of those stores post conversion. Mitchel Kummetz: And when I think about -- so just from like a core earnings standpoint, like pro forma earnings, if I were to try to adjust out some of these rebannering expenses, is it fair to say that you'll -- like 2026, you'll see stronger earnings growth than 2025, like if I strip these things out? I mean I kind of get there just because it sounds like you'll perform better from a comp standpoint. So I think that would go a long way towards better earnings growth next year on the kind of -- in terms of the growth rate this year versus -- or I'm sorry, next year versus this year? W. Jackson: No. Let me unpack a little bit of what I said. What we want -- next year, we're going to be an investment year. So in the first half of the year, what we're saying is Shoe Carnival is still going to be the dominant brand. We expect it to be down mid-single digits in sales, and that's going to override any gains we get out of Shoe Station. So we expect sales to be down in the first half. Now once at back-to-school, once we hit that 51% threshold where Shoe Station is the dominant brand, we expect to see a flat to slight positive sales gain in the second half. Having said that, we also expect that as we transitioned our stores, we might see some margin pressure longer term in the second half of the year from the rebanners as we have less Shoe Carnival stores to transition the inventory to. And so in '25, we had significant amount. So when we converted a store, if we had remaining Shoe Carnival stores, we could transfer those products to other stores. As we have fewer of the stores available, we may see some margin pressure on clearing out the non-go-forward Shoe Carnival inventory. We also expect to see significant pressure, particularly in Q1 and Q2 on our SG&A line because of the rebanner expenses. And we expect that SG&A next year will be flat to possibly up. So while we're not in a position to give full guidance as we will in March on '26 numbers, you can see that, that will be a down earnings year when you take into account lower sales, a little margin pressure from clearance and then flat to up SG&A. Mitchel Kummetz: Got it. I was just trying to think about it in terms of stripping out some of these sort of extraneous events. But a couple of last ones for me. One, I think it was mentioned that boots started slowly. I think that was more of a Q3 comment. Have you seen any improvement in the boot business early in the fourth quarter? And kind of what is your outlook there? And then I have one last one. Tanya Gordon: Yes. Mitch, it's Tanya. And yes, boots did start a little bit slow. But as we got our inventory in, again, just based on some delayed deliveries as we moved into October, we saw nice double-digit increases. So bodes well as we move into fourth quarter, and we really saw it balanced across all categories. So tall shaft boots, booties, combat looks and fur doing very well. Mitchel Kummetz: Okay. That's helpful. And then last one for you, Mark. On the Shoe Station side, you talked about how it's a higher-income consumer and more premium brand access and more service-oriented stores. I'm curious, is there an opportunity to further elevate the assortment there? Like Tanya just mentioned the [ fur ] business. I mean you guys -- you sell Ugg in athletic -- I'm sorry, [ HOKA ] in athletic, but you don't sell Ugg. Can you get Ugg? Or even across your athletic business, you sell VL courts, but not Sambas or you sell court visions, not Air Force 1. I mean as Shoe Station becomes a bigger player in the industry, is there an opportunity to get even more elevated product versus just the elevation that you see going from a Carnival to a station, but is there more elevation opportunity within Station going forward? Mark Worden: Mitch, absolutely. We believe that maybe the most exciting part of the Shoe Station model and the key reason of why we're proceeding publicly now with our move to the Shoe Station Group is so that Tanya and I can be working transparently long term with our partners to build out those new assortments and new brand launches and more premium topics. And so now we're having those great fully multiyear discussions with the best of the best brands in the world. And we're getting very enthusiastic partnership meetings of where we could go together. I think it's that core element of serving the middle-income American household, that working everyday American consumer that values all of the activities that get life done. So absolutely. And Tanya's team is doing a great job. We'll see new assortments, new styles coming in Q1. Operator: Your next question comes from the line of Sam Poser with Williams Trading. Samuel Poser: So I just would like to dig into the comp that you talked about for Shoe Station. So as I understand it, at the end of the third quarter last year, I believe there were 42 Shoe Station stores. And today, there are 144. Is that correct? W. Jackson: The 144 is correct. I'll have to double check -- the 42 is approximately right. Samuel Poser: What was the comp -- so the comp that you're comparing to is the comp versus Shoe Carnival. So the question I have is what were the comp on those 42 stores like on like-for-like Shoe Station last year, Shoe Station this year store? I know it's not a big picture, but that is the cleanest view of how an existing Shoe Station store a year ago is compared to existing Shoe Station store today. W. Jackson: Well, Sam, we're not going to break down the banners into smaller components. We've been breaking down the rebanner stores to help you understand what happens when they transition from one to another. But we've got enough critical mass that in future quarters, we're going to talk about the banners exclusively in the total numbers because they tell the right story right there that they tell you the information you need to know to understand what's the underlying fundamentals of the business. We think the exciting part of the business is the overall brand. And in all honesty, within the full banner, there's a range of outcomes, but the range of outcomes comes down to be a very positive number, particularly when you look at the Shoe Carnival on a like-for-like, you're seeing that they're continuing to decline, but we're seeing the increases. Now I hate to try to parse out the various pieces of it just for the fact that it will -- the noise may take away from the real story. Samuel Poser: Okay. And then the inventory decrease, you talked a little bit about this on the call to bring the inventory down 50 million to 60 million next year and the margin. So within getting the inventory down 50 million to 60 million next year and then another 40 million to 50 million in '27, there's different ways to do it. There's -- you can return goods to vendors. You can take -- you can have lower margins, which would then increase your COGS, and you can bring in less product. How should we think about the breakdown of that? You talked a little bit about -- and how much gross margin and how much gross margin pressure should we anticipate in fiscal '26 in that what you brought up about not being able to shuffle inventory around as there are less Carnival stores? Mark Worden: Sam, it's Mark. Let me take that first and team can build on it. I think aside from the new assortments will be opened up to a Shoe Station, the structural change to how we service the customer is the area I'm probably most excited about. And when we think of the Carnival store, as [ Alex ] describe it, they're towering displays that promotional products above person's arm length unless you're Shaquille O'Neal. Shoe Station has a very structural difference that our vision and where we're progressing towards a curated product, lower profile, accessible, the customer can see and easily navigate. And by nature of that significant change of where we're heading, we have in that 20% to 25% reduction of units on hand in the stores when we get to bright, that endpoint. Now that gets us along with selling through the tariff inventory at accretive margins, that gets us the $100 million reduction that Tanya and I and Kerry are talking about. We're going to get there quickly, but we need to do it in conjunction with our partners through those means you just mentioned, Sam. So all of those things are going to occur that you just said. The most strategic of it will be, as Tanya and I work through our buys from back-to-school of this year forward. We'll be buying with intentionality to meet where Station is and where the rest of the company is going now that we're not in test and learn. Now Kerry touched on a point that's super important, and we're not going to hold on to Carnival product that's stranded past the season. So as we get past boot season, for example, this year, we're having a good start, as Tanya said, we've got the right product. But if you get to the end of boot season, we're going to clear it. We're not going to carry it if it's not a go-forward in the Shoe Station, that will have some margin pressure. It's the right thing to do. We're not going to hang on to that for a year, and we've got the financial balance sheet to clear that out. So there will be some margin pressure as we liquidate non-go-forward Shoe Carnival product from boot season, for example. For the 51% of the stores that will be Shoe Station by back-to-school, there will be non-go-forward brand styles and assortments. And same thing, we'll be liquidating that. I think we'll be able to do a much better job as we get into our formal guidance in March to unpack the specificity of that. But our intent today is to let the stakeholders understand that's where we're heading, significant structural advantage, clearance of the tariff-related product at full strong accretive margins and then liquidation of non-go-forward products because you and I have talked many times, Sam, why on earth would you want to carry that forward? We don't. So there will be some pressure. I don't know, Kerry, if you have any [ builds ], or Tanya? W. Jackson: I agree with you, Mark, that right now, we need to get through the inventory further along. We'll know in March better how those stores, what their position of their inventories are on the stores we're going to be rebannering and therefore, the potential for the inventory that might be clearance. At this stage, it's too early. We need to see some sales through of those products. Samuel Poser: Okay. And just to follow up. I mean, so I'm backing in, and again, I know it's not a clean number, but receipts of this year of around -- to get to slightly above, I'm a little bit higher, but call it, $770 million of receipts this year versus down from last year a bit. But next year, to get to where you want to get to on my numbers means that your total receipts, even with margins off a little bit, would probably have to be down in the -- inventory receipts probably in the range of $100 million. Is that -- am I thinking about that properly? That's probably a better Tanya question, but am I thinking about that properly? W. Jackson: Well, let me start out with that, and then Tanya can build on it. The idea -- you got to remember that we have pre-bought goods for the spring season. So the opportunistic buys and the tariff product, we're going to carry that type of product into the season of the spring. So therefore, we have front-loaded those purchases, so there will be a reduction in the overall. So directionally, you're right about purchases. Tanya Gordon: Yes. And just to build on that, Sam, based on the pre-tariff goods that we're bringing in, those are sitting in our current inventory today. And then based on our go-forward model, rebanner to Shoe Station, our pairs have to come down. Our pairs are coming down in that model, and our AURs are going up. So the new model, our pairs have to come down significantly. So that's what's going to get us back to the inventory levels that we need to be at. Samuel Poser: Okay. And then -- but that -- but when you front-load a lot of spring products and you're buying it well ahead of time to do it, I mean, the consumer wants what the consumer wants, and you're buying a lot of that stuff probably earlier and at discounts that may not be -- you might not be able to realize the margin. So how -- I mean when we think about reducing -- I guess, let me just break it out. When you say you're going to get conceptually to down 50 million to 60 million next year, what percent of that is less receipts? What percent of that do you foresee as RTVs? And what percent of that do you think is just going to be higher cost of goods, lower gross margin? I mean how do you think about that conceptually? Mark Worden: Sam, it's me again. Sam, it's Mark. You're not thinking about it wrong in general terms. We're not ready to provide firm guidance, but thinking about receipts coming down next year in a range around $100 million is not the wrong way to think about it right now. We'll get tighter at Q1, but I don't want to dance it. You're thinking about it similar to how we're thinking about it. We'll get tighter as we fine-tune some of those elements we've talked about. But spot on. Our model requires less receipts. Samuel Poser: And then lastly, if -- one of the things is that if you're -- the comps at Shoe Carnival have remained tough and are difficult and you're anticipating that they will remain that way. Why not just -- if the consumer is not showing up right now, one, why not get more aggressive while the ducks are flying during holiday to just get really clean, especially in the 70 or so stores you're not going to -- that are going to convert with that product that won't go forward in the stores? Which I'm gathering it's about -- would I be right in like the 50% range that -- between brands and styles that are the same or different for that matter between Shoe Carnival and Shoe Station, be it from Nike, Skechers, Adidas and so on, while like with the Birkenstock, you carry some of the same product, but you got the big buckle Shoe Station that doesn't go to Carnival, but then that will go into Carnival? So -- but there's a good deal of it, still a big chunk of product that won't go forward. So how aggressive are you being? And then in the plan to possibly create clearance stores, why not start to do that earlier to give yourself an out, so you can turn some of these Carnival stores into clearance stores ahead of time to help yourself out of -- through liquidation? Mark Worden: Those are three great questions. This is Mark again. Let me answer them all. The first, it's not wrong to think 40% to 60% of the Carnival inventory does not go forward into Shoe Station. There's variability, but the range you're talking about is the right way to think about it. Second, the 70 stores that are Shoe Carnival today and will be Shoe Stations, that product that does not go forward will be liquidated aggressively. Totally agree with your point, it will be gone. And that's what we're alluding to. You said it better than we may have communicated it. That's what we're alluding to when we say there will be margin pressure. In the past, when it was test and learn, it was easy to reallocate 10 stores. And then it was still easy to do it when it's 25. Now that it's not test and learn and it's a full corporation rollout, now we need to clear that product out because it makes no sense to move it around. We'll be doing that for those 70 stores, full stop. Sorry, you might have had a third or fourth point, but hopefully, that answers your question, Sam. Operator: Your next question comes from the line of Jim Chartier with Monness, Crespi, Hardt. James Chartier: You previously talked about getting to 80% of stores rebannered by March of 2027. Is that still the plan? Or is that pushed back? Mark Worden: Jim, it's Mark. What I tried to say in the speech today is we will be well over 90% before we finish 2028, and we will surpass the critical point of 51% this summer. We're not putting any intermediary dates in there because we think it's far more important that we focus on delivering that experience, that inventory transformation we've just talked about and unlocking the $20 million of synergies. As we get closer, we're going to learn a lot more, and we can provide better guidance on those intermediary dates of '27 as we get much closer. We're going to stay really focused on the tight 2026. Here's what we know. We're doing 70, we'll get to 51, and we turn that pivotal quarter this year. We'll do more in '27, but we want to lock into 2028 versus an intermediary date. Now that's not test and learn, and it's a full company rollout. James Chartier: Okay. Makes sense. And then on the $20 million of savings, how much of that do you expect flows to the bottom line versus might go towards reinvestment? And then, how should we think about the timing of those savings? Mark Worden: Yes. As we get into 2028, we think it flows. We may choose to invest more in brand building for the corporation or other activities. But when you look at SG&A this year versus SG&A that year, excluding advertising expense, I would see it would flow in 2028. Now Kerry did a nice job saying it's not going to manifest in 2026 because there's other investment costs here. But Kerry can build on that, if you like. W. Jackson: That's the key right there. So 2026 is an investment year. We're going to be rebannering significant stores, and we'll just be starting to get the benefit of that $20 million in 2026, but it might mitigate some of the rebanner costs, but it's not going to offset them, like Mark said, that once the rebanner costs are diminished in '28 and we have that full benefit of that $20 million savings, that's when we can start to realize it. Operator: That concludes our Q&A session. I would now like to turn the call back over to Mark Worden for closing remarks. Mark Worden: Thank you all for joining us today. As we said, it's a pivotal moment for the company as we move towards Shoe Station Group becoming our new corporate name, pending shareholder approval next summer, the majority of our fleet next summer, and we progress towards one brand unlocking significant value. I want to thank you all so much for your time and wish each of you and your families a happy Thanksgiving and holiday season ahead. I hope to see you in the markets or a Shoe Station store between now and then. Take care. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Ije Nwokorie: Like I said, we've been busy, and I'm proud of what our people have been up to in the first half of the year. So let's get into it. I know you would have seen the statement this morning, so Giles and I will cover 3 things. I'll share a brief introduction, just frame a bit of what we're up to. And then Giles will pull out some of the key themes from our performance in the first half. And then I'll give you an update on the strategy that we introduced to you back in June. So I'm pleased to report, as we saw on the slide that we are on track with the execution of the strategy and are on track with our guidance for the year. I'll go into each one of the 4 levers later on, but I also want to be clear that we still have some challenges that we're addressing, particularly with boots and sandals, and with EMEA direct-to-consumer. Yet overall, we're doing what we said we would do, with good cash generation and cost control, driving good financial progress. And as I will keep telling you, I'm laser focused on execution and the work we've done to date gives me confidence that we will deliver our full year results as planned. Giles will go into more detail now on how we performed in the half. Giles Wilson: Thank you, Ije and good morning, everyone. I'm here today to talk through our first half results, and I'm pleased to report good progress in all our key metrics. But before I go into any detail, I felt it is important to share with you how we are making decisions and how we're running the business. We are focusing on making the right decisions for the long term while making sure we control our costs and our financials in the short term, as evidenced through our cost action plan last year and our significant reduction in our leverage position. This means we have FY '27 and beyond at the front of our minds. We're making those decisions and the actions we are taking. A really good example of this is in our first half year results, has seen been a focus on improving our full price sales and reducing markdown volume, especially in the periods outside more normal promotional events. Therefore, making markdown directly related to those promotional events or as a tactical way to reward existing consumers and drive new customer acquisition. This principle has also guided our approach to U.S. tariff actions and to make sure we make optimal decisions for FY '27 and beyond. We have worked closely with our wholesale and our supply chain partners in timing of those actions. So turning to our key financials. And as I introduced last year, I will focus on constant currency comparison as this reflects the true underlying performance of the business. Just before I go into any detail and to flag at the outset, as you know, at the year-end, we changed the definition of adjusting items to include impairment of financial assets, and the H1 FY '25 has therefore been represented accordingly. So turning to the financials. Our revenue performance shows a small growth year-on-year, up GBP 2.7 million to GBP 327.3 million and crucially, revenue quality was better as we focused on full price sales and a reduction in our markdown sales. The impact of better quality of revenue and focus on our costs can be seen in our profit lines, especially in operating profit which swings by GBP 6.5 million from a loss last year to a GBP 3.4 million profit this year. After accounting for interest, our profit before tax is still a loss in H1, but a significant improvement on H1 last year. And as I'll explain in more detail, this is after accounting for a tariff headwind and demand generation timing headwind as well. Our dividend is declared at 0.85p which, as a reminder, is a formularic for the half of being 1/3 of the prior year full dividend. Finally, I talked to you in June about the focus we've had on reducing net debt, and we've continued to strengthen the balance sheet in H1 with net bank debt down by GBP 33 million. As a reminder, our net bank debt tends to peak around now as we build the inventory ahead of the peak selling period. With our continued focus on profitability and the strengthening of the balance sheet, this sets us up for sustainable success in FY '27 and beyond. So turning to the revenue. This bridge sets out the movement in sales by region and channel year-on-year. Starting with Americas, we see the business now return to growth across both DTC and wholesale. Following our return to growth in DTC in H2 last year, that has continued in the first half of this year with particularly strong performance in our retail stores, offset by our planned reduction in markdown volume in our e-comm channel, delivering an overall GBP 4.8 million year-on-year increase in DTC. Following the focus on reducing inventory levels in our wholesale partners last year, we're now starting to see wholesale partner orders improving, delivering an increase of GBP 2.4 million and we're also seeing further confidence in the spring/summer order book, particularly amongst our larger wholesale customers. Turning to EMEA. As highlighted at the AGM's trading statement, EMEA across DTC has been more challenging. And that, together with our focus on reducing markdown volume saw a reduction year-on-year of GBP 5.9 million in DTC. However, this was generally much better quality revenue. Wholesale in EMEA, as explained at the full year, was stronger year-on-year, and that is together with a more normal wholesale shipments in H1 saw an increase in wholesale revenue. Finally, in APAC, DTC saw continued year-on-year growth with a particular standout performance in South Korea retail and full-price e-comm across the entire region. Again, like other regions, we saw significant reduction in markdown e-com in sales, especially in China and South Korea. And therefore, overall, a GBP 1.2 million increase in DTC and better quality revenue. The wholesale revenue is in line with our expectations with some small changes in shipment dates year-on-year. So overall, our regional and channel performance was in line with our expectations. Though we're disappointed in the overall DTC revenue in EMEA, this was partly due to our own decisions to reduce markdown volume and the well-publicized weak EMEA consumer environment. We are really pleased with the continued DTC growth in Americas, the overall performance in APAC and the overall better performance in our wholesale sales, delivering on our strategic objective to reduce reliance on markdown sales. As we set out in the statement this morning, our gross margin has improved year-on-year, and I felt it was worth explaining a little bit more in detail. As always, there is lots of moving parts in gross margin. However, what this chart shows is the consistent resilience of our gross margin rate. So a slight headwind from our channel mix was fully offset by the average selling price. The average selling price was a combination of much better full price sales, offset slightly with the strongest shoes performance where the average selling price is slightly less. We saw a strong COGS performance with freight saving negotiated by our supply chain teams being one of the biggest component. And it is also worth noting that includes the H1 U.S. tariff impact as well. And I should speak a little bit more about that on the next slide. So turning to underlying EBIT bridge. And as I set out on the first slide, we see adjusted EBIT turn from a loss -- turn a loss back into a profit. increasing by GBP 6.4 million to a GBP 3.4 million profit. And actually, if you add the 2 headwinds of tariffs, the fourth box and the timing of demand generation, the sixth box that is a figure increases to GBP 9 million profit in the period, a year-on-year growth of GBP 12 million. The slide sets out the key moving parts. GBP 5.3 million gross margin increase driven by GBP 5 million from strong average selling price and better cost of goods, particularly freight costs, GBP 3 million from the increase year-on-year in volume offset by a GBP 2.7 million of U.S. tariff costs. We have continued to tightly control our costs. Within the GBP 2 million benefit from non-demand generating OpEx is to benefit of the cost action plan last year, partly offset by inflation. The full impact of more -- year impacts of more stores being opened and paying you all retail bonuses as retail stores performed better. Demand generation OpEx drove a GBP 2.9 million increase driven by the timing of our key stories campaign being in September this year versus October last year. This will vary year-on-year depending on when the right time is to support key campaigns. Year-on-year benefits in depreciation and other items. And finally, GBP 3.1 million of adjusting items which includes the lease impairment reviews following the accounting policy change and the carryover adjusting items from prior year for incentives and our global technology center. Before I move on to the next slide, I just want to come back to tariffs. As we set out in our statement, the focus has been to mitigate the effects of FY '27 and beyond. And we are pleased to say the action we are taking will do that. Those actions are continued tight cost control, flexible product sourcing and targeted adjustment to our U.S. pricing policy. These have started and will now phase in through to the end of the financial year. We have worked these actions thoroughly, both internally and with our customers and suppliers. The intention has always been to think of the longer-term impacts and make sure the actions we take are with that in mind. The net effect of all that work is that we see about half the high single-digit millions tariff headwind in FY '26 being offset this year. And most importantly, the tariff impact for FY '27 and beyond being fully offset. I have cleverly left the page over there, I'm going to get it. It was an important page because I can't remember it. So it's actually a final slide. So finally, turning to cash flow and our net debt. I'm really pleased to continue to report our significant reduction year-on-year in net debt both in terms of net bank debt reducing by GBP 33 million to GBP 154 million and total debt, including leases, reducing by GBP 46 million to GBP 302 million. As a reminder, our business builds up the inventory levels in advance of peak and the September net debt position tends to be the highest in the year. As we go through the peak period, the net debt will start to reduce. It is worth noting that included in our half 1 results is around GBP 4 million of tariff costs in inventory and this will grow to near GBP 10 million at the year-end. The bridge sets out the cash flows from FY '25 year-end position. The first 4 blocks just show underlying operating cash flow -- outflow of GBP 44 million, made up of delivering GBP 37 million of cash inflow from EBITDA, being invested into working capital as we build stock levels and then the spend on lease payments of GBP 28 million and interest and tax payments of GBP 13 million. CapEx accounts for GBP 6 million and our dividends in the year of GBP 8.2 million. Finally, our net debt-to-EBITDA finished at 2.1x, well below our bank covenant of 3x and an improvement year-on-year. We will continue to see those leverage ratios improve as we head towards the year-end. Our guidance remains for net debt of a year of around GBP 200 million, including leases. So to summarize before I hand back to Ije, looking forward into the second half, we are pleased with our performance in the first half, setting ourselves well up for our key peak period. We continue to see positive performance in our U.S. DTC business, and our order books across the business for SS26 are looking healthy. So with that, I shall pass back to Ije. Ije Nwokorie: Thank you, Giles. So let me give you some color on how in the first half, we executed the strategy that we outlined in June. So you'll remember this slide. And after stabilizing the business last year, this is a year of pivoting the business towards the new strategy. The great news, by the way, that underpins this is that the brand is strong. The team is passionately committed, and we are already seeing results from our work. Importantly, the work we've done in this half has also set us up for the second half and particularly these big trading weeks that we have ahead of us in the next few weeks and provided a foundation for growth in the outer years. But we are in this period of pivoting the business. And what's that pivot about? That pivot is about moving from a channel-first mindset that was primarily about building out DTC to much more of a consumer mindset, giving people more ways and more reasons to buy more of our products and making sure the business is in a situation where any one market or channel or product or consumer segment presents an outsized risk to our success. We have a brand that resonates around the world, and it's a privileged traveling around the world and seeing consumers and partners. And our ambition, therefore, is to become the world's most desired premium footwear brand. As you can imagine, it's a motivated ambition and one that the entire team is united around. So in June, we shared our 4 levers for growth. And what are they? They are engaging more consumers, driving more purchase locations, curating market-right distribution and simplifying our operating model, so consumer, product, markets and organization. And we also gave you a set of FY '26 specific objectives in which we're going to use to make sure that we're on track on this and that we advise you to use to also keep an eye on what we're doing. We said in consumer, we would reduce reliance on discounted pairs. We said in product that we would drive those new product families that we've introduced to you, and I'll talk about it a bit later, Zebzag, Buzz, Lowell, they allow us to give the consumer a different way to think about the brand in different purchase locations. In markets, we guided that we would open with capital-light distribution in some new markets. And in organization, we said we will make concrete steps to simplify our operating model. So let me now share the progress we're making in each of these areas. And as you would expect, I'm going to start with the consumer. As I said in FY '26, we are focused on reducing the reliance on discounts and I'm pleased to say that we are making good progress on both wholesale, which we kind of paid particular attention to and DTC. Working closely with our American wholesale partners and under the leadership of Paul Zadoff, our new President in the Americas, we've achieved a good shift from discount in both in the current season, autumn 1 and '25, and in the order book, as we look forward to spring/summer '26. And as Giles said, we're really happy with that growth that we have in that order book in the Americas because that's the first time we've been able to say that in a while. And similarly, in our DTC, the shift is having a clear impact. DTC full price revenue is up 6% year-on-year. The mix of full price to clearance is up 5%. And we have a full 10% up in the percentage of new consumers coming to full price versus discounts. That's particularly important because if you remember, the objective is to attract new to engage more consumers and we're engaging them -- we'll engage more of them at that full price basis, really critical for us. And while our full price to, if you look at that graph on the right, while our full price to discount profile will go up and down in different times of the year. We will continue to make sure that we're offering the consumer the right thing at the right time. And we will continue to manage this as we go through the pivot. So for example, expect in the weeks ahead, we will participate in Black Friday and Cyber and we'll do some discount. We will reward the consumer with that. We will deal with seasonal product that we want to move quickly. But we will do that in very specific seasons and then return to that focus on full price. I would also say that our customer data platform is helping in this effort because it allows us to directly target consumers based on their buying behavior. So now, for instance, when we are targeting a consumer who is -- who has a high propensity to buy full price, we will not be targeting them with a discount -- with a seasonal discount message because we know that they are motivated by that full price offering, and I've got to say this is still -- and I'll talk a bit about CDP later on. This is early days of this work and a lot more to benefit from as we go forward. The push for full price, along with our focus on comforts, on craft, on quality is supporting overall momentum, and you can particularly see this in Americas DTC. America's retail revenue in the first half was up 15.7% driven by increased footfall. The consumer is coming in to really engage with that product we've been putting before them. In Americas e-commerce, while revenue is only marginally up full-price revenue is up 20%, offsetting a significant headwind as we've reduced and we knew we would get this as we reduced clearance revenue. So we'll share more on that reduction in discount revenue across channels, and our work to attract new wearers at full price when we report the full year in May. I do want to emphasize, particularly with the U.S. numbers that we are showing growth on weaker comps, and this is still work in progress. There was more work to do and significantly more growth to go after in that market. So that's consumer. Let's talk about products. On product, we said we will drive more wearing occasions and in this year that we will drive growth in those distinct family products, Zebzag, Lowell and Buzz. So as you saw in the statement, we have had a successful half with shoes. Pairs are up 20% in DTC and 33% overall. And a big part of this success has come from us being able to give the consumer different reasons and different ways to buy. Playing into those product families and the different wearing occasions and, of course, leveraging the individual customer profiles to give them what is really right for that individual. We talked to you at full year about our success with our more style-focused Buzz family. We're pleased that, that momentum has continued, that's that product to the left with the Buzz shoe being the best-performing new shoe of the half. Another product family that we haven't talked to you much about, but if you want to see it in real life, John is wearing a pair today, is the Lowell. The Lowell is more crafted and more elevated than the Buzz. And we introduced that just a year ago. We haven't really backed it with marketing and has already risen to be 1 of the top 5 shoes for us in EMEA. But let me just say, it's not just the new product families, our iconic 1461 Shoe has continued to perform well. In Asia, it is our best selling product. I'll share a bit more about the work we've done in South Korea and a little case study about how this product has done really well there. And maybe a product we don't speak about a lot, but one that's been on the line since 1992 is our Mary Jane and this is the #3 best-selling product in the Americas and a big part of the success we are seeing there. Let me make one important point. I said this at the full year, but this is important to keep making. This ability to give the consumer more choice, we are matching that with a reduction in SKUs. So this is not about the proliferation of SKUs. And in fact, in Autumn/Winter '25, what we're in right now, we have 45% less SKUs than we did in Autumn/Winter '23. This is about disciplined curation of choice for the consumer as opposed to proliferation of products used. We've talked a lot about the Adrian, and I think the Adrian Tassel Loafer and the success of shoes has really been driven a lot by Adrian as Giles mentioned earlier. This is a product that's been aligned since 1980. It is our second biggest selling product. So I present shoes to make the point that the brand is not just strong, it is relevant across more silhouettes than we really leveraged in the past, and consumer groups allow different -- knowing different consumers allows us to play the right product to the right consumer. And we're really focused on making sure that, that curated breadth is put to work for the brand. What I don't want you to think, though, is that boots are not important to us. Boots are important, and this is an area while we have work to do as they -- as we continue that decline in the half, we are committed to boots. And it's worth saying that decline has moderated and has been impacted by, as Giles said earlier, our planned reduction in discounting. Boots matter to us and the 1460 Black Smooth that everybody knows, remains our top selling product, and we're making progress in the category as a whole with an increased percentage in full price mix. That's really important to us year, and we're achieving that in boots as well. I'll also say we're pleased with the performance that we've had in some of those -- again, going back to the product families, some of the newer products that we've introduced to the line. Let me give you some examples here. The Kasey high boots was new to the line last year and is the best -- the third best-selling product in the line in DTC in the half. And so remember, the 1460 Black Smooth is the first, the Adrian Loafer and then it's the Kasey high. The Buzz Hi, the green one you see back there has been built on the success of the Buzz shoe that we've talked about and that we launched in February. The Buzz Hi was the best-selling new product at launch in EMEA DTC this year. And as part of our focus on comfort, this autumn, we introduced the Zebzag Laceless boots. Zebzag is a family that we've built around being lightweight and casual. We've done [ heels ]. We've done sandals. And now we've introduced a really comfort led easy on boot called the Zebzag boot, you probably -- especially if you're in London, you probably saw some activation around this. And while it's too early to quantify commercial success in this, we're really happy with how that's gone and how it's raised comfort as a topic for this brand. And then 2 weeks ago, we brought to market a new innovation that's built off the 1460 boots. [Presentation] Ije Nwokorie: The 1460 Rain Boots is the first fully waterproof Wellington boots, utilizing our signature heat-sealed construction, that's how the bottom is joined to the top. And our Air Cushion sole -- if you've got the right -- if you got a sample size, it's worth putting your feet in this if you haven't yet, it is built for comfort, and we are getting great feedback on that already. It really captures the essence of what Dr. Martens is about comfort, innovation, craftsmanship functionality without losing the bold attitude of DOCS that our consumers love. This is a whole new wear in occasion for the brand, a real proof point of our strategy of increasing wearing occasions. It's an easy sell for existing customers. They love that silhouette, they love, they understand what the brand is about, but it's also a compelling product for new wearers of the brand. It's been fun visiting our stores and talking to consumers about it, people who came with somebody else and I never knew you did this and all of a sudden, they're getting on their feet. We've used our customer data platform to customize marketing messages based on the customer profiles. Some people are built more for style. And so you pitch a style message and from some other people, it's comfort and function, and we're able to do that as well to those people. It ticks all those boxes. And we've brought it to life in a really immersive way. These are some pictures on the screen, for example, a takeover of our store in Brooklyn, which is all merchandised just for the rain. And the wealth of press and social media coverage on this has been absolutely stunning. So we're thrilled how the launch has gone. I expect those of you in festival season from the summer to be wearing a pair of these, and we'll keep updating you on our progress. So now we talked about consumer, we talked about product, let's talk about markets. And the market lever is really about making sure that in each market, we have the right distribution, working in partnership with wholesalers and distributors. To get the right product in front of the right consumer in the places that, that consumer naturally wants to buy. And in FY '26, we've told you we'll focus on opening capital-light models with our partners. And I'm pleased to share now the progress that we've made. Much of this has been announced, but it's worth just encapsulated on one place. In the first half, we've announced new distribution partnerships in LatAm and in the UAE. Latin America agreement is with Crosby, and they will drive our reach in Mexico, Argentina, Paraguay and Chile. And this will include both wholesale and mono-branded Dr. Marten stores run by them. We now have 2 mono-branded stores launched already with Buenos Aires opening in August and Santiago at the start of October. In the UAE, we've partnered with Beside, who will launch and then grow the brand's presence in UAE, initially through wholesale with mono-branded stores planned very soon. And excitingly products that are arriving with that partner just last week. And in the Philippines, where we already have a great partner, we are accelerating that expansion on the back of this strategy. They have already operated 2 stores but they've now opened a third store again in Manilla, that's actually the picture that is here. And there are more planned. I also want to say, even though we've talked about capital-light models, this is not just about the deployment of capital, it's also about working with experienced and trusted local partners who have experience with global brands and who have deep market expertise and operating know-how. Working with them ensures our brand shows up in the right way for those consumers, whilst they'll be in 100% DOCS. And these are the first agreements of many that we will announce in the quarters and years to come. And while that is largely about new markets, it's worth saying the same principle applies to our existing markets. In Italy, we have 14 direct-to-consumer stores and we've been making good headwinds in Italy since we started building that strategy up. Now we're expanding through a combination of, yes, our own DTC, but also these partner stores with the first franchise store opening in Pompei in October 2025 with a great local partner. And we're really pleased with how that's gone. And as you can see from that image, it's a really great Dr. Martens experience. We have more stores planned for the future. We're taking a similar approach in China where we've opened recently in the half, new stores in Chengdu, in Chongqing and in Hangzhou. So this is an exciting growth lever for us. And it's worth saying, these capital-light models are a good example of our ability to create value in partnership with great businesses around the world. As I shared in June, we're excited about the skill, commitment, resources that our partners bring to our brand, whether it's through franchise stores as shared or in deep marketing partnerships with our wholesale partners. The images here is just a spectrum of -- some of the wonderful activations that our partners put out when we launched the Zebzag Laceless boot that I mentioned earlier. I'd highlight Zalando in Germany who really took over the big hub and held the biggest event there to date. And [ La Rinascente ] in Italy, which included the takeover of a metro station in the Milan that you see in the bottom right corner there. These close partnerships, along with the work we've done with them over the years to rightsize inventory are some of the driving reasons behind healthy order books for Spring/Summer '26. And curating this market right distribution with our partners is key to value creation for everybody. And so a few things take up more of my time than this, and we'll keep you posted on how we keep going to it. And so finally, let me talk about the organizational layer, which is lever, which is really about simplifying how we operate and focusing squarely on consumer. And here, we are beginning to reap early benefits of systems that we probably talked to you about in a bit, but that we've now really focused on executing, implementing and embedding the organization in the half and getting our global technology center in India up and running. I'll start with the customer data platform. The customer data platform is making it easier for our marketing teams, really simplify our marketing and commercial teams to reach the right consumer with the right proposition. I think I've given a few examples of that already today. So the focus to date has been on optimizing the consumer journey. That's how the consumer navigates through from social to a site to find the product they are looking for, driving repeat purchases and making sure that we're efficient when we do a discount that we're not cannibalizing full-price sales. And then we've also used it for our product launches, really tailoring the market, such as in the rain boot example that I gave you earlier. So again, early days, part of our business, but you can see how that really simplifies the way our teams can deliver value to each individual consumer. Our supply and demand system, as we told you, went live in the summer as planned and is already delivering greater visibility and accuracy between demand signals on one hand and supply orders on the other hand, you can imagine what that does for the efficiency of the business. For instance, our teams have started utilizing statistical modeling of past sales database on this platform to identify patterns, trends and seasonality, which then are used to predict future demand really on a 2-year rolling basis, that's new capability that really simplifies the way we think about things that and operate. And then finally, while not due to be fully operational until FY '27, our global technology center and actually the image in the background is the global technology center in India, is now up and running. And by bringing engineering in-house, which is what this does for us. We have already become much quicker in delivery and optimized customer journeys, allowing teams, for example, our retail teams to recognize the consumer and offer a more tailored store experience, such as an in-store pickup or a promotion for that individual consumer. So this is a muscle that we will keep pulling how do we simplify the organization, how do we equip our teams to be -- to make it easier for them to really deliver to individual consumers. Because again, that's what the pivot is about being much more consumer first minded. So that's the work we've been doing and the results we're beginning to see. In consumer, we're driving more full price in both wholesale and DTC. In product, we're growing those product families and alongside the icons, they've given our consumers more reasons and more occasions to buy. In markets, we're working closely with partners, whether that's capital-light models or deep market and product partnerships with major wholesale partners. And in organization, we're using technology to simplify how we work and how we serve our consumers better. So to wrap up, let me use one specific market to illustrate how this strategy all comes together as you see you get a picture of it. South Korea is still a small market for us and a proof of how we can grow in new markets. It's also a critical market, South Korea, because as you probably know, it really influences cultural trends around the world. So how does our strategy playing out here? In consumer, we've grown full price with that strategy. We've grown full price 65%, and we're increasing that mix of revenue by 25% in the year -- in the half over half. In product, we've leaned into that market specific demand for the 1461, which is really where that product is in more demand than any other market in the world, and really allowed our team to push that, while also significantly build a new equity around the Lowell shoe. So we know what the -- if you like, the major product is, but we're also able to start creating affinity around a product behind that so that we're not at risk of just one product lastly. The Lowell, as we started doing that is up, up in 90% half one to half one as we've done that. We're building exciting partnerships like this one in the picture shown here, which is with [indiscernible], who built out a major 2-week installation for the 1461 Shoe. And Giles and I were privileged to be in South Korea in the middle of those 2 weeks, and it's just a stunning experience, delivered entirely by our partner. And finally, by simplifying around the consumer, really making the consumer at the top of mind, it's allowed the career team to be liberated and deliver what works for their market. while aligning 100% to our brand. These are great experiences of Dr. Martens, but they're right for the South Korea market. As a result, revenue in South Korea is up 30% year-on-year in the first half. This is a growth market for us, and we're excited to see how the customer focus is helping them connect with more wearers and the learnings we can take from there to apply to other markets. So I hope that gives you a good sense of the progress we're making. We're focused on executing on the levers of our growth. We're seeing early results. But this is work in progress, and there are still key areas to address. We've set ourselves up well to deliver the plans in the second half. And along with our partners, we feel good about our plans for these big trading weeks that are ahead of us. And I have to emphasize there is significant opportunity ahead. That opportunity, as you remember, comes through the headroom that we still have to grow. Just in the 15 -- in our 15 top markets, we are only 0.7% of $180 billion relevant market in just those 15 countries. And we're in many places where the brand is still attractive and desired. And we're going after that. You've already heard us about Mexico in UAE and other places, and in our existing markets as you've seen with the U.S. or South Korea, we're also going after opportunities to grow there. So these early results and the significant headroom give us confidence in our medium-term value creation thesis to grow profitably and faster than our peer set. The operational leverage that delivers high to mid-teens EBIT margin and the underpin -- and the continued underpin of strong cash generation. This will create significant returns for shareholders. And that's why Giles, the team and I are laser-focused on this execution of the strategy. There's a lot of work ahead, yes, but the brand has never been stronger or more relevant and the green shoots are promising. So we're going after it. Thank you. Ije Nwokorie: We will take questions now. We'll take questions in the room first. Please say your name and what organization you're from. And then we'll go to questions via the operator. I think I'm going to get John for us today. John Stevenson: John Stevenson of Peel Hunt. A couple of questions to get us going, please. On the product side, you mentioned sort of areas to focus on and mentioned sandals and boots. Can you talk about what the plans are for next year in terms of how you think you can address sandals and what sort of innovation or how we're going to develop that? Secondly, on EMEA, I don't know if we can have a bit of a sort of dive into the region in terms of trading. I mean, clearly, the U.K. has been challenging. Can you talk about sort of an overview of where the weakness in EMEA is coming from and what your thoughts are from here sort of going into the second half and a very, very quick one. What's the price change agreed for factory pricing for the year ahead? Ije Nwokorie: I will take the first 2, and I'll pass you the questions on pricing. Yes, it's interesting. I have for simplicity loved the boots and sandals together, but I want to be clear that there are 2 different problem statements. And I'm confident about our boots plan. We have more work to do in sandals. I think sandals is a place where we need to drive more innovation, and we really have that work to do ahead of us. And I think that will take us -- to be very honest with you, that will take us a couple of seasons to get that right. But the team are working on it. I told you around innovation that we're working on lightweight. We're working on really making sure that our sandals proposition stands on its own and isn't just on the back of other things. But we're not starting from a standing start. We've had sandals in the line since '80s. Some of our top selling products in the season have actually come from America, if I take an example, we have a sandal called Dunnet Flower, which even 2 weeks ago, was one of the top sellers in America in November, right? And so we have strong sandal offerings, so we have -- we know what works. We now have to do the work to build that out over the next 2, 3 seasons, but it's work in progress -- it's an area of focus. With EMEA, the slight evolution on our analysis since the first quarter is that the U.K. isn't particularly the challenge anymore. That really was the case in the April to June quarter. But since then, actually, we've seen traffic return to stores. And I would say that the EMEA challenge is an EMEA-wide challenge. Of course, there are variances from market to market, but it's really about a consumer who is out shopping, but being a lot more considered. A lot more browsing and research happening. And they're doing 2 things largely. They are either looking for a deal. And so the market is promotionally led, but as we all know, there's only -- there's a bottom that you get in the market will have to fight back from just being promotionally led. But actually, more interestingly, there is also a flight to quality. There's a bit of a trade down from luxury into premium into craft and quality. And there's a bit of a considered purchase, which means I'm not just buying anything, I'm buying, I'm making -- I'm treating this purchase as an investments. I might actually spend a bit more because I'm getting the quality. And we see that come through in our more expensive products. We are actually doing quite well. What is the weekend of bag at EUR 300 -- over EUR 300 or whether it's something like the Kasey boot, which is one of our more expensive boots. So this is a consumer who is considered. There's nothing wrong with that and a brand that has quality, has opportunities. And that's what we're going after. We can, of course, control broader macroeconomic issues and the ways in which the consumer thinks but we feel we have enough levers. We planned into the headwind on discounts. We're not going to over chase that. We'll participate where we need to participate. That will remain a headwind for the rest of the financial year, but we still think we have opportunities to make sure that we are competitive in the market. Giles Wilson: So your factory pricing, looking ahead, I mean, effectively, we don't guide specifically on factory pricing. I'm comfortable where the numbers are. There's nothing there. With the exception of tariffs, it's obviously a cost that we've given you views on. But overall, we have a good relationship with our suppliers, long-term relationships with our suppliers and actually some of the work that we've been doing specifically around tariffs has been working with them about where we source some of our American purchase orders from. So I think we don't normally guide on it, but there's nothing in there that I would be saying this particularly to pull out. Anne Critchlow: It's Anne Critchlow from Berenberg. I've got 2 questions, please. First of all, on the U.S. In terms of the perception of pricing power in the U.S., how confident are you that you can put through these price rises. Do you think they'll strengthen the brand? Or do you think you'll encounter some resistance? And then secondly, on EMEA, how confident are you that you can drive engagement and turn that sales trend around? And how important are the CDP capabilities within that? Ije Nwokorie: I will grab both of those, but add anything if there's anything I miss out. So as I shared, and we've traveled a lot together. We were in a Boston store early in the year. We're not seeing any resistance in America to our higher prices. In fact, we have some anecdotal evidence that the price position in some products -- some specific products might be on the low side, and we have opportunity. It's worth saying we haven't taken price in the market for 3 years, right? And so the market -- we have headroom to go to and still to remain competitive. But we will be surgical about this. This is not a blanket price raise. We will look at individual products. We will understand how their benchmark and understand how the consumer sees them and that's how we will apply pricing. So to your question, do you see any resistance? Never take the consumer for granted, but this is strengthening our premium position to have the right prices at the right... Giles Wilson: I think just worth also adding, we look at price -- those prices on a global basis. So we look about how does that feature in a product, not just in the U.S., but where does it turn up in other countries. So it's part of our pricing policy to look at this. And as Ije said, we haven't taken pricing for 3 years in the U.S. So there's actually -- there's a lot more detail that goes behind that work that goes in, and we're much more confident about where they come through. Ije Nwokorie: In EMEA, I think I'm going to make a similar statement but you never take the consumer for granted. We do think that less clearance will remain a headwind for the rest of the year, but we've planned for that. That's baked into our plans. That's not any new risk. We like the fact that the consumer is in the store. So that gives us the opportunity to make sure that we deliver that value that they're looking for because the footfall in the stores is absolutely fine. And online, we continue to make sure that we are using the CDP to your point, to really manage that experience so that consumer finds the thing, not just that they're looking for, but the thing that is right for them based on their profile. This is trade and work on. And so there are no ground strategies. It's really understanding each consumer. I really understand in each -- literally down to each individual store, but we've got great people in our stores who really know how to trade and we're giving them great product to work with. So we're confident that we'll hit our plans for [ India ]. Kate Calvert: Kate Calvert from Investec. Just 2 for me. First of all, just on the franchise model, apart from Italy, where else in Europe are you thinking of using this model? And are you thinking of using it in the U.S. And my second question on the U.S., you talked about the full year results about the opportunity to elevate the brand and work with more premium wholesale partners. Have you made any progress in autumn/winter on this? Or is this all to come sort of year and beyond? Ije Nwokorie: Yes. Good questions. I'll take both of them. I don't want to get ahead of myself on markets where we will do the franchise model. It's worth saying we have it -- it's a big part of our business in Japan, it's a big part of business in China, a significant part of our business in China and a significant part of our business in Italy. So we have those examples. We will look at it as we look at retail strategy going forward. So I don't want to open or close any markets to it, but those are the 3 places where we are active. And as we deliver on that and as we build that out, we'll share that information with you. We're really happy with what we've been able to do with Nordstrom in the last year and I'm not going to guide on their numbers, but we've had that premiumization and some of the product at the more expensive area, some of the work and the success we've had with the Adrian Loafer has been in partnership with Nordstrom. So that's a really -- that's an example of a premium brand where we've done that. We've also done some really great work just recently with Kit, which is out in the market and a kit is really that sort of that Pinnacle retailer and some of our more refined elevated product, something we call [ Regen ]. These are not huge volumes, but they really position the brand in that Pinnacle space. And so those are 2 examples, and Paul and the team are hard at work building that out. You've got a question there? Let's go. Same rules. Just tell us your name and where you're from and would love to hear your question. Operator: We'll take questions from Alison Lygo from Deutsche Bank. Alison Lygo: Two for me, please. First one is about the U.S. and the profitability there and the operating cost base. Margins in the U.S. has kind of reached flattish now in the first half and expect that to be positive in the second half with the seasonal weighting, but still very much dragging on the group. Just wondering what your sort of outlook for regional margins there is? What you think kind of can be done now? Is this just the case of kind of growing back into the cost base? And then the second one is really on the product that your wholesale partners are buying into. And so you talked about plans to get partners buying into a broader assortment. You've talked about a healthier order book. And I'm wondering if you could add a bit more color around that in terms of the range of products that wholesale partners are now buying into and really how the regions are kind of comparing in terms of whether one is more ahead of the others? Giles Wilson: Yes. So on U.S. margin, I think there's a couple of things we need to just pull apart for the first half. Firstly, obviously, the U.S. margin has got the U.S. tariffs in. So you will have that as a bit of a headwind in the half year and obviously, Ije rightly said the first half is obviously the smaller the half. You'll have noticed that Ije put up on the screen that we saw our retail stores grew 15-plus percent year-on-year. So we're seeing much better performance across our retail stores. And as we set ourselves up into peak, we feel much more confident there. And then thirdly, the growth in the wholesale, I think that's the other key part here. We've obviously had a couple of years where wholesale, particularly in the U.S., was where we came off. And we're sitting here much more confident about our summer spring -- sorry, spring summer even order book as we go forward. So I think it's a bit of both, in all honesty, it's about us growing back into some of the -- into the volume, particularly on the wholesale, getting better return from our retail stores as we're doing. But also, as you're well aware, we have been looking at our store network, and we have closed or provided for stores, and we are doing that. We've been quite clinical now about what each store needs to produce and have actually -- I think, at the half year or the full year, we did actually put a few stores as impaired. So we will expect to see that margin now begin to really improve and get back to the levels that you've seen in the past. Ije Nwokorie: And on the second question, Alison, which is a great question. Thank you. What we're seeing is our wholesale partners are buying into a broader range. But I want to be clear, what's the right range varies from wholesale partner to wholesale partners. What journeys once is going to be very different from Nordstrom ones, and it's going to be very different from -- it's not just once, what's right for their consumer. And so having really built up the strategy and particularly in the U.S., demonstrated that return to growth based on the strategy in DTC. Of course, the wholesale partners are now very interested in a broader range of products. But there isn't a particular regional split on that, that's going to be different from wholesale partner to wholesale partner based on who their consumer base is, who their buyer is, how they sell. But it's a broad spectrum across particularly -- we've seen a huge growth in shoes and the assortment of shoes and across those new range of products. So it's broader than it's been before. You've got those new product families in it. You've got a bit more shoes than in the past, but it's -- that's a general statement. It's going to vary from wholesale partner to wholesale partner. Operator: There are currently no further questions over the phone. And with this, I'd like to hand back over to Ije for closing remarks. Ije Nwokorie: Thank you all very much. I believe the statement is clear, and it's been a pleasure to share with you some of the highlights from the execution of the strategy. The statement remains the same. We're happy with progress to date but there's still work to be done. And when we look at the long-term opportunity, the headwinds in the market, the strength of the brand, the fundamental economics, we're really excited with how we're going to create value for our shareholders in the future. So thank you very much.
Operator: Good morning. Welcome to ODDITY's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. We have allotted time for prepared remarks and Q&A. At this time, I would like to turn the conference over to Maria Lycouris, Investor Relations for ODDITY. Thank you. You may begin. Maria Lycouris: Thank you, operator. I'm joined by Oran Holtzman, ODDITY's Co-Founder and CEO; and Lindsay Drucker Mann, ODDITY's Global CFO. Niv Price, ODDITY's CTO, will also be available for the question-and-answer session. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including statements about ODDITY's business strategy, market opportunity, future financial performance and potential long-term success. Forward-looking statements involve risks and uncertainties, and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued yesterday and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2025. We do not undertake any obligation to update forward-looking statements, which speak only as of today. Finally, during this call, we will discuss certain non-GAAP financial measures, which we believe are useful supplemental measures for understanding our business. Additional information about these non-GAAP financial measures, including their definitions are included in our earnings press release, which we issued yesterday. I will now hand the call over to Oran. Oran Holtzman: Thanks, everyone, for joining us today. We delivered an outstanding third quarter with strong financial performance while achieving major milestones in our growth initiatives, including new brands, new markets, ODDITY LABS and tech innovation. Even in a challenging industry backdrop, ODDITY continues to deliver on its near-term financial commitments while building our future growth engines. Our financial performance once again exceeds our targets as we have done every quarter for the last 10 quarters as a public company across revenue, profit and earnings, including 24% revenue growth and 24% growth in adjusted diluted earnings per share year-over-year despite category challenges. We are also once again raising our full year guidance. We achieved a huge milestone this week with the official launch of METHODIQ, the third brand in the ODDITY platform. METHODIQ is our most ambitious endeavor. Our long-term goal for METHODIQ is not just to launch another great brand and a telehealth platform, but to transform a broken medical care system using the best treatment and the highest standards of care available to everyone. Our objective is to address medical issues with customized high efficacy treatment without the need of going to a doctor's office or getting lost in a drugstore. Achieving our planned time line for METHODIQ is a great accomplishment and speaks to what makes ODDITY and our culture so strong. This is 4 years of heavy R&D in the making, supported by 2 acquisitions, including Voyage81 and Revela developed with what we believe is an unprecedented scale of over 20,000 real user trials for our product line. METHODIQ is starting in dermatology, but our long-term goal is to expand into new medical domains in the future, and these are in development as we speak. Our launch into dermatology takes on a massive problem. Industry data shows that nearly 50 million Americans suffer from acne, nearly 30 million from hyperpigmentation and more than 30 million from eczema, and many of them are unsatisfied with the current options on the market. Drugstore products lack efficacy and personalization, going to a dermatologist is a high friction and the standard of care for these conditions has declined. At the same time, dermatologists will tell you that issues like acne are curable. You only need to ensure that the person has the right products and that they stay compliant. To tackle this big challenge, we built an ambitious and complex brand. METHODIQ is expected to feature a huge line of 28 prescription and nonprescription products, which combine for more than 100 unique treatment combinations or precision personalization. We have aimed to optimize these products to balance between maximizing efficacy and minimizing side effects at the same time to provide the best-in-class beauty experience using the same standards for things like texture and scent that we have at IL MAKIAGE and SpoiledChild, while beating top benchmark competitors in their category based on internal data. Our launch portfolio spans oral topical supplements and medical grade makeup that conceals whiteheads. Within the first 6 months of launch, we will be live in the market with 4 METHODIQ products formulated with ODDITY LABS molecules that are proprietary to us, addressing a range of skin conditions that include dark spots, papular scarring, eczema and skin filament. METHODIQ suites of vision tools was developed alongside our team of dermatologists to analyze visible skin features like breakouts and pigmentation to help our doctors' networks understand its user conditions. These vision models were built drawing on more than 1 million image of real individual with no facial skin condition, which we believe is the largest image data set of its kind and was curated from over 13 million facial images in ODDITY's database. Users are delivered continuous care through METHODIQ's first-of-its-kind tracking app for weekly check-ins where our vision technology quantifies progress and gives update to the clinician, ensuring compliance and success. We soft launched METHODIQ in Q3 and went live with our formal launch earlier this week, exactly as planned. This launch includes a major media campaign showcasing METHODIQ's distinctive brand voice and inspires consumers to commit to the care. We are running a large-scale out-of-home takeover in New York City and a massive TikTok activation partnering with the biggest medical and skin influencers to create brand awareness and to build trust. This is the biggest TikTok activation in ODDITY's history. And as we have said, dermatology is just the beginning. We are working on additional medical domains for expansion, and we expect to have more to announce for METHODIQ's in the future. Turning to IL MAKIAGE. Q3 were once again strong. IL MAKIAGE revenue grew double digit online. The brand remains on track to achieve our target of $1 billion revenue by 2028. We continue to show healthy expansion in international. At the ODDITY level, international revenue increased around 40% year-over-year in the first 9 months of 2025. We have successfully scaled in existing markets like U.K. and Australia, while conducting larger scale tests in new markets like France, Italy and Spain. We see huge opportunity in international markets and plan to further scale those across the board in 2026. Skin remains a standout growth area and is on track to be around 40% of IL MAKIAGE brand revenue this year. Successful product innovation has been a key driver of skin, and we expect this will continue in 2026 with our solid lineup of new product launches. Turning to SpoiledChild, which is having a strong year. We now expect the brand to cross $225 million of revenue in 2025. We are excited about our innovation lineup for 2026, including new product tests. Moving to ODDITY LABS, where our very hard work over the last 2 years is starting to bear fruit. We have made significant improvement over the last year to our systems, infrastructure and teams, which we believe will translate into strong commercial discoveries. The near-term commercial impact for ODDITY LABS is increasing. We plan to have at least 8 products with labs molecule on the market in 2026 for our existing brands, including 4 products for METHODIQ and 4 for IL MAKIAGE and SpoiledChild. Beyond these 8, we have additional products planned for our brand launch, lastly on tech product innovation, which is the backbone of our business and an area of continuous investment. Artificial intelligence has been a centerpiece of our tech platform since we first launched in 2018. Advances in large language models and generative AI, together with our large and growing proprietary data sets allow us to push the frontier of how we can use machine learning to drive direct-to-consumer. We have a range of initiatives in development on this front, including commerce agents that drive conversion and satisfaction, integrating these state-of-the-art models into our advertising creative and other customer-facing initiatives. With that, I will hand it over to Lindsay. Lindsay Mann: Thanks, Oran. Turning to our third quarter financial results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Q3 was another good quarter for us, setting us up for a record-breaking full year results in 2025. ODDITY's strong financial results continue to stand out relative to our competitors. This outperformance has been driven by the strength of our direct-to-consumer model and exposure to what we see as the key durable growth vectors in the industry, which are the consumer shift online and the migration towards high-efficacy products. We grew revenue by 24% in the third quarter to $148 million, exceeding our guidance for revenue growth of between 21% and 23%. The strength was driven by double-digit online growth at both IL MAKIAGE and SpoiledChild. Net revenue was driven by an increase in orders, while average order value declined around 1%. Average order value was impacted by mix, including faster growth in international markets, which carry lower AOV. Repeat increased as a percentage of sales year-over-year, and our 12-month net revenue repeat cohort trends remained strong at north of 100%. Gross margins of 71.6% expanded 170 basis points versus the prior year and exceeded our guidance of 68%. We did experience some gross margin impact from the flow-through of higher tariffs during the period, but this was offset in part by cost efficiencies and favorable mix relative to our plan. We continue to expect tariff headwinds will remain manageable for the balance of 2025 and into 2026. And while we have the flexibility to take pricing as needed, we have no specific price increases planned to offset tariff-related inflation. We delivered adjusted EBITDA of $29 million in the quarter, above our guidance of $26 million to $28 million. We continue to invest in our long-term growth engines, including our METHODIQ brand launch and other future brands, ODDITY LABS and our tech platform. We had higher-than-planned media costs in the quarter and have seen the media backdrop improve as we progressed into the fourth quarter. We delivered adjusted diluted earnings per share of $0.40 compared to our guidance of $0.33 to $0.36. Adjusted diluted earnings per share exclude approximately $9 million of share-based compensation expense. We delivered strong free cash flow of $90 million for the first 9 months of the year. This included around $16 million of outflows related to inventory as we built inventory from METHODIQ and modified our inventory shipment timing for tariff planning purposes. We ended the quarter with $793 million of cash, cash equivalents and investments on our balance sheet with an additional $200 million available on our undrawn credit facilities. Turning to our outlook for 2025. After a strong first 9 months, we're on track for another record-breaking fiscal year and are once again raising full year guidance. We now expect full year 2025 net revenue will be between $806 million and $809 million, representing between 24% and 25% year-over-year growth. We expect gross margin will be approximately 72.5%. We expect adjusted EBITDA will be between $161 million and $163 million, and we expect adjusted diluted earnings per share will be between $2.10 and $2.12, assuming no share buybacks in 2025. This full year outlook includes our expectation that revenue in the fourth quarter will increase between 21% and 23% year-over-year. You can find more details on our Q4 outlook in our press release. With that, I'll turn the call back to the operator for questions. Operator: [Operator Instructions] Our first question is from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: So Oran, on the base business, can you just help us unpack the 40% year-to-date growth you mentioned in international markets? Obviously, that's been a greater focus for you guys year-to-date. What have been the key geographic drivers of growth there from a country standpoint? And then just as you look out to 2026, you mentioned further scaling the international business. Is that around further country penetration? Is it SpoiledChild expansion? Just the key expansion or white space opportunities as you look going forward? Oran Holtzman: Sure. So the first 9 months, just to put things in perspective, still 83% of revenue came from the U.S. So although international grew 40%, it is still tiny comparing to the U.S. while for others, as you know, international is approximately 2/3 of their business. For us, it's still 17%. Our plan is to continue to responsibly grow across the board in international markets. But as we said in our remarks, it's a huge revenue and profit opportunity for us, and we see that it's strategically important for us. We scale international when we think it makes sense. We don't run and spend in user acquisition just because we want to grow international or because we see softness in the U.S. The opposite. Where we see opportunity, this is where we push and we get more revenue. This year, we grew 40%, but like the objective is not just to grow the international market. And in terms of countries today, existing countries, Canada, U.K., Germany, Australia, Israel and France. New geographies are Italy, Spain, Netherlands, Ireland and Sweden and Denmark. Markets that we are adding as testing are Japan, Mexico, Korea, Belgium and a few others. But this year, only 2% of revenue came from new countries and the 15% came from existing countries. So basically, the majority of the growth came from countries that we already were active in. Dara Mohsenian: That's very helpful. And then just one on METHODIQ. Just high level, any thoughts after you've done some testing there on how much ability the platform has to bring in new customers to the ODDITY franchise and perhaps over time, indirectly drive beauty sales and cross-sell? And just as you see initial interest in the platform, how much of that is coming from your existing consumer base versus a new consumer base? Oran Holtzman: Every new country is completely new because we don't have users there. So that's why it's -- in terms of cost, it costs more because like we don't have any existing users. Lindsay Mann: Oran, his question is on METHODIQ. The question is on METHODIQ, right there. Oran Holtzman: Sorry, I couldn't hear you. Yes, sorry. In terms of METHODIQ, yes, of course, like SpoiledChild, when we started, the majority of revenue came from IL MAKIAGE, and we expect that a decent percentage will come from IL MAKIAGE and SpoiledChild for METHODIQ. Of course, we are also doing user acquisition because we want to expand our user base. So it will be mixed. Over time, of course, when the brand grows, then we will have more acquisition, but we are doing both. Operator: Our next question is from Anna Lizzul with Bank of America. Anna Lizzul: On METHODIQ, just wondering in terms of how we should be thinking about this brand for '26. Just wondering if you can continue to elaborate on how you're thinking about new customer acquisition for METHODIQ. Just how can we think about it incrementally versus SpoiledChild and IL MAKIAGE? And just in terms of the investments that you're making, we previously expected, I guess, a larger headwind on the second half in SG&A and the guidance for Q4 implies that this might not be as bad as we previously expected. So was wondering if you can comment on this also for the beginning of '26 in the context of the new brand launch. Oran Holtzman: I will start with high level. Our expectation from METHODIQ Brand 3 is to scale faster than SpoiledChild, which was one of the best D2C launches of all time. And our expectation here is to see even bigger numbers. In terms of contribution due to the fact that it's like relatively small, like SpoiledChild did $25 million in year 1. And even if we do a bit more, still comparing to our next year revenue goal is still tiny. So Lindsay, if you want to touch regarding contribution for both top line and bottom line and METHODIQ. Lindsay Mann: Yes. No, that's right. We haven't given -- we're not ready to give any specific plans for 2026 for METHODIQ. But of course, as we look long term, we're extremely bullish about the brand. This is a telehealth platform that is really reimagined what medical care would look like if it was built entirely around the customer. Oran talked about the world-class treatments we've put together, highest standards of care, truly personalized to the individual and broadly available to everyone available online. We're starting in dermatology. That's a focus for us right now, a market that we understand really well because we've got around half of our IL MAKIAGE and SpoiledChild users on the ODDITY platform that tell us they have issues like acne and dark spots and eczema. And so it's a nice place for us to begin, as we said with the earlier question. And there's truly nothing like it on the market. So we're very, very bullish, but we are in very early stages. We had our soft launch on time in the third quarter. We just launched formally this week. A lot of very strong early signals, but still lots of work for us to do before we figure out our plans in terms of timing of scaling, et cetera, but we're really excited. As far as the SG&A implied guidance for Q4 versus prior, I guess what I would say is, historically, we like to guide to revenue and EBITDA. And then from a gross margin perspective, we always give the team a lot of flexibility. So we try to guide conservatively that allow them to kind of chase whatever products from a DC margin perspective, that's gross margin after media spend. That's how we evaluate the business. We want them to have lots of flexibility to go after the right DC margin or other products that from a strategy perspective, we're focused on. So gross margin is not an internal focus metric. And as a result for our guidance, we try to walk you guys to a place where we feel really comfortable we can deliver, and we've historically delivered a bit better, but we're always managing towards that revenue and EBITDA figure. So I wouldn't read too much into that. We still have some nice investment planned for all of our growth initiatives, including METHODIQ in the fourth quarter, and we talked about the growth investments in the first half of 2026 on our prior call. Operator: Our next question is from Youssef Squali with Truist Securities. Youssef Squali: I have 2, maybe just starting with one, Oran. We've seen a pretty mixed bag of earnings from various consumer-oriented companies this earnings season. I think you alluded to that a little bit in your prepared remarks. Can you maybe speak to your views about the health of the U.S. consumer right now and some of the things that you guys are doing in particular, just to help ODDITY buck that trend? And I have another question. Oran Holtzman: Sure. Yes, like we see what you guys see regarding softness from like from the outside. But internally, as you can see based on our results, revenue is still like according to plan, even better. Margin was strong. This is despite the fact that we see like higher acquisition costs. And the main reason that we can offset it is just like the massive repeat that we have. And when I try to think about the way like to think or to answer regarding softness, the first thing that I look at is obviously acquisition, but the second part is repeat. So yes, acquisition is higher, but repeat is getting way higher every quarter. And therefore, we are not impacted. Youssef Squali: Okay. Okay. That's great to hear. And then Lindsay, I know you're not guiding quite yet to 2026. But is the growth algo for 2026 any different from what we've expected or what we've heard from you guys up until this point, which is committing to basically 20% top line, about 20% adjusted EBITDA margins. And maybe within that, maybe just talk about the marketing efficiency in the business that you're seeing. Lindsay Mann: Yes, we're not ready to give 2026 specific guidance. We'll give that when we issue our Q4 earnings results, but there's no change to our algorithm of 20% revenue growth and 20% adjusted EBITDA margin. And you heard Oran reiterate in his remarks earlier that the other sort of medium-term guidance that we've given for IL MAKIAGE to deliver $1 billion by 2028, there's no change to that either. So business continues to be on a very healthy footing. As far as media efficiency goes, you heard Oran comment, we did have some higher acquisition costs. In my remarks, I mentioned the environment has actually improved for us as we've gotten into the fourth quarter. Overall, SG&A in the third quarter was up around 30%, and that's including some of the increased spending initiatives that we have, for example, for METHODIQ, ODDITY LABS, et cetera. So it's been very manageable for us, and we're feeling really good as we head into Q4. Operator: Our next question is from Andrew Boone with Citizens. Andrew Boone: Lindsay, as we think about METHODIQ being added to the model, is there anything that we should keep in mind in terms of the different financial profile, whether that be different AOVs, whether that be different margin profiles? Is there anything we should be considering as we think about the next 3 years and layering in that brand? And then on ODDITY LABS, it's great to see molecules start to contribute to the portfolio in 2026. Can you guys just help us understand what the expectation is of proprietary molecules? It feels like a step function change in terms of what you guys can bring to market. How do we think about that? And then what's the path beyond those 8 initial products? How do we think beyond this first step? Lindsay Mann: Oran, you want me to start? Oran Holtzman: Yes, please. Lindsay Mann: So in terms of financial profile for METHODIQ, over the long term, we see this brand in a very similar framework that we think about with both IL MAKIAGE and SpoiledChild, and those are brands that will support long-term compounding 20% revenue growth and 20% adjusted EBITDA margin. So very healthy unit economics that we see for the category in general and that we think METHODIQ will deliver, especially as it relates to repeat and other KPIs that build into LTV. I think for the prescription product, in particular, we will have lower gross margins, especially at first. We'll be -- we're always quite inefficient on the gross margin side when we launch a business. But in the case of prescription for METHODIQ, because you have the third-party physician network and also the compounding pharmacies, those are extra costs for us. The business we expect will be mostly not prescription, but you do have some of the prescription cost input that will impact on the gross margin side. However, we think you're going to have a really nice repeat business there that drives healthy DC margin. Probably too early to say much else, but we look forward to sharing a bit more as we progress post launch in 2026. As it relates to ODDITY LABS, maybe I'll start and Oran, if you want to add additionally. As you guys know, in 2024, we made a strategic pivot with Labs where we decided to extend our development time lines in order to focus on delivering molecules that had much higher efficacy and far superior performance characteristics than what was on the market today. And so we knew that would delay some of the timing of certain launches, but we thought it was a really smart trade-off to make because we believe that we could produce things that were way better. And now you're starting to see the fruits of that labor. So as we said, we expect in '26 that just for our existing brands, we'll have 8 products on the market, including 4 for METHODIQ. I would describe the METHODIQ brands products as some of them extremely innovative, addressing very important needs for the consumer. So we're really, really excited about that. And we have even additional -- we have a lot in the pipeline, including some molecules that we expect will be delivered with Brand 4 and more beyond. So I would just say super happy to see how the level of improvement that we got out of the work that we put into ODDITY LABS. Oran Holtzman: I would just add that like when we started labs, we built it -- we started and we built it again. It was hard because the first time that we've done something like it. And the fact that you see so many products and so many molecules coming to market this year just shows like that what we've done was the right thing, and there is a real progress in labs. So we expect to see the same pace and even higher in the next few years. The fact that both METHODIQ and our IL MAKIAGE and SpoiledChild brands are going to get molecules this year is very encouraging. And again, just shows like the strength and the progress that we've done, which is significant in the past 1.5 years. Operator: Our next question is from Cory Carpenter with JPMorgan. Cory Carpenter: I have 2, Lindsay, probably both for you. Just hoping you could expand on the comments around the media environment and higher acquisition costs now going a little lower. And anything in particular to call out on the search channel? And then capital allocation, you have a healthy cash balance. You have not purchased shares since the convert earlier this year. So maybe if you could just refresh us on your capital allocation priorities. Lindsay Mann: Sure. On the media side, media costs, as we've said before, they tend to get more expensive every year, but we are able to offset them really effectively with higher repeat and also other unlocks across our KPIs, including conversion and other things that we focus on. So this has allowed us to deliver a very healthy, sustained profitable business and repeat is running at around, call it, 2/3 of our overall business. And we were really -- are really pleased to see that the -- I discussed the net revenue repeat cohorts, like the 12-month cohorts and the cohorts that we examine are all continue to be really, really strong. So we think you're still seeing a healthy consumer environment and a solid environment for us to continue to deliver. As far as our cash position goes, we're in a very strong position, almost $800 million of cash equivalents and investments on our balance sheet today. We post the convertible earlier this year, we view this as really efficient, patient capital for us that we have flexibility to do what we want with. So we, of course, have the opportunity to deploy it for buybacks. We have the opportunity to deploy it for M&A, and we feel like we're in a really strong position where we can be patient and selective about what we use it for. Operator: Our next question is from Ryan MacDonald with Needham & Company. Ryan MacDonald: Congrats on a great quarter. As you look at the international success into the test market, can you talk about how replicable like the data model in terms of targeting subscribers and new users and then sort of identifying maybe more local or geographic differences in terms of what their needs product-wise might be just as you continue to scale that international efforts? And then is your intent to immediately go international with METHODIQ right away? Or are you going to take sort of a more measured sort of region-by-region approach like you've done with other brands in the past? Oran Holtzman: Sure. So first of all, regarding METHODIQ, we thought only U.S. It's complex enough without international. So by the way, SpoiledChild was the same for the past -- for the first almost 3 years, we didn't even test international. So we plan to do the same with METHODIQ. I'm not sure it's going to be 3 years, but I don't think it's going to be way less than that. Regarding international and what we -- exactly what you said, that's the reason why we do tests. And when I said test, like we open market with a localized website and starting to put -- to spend media against new users in those countries and to ship products based on that, we see satisfaction, we see repeat, we see unit economics, then we decide if this market is suitable for us or not. And that's how we -- that's what we have done for the past 2.5 years. Operator: Our next question is from Scott Schoenhaus with KeyBanc Capital Markets. Scott Schoenhaus: METHODIQ here. Lindsay, you mentioned the majority of revenues were going to be -- volumes are coming from the nonprescription side versus prescription. Are the molecules, those 4 molecules also going to be for nonprescription versus prescription? And then as a follow-up, on the prescription side, the physician network that you've built, there's clearly a shortage of dermatologists. And so this is an asset. How are you thinking about deploying technology to leverage more dermatologists on your network for patients? Lindsay Mann: Thanks, Scott. So the 4 products are not prescription. They're a combination of OTC and cosmetic. And again, we're really excited to have them out there, but those are not prescription products. And in fact, for ODDITY LABS, we're not -- for the most part, and certainly, in the near to medium term, you won't see anything that's prescription coming from ODDITY LABS that will all be either OTC or cosmetic. In terms of our physician network, we are currently plugged into third parties to help us with that. We have not brought that in-house, but we have the opportunity to do so for cost efficiency reasons down the road if we decide to do it. We -- the networks we're using now, we're using all physicians at the moment, not all dermatologists, but all board-certified physicians. And we can, of course, scale that to NPs and other medical care practitioners down the road. There's the opportunity for that, but we're starting with all physicians as we build that and learn. And I think from a technology standpoint, it's really us building capabilities that allow the network of clinicians to get the strongest signals possible to help inform treatment decisions based on the inputs that we take, basically, when you're going through the METHODIQ intake and onboarding funnel, we're picking up on the contextual real pathways and real signals that -- the same thing that you would look for if you were in an office, right? So you're looking at questions about demographics, hormonality, history and that kind of stuff. Meanwhile, the vision tools are picking up signals like number of lesions, intensity and those kinds of signals that are really helpful for a clinician when making a decision about treatment outcomes. So that's a really important part of our technology and then also just integrating our records directly with the provider systems that help the -- operate the clinician interface and help them to integrate with our tools. And then I think finally, like within the METHODIQ app, the ability to get feedback, progress tracking and to chat directly with your clinician to help drive things like confidence and most importantly, compliance and success, those are enormous ways we're using technology to drive the outcomes that we want. Operator: Our next question is from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I just have a question on IL MAKIAGE and SpoiledChild. Growth in the U.S. remains strong double digits for these brands, but it has moderated year-to-date versus last year. So could you talk about what's driving this? And if the low 20% growth in the U.S. for these 2 brands is doable over the next few years? Or should we expect a continued slowdown? I guess I'm asking especially for IL MAKIAGE. Also, could you touch on repeat rates for the brands and if these rates are also moderating? Oran Holtzman: I will start by saying... Lindsay Mann: Go ahead. Oran Holtzman: Yes, I would just start by saying that as I mentioned before, we manage growth across brands and geographies. So like I don't wake up tomorrow and say, today, I need to see 25% IL MAKIAGE in the U.S. We see we look more broader and we maximize the potential based on what we see in real time. So if Germany is working better at a specific day, this is where we push more and vice versa with SpoiledChild. Lindsay, do you want to touch repeat? Lindsay Mann: Yes. I mean just to add on that, like we are driving growth at the ODDITY level and our growth targets we're managing growth towards 20%. We don't want to grow faster than that. And so ever since our IPO, we have been very clear and explicit about our plans to sustain 20% compounded durable growth. And that's exactly what we've been delivering on, and we're managing it at the ODDITY level, and we'll pull different levers within the different brands. Specific to IL MAKIAGE, our target is to get to $1 billion by 2028, and we've always talked about international being an important piece of that. And so you're seeing us flex on the international part now. At the same time, we want to make sure we're feeding SpoiledChild and now we have a third baby to give oxygen to. So we're managing it as a portfolio in order to deliver an overall ODDITY level growth. I think in terms of repeat, no, repeats continue to be very, very strong. Operator: Our next question is from Georgia Anderson with Evercore ISI. Georgia Anderson: I was wondering if you could talk a little bit about the TAM for METHODIQ. Are you guys kind of defining this as all chronic skin sufferers in the U.S. or globally? Or is it a narrow cohort, acne or eczema patients are willing to pay out of pocket? And then just kind of in terms of measuring success of the brand, do you have any milestones or KPIs that would give you confidence that METHODIQ is scaling towards its full TAM? Oran Holtzman: Lindsay, I'll start with the KPIs and you'll talk about TAM. Lindsay Mann: Yes. Oran Holtzman: So like we soft launched in September, official launch this week. So of course, very early. But based on what we see early, the demand is there. The KPIs that we look at now are user acquisition, repeat, up downloads, open rates, weekly check-ins. And like when we see that those KPIs as we envision they are, then we will start scaling. Lindsay Mann: In terms of the TAM, the right way we think to look at this is number of people rather than dollar size. And the reason for that is because it's such a high friction market and one that hasn't been run well that we think if you actually can unleash some technology that leads to better outcomes and easier outcomes for people to access, you're going to see the overall market grow. And for these chronic skin conditions like acne and hyperpigmentation and eczema, I mean, your solutions are, number one, go to a dermatologist. Oran talked about 2/3 of U.S. counties don't even have a dermatologist. Your average wait times are over a month. People spend hours commuting to from plus sitting in the waiting room and waiting for a doctor's office. So it's a real pain in the neck, and it's not a great experience. So it's something people avoid. And then your alternative of going to the drugstore, bouncing around with low efficacy products that don't really work, it's overall stifled the total potential size of the market. We think that by really opening up this much better user experience, highest standards of care, world-class treatments made available easily to everybody online, you're actually going to see the overall market size grow. And that's why we're unleashing we think it's like probably the biggest wave of innovation to dermatology in decades and maybe ever. So we're really excited about it. And then if you look at just the number of the people, which is what we think is the right way to look at it in America, you've got 50 million Americans, around 50 million with acne, around 30 million with dark spots/hyperpigmentation, around 30 million with eczema. And just on our platform alone, we see the deep prevalence of these issues. A lot of people are buying foundation from IL MAKIAGE already to cover them up. So it's a natural place now that we have new tools and an effective way to address it for us to expand into. Operator: Our next question is from Lauren Lieberman with Barclays. Lauren Lieberman: I was just curious to talk a little bit about launch plans for METHODIQ and sort of learnings maybe from spoils because you did -- I recall that you did billboards for spoils. I see that you're doing it from METHODIQ. You talked about it being sort of the biggest -- I think you said biggest TikTok activation. So just curious about how you made decisions around the non-online portions of the launch and for how long you expect to have these kind of big TikTok activations going on because it's something right, you get lots of attention if days, but how should we think about that ongoing TikTok activation to get the brand's awareness up? Oran Holtzman: Sure. So it's the third brand that we are launching, and we've done the same more or less with all 3 offline activation out of the gate for IL MAKIAGE, SpoiledChild and now in New York, we have the same with METHODIQ. Regarding TikTok, it's the biggest campaign that we've done so far. And we started now, and we plan to continue until end of Q1. Operator: Our next question is from Brian Tanquilut with Jefferies. Brian Tanquilut: Congrats on the quarter. Maybe I'll follow up on Bonnie's question from earlier. As I think through the makeup of the growth rate for the quarter, very strong growth, obviously. How should we be thinking about volume versus pricing versus mix in that growth rate for the different product lines? Lindsay Mann: The biggest driver of the vast majority of our revenue is driven just purely by orders. AOV was down around 1%, so essentially flat and order growth historically and in the future will be the dominant driver of our revenue growth. Brian Tanquilut: Understand. And if I may ask a follow-up, my follow-up question would just be, as we think about METHODIQ, is this going to be primarily a compounded drug product offering? Or is there a noncompounded version here? And how should we be thinking about like margin differentials between the 2, if that was the case? Lindsay Mann: So the business today is a combination of nonprescription and prescription. Like we said, we think the prescription will be the smaller part of the business. And within the prescription, we're contemplating compounded products today with potential in the future, of course, to evolve, but that's the business model now. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to Oran for closing remarks. Oran Holtzman: Thank you very much for joining us today. See you next quarter, guys. Bye-bye. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Qazi Qadeer: Hello. Good morning, and welcome, everybody. I'm Qazi Qadeer, Panoro's Chief Financial Officer. Thank you for joining us. This is our third quarter and first 9 months of 2025 trading and results update. We have this morning released a press release and an accompanying presentation, which we'll go through now, which shows the progress we have made during the course of the year. Joining me on this call today are Panoro's Executive Chairman, Julien Balkany; and our Chief Operating Officer and President, Eric d'Argentré. As a reminder, today's conference call contains certain statements that are and may be deemed to be forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain assumptions based on company's experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. Although we believe the expectations reflected in the forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to unknown or known risks, uncertainties and other factors. And for your reference, our press release is available on our website, panoroenergy.com. Next slide, please. So we have our Chairman, Julien Balkany here, who is going to take you through the key messages. Julien Olivier Balkany: Thank you, Qazi. Good morning, everyone. Before we move to our Q3 results and operational update, I would like to say a few key words on the business, our recent achievement and our objectives. In terms of production and reserves, within the last 5 years, we have rapidly grown through both organic and external growth. And today, we have a stable and well-diversified production and reserve base across three African countries. In 2026, we will actively continue developing our assets at Dussafu with first MaBoMo Phase 2 drilling as well as progressing the Bourdon discovery to FID. Moving on to exploration and appraisal. We have an exciting portfolio that will provide us with some very good catalyst. We have strategically positioned our E&A portfolio with Block EG-23 in Equatorial Guinea and Niosi and Guduma Offshore Gabon close to existing infrastructure, so that in a success case, we can seek to rapidly and cost effectively monetize any discoveries. As an example of this, in the Hibiscus South and other discoveries we made in the last Dussafu drilling campaign where new barrels that were put on stream within 6 months of discovery at a finding and development cost of just $5 per barrel. On the corporate side, I want first to come back and address the recent announcement that our friend and very dear colleague, John Hamilton, long-time Panoro CEO that usually walks you through the quarterly results, has taken a temporary leave of absence for family reasons. John has our full support and best wishes during those difficult times. While John is absent, let me reassure you that under my leadership, we have an extremely talented, focused and committed management that provide continuity in the delivery of our strategy and an entire team of colleagues who are experts in their respective fields and very excited by the potential of our assets. It brings me now to Panoro DNA that has been acquisition, which has, over the years, played a major role in our growth story. In order for us to achieve our ambition and increase our size and scale, we will remain focused on M&A opportunities and are constantly evaluating new accretive deals that would deliver immediate free cash flow to the company and create shareholder value. Our successful bond issuance last year has diversified our access to capital and support our overall growth strategy. Underpinning all this and our core objective remain to maximize shareholder return. And I clearly want to reemphasize that shareholder return is at the center of all decision-making in Panoro. Since March 2023, including to the declared cash distribution of NOK 80 million, we have returned in total around 33%, 1/3 of our current market cap, to shareholders. It demonstrates our strong commitment to create value for all our shareholders while maintaining a very disciplined approach. I would now hand back over to Qazi, who will take you through our Q3 results. Qazi Qadeer: Thank you very much, Julien. And on this slide, you will see that we have assembled the highlights for this quarter and the year-to-date numbers. For the first 9 months, we are showing a revenue of almost $150 million and EBITDA of $70 million. CapEx is just under $30 million, the majority of which was incurred in the early part of 2025 in relation to the successful bolt-on discovery offshore Gabon. Then we have the third quarter revenue, which was $63.5 million, EBITDA of $19.3 million. It should be noted that Q3 EBITDA includes a noncash effect of negative $14 million worth of inventory movement arising from the expensing of Q2 inventory buildup, which was lifted and sold in Q3. So you would expect to see swings like that if liftings happen quarter-on-quarter. On the balance sheet, we have around $44 million in cash at bank at September 30, $150 million of gross debt, and net debt to trailing 12-month EBITDA ratio of about 1.04x. We have maintained a very solid and good balance sheet throughout this period. On the right, we have announced a quarterly cash distribution of NOK 80 million, which will be paid as a return of paid-in capital. Once paid, that will bring us to a cumulative cash distribution of NOK 660 million since March 2023. And including all share buybacks to date, we have returned approximately NOK 790 million to the shareholders, which, again, as Julien mentioned earlier, around 33% of our current market cap. On the next slide, that builds up our distributions for 2025. We have followed our policy for the calendar year 2025 to distribute NOK 80 million quarterly in cash distributions, and that honors our commitment what we set out at the start of the year. Year-to-date, we have purchased NOK 83 million worth of our own shares from the market as of close yesterday. We have been out of the market in the recent weeks because of close periods, but we still have some room left this year. If you look at the right, we have a limit of NOK 500 million of total distributions in the calendar year 2025, which is about $45 million. It's a key figure that we distribute in Norwegian kronas. As you can see, we have some headroom over the remainder of the year and have adhered to our quarterly schedule, again, underlining our commitment to shareholder distributions. This covers a bit of production update. In terms of group production, we break it down by quarter, so everybody can see that what is going on at our assets and broader trends over time. Dussafu continues to perform brilliantly with all wells available and performing in line or even ahead of expectations. The Q3 rate doesn't quite tell the story, as in the period, the operator successfully completed 3 weeks of planned annual maintenance, which limited production availability to about 80% in the quarter. You can see in the graph what impact this has on our group production in the gray shaded box. Tunisia has been quite steady. But in EG, the previously communicated downtime at the Ceiba field has impacted group production over the last 2 quarters. As a result, we expect group production for full year 2025 to average slightly below 11,000 barrels of oil per day. CapEx guidance for 2025 is unchanged at $40 million for the full year. On the next slide, we'll talk about the liftings a little bit. Those that are familiar with our business know that while we produce oil every day, we do not sell oil every day. It is sell in -- sold in parcels over different dates throughout the course of the year. We keep this slide updated each quarter and refine as necessary what's the logistical and commercial factors that drive our lifting allocation firm up. Our lifting in the first 3 quarters have been in line with our expectations. The first 9 months, we have lifted and sold just over 2 million barrels at an average realized oil price of $67.49 per barrel. In Q3, we realized a premium of around 1% over the average Brent oil price of the period 863,000 barrels or thereabouts, which is in line with previously communicated guidance at almost $69.5 per barrel. In Q4, we expect to lift around 1.1 million barrels of oil. It could be a bit higher as well, given that we have some inventory available to be lifted at the end of the year. Notwithstanding this, Q4 remains our busiest quarter from a lifting perspective with around 35% -- 2025 liftings occurring in the period. We have already lifted around 950,000 barrels in Gabon during mid-November. So the vast majority of Q4 has already locked in. On the next slide, this is a busy slide, but it summarizes a few key points. But just taking it from the top right, there is a reconciliation on our top left rather, there's a reconciliation of our cash at the start of the year and cash at September. On the left, we show our bond amortization, noting that we do not have any repayment during the year, and it only starts in the late part of 2026. On the right, we have our capital expenditure guidance for the year. As I said, it is going to be in line with previously communicated USD 40 million for the year. As everybody knows, we had a very heavy CapEx last year. This year, it's more around $40 million. We have just spent up to $30 million in September, and we are in line to meet our target of $40 million. I will now hand over to my colleague, Eric d'Argentré, who is going to take you through the operations. Thank you. Eric d'Argentré: Thank you, Qazi, and good morning, everyone. I am Eric d'Argentré, Panoro's CEO and President. I have -- I'm delighted to join Panoro early September, coming from 29 years at Perenco in operational and senior management position globally and in particular across Africa. So I am indeed very familiar with Panoro area of operations. This being said, on Dussafu operation update. So as Qazi mentioned, the production delivery remains strong and steady since the beginning of the year. And the 3 weeks annual maintenance operation on Dussafu was very well executed by the operator BW Energy in time with no extra days, but it does impact indeed the uptime in the period. On the project side, we have FID-ed and already planned mid next year, the exciting MaBoMo Phase 2 development coming around June '26. That will be a four-well drilling campaign, horizontal wells with long drain as we successfully did in the past. So applying the same techniques and strategy for those four wells. This -- those four wells will bring us back to the maximum surface capacity in terms of production on the MaBoMo and Adolo FPSO. The other exciting news on the Dussafu block is the Bourdon discovery. You heard about it earlier this year. This is roughly 50 million barrel in place and 25 million barrels to be recoverables. We are maturing with BW Energy, the FID for this project. The full development plan will include a first phase with three wells being drilled from a platform or a jack-up conversion and the pipeline to tie back to the existing facilities. And that will come in future and help us to extend the production plateau at the Dussafu block. And there is other exciting prospect around the Dussafu area, which we will come in the next slide. Again, you have heard about Niosi and Guduma block in the past. This is clearly a potential to repeat the Dussafu success story. And I'm very excited to say that we have started the seismic survey, which we discussed in the past this week on Niosi and Guduma as well as on Dussafu. We have two area of interest, which you can see on the slide in blue gray. One, including the top corner of the Dussafu block on the east part, where the seismic will help us to understand better and map better the Walt Whitman discovery and other prospects in the area, as well as the Niosi area, which you don't need to be a subsurface expert to realize that the Niosi area of interest is very well positioned between the Dussafu field and the Etame field operated by VAALCO in a very well-known and productive petroleum system here. So the partnership of BW Energy, VAALCO and Panoro is very well positioned in terms of knowledge in the area, and there is no better joint venture to understand the potential of Niosi and Guduma field. Next, please. Okay. On Equatorial Guinea operation, we have on Block G, two fields, the Ceiba field and the Okume field, tied back to the FPSO. While the Okume production has delivered as per expectation this year, we have suffered low delivery in Ceiba. This was explained earlier this year due to subsea and equipment issues. The operator, Trident Energy has worked hard and is working hard and diligently to restore production on the Ceiba field. One subsea cluster is already back on production. The second one is in operation. Marine and subsea operations are ongoing as we speak. We expect to have cluster 2 back on production sometime end of November, early December. And the rest of the production will -- should be back online early 2026. Next, please. In Equatorial Guinea, we also have a very exciting and one of our best asset, actually Block EG-23, which is located, as you can see in blue, in between the Niger Delta and the Rio Del Rey in Cameroon. So a very prolific petroleum system, well known, lots of oil and gas fields in the area. And you see Block EG-23 just up north of the Alba field operated by Conoco, which has already delivered above 1 billion barrel as well as the Zafiro prospect -- development with, again, over 1 billion barrel production. So we are at the moment in reprocessing of seismic data on this block. And we should have a better image within mid of 2026. Just a zoom on Block EG-23 and the Estrella discovery, which is a very [ want ], a very important, very much interesting for us. Estrella was -- Estrella-1 was drilled in 2001 and discovered 60 meters of reservoir. The well was tested above 6,700 barrels of oil per day and almost 50 million standard cubic feet of gas. As you can see, it's very close to the Alba infrastructure. It's 7 to 10 kilometers away. So it's an easy tieback and an obvious one, and then going onshore to the Punta Europa gas plant that has spare capacity. And we can see on the map, the dotted line shows you the 20 kilometers radius, which shows that most of the prospect identified and discoveries on our block are within tieback distance. And the idea is once we have one field tied back, then the next one will be in short distance, and we can repeat the same strategy as we've done in South of Gabon. Coming to Tunisia. Tunisia asset, as I mentioned, is producing steadily around 3,500 barrels as of today. So we have seen in the recent months, an increase in production of 10%. I was -- I visited myself the site a couple of weeks ago, and I was very impressed by the dedication of the team in maintenance, integrity and uptime. So we have a good asset base in Tunisia, and we are working on new -- on productive project and investment to increase production and extend the plateau on the TPS asset. Next, please. So as discussed in the previous slides, we have a very exciting pipeline of organic growth within our existing field with robust 2P reserves and a very good above 300% replacement ratio. That's a very good performance. Bourdon discovery will -- is not yet included. But as soon as FID is done, we should be able to book those reserves. We have other 26 million of 2C as of December '24 of discovered resources. And on Block EG-23, you see above 100 million barrel potential which is the Estrella field and other identified prospect I discussed earlier. And we will work towards transforming those 2C into 2P and then in production. On top of the Block EG-23, the Niosi, Guduma and the Dussafu, the EEA has clearly potential to increase substantially our resources. Again, the first step is happening as we speak with the seismic survey on the two exploration blocks, Niosi and Guduma, and that will be -- that will feed the pipeline of organic growth in coming years. Coming back to the key messages, I will leave you with those messages on the screen and move to the Q&A session. Qazi Qadeer: Thank you very much, Eric. We will now take question and answers. If you will be able to raise your hand or post your questions via the chat box on the bottom, which should be available to you. If you have a question, please raise your hand and we'll try to unmute your line and take your questions live. Andrew Dymond: Thank you very much, Qazi. We will now open up to Q&A. The first question has been submitted online. You have honored the quarterly cash distributions for 2025 with the NOK 80 million declared today. Can we expect to see continued buybacks under the program? Julien Olivier Balkany: As mentioned by our CFO, Qazi Qadeer, we have been in close period, and we intend to restart and restore our buyback program when we will be able to do so. We have headroom of just under NOK 100 million under our maximum priority distribution. And once again, our core focus is to deliver shareholder return. Andrew Dymond: Thank you, Julien. The next question is from Christoffer Bachke. Christoffer Bachke: This is Christoffer from Clarksons. So I have two questions today, if I may. The first question relates to Block EG-23, where investors currently seem to assign limited value. Can you comment on how you view the potential of this asset and what strategic options such as partnering, farm down or alternative development pathways you're evaluating for the block going forward? And the second question is on M&A. Given your history and track record on accretive acquisitions, how are you thinking about further growth and M&A at this stage? Eric d'Argentré: Okay. Thank you, Christoffer, for your question. Concerning Block EG-23 we see has presented a lot of potential, not just on Estrella-1 discovery, but on the global picture of this block, which is ideally positioned. We have 80% of the block. We are the operator. We are in Phase 1. We need to get our seismic reprocessed, get -- clarify the volume in place, and then we will most likely be looking for partners. There is already a lot of interest in our block because we believe this is clearly the best block in EG, in shallow water with lots of potential and very close to a infrastructure tieback. So yes, we will be looking for partnership in the future. Julien Olivier Balkany: Thank you, Christoffer. I will address the second part of your question. As I mentioned earlier, M&A has been at the roots of Panoro, it has been part of our DNA. And clearly, in the current oil prices environment, we are remaining focused on M&A opportunities. And we are constantly permanently evaluating, assessing new accretive deals. And those transactions need to be accretive starting day 1 and immediately generate free cash flow for the company to benefit all the shareholders. Andrew Dymond: The next question is from David Messer. Unknown Analyst: Andy, two questions from me. First, on the EG-23 block. From the presentation, you can see there's been a number of smaller oil and gas discoveries. So I suppose my question is why were those discoveries appear to be subscale compared to, I imagine, what the original driller assumed them to be predrill? And why was this block not -- or why were these discoveries not developed since they've been discovered by another operator, maybe? And then just secondly, on Trident and its operational issues. Can you just give me a bit more color on what the facility issues have been on Ceiba and how Trident has gone about ensuring that these are not recurrent operational issues that happen going forward? Eric d'Argentré: Okay. Well, thank you very much. Concerning Block EG -23 and the discoveries of the well drilled. And yes, those wells have indeed penetrated reservoirs, some tested, some not tested. But in fact, it's -- depending on what the previous operators were exploring for, whether they were looking for gas or looking for oil. On the Estrella, for example, it was a gas play with a lot of oil. It was deemed to be marginal at the time versus bigger, what I would call the elephant or the giant field. Estrella might not be a multibillion field, but it's clearly a multi-hundred million in place. And the nearby exploration, the problem is when you have no infrastructure or just one not bad close, it's difficult to make a small discovery commercial. And that's a strategy we will develop in EG-23. Once we have a platform and a mean of evacuation from Estrella, for example, any small discovery not material from major in the past will become clearly material and commercial forest with easy tieback. So that will be a step-out approach from one to the other on EG-23. Just to your second question on Ceiba field. What has been the issue is, as discussed, it was a subsea. In a development like this, you have your well producing to the seabed and from the seabed, you have flow lines or umbilicals, risers going to the surface on your FPSO. It's deep and long. So there is multiphase pumps installed on the seabed, what we call on different clusters with X number of wells arriving at each cluster. And we had a combination of a series of failure of multiphase pump earlier this year, which obviously without the pump, the well cannot deliver to surface. It's too high, okay, with back pressure on the well, without going too technical. So the operator has, with one subsea, worked very hard and diligently to get those multiphase pumps shipped back, turned around and sent back to Equatorial Guinea. The first one has been installed. The second one is on the support vessel with the ROV and should be installed in a couple of weeks, and the third one earlier next year. On the long-term plan with Trident, the operator is looking at a quick turnaround of multiphase pump system with one subsea, but as well with internalizing a bit more the maintenance of the pumps in country. They have done that successfully with one already. So we expect to see a quicker turnaround of any maintenance issue on those subsea equipment. Andrew Dymond: The next question is from Ntebogang Segone. Ntebogang Segone: Can you guys hear me? Eric d'Argentré: We can. Ntebogang Segone: Ntebogang Segone from Investec Bank Limited. I have got a few questions around production. If you could provide us with more color around OpEx per barrel for me. I mean, production, even management is saying that for FY '25, we'll be tracking below guidance. However, if you look at guidance for FY '25 in terms of OpEx per barrel at a consolidated basis, it still remains unchanged. So if you can maybe provide more color on that as to why it is that there is no increase or increase in your OpEx per barrel? And then in relation to the Gabon asset where there's been the 3 weeks planned annual maintenance, how should we then be looking at production, particularly in the fourth quarter? Should we be looking at it relative to operating at similar levels as in 1H 2025? Or will it be tracking below that? And then in relation to CapEx, on the exploration side, I do see that there's a lot of projects that you have in place. I mean, you've got the discovery, the Bourdon discovery coming up. If you could please just provide us with more guidance around how we should look at CapEx from FY '26 as well? Andrew Dymond: Thank you, Ntebogang. Just there's been a couple of questions as well online just about 2026. I mean we issued 2026 guidance once we've been fully through the budgeting cycle with our partners at our assets. So we're going to continue to do that. So as we have always done, we'll be providing 2026 guidance early in the new year. Obviously, Ntebo, I think in terms of the production question that I think we set out, kind of what that impact had in terms of deferring volume in Gabon from the planned maintenance, which was successfully completed in the quarter. If we hadn't had that impact and if you just would look at it on producing days, we'd have been fairly stable. So I think you can extrapolate that sort of into the fourth quarter. I think Tunisia production is pretty stable as well. Equatorial Guinea, as Eric has already gone through, we are seeing some restoration and expect to see that and normalize into Q1 2026. So I think from that, that kind of builds the picture as to the guidance that we've set for the full year at just under 11,000 barrels a day. The capital expenditure at Bourdon, we made the discovery in Q1 of this year. And so there's still a lot of work going on. It's a bit premature to start sort of speculating because there's various concepts under evaluation and it's being matured towards FID. And once we have sort of a firm picture on the basis for FID, we'll obviously communicate that. But what I would say is, look, the intention is to follow the sort of MaBoMo strategy. So as a starting point, you can look at the kind of costs that we've developed and the strategy we've developed the Hibiscus area with the operator. Just on the OpEx per barrel, I mean, obviously, what we try and show there is the actual cost of producing the barrel of oil out of the ground. There are some timing things. So what I'll do with that is I'll -- rather than go into so much detail right now, I'll follow up with you separately, Ntebo. And that will conclude our Q&A for today. Thank you very much, everyone.
Thomas Pevenage: Hello, and good afternoon, good morning. Welcome to our conference call for the Third Quarter Trading Update. We are pleased to welcome you and take this opportunity to have a dialogue with you. So we have prepared a short presentation considering it's just a third quarter update and the full update that we provide in the full year and half year results. So basically, we'll cover the presentation together with Catherine and Olivier. [Operator Instructions] So you'll see our usual disclaimer on this slide, today's speakers, so Catherine Vandenborre, Chief Financial Officer of IBA. Olivier Legrain, our Co-CEO in charge of IBA Technologies, he is also joining us and happy to take questions and myself, Tom Pevenage, taking care of Investor Relations. So we'll start with the highlights -- key highlights on the business side. And then that's a specific topic for this trading update, we'll cover the corporate refinancing that you could discover as part of our press release earlier today. So I will now leave the floor to Catherine for the first section. Catherine Vandenborre: Yes. Good afternoon or good morning, everyone, and thank you very much for attending this trading update call. Like Thomas mentioned, we hold this call today basically to provide you with qualitative trading update. We will again confirm the trends in our operational activities, ensure that they remain fully aligned with our guidance. We will briefly discuss the trends we see in the markets, and we will present our new financial structure before, of course, answering any questions you may have. So first element that I would like to stress is that IBA remains fully confident and highly confident to meet this year guidance, being EBIT at least EUR 25 million, and that's supported by well under control OpEx, which remain below our long-term target of maximum 30% of sales and an already positive EBIT contribution from Proton Therapy. This is for us a very important milestone resulting from the scale-up of Proton Therapy activities and favorable project mix. Of course, it underpins our commitments in the profitability improvement trajectory that we set ourselves at the beginning of the year. In terms of equipment order intake, this one amounts to EUR 195 million. It's an increase of EUR 11 million versus Q3 2024, thanks to a strong contribution from IBA Technologies, which increased by 22% and more specifically RadioPharma solutions. To give a little bit more flavor and details, FPS has an excellent commercial momentum in high energy Cyclone IKON and Cyclone KIUBE systems in both emerging and more mature markets and applications. And in this we have a quite active pipeline in China. In PT, we have sold 4 Proteus ONE at the end of Q2 -- Q3, sorry, 2025. If you remember last year, same period, we had sold 3 Proteus One. And the sales includes 2 Proteus One orders from our existing customer, Apollo in India, which is expanding beyond its already operational multi-room facility in Chennai. In dosi, we see decreasing level of activity versus last year. We faced some headwinds in the U.S. and the Chinese markets. So in conclusion on the order intake, I would say that it's a very encouraging one, confirming the added value of all solutions to all customers and the positioning of the IBA Group portfolio of activities. Of course, '25 is not ended yet, and we will keep you informed on the order intake progresses that we will realize in the next weeks. In terms of backlog of equipments and services, it is maintained at EUR 1.3 billion, a slight decrease of -- decrease of EUR 0.1 billion versus Q3 2024. Let's say, it's more or less stable after the strong accelerated backlog conversion that we have observed in the first half of 2025, and that is due to the higher order intake in Q3. Finally, our net financial position amounts to EUR 60 million as working capital has continued to be impacted by the customer delays in delivery of large Proton Therapy projects in Spain and China. That being said, we see this amount as a peak and our net financial position is expected to gradually improve as from December '25, while we have secured a solid refinancing package on which we will come back in a few minutes. To give you some view on the progress that we have made across the different business segments. First, on the clinical side, PT more specifically, we signed a memorandum of understanding with Varian at ASTRO and this memorandum aims to strengthen interoperability, enhance clinical workflow and we went also to co-develop some technologies together, including technologies in connection to our road map on DynamicARC and FLASH therapy. We see also a very good momentum for Proton Therapy supported by the growing clinical evidences. In particular, we have seen an exciting first ever Level 1 clinical evidence provided by MD Anderson that demonstrates Proton Therapy's benefit in head and neck cancer versus conventional radiation therapy, offering same tumor control with reduced side effects and most importantly, improved survival rates. We see also strong commercial traction in APAC, which is reflected in our order intake and the pipeline in the U.S. remains quite active as well. Regarding NHa, our partnership in carbon therapy, the installation works of the first system are progressing and the financing efforts are ongoing in parallel to cover related costs. Going to dosimetry, like I said, we face some regional-specific challenges in the U.S. due to local competition. We have also some headwinds in China. We have closed the acquisition of the Berlin-based PhantomX company at the end of October '25. As you may have seen in our press release, PhantomX is a commercial stage company recognized for its advanced anthropomorphic phantoms, which are used in quality assurance for AI solutions in medical imaging. Now going to IBA Technology side. In the industrial segment, we see a continuing regulatory pressure on ETO sterilization, supporting the long-term shift towards e-beams and X-ray technology. We see also sustained progress on new applications like polymers, like PFAS with IBAs increased presence at specialized conferences and workbooks. On Radiopharma solutions, there are strong commercials and good commercial traction, which is reflected in sales, both in emerging and mature markets. We see very exciting times in Theranostics with increasing industry interest in nuclear medicine and especially from major pharma companies with particular focus on alpha emitters such as Actinium-225 and Astatine-211. Now I propose to discuss the financing package that we concluded in its rationale. Maybe first, as a reminder, we had undertaken a review of our financial structure considering 3 elements: first, the past and expected evolution of the business. Second, the expected evolution of working capital; and 3, possible investment opportunities. This review resulted in the closing of a refinancing package, including a EUR 125 million bank club deal with different tranches and a EUR 10 million subordinated loan from Wallonie had performed. The refinancing addresses 3 objectives. First one is the consolidation of IBA's balance sheet, acknowledging that past investment in long-term assets like PanTera, like NHa, like mi2, that those investments had been funded by operating cash flows and not long-term financing. Second, we want to increase our resilience in a volatile context. And third, we want to build firepower to capture possible inorganic growth opportunities, of course, opportunities meeting our investment criteria and especially being related to IBA markets and being accretive. Out of the EUR 135 million financing package, EUR 60 million has been drawn so far. Thomas will now further detail the current and intended use of funds as well as the key terms and conditions of the facilities. Thomas Pevenage: Thank you, Catherine. So you will see on this slide our intended allocation of the use of these credit facilities. So on the right-hand side, you find the different tranches of funding. On the left-hand side, potential uses for this. First of all, starting at the top, you will see the EUR 10 million subordinated loan and basically EUR 30 million drawn under the EUR 50 million 5-year term loan immediately reinforcing the long-term funding components of the balance sheet, which is the first item highlighted by Catherine in our financing strategy. Then we have an unused portion under this 5-year term loan amounting to EUR 20 million, which is available to cover more structural working capital over the medium term, let's think, for instance, of our Spanish Proton Therapy projects as well as to fund investment opportunities, while the latter will also benefit from specifically dedicated M&A term loan, that's the EUR 15 million tranche you see on the right-hand side. But then at the bottom, we have EUR 60 million of revolving credit facilities aiming to address short-term working capital fluctuations. Note that they can also play a usual role considering that some geographies in which we operate do not allow straightforward cash management solutions, namely India and China, for instance. And this from time to time can create imbalances between group entities having excess cash, while IBA SA in Belgium, where manufacturing, R&D and SQ activities take place may have some needs. And so those revolving credit facilities can accommodate for those intragroup cash management opportunities or challenges as well. So you see on this slide, basically, again, an overview of the different tranches of funding and the amounts already drawn versus what remains available. So EUR 61 million drawn so far, leaving EUR 74 million available. Time-wise, we have 6 months to consider drawing additional tranches under the EUR 50 million term loan and still 24 months under the acquisition term loan facility. We will regularly review the use of these credit lines going forward in function of the evolution of working capital, temporary and structural and as well as business opportunities. Now a few words on the terms and conditions. Bank facilities are based on a floating rate, so typically EURIBOR plus the margin and that margin is in line with our previous credit lines. Financial covenants also follow our previous standards and consist in a maximum net leverage ratio and a minimum level of corrected equity, corrected because equity then in this case includes subordinated loans. The net leverage is calculated on the net debt, excluding subordinated debts and the last 12 months of EBITDA. The net leverage covenant provides for a maximum of 3x. Besides, as customary within the club deal documentation framework, IVS to comply with certain undertakings related amongst others to M&A disposal assets or others. Now moving to the conclusion. We have in place a financing structure that is secured with a 5 years commitment from the financing partners, optimized. As Catherine said, the idea was definitely to have a package addressing an adequate mix of long term versus short term on the liability side and funding versus the asset side. Flexible to be able to address working capital volatility and as well to be able to flexibly in an agile way to capture investment opportunities and as well robust given the support of strong financing partners that you see listed on the right-hand side of the slide, so a pool of 4 banks and as well Wallonie Entreprendre, our long-standing financing partner. So we see the opportunity really to thank all of them for their trust and long-term commitment to IBA success. We are now ready to take your questions. Thomas Pevenage: [Operator Instructions] So first question is from David. David Vagman: Maybe first, on the refinancing, I didn't hear it. So can you come back on the covenants and maybe give us details about the cost of the financing? And can you confirm that you're actually not planning to use -- so in your budget to use to draw the [ FCM ] as in Slide 7. That's my first question, and then I have 2 more. But maybe we can start with this one. Henri de Romrée: Okay. Thank you, David. So first part of the question is related to the covenants. So basically, and it is currently the case today, we have 2 covenants, 2 financial covenants. First one is the net leverage ratio. So comparing the net debt excluding subordinated debt and the last 12 months EBITDA, so it's calculated on a rolling basis. And we have to comply with a level of maximum 3x. The second covenant is a minimum level of corrected equity. And why is it corrected? It's because it's including the subordinated debt as banks consider its equity from -- for that purpose. So I assume it's clear. So on the cost, then of course, as you can imagine, it's the exact level of margin is a confidential element from a bank perspective as well. And so we can only comment that we stay with a similar level of interest rate and margin basically as the current credit lines. So if you look at the average use of those credit facilities over the last period of time versus the interest charges on our P&L, you will have an idea of what you can expect for the future. The last question relates to the use of the revolving credit facilities specifically. So currently, we have drawn EUR 20 million out of the available EUR 60 million. We've commented on the expected treasury trajectory with improvements indeed versus the current position starting from the end of this year and improving over the next year, most of is tied to the delivery of our large Proton Therapy projects, namely in China and Spain. So definitely, use should reduce over time. I also commented on intragroup cash allocation that may require from time to time use of this credit lines. So this should not come as a surprise, if you maintain some use. But the idea that these are used a shorter-term type of buffer. David Vagman: And my second question, you anticipated a bit. It's on the Ortega contract deliveries for the year and for next year. Maybe you can also comment on the Chinese contract. What is reasonable to expect maybe to give us a range, not necessarily precise, but a rough indication of how many project you expect basically for which you expect payment actually this year and then next year? Catherine Vandenborre: Yes. I think on this one, we remain quite aligned with what we already mentioned at the moment of the publication of Q2 results. So -- to summarize, we have guarantee manufacturers 3 machines out of the 10 that have been ordered, 1 has been shipped. That's something that we already mentioned in Q2 results that we intended to ship in October. It has been done by the end of October, beginning of November. And so we expect to receive the payment on this machine in December conform to the terms we have in the contract. The second and the third machines will be shipped next year in the course normally of Q2 for 1, end of Q2, beginning of Q3 for the third one. And in terms of payments related to all these 10 machines, you may remember that we mentioned that's the working capital impact linked to the delay was close to EUR 30 million. It is a [ 1/3, 1/3, 1/3 ] by machine, let's say. David Vagman: Do you mean that above the 7, the remain -- your talking about the remaining 7 or... Catherine Vandenborre: So that was on the first 3 that we already manufactured. On the remaining 7, we will change a little bit the way we manufacture them. And so instead of starting to manufacture as soon as we can to be ready to ship from the moment that the customer is ready with the building of the hospitals. We will wait before doing the manufacturing, we will wait to have strong signals that the building will be at the moment that we can ship the machine, so there must still be some kind of delay at certain point of the time, and we want to remain a little bit flexible in the interest, of course, of the patient, but the general principle is that we will not start building the machine as long as we don't have very strong signals that the hospital can accommodate the equipment to avoid this strong working capital impact that we had on the first 3 machines. David Vagman: And is it fair to say then that the remaining 7 will be for beyond 2026? Catherine Vandenborre: It's -- so it will be spread over the entire term of the contract. But indeed, it's fair to say that the shipment of the remaining 7 will be after 2026, yes. David Vagman: And last question from my side is on the PT, the Proton Therapy services. With a question of how you've been monitoring, I would say, more the credit risk aspect of your customer. My question is also a bit related to the recent controversy in the Netherlands that some centers would be underutilized and 1 was facing more acute financial difficulties. If you can comment on this, it's a bit too different topic, but I think they're related? Catherine Vandenborre: So maybe on the credit risk linked to the customers. That's, of course, something that we monitor at the moment that the contracts closed. Where we do a number of analytics on this sort of ability of the customers, the ability to pay for the equipment on the 1 hand and then later for the services that the hospital intends to consolidate. Of course, during the course of the year and depending on the evolution of the revenues of the hospital we might see some volatility compared to what the first rate assessment that we did then we managed together with the customer, relatively proactive way and we try always to find solutions that could benefit all the parties. So in the best interest of all the stakeholders. So that's on the credit, let's say, question. On the fact that some hospital not necessarily let's say, fully booked the availability of the rooms in which big equipments are installed. So it's true that sometimes it can take a little bit more time. So it's a little bit longer for a hospital to build a room, but of course, it's in the best interest of everyone to try to maximize the use of the room. And so that's something in which we can possibly advise hospitals, what they can do, how long it takes to take 1 patients or it can, let's say, or the installation can use a bit maximum capacity. But at the end, of course, it's something that the hospitals have to implement. I think in some cases, we're seeing these hospitals are having full use of the capacity. In other case, we see a hospital having a very high use. I think that the maximum, which has been reached until now is 64 patients being treated over 1 day. So you see it's very much depending on 1 hospital to another. David Vagman: Any comment on the lines on your performance? Catherine Vandenborre: And what is -- you mean on the study, which was published on the Proton Therapy. David Vagman: Not the study, but that one center was I'm just quoting the article. And so I don't know, if it's correct, but that one center was particularly in the difficult financial situation? Catherine Vandenborre: I must admit that I didn't see the article honestly. So I can't comment, because it's a specific question, but I would be happy if you can send to the team the link of the article, and I will come back to you maybe with any specific comments to be provided. Thomas Pevenage: So David, thank you for your questions. We have further questions from Laura. Laura Roba: I have 3. So first of all, could you comment on backlog conversion for H2. Because it was very strong in H1. So I was wondering how did it look like then in Q3? And what can we expect for the remainder of the year? Then you mentioned in dosimetry that you were facing some headwinds? I was wondering to what extent this would impact the full year performance of that division? And then the last one on CGN. Do you have any update from them? Do you expect any until the end of the year? That's it. Thomas Pevenage: Okay. Laura. So I will address the first question, and then Catherine and Olivier will answer the other 2. So the first question relates to backlog conversion over H2 and it was a very active H1, and we are increasing the pace in H2. Definitely, so far, it should be visible in the numbers. And this being said, it will be less imbalanced as last year in terms of H1 versus H2 weighting. So yes, we're definitely on the right trajectory to reach ultimately the targets that we have reconfirmed as part of our press release, today. Catherine Vandenborre: Okay. If you don't have any further question on the backlog, I will continue on dosi. So like I was indeed mentioning, we saw some kind of headwinds in this mainly due to, let's say, competition that we see coming with some product that we don't have yet. So in order to come back to the level that we internally anticipated, we might have to do limited acquisitions. That's the reason why we started with 1 PhantomX, but we might have to do a few and very limited others. On your question whether we expect an impact, I understood on the guidance that we have provided. The answer is clearly no. So it's, let's say, headwinds compared to internal targets that we had. But all in all, and having in mind all the segments in which we operate and all the activities we have we don't expect any impact on the guidance that we communicated to the market. Olivier Legrain: Could you specify your question on CGM? I'm not sure I see an immediate answer. So it would be great if you could spell it out again. Laura Roba: Yes. I was just wondering, if you has any update from them, any contracts, if you see any activity from their side? Olivier Legrain: Nothing outstanding, Laura. I think there are a few public tenders for the moment in the Chinese market, where we are active, but there is nothing meaningful to mention at this stage. So nothing really different compared to what we have said so far. Thomas Pevenage: I think, lastly, we confirm that they are as part of the partnership agreement. So they have basically executed the technology transfer part, and they have the facility, the factory for local manufacturing that is ready to go. Now the main area of focus is on the market developments and getting the sales convergence. At this stage we don't see any product open questions. So we have, I would say, last chance slots, if anyone willing to show the question. In the meantime, we can already tell you so the presentation will be available on our website in the same link shortly after this call. Catherine Vandenborre: So I think, if there are no more questions, I would like to thank you again for your attendance to this call. It was a pleasure for us to have the opportunity to answer your questions. And we wish you a good evening/good afternoon/end of morning. Have a good day. That might be -- thank you very much. Thomas Pevenage: Thank you.
Operator: Hello, and welcome to the Third Quarter 2025 Investor Call for Pershing Square. Today's call is being recorded. It is now my pleasure to turn the call over to your host, Bill Ackman, CEO and Portfolio Manager. William Ackman: Thank you, operator. So welcome to the third quarter conference call. We've had a strong year-to-date, certainly through Q3 and even up to the present, north of a 20% return and nicely in excess of the S&P for the year. But despite overall strong performance, we don't get them all perfectly right. So I thought we'd start the call just focusing on a couple of investments that have not performed well this year. And why don't I turn it over to Anthony to talk -- let's talk about Chipotle. Let's start there. Anthony Massaro: Thanks, Bill. So we actually sold our remaining shares in Chipotle this year following the company's third quarter earnings report. This concluded an investment in the company that was over 9 years old. So a very disappointing conclusion to what had long been a very successful investment for us. The stock IRR from our inception to exit was just under 16% versus just over 15% for the S&P 500. But fortunately, we have previously sold 85% of our initial 10% stake in the company at various times over our 9-plus year holding period. That resulted in a realized IRR on the position of just under 22% and $2.4 billion in cumulative profits. So the big question is, obviously, why did we decide to sell the rest of it this year after a stock decline of nearly 50%. So just to give you kind of some context for our thinking, from the first full quarter that Brian Niccol was CEO of Chipotle, that was the second quarter of 2018 through the end of 2024, quarterly same-store sales averaged 9% and no quarter outside of one quarter that was impacted by COVID was below 3%. And if you look under the prior management team, in the 10 years prior to the 2015 food safety scandal that predated our investment, same-store sales also averaged 9%. So as the company started to report weak quarterly same-store sales this year, we believed based on the various sales-driving initiatives they had in the pipeline and also the remarkable long-term historical performance since the company went public, that trends would eventually improve. And unfortunately, underlying trends progressively worsened throughout this year including another step down during the current fourth quarter that was disclosed on the Q3 call. We do believe that macroeconomic weakness amongst low- to middle-income consumers and younger consumers is the primary cause of this same-store sales slowdown as evidenced by similar trends that peers are experiencing. But we don't know how long this weakness is going to last. We don't know if it's going to worsen before it gets better. And it's pretty clear that Chipotle and competitor management teams don't know either. They're doing the right thing by reinvesting in the customer value proposition by not taking price despite mid-single-digit food cost inflation, and they're, therefore, accepting kind of lower near-term margins. But we don't know if this will be sufficient, and there might be more kind of to come there. Year-to-date, of the kind of nearly 50% stock decline, forward earnings are only down 8%. Now that's not good, right, because they're supposed to actually grow. But forward earnings are down 8%, but the PE multiple is down 44%. So the vast majority of the year-to-date stock decline is due to multiple compression. While the current valuation of about 25, 26x forward consensus earnings is cheap if the company can quickly get back to achieving its long-term growth goals, we just didn't have enough confidence to underwrite this at this time. So the business has a high degree of operating leverage. So it's possible that if sales weakness persists for however long it persists, that consensus margin levels will be below even current levels. And this investment now has a much wider range and dispersion of potential outcomes around the company's near- and medium-term earnings power. That's just much wider than we had foreseen at the beginning of the year and frankly, at any time since we own our investment in Chipotle. And this made it a lot more difficult to continue holding the investment despite the fact that the company is now trading at one of its lowest multiples ever. And there's a new CEO running the company since Brian left for Starbucks in August. He's a talented operator, but he's certainly off to a rocky start as a first-time CEO. And in light of this, a return to the company's historical premium valuation multiple is uncertain. We do have tremendous respect for Chipotle, and we wish the company all the best as it navigates what's proven to be quite a challenging environment for them and for the industry. William Ackman: Yes, we wish the company well. We think highly of Scott. We think he's a very good leader. He did a great job running COO of the company for a long period of time. So we wouldn't bet against Chipotle. And maybe someday, we have an opportunity to become a shareholder again. Anthony Massaro: Totally agree. William Ackman: So on the topic of less than successful investments this year, let's talk about Nike and maybe feel free to jump in as well, Manning, if you'd like. But Anthony, go ahead. Anthony Massaro: Sure. So we also exited our investment in Nike Options earlier this month. Unlike Chipotle, Nike was an unsuccessful investment for us. So much shorter holding period. We first invested in the company this time around in June -- or sorry, in the spring of 2024. The cumulative return on Nike since we first invested was negative 30% versus the S&P, which is up 33% and the cumulative P&L was over negative $600 million. So the big mistake here was the initial underwriting. So as we've previously communicated, we underestimated the degree of near-term revenue declines and operating deleverage, aka margin declines that would be necessary to effectuate a turnaround here. So the prior CEO had lost the organizational focus on sport. They overemphasized direct-to-consumer sales at the expense of wholesale relationships, and they failed to create innovative performance products while overproducing big lifestyle franchises, and this really damaged brand heat in the eyes of the consumer. The prior CEO had admitted to kind of these mistakes in early 2024 and outlined a series of corrective actions, which is why we thought that the ship had kind of been set in a better direction, but the magnitude of the corrective actions that were required were far greater than we anticipated. Fortunately, for Nike, the company's controlling shareholder, Phil Knight, and the Board of Directors made the ideal management change in September of 2024 by bringing back long-time Nike veteran, Elliott Hill. We believe Hill is a fantastic CEO. He has an excellent strategy to return to profitable growth by renewing Nike's obsession with sport, accelerating innovation, creating bold marketing and rebuilding wholesale distribution, which he led for a very long time. At the start of this year, we converted our Nike common stock position into a deep-in-the-money call option position. We did this to preserve the upside potential of owning the stock while unlocking capital to make new investments. Since the start of this year, the turnaround is progressing a bit below where we projected for revenues, but materially below for margins. And the reasons for that are twofold. About half of that margin decline versus what we projected at the beginning of the year is due to tariffs, which were new this year and the other half is due to more aggressive clearance activity of legacy inventory. So Nike is down about 17% year-to-date. Most of that is forward earnings, which are down 15% and the multiple is effectively unchanged, down 2%. While we have confidence that Nike has the right CEO and the right strategy, we grew more uncertain of what long-term margins would look like as this year progressed. Can the company really get back to pre-COVID margins in light of tariffs, which don't seem like they're going away anytime soon and in light of the more competitive nature of the industry. It is a more fragmented competitive landscape in athletic footwear and apparel now than it was kind of for most of Nike's history. And to meet our return thresholds for a turnaround at the time of our sale would have required us to assume stabilized margins of at least 13%, which is consistent with what they did pre-COVID. And we didn't have enough confidence to make this assumption kind of in light of these new margin headwinds. We do believe that Nike's turnaround will be successful, but we don't know what success will look like from a margin perspective. The company has articulated confidence in getting back to double-digit margins, very different outcome for shareholders if that's closer to 10% than 13%, 14%. So we have tremendous confidence in Elliott, a tremendous admiration and respect for what he's doing at bringing Nike back to greatness, and we wish him and the team at Nike the best of luck. William Ackman: Obvious question would be with respect to Nike. It's a company we've owned before and got right in the past in a meaningful way. Any sort of overarching lessons from either the Nike or the Chipotle experience that will help us avoid similar mistakes in the future, either a better exit from a Chipotle or a miss -- a better timing on our acquisition of shares of Nike. Anthony Massaro: Yes. Look, I think we're still reflecting on kind of lessons learned, but I think I would point 2 high-level ones, one for each. On Chipotle, I think high PE multiple stocks can be dangerous when things turn. I think that if everything is going right and you have a very proven leader running the company, you can afford to hold it for a while longer. But I think with a high multiple stock, if kind of the trends slow for any reason, it's better to exit faster than to give management the benefit of the doubt. For Nike, I think one lesson that I and we, I think, have learned there is return thresholds for turnaround situations, even if the turnaround doesn't look like initially that it's going to be that severe, should be higher. So I think had we gone in with kind of a higher required -- had we had a higher required IRR for that one, perhaps we would have avoided making the initial investment. William Ackman: Great. Why don't we focus on one other underperformer for the year, and then we'll get to why we're actually having a good year, but I think it's good. Let's focus on the negative first. Universal Music. Let's talk about that. Ryan, go ahead. Ryan Israel: Sure. So Universal Music, the business performance has continued to be strong. In their most recent quarter reported a few weeks ago, the company showed, for example, that revenues grew at about a 10% rate on a constant currency basis and their adjusted EBITDA profit metric actually grew a little bit in excess of that about 12% rate. Those levels of business performance are actually very consistent with what the company has done since we helped facilitate a public listing nearly 4 years ago. So the business performance remains quite strong operationally in our view. But as you mentioned, Bill, the stock has underperformed this year. And in particular, it's really underperformed since the summer. So the share price was in July, a little bit above EUR 28 per share. And as of earlier this week, it was as low as about EUR 21.50, which is about a mid-20s percent decline in the share price. And actually, at one point earlier this week, the company was down to a 20x PE multiple based on consensus analyst earnings for the next year, which is the lowest multiple that the company has ever traded at in our little over 4 years of ownership. And we think the primary reason for the decline in the share price over the summer to now really due to technical factors. So for example, the largest shareholder of the company, the Bollore Group, there was a ruling in July by a French court that they would need to buy out another publicly traded company. And so there was a fear or perception in the marketplace that Bollore, who is the largest owner of UMG would be a forced seller for a chunk of -- a very large chunk of their shareholdings in order to fund this buyout that a French court was requiring. And so that forced seller dynamic, in our view, made it difficult for other people to want to buy the stock ahead of what could be a forced seller in somewhat unknown time frame and potentially unknown quantity. As we transition from that happening in the summer to the fall, the U.S. government shut down. And so the SEC was unable to kind of fulfill any sort of request for a U.S. listing and UMG's example, which we think created potentially further technical headwinds. Stepping back a little bit, our view has been that the business performance remains very strong, as I mentioned on the quarterly basis, this quarter as well as really over the last 4 years. And we think that a share buyback really could address the technical concerns that would have happened. So for example, the market perception that there is a forced seller that could be around the corner, hard to get market participants to want to buy shares in advance of that. Yet if the company is buying their shares, that could provide somewhat of an offset for the technical demand. And in general, for a company that has very strong operational performance, we think a buyback at the lowest multiple that it has traded at for the last 4 years would be a good idea as well. But maybe I can turn it back to you, and you can talk a little bit more about the upcoming U.S. listing. William Ackman: So one of the package of rights we received when we became a shareholder of Universal Music was the ability to catalyze a listing in the U.S. And we felt strongly that it's a U.S. headquartered global business, but half -- even more dominant in the U.S. and a very significant percentage, effectively half of their business is a U.S. company. It is listed in Euronext that has limited the universe of people who can own the stock. Many U.S. investors by mandate are not permitted to own Euronext listed securities. And our view, materially more demand can come into the stock with the U.S. listing. We also think the kind of cadence of quarterly reporting and the kind of information that becomes available when a company is registered in the U.S. will provide -- enable better analyst coverage. The fact that the peers are U.S. listed companies will make, I think, easier, I would say, comparisons and I would say, better understanding of the company. And so we catalyze that listing by exercising our registration rights. Our registration rights require in order for the company to be obligated to register our shares in the U.S. and create a listing here for us to actually sell some stock. So we've agreed to sell $500 million of shares as part of the listing of the company. Now in light of the share price, we are not a -- we're a very reluctant seller, but we believe the value in terms of improved transparency as well as the improvement in the supply-demand dynamic overwhelms the cost to us of selling a portion of our position at the current share price. Now we've approached the company, and we've asked the company to simply seek a listing in the U.S. without the requirement for us to sell stock. At this point, the company has been unwilling to let us withhold the $500 million of stock in the offering. So we're going to go ahead with the offering, selling a portion of our stock at whatever the price is at the time the listing in order to catalyze what we think is a value-creating transaction for the company. Just further to Ryan's point, this is a company -- I've been on the Board -- I was on the Board for a number of years. I think it's an excellent management team that understands the music industry, where there seems to be a gap in understanding is in how the company approaches the capital markets and using -- taking advantage of the company's balance sheet, the free cash flow it generates and optimizing the company's use of capital. This is a business that's not going to require billions and billions of dollars of capital for acquisitions. The company has made that, I think, very clear. The nature of the company's dominant position in the marketplace also makes clear that it's very difficult for the company to do acquisitions of any kind of meaningful size in the industry. So we remain puzzled really as to why the company is not a more aggressive buyer -- or actually why it doesn't buy back stock at all and why in addition to pointing out that the stock is trading at the lowest multiple it traded at, it's also approaching the highest valuation for Spotify, a significant asset on the balance sheet. The company has intelligently held on to it at this point in time. But again, another opportunity for monetization and returning capital to shareholders. So that's our strong view on that topic. Okay. Let's focus to the positive. We are actually having a very good year. Let's talk about our largest investment at this point, Alphabet. And that's Bharath, who's going to take that on. Go ahead, Bharath. Bharath Alamanda: Sure. And maybe to rewind back to when we originally initiated our position in Alphabet more than 2.5 years ago, our investment thesis was that Google's leadership position in AI was being severely underappreciated. And our view then was the company had a unique full stack approach to AI that came with several structural advantages, namely frontier research capabilities, world-class technical infrastructure, scale distribution and the access to immense training data. And you could argue then that the main open question was around execution and whether the company would be able to harness all those inherent competitive strengths into their product road map. I think since we made our investment and one of the reasons the share price has appreciated meaningfully both this year and over the life for our investment, but we still continue to remain very optimistic shareholders, is they've really stepped up to that question and done an excellent job on the execution front and leveraging their strengths. And maybe to just provide a few recent examples of that. Earlier this week, Google released their latest and very widely anticipated Frontier AI model of Gemini 3.0. Not only did it immediately jumped to the top spot on all of the benchmark evaluation leader boards, more notably, they integrated Gemini 3.0 directly into search and the Google apps the same day that it was released, kind of highlighting the company's focus on improving the product velocity. Gemini 3.0 was also led by the DeepMind team, which was a start-up that the company had very presciently acquired all the way back in 2014, and that lab continues to be the leading kind of frontier research lab. On the hardware side, the company has spent the better part of a decade optimizing their technical infrastructure to specifically run machine learning and AI workloads. And as a result of that, they can now run those workloads at sort of industry-leading lowest cost per token. And they've developed their own proprietary TPU semiconductor chips, which has not only reduced their reliance on NVIDIA's GPUs for running internal workloads, but I think what we've seen more so over the last year is they're gaining increasing traction from third-party Google Cloud customers. On the scale distribution front, Google has incredibly valuable digital real estate and consumer mind share. And that's probably best seen through the rollout of AI overviews, which are the summary AI search responses that are directly embedded in search. AI overviews is now being served to more than 2 billion users. And if it were to be considered its own stand-alone app would be by far the most widely used AI app. And then lastly, kind of on the data front, we believe Google's ability to train kind of on a wide corpus of first-party data, including YouTube videos for image and video generation as this is a very valuable long-term differentiator. Tying all those advantages to the operating results, those advantages are now being clearly reflected in the company's ability to grow at scale. So for context, Google generated $100 billion of quarterly revenue in Q3, and those revenues grew at a 15% rate, right? Just their core search and YouTube franchises, despite their maturity, are continuing to grow at a low teens rate, and their cloud business, which is now a very scaled $50 billion run rate business, growing at an incredible 32% rate. So while the share price has appreciated meaningfully this year, we still think that the valuation is quite reasonable in light of the business quality, their leadership position in AI and their ability to continue to grow earnings from this point on at a high teens rate for a very long time. William Ackman: Great. Thank you so much. Why don't we go to Uber, Charles? Charles Korn: Sure. Thanks, Bill. So as a reminder for everyone, we invested in Uber early this year, what we believe was a very highly dislocated valuation with extremely strong fundamental and operational performance overshadowed by concerns regarding disintermediation risk. And big picture, we feel increasingly confident that the market structure is evolving consistent with our underwriting hypothesis. And over the course of 2025, basically, what Uber has done is they've advanced a number of partnerships with various autonomous vehicle and technology companies. And taken together, they're strategically advancing geographically focused commercial pilots with line of sights to thousands of autonomous vehicles covering major metro cities on their network within the coming years. And since our last update, one notable call out is a marquee partnership Uber announced with NVIDIA this past month. The partnership is interesting. It coalesces around NVIDIA's DRIVE AV platform as a reference compute and sensor architecture to make any vehicle an autonomous vehicle, i.e., L4 ready, which enables OEMs and developers to accelerate their AV technologies, respectively. And it offers an extremely credible counterpoint to Waymo and Tesla's respective architecture. So you essentially have what was looking like a potentially 2-player market developing to a credible third alternative, which can help some of these small long tail of AV players kind of accelerate their respective technology developments. And Uber's role here is they're going to be contributing valuable training data to an NVIDIA data factory, which will support a foundational model upon which others can draw. And the partnership overall, it's designed to lower cost of development and accelerate commercialization efforts for our industry participants. Now against this backdrop, Uber continues to operate commercial operations for Waymo in several markets, including exclusively in Austin and Atlanta with strong utilization data reinforcing Uber's unique value proposition. We expect the market structure will continue to evolve over time to maximize vehicle utilization and operating profits. And we believe basically Uber is positioning itself to become a technology and hardware-agnostic partner of choice for the AV ecosystem. Transitioning to discuss operating performance. In short, financial results continue to be excellent. Notwithstanding their market-leading scale, growth is actually accelerating with operational metrics achieving new all-time highs in users, engagement, frequency and trip growth. And so top line results also notably this growth is actually balanced across both the Mobility and Delivery business segments with 19% and 23% growth in the most recent quarter, respectively, which just gives you some scope of the scale and growth here. And that roughly 20% blended bookings growth translates to 33% adjusted EBITDA growth and more than 50% growth in earnings per share as the company is scaling margins off a relatively low base, which is very impressive. Notably, the company is achieving this level of operating -- attractive operating leverage and earnings growth while continuing to make investments to see the next generation of products and geographies, which we believe will sustain Uber's high rate of growth over the coming years. And to just kind of double-click on this concept of investment, so the stock has been relatively weak the last few weeks. And part of this, I think, was actually -- some people may have seen DoorDash, which is a primary competitor in the delivery space, announced an unexpected round of major investments, which caught investors off guard. The stock was down nearly 20% in response to that, and that's their primary competitor in delivery in the United States. So I think there was some concern, is Uber also going to need to make a similar round of investments? Or is the competitive intensity of the business increasing. And our perspective on this is basically DoorDash. They -- basically, the company has grown very rapidly. They're very strong operators, but they didn't have amazing kind of forward-looking vision on the product architecture. And so their technology stack kind of became slightly more outdated at a faster rate than one would anticipate for a newer, relatively speaking company. They've also done a number of acquisitions, and so they're using this as an opportunity to kind of integrate these acquisitions and rebuild their tech stack. But primarily, this seems like it was a miscommunication around the kind of IR and external communications from DoorDash, and we don't think this represents a fundamental shift in the competitive intensity or kind of a desire for DoorDash to lean in. And importantly, we don't think that Uber has to make these same kind of investments. They're making such investments while simultaneously achieving their multiyear financial targets. And so we think this is kind of a unique issue to one of their competitors. And so big picture, taking a step back, Uber is basically trading at a mid-20s multiple today, which we think is an extremely cheap valuation considering their high rate of earnings growth and attractive outlook. William Ackman: When does the Tesla overhang lift, if you will, the fear that Elon will -- there will be 10 million taxis driving around, charging people $5 to go unlimited distances. Charles Korn: What's interesting, what I'd say is a factual statement, right, is that Waymo is far more capable today from a technology standpoint than Tesla, right? Tesla has grand ambitions. But if you just look at the facts, the issue is it's hard to -- it's impossible to scale a business if you don't have unit economics that work, and it's a bit of a catch-22 where until you have a technology, until you have a cost structure that works, you can't scale. So it's hard to say. I think 2026 is likely to be another year of kind of experimentation and kind of evolution rather than revolution. I don't expect to see kind of a major breakthrough. I think the nature, too, of scaling in robotaxis is there's a requirement to kind of validate and evaluate the models you're creating to make sure they're performing in real-world scenarios consistent with your modeled expectations. And that, by its very nature is kind of a slow methodical approach because if you released 100,000 robotaxis without knowing how the models perform in real-world settings, there's real-world consequences and people can die. And I think actually, Elon has been pretty measured and thoughtful around making sure that they are cautious in terms of their rollout of the products to make sure that they're performing as expected. In this regard, we'd say Waymo is clearly -- has best-in-class data, best-in-class disclosure around safety, disengagement, et cetera. I think it will be positive if kind of Tesla demonstrated more of that. Ryan Israel: If I could add maybe one thing to that. I think the Tesla risk or the Tesla overhang is really centered on 2 variables. Number one, that Tesla itself will be the dominant market player in AVs and that if it is the dominant market player in AVs, it will not choose to partner with Uber. And so I think the way that this can resolve itself is that either one of those 2 premises shows to not be correct. So to Charles' point, if there are more AV companies such as Waymo and there's actually a handful of other potential AV companies that are showing very strong progress aside from Waymo, if those companies start to become more dominant in the space and/or they start partnering with Uber, I think the perception will be that this will not be owned by any one company for AVs, and therefore, it would be a much more balanced marketplace, which I think will help resolve some of that overhang. That may be knowable within the next, I would argue, 12 to 24 months, although the timing is a little uncertain. Secondly, to the extent that Tesla does become further along in actually deploying robotaxis at scale, which, to Charles' point, does remain to be seen. They're certainly behind a lot of the targets that they have suggested over the last several years. But once they start scaling up, to the extent they are more willing to talk about partnerships, that could be the other way that this overhang results. So I think there are multiple ways that will become clear over the next year or 2 in which this could resolve in the way that we think, which will ultimately be beneficial for Uber. William Ackman: In short, we basically think the Uber platform is enormously valuable to Tesla and to all the other sort of AV companies and it's becoming even more valuable over time, embedded in the mind share and the consumer experience, a bit like Google's presence in search. Okay. Let's talk Brookfield. Charles, go ahead. Charles Korn: Sure. So Brookfield, they've had a very active 2025 with strong operating performance, significant business building and corporate development activity, particularly in recent months, including the pending acquisition of Just Group, which is a U.K. pension insurer that they're going to be acquiring early next year and the recently announced buy-in of the 26% of Oaktree that they don't already own. To start, maybe I'll provide some perspectives on their financial performance, and I'll focus primarily for now on Brookfield Asset Management or BAM, which is, as a reminder, kind of comprises roughly 75% of the value of BN Corporation, i.e., the parent entity, which we own. BAM is generating very strong results. So they're seeing roughly 15% growth in fee revenues with particularly strong growth in their credit and renewables businesses. In renewables, they closed on their second transition fund earlier this year, which is driving some of that strength. That roughly mid-teens rate of fee revenues is translating into fee earnings growth at a slightly higher kind of 16% to 17% rate, which is basically strong operating leverage on the core BAM business, offset by lower margins at Oaktree, which we think is kind of a transitory development, which will reverse itself next year, setting the stage for even stronger kind of operating leverage. And so as we look to 2026 for BAM, we think they're poised for an excellent year with accelerating organic fundraising, further step-up in capital from BN Wealth Solutions. Again, part of this is that acquisition of Just Group and then efficiencies, which they'll garner from fully consolidating Oaktree within BAM. And so of note also, as you think about BAM for '26, they're going to be in market with multiple flagships next year, including their next-generation infrastructure and private equity funds and their recently launched artificial intelligence fund. And each of these flagships, these are large, chunky $10 billion, $15 billion, $20 billion, $25 billion funds, which drive step function increases in fee-bearing capital, fee revenues and, of course, operating profits. Now moving beyond BAM to the broader kind of Brookfield ecosystem and the cash flow streams that roll up to the parent BN, 2 kind of call outs. So one, carried interest is beginning to meaningfully accelerate at BN, growing roughly 150% the last few quarters off a relatively low base. Earlier this fall, the company provided a forecast for $6 billion of carried interest over the next 3 years, which should begin to meaningfully kind of show up in 2026. It may be somewhat back-end weighted, but it's basically setting the stage for very significant growth next year. And then second, I'd touch on Wealth Solutions, which is their annuities -- primarily the annuities business, that grew 15% this quarter, which was -- saw a strong earnings contribution from the relatively small P&C business they have within their wealth solutions portfolio, which is offset by lower growth in their annuities business. And here, what's happening is we believe they're repositioning the asset book for higher long-term yields, but it's driving some temporary dislocation, which we think will reverse itself in the near term. Taken together, so BN is tracking towards low to mid-teens distributable earnings growth this year, which we believe will meaningfully accelerate next year with step function changes, increasing both the earnings contributions from Wealth Solutions and a step-up in net carried interest realizations. Also of note, the company hosted their Annual Investor Day this past September, and they established a target for nearly $7 of earnings per share in 2030 or 25% compounded growth from here. And in that context, we note that -- we think Brookfield stock is extremely cheap. It's trading at roughly 15x our assessment of forward earnings, and we anticipate accelerated share price performance tracking with kind of the rate of earnings growth we anticipate to see from them over the next few years. William Ackman: Thank you, Charles. So Fannie, Freddie, was it yesterday? It seems like a long time ago that we gave a presentation on our thoughts for a path forward for Fannie and Freddie. The President and members of -- Treasury Secretary and others have talked and posted on Twitter about potential plans for an exit from conservatorship and/or an IPO for Fannie and Freddie. We think someday, a public offering of shares by the government may make sense, but we do think there's an important step that should be taken beforehand. That's a much lower risk alternative. So what we've proposed both privately to the administration, we had the opportunity to share these ideas with the President with Secretary Ludnick, Secretary Bessent as well as Director Pulte in the recent past, which we then shared in a public forum that the administration could get a sense of the market as well as the various commentaries view of this -- of our, let's say, trial balloon is really a very simple next step. If you think about the Trump administration's first term where the President started to put Fannie and Freddie on a path to removal from conservatorship, the most significant step was reversing the theft or stopping the theft, I guess, I would call it, where Secretary Mnuchin basically ended the net worth sweep and allowed these entities to start building capital. That was a very important step for actually reducing risk in our housing finance system, making -- putting Fannie and Freddie in a position where they could, on a stand-alone basis, support the guarantees that they had outstanding. I think that was a critically important step. But we think the next step should be an acknowledgment, really, it's an accounting for the payments that have been made to the government. So basically, U.S. government injected $191 billion into these companies after the financial crisis and extracted an appropriate pound of flesh, which is a 10% return on that capital as well as warrants on 79.9% of both companies. They basically took -- it was a distressed bail out with very onerous terms, the most onerous terms of any of the banking financially related companies, only, I think, tied maybe even -- actually, ultimately, the amended version of AIG, I think, was even less onerous than Fannie and Freddie. Now the administration -- the companies have paid back $301 billion of the original $191 million, which is more than the 10% return they're entitled to. But from an accounting perspective, the preferred remains outstanding on the balance sheet. That's really a function of the net worth sweep previously -- never-seen-before transaction. So what we're recommending is that the payments to the government have to be accounted for. The result would be eliminating the preferred line item from the liability section or the equity section of the company's balance sheet. And the next step, of course, will be exercising the warrants. The government will become now very large shareholders of both companies and then the businesses are in a position to be listed on the New York Stock Exchange. Importantly, we think they should stay in conservatorship. What that means is we're now -- there's literally 0 risk to mortgage rates. The government is still completely in control of both enterprises. And now the necessary next steps can take place over however long they take in a very measured, thoughtful manner. And we believe this accomplishes all of the administration's goals, at least the stated goals of showing how much value has been created for taxpayers. The President did the right thing in not selling these entities in his first term and they've increased in value probably fourfold or so from the $100 billion offer that was apparently made to take these businesses private, I guess. And we think there's still a lot more room to run. So we think it's not a good time to do a public offering of shares because it would be dilutive to the taxpayers' ownership of both entities, but the government will be able to show a mark-to-market value and demonstrate incremental important progress without taking a risk to mortgage rates, and we shall see. The good news is that transaction -- again, the President has got a lot on its plate, and we're approaching Thanksgiving, but it's actually theoretically possible. We've spoken to the exchange about a relisting. They're obviously prepared to do whatever is required to get that done. So it could be a nice Christmas present for the long-suffering shareholders of Fannie and Freddie, which include more recently some institutions. I mean, Pershing Square has been around here a while, but other institutions have bought stock over the course of the past year, and there are literally millions of small shareholders who are cheering for the President to save them, and this would be a very nice Christmas present for that group of owners. Why don't we go to Amazon? Bharath, why don't you update us? Bharath Alamanda: Sure. So earlier this year, we were able to opportunistically build a position in Amazon during the April market drawdown. It's a company we followed for a long time, and I always admired the fact that it operates... William Ackman: What price did we pay in the drawdown? Bharath Alamanda: Our average initial cost was around $175, which is a 25x entry multiple on forward earnings, the lowest multiple that the shares had ever traded at in their history. William Ackman: Thank you. Bharath Alamanda: So yes, it was a company we've been following for a long time, and we always admired the fact that they built and operate 2 of the world's great category-defining franchises between their cloud business, AWS and their e-commerce retail operations. Our view is that both of those businesses are supported by decades-long secular growth trends, occupy dominant positions in their markets and share the kind of core tenets of the Amazon ethos of focusing on the consumer value proposition and leveraging their scale to continue to reinvest and be the low-cost provider. Despite those compelling attributes, there were concerns around the growth trajectory of AWS and then coupled with the broader tariff-related market volatility, that kind of provided us the attractive entry point. And our view was that those concerns underestimated the resiliency of the business model as well as the duration of its growth runway. And while it's still early days, the company's operating results since then have kind of helped validate our thesis. So starting with the Cloud segment, AWS today is a $120 billion business that continues to grow at a high teens rate. And in fact, last quarter, the growth rate accelerated from 17% to 20%. Notably, that impressive growth rate was actually limited by capacity constraints as consumer demand for compute vastly exceeded the pace at which AWS is able to bring new supply online. William Ackman: Is that constraint driven by just the time to build the new facility or GPUs or... Bharath Alamanda: Yes, I think it's a combination of the above. So to that end, the company has been very focused on accelerating that build-out. So in the past 12 months, they brought online 4 gigawatts of power, which is more than any other cloud provider. And for context, Amazon has doubled their data center capacity since 2022 and are on track to double it again by 2027. So in light of the kind of supply-constrained nature of AWS' growth, we actually think those investments today to accelerate the build-out are very efficient and high return use of capital. And then kind of shifting to the retail business, they've seen very minimal, if any, impact from tariffs. And over a longer time frame, we're very encouraged by the potential for significant margin expansion in that segment. So if you were to look at peer margins and adjust for Amazon's business mix as well as taking into account their much higher margin and faster-growing advertising revenue stream, we estimate that Amazon's structural retail margins could be several hundred basis points above the 6.5% margins they're expected to realize in 2025. And in addition to that, they're also extracting a lot of productivity gains from their warehouse automation initiatives and their one-of-a-kind logistics network. And as just a proof point on that latter point, per unit shipping costs have been steadily declining for the last 8 quarters in a row. So stepping back, while it's still early days and while Amazon's share price has appreciated about 30% from our initial cost in April, it still trades at a very attractive multiple relative to peers like Microsoft and Walmart and especially in light of its ability to grow earnings at a nearly 20% rate for the next few years. William Ackman: Thank you. Let's go to Restaurant Brands. Feroz. Feroz Qayyum: Sure. Thanks, Bill. So Restaurant Brands actually continues to execute at a very high level, and its most recent results reinforce both the strength of its brands and the resiliency of its business model in what can only be described as a fairly tough economic backdrop for consumer businesses. During the quarter, the company-wide same-store sales grew at 4%, units grew by 3%, leading to 7% system-wide sales growth and operating income grew by 9%. So looking at their biggest businesses, Tim Hortons in Canada, they increased their same-store sales by about 4%, which outperformed the broader Canadian QSR industry by 3 whole percentage points. This now marks the 18th straight consecutive quarter of positive same-store sales. And that, by the way, has primarily been driven by underlying traffic growth. For several years now, Tim has been laying the groundwork in its Back to Basics plan with new innovation, both in cold beverage as well as afternoon foods while still maintaining their lead and providing good value for consumers in its core beverage, coffee and breakfast segments. Tim Hortons actually is also now growing its unit count in Canada for the first time in years, a market that many consider too mature. And these units are actually a lot more impactful to the company's bottom line than their units abroad because they're obviously higher unit volumes and Tims Canada has higher unit take rates as well. In the international business, same-store sales grew by 6.5%, also above the primary competitor, McDonald's, which has also been the case for actually several quarters now. The company also brought on a new partner to manage the Burger King China business, who will actually invest $350 million into the business shortly, and that will allow that BK China business to double unit counts over the next 5 years, and that will help restaurant brands, the total company achieve their 5% unit growth algorithm in the coming years. At Burger King in the U.S., same-store sales were up about 3%, again, also ahead of burger peers and one -- the results actually have also outperformed the broader U.S. burger category for multiple consecutive quarters. And that's really due to all the initiatives they've done under their Reclaim the Flame program. While investors were worried that competitors are pushing deeper into value, Burger King has actually done a really nice job striking a nice balance between innovation and premium offerings, doing nice tie-ins with movies and also providing everyday value with their Duos and Trios platforms. In what is -- can be best described as a very challenging economic backdrop, as Anthony alluded to, we think Restaurant Brands' results highlight the very nice defensive qualities of its business. So while low-income consumers have pulled back from spending many often skipping breakfast, Restaurant Brands has still continued to grow its sales as it's benefiting from the trade down for middle and higher-income consumers trading down. William Ackman: So are Chipotle customers becoming Burger King customers? Feroz Qayyum: Look, that's a question we've been discussing at length. I'm not sure it's specifically from Chipotle to Burger King, for example. But we do think what's happening, it's really a twin economy. So people that own stocks that are wealthy are doing incredibly well, and they're continuing to spend where they used to. At the same time, the low end of the economy is doing very poorly, and they're basically pulling back. So I think a brand like a Burger King or a Tim Hortons that caters to everyone is benefiting -- obviously losing those low-end customers, but it's benefiting from the mid-end trading down. But the fast casual space broadly, which obviously Chipotle is a member of, is missing that middle sort of demand vacuum where the high end isn't trading down, but the mid-end is trading down to the quick service category broadly. So that's certainly probably happening. What's also notable about restaurant brands is that it's obviously primarily franchise business model. And so it's also not as directly exposed to the labor and cost inflation to the same extent as others. And so thanks to its consistent growth and defensive business model, we expect that Restaurant Brands will actually still grow operating income at 8% this year, which is in line with its long-term algorithm. And the business still trades at a discount to its primary peers. So it's trading at about 17x earnings, whereas McDonald's and Yum! are trading at about 23x next year's earnings. We think a business of this quality with these characteristics should trade at a much higher valuation. So we're optimistic about the prospective returns from here. William Ackman: Okay. Great. So I'll just cover Howard Hughes. The short story here is the underlying real estate business of Howard Hughes is performing extremely well. The company reported an outstanding quarter really on every metric of net operating income, land sales, profits from their MPC business and the appreciation of their existing land portfolio. The management teams at Pershing Square and Howard Hughes are working very well together, which is great. And we are working, as we've publicly disclosed on a transaction to acquire an insurance company that would become really the beginnings of our diversified holding company strategy for the business. Our goal is to complete a transaction as early as the -- at least announce a transaction as early as year-end or perhaps in the early part of the new calendar year. We'll have a lot more to say about that if and when we are successful in completing a transaction that makes sense. But the short version of the story is that, we intend to by a good insurance platform with an excellent management team that can run a profitable insurance operation with Pershing Square managing the assets of that insurance company, I would say, akin to the way that Warren Buffett has managed his insurance company's assets and the way really he's managed the insurance company operations itself. Why don't we go to Hilton? Ryan, why don't you give us an update? I'll just point out, Hilton has been an excellent investment for us over many years now. We have enormous respect for the management team, and it's one of the best businesses that we've ever owned. It's become a smaller part of the portfolio, unfortunately, because -- or fortunately, because everyone else has recognized the qualities of the business. So we still think it's an attractive investment from here, but lower on the IRR thresholds than obviously when we originally acquired our position. But go ahead. Ryan Israel: Yes. So I just wanted to make a quick point that I think this quarter's results are really emblematic of why we think Hilton's business model is unique and incredibly resilient. So for example, the company same-store sales metric RevPAR actually declined about 1.5% this quarter as there were some macro softness, which clearly has impacted some of our restaurant businesses, but that actually impacted some of the travel businesses as well. And typically, what you would expect when a company has declining same-store sales, you would expect a decline in the profitability of the business. Hilton actually grew its adjusted EBITDA, its profit metric, 8% this quarter despite the decline in same-store sales, which is very unique and really reflects the 2 fundamental drivers of the business that are incredibly attractive to us, which are they have an enormous opportunity to grow their unit or hotel count around the world because the brands that they have are able to take advantage of the increased travel trends, and they are better than a lot of the alternative brands. And other people put up the capital for that because it's a good return for them and Hilton is able to earn a very high franchise fee. And that is really adding 6 to 7 points a year of growth to the business, and that's a trend, I think, will continue for a while. And the second factor is just incredibly strong cost control due to just overall great management. So the company is able to really limit the growth in its expenses despite having a very strong steady revenue growth base. So profits still grow even when same-store sales decline, which is a typical anomaly in business, but it's part of Hilton's core model. And then on top of that, this company has just superb capital allocation. So it continues to buy back about 5% of its shares on a year-over-year basis. So with a kind of consistent underlying tax rate, the company would have grown earnings at a low teens percent this quarter despite not growing same-store sales due to some macro softness. And so I think to your point, one of the reasons why we continue to hold Hilton is those unique characteristics where if the business performs in a normal macro environment well, we think there's a clear line of sight to 16%, 17% earnings per share growth annually for a very long time. If the macro is a little weaker and same-store sales don't even grow, we're still able to get pretty comfortably above a 10% rate of earnings per share growth, which is very unique. And so the market has recognized, as you pointed out, that this quality of the business and the growth characteristics should be deserving of a higher multiple, and the company trades at about 30x next year's consensus earnings, which is part of the reason why we've reduced our position is we think that the growth profile will offer us a reasonable return, but there's less opportunity for an accelerated annual return beyond the earnings per share growth when the multiples, I think are reasonable at 30x. But we still think it's very unique and a very strong management team, which is why we continue to hold the position even though it's somewhat smaller as you've been trimming as the share price and the multiple has increased over time. William Ackman: Let's do an interesting compare and contrast. Let's compare Universal Music to Hilton. They have some fairly analogous economic characteristics, and let's compare the trading multiple of one versus the other. And why is Hilton traded at 30x earnings and Universal traded 20 or 21x earnings? Ryan Israel: So I think you're entirely right, which is that while they obviously operate in different industries, the economic characteristics are very similar. They are both royalty-like companies that are very capital-light with very strong operating margins. In Hilton's case, we believe over time, the company is likely to grow at something along the lines of maybe 8% to 10% a year for revenue and that adjusted EBITDA is probably going to grow a little bit in excess of that. Those will sound very similar because that is exactly what UMG is growing at. Its revenue is about 10% right now. William Ackman: And management guidance -- let's stick with the management guidance on those numbers. Ryan Israel: Correct. And that is in line with the guidance over time. So it's interesting that they look incredibly similar on the operational performance, if you will. The key difference, as we pointed out earlier, is UMG has not bought back a single share, whereas Hilton pretty much like clockwork buys back about 5% of its shares. They allocate all of their free cash flow -- the substantial majority of free cash flow to share buybacks. And because of the high margins and the significant degree of predictable revenue growth, they have a nice amount of leverage, which the business can support. And obviously, UMG has an unlevered balance sheet when factoring in its stake in Spotify. I think the U.S. investor base, U.S. listing of Hilton, combined with the capital allocation has given investors a lot of confidence, which has allowed them to price in a multiple of something like 30x. And as we mentioned earlier this week, UMG was trading at 20x, which is a very large gap between the 2 despite very similar economic characteristics and growth characteristics currently. William Ackman: Let's go to Hertz on the other end of the balance sheet spectrum. Feroz Qayyum: Yes. We're not unlevered, in fact, very levered and also has some operational leverage. But look, the interesting thing about Hertz is that it's actually making a lot of progress on its turnaround efforts, and the results in the third quarter showed those. So it was the strongest quarter in years. It actually generated their first positive EPS for the first time in 2 years and they demonstrated meaningful traction on the operational levers that we've discussed previously as our investment thesis. Number one, the fleet refresh. When we invested, they basically had an upside down fleet. Now they've completely refreshed it. The average vehicle in the Hertz fleet is now less than 12 months old. As a result, depreciation per unit per month DPU, which is their metric, was $273 during the quarter, well below their long-term target of $300. And importantly, next year's vehicle purchase negotiations, which some investors are worried about given some of the tariffs and inflation, they're also nearly complete. And the management team is confident that, that will also support strong unit economics with depreciation of less than $300. Operationally, the company is also making big strides. So this quarter, utilization was 84%, the highest level the company has ever delivered since 2018. Revenue per day or RPDs were down low single digits, but they continue to improve and improved in October as the company has been implementing changes and modernizing its pricing systems. On the cost side, they also continuing to make progress through automating processes, lowering headcount and rationalizing some of their footprint. And we expect both SG&A and DOEs, which is their measure for expenses per day to decline from current levels. So the company is well on its way to delivering sort of a mid-single-digit EBITDA margin next year and has line of sight into delivering $1 billion of EBITDA in the coming years. What makes Hertz very interesting from these levels... William Ackman: $1 billion. It means $1 billion of annual? Feroz Qayyum: Exactly. $1 billion of annual EBITDA in the coming years. They have a target for 2027 actually. What makes Hertz really interesting from these levels is that it also has a number of upside levers or call options available to the company. So first, the company has been setting up infrastructure to sell more used cars through its own retail channels as well as its partnerships. The company actually has a partnership with both Amazon as well as Cox, and it's now live with their rent-to-buy program in over 100 cities where you can rent a car, try it out and if you like it, you can buy it. We believe the company can turn this into a meaningful profit center that can lead to structurally lower depreciation costs because obviously, you sell a car to the retail channel at a much higher profit than the wholesale channel. And then it also allows an opportunity for them to sell additional F&I revenues. Second, we believe Hertz also has the potential of being a significant partner to the various mobility companies that are rolling out autonomous vehicles. Hertz has an expertise in vehicle maintenance, servicing, and it has a very significant scale of -- with its parking facilities that make it an ideal partner to help manage as folks try to roll these out. Both these revenue streams have the potential of being large businesses for Hertz in the future and helping it further leverage its fixed cost base and brand. On liquidity, the company is also now in a much stronger position. Recall when we invested, some investors were speculating the company may need to declare bankruptcy again, and that is definitively not the case today. It has more than $2.2 billion of total liquidity. We actually helped facilitate a convertible bond issuance earlier this year and actually increased our exposure to the company. And the company also entered into a capped call transaction, which means that the convertible bonds are not dilutive unless the stock essentially triples from current prices. So with its current liquidity, as I mentioned, of over $2 billion, they have ample liquidity to address their near-term maturities and to help grow their fleet next year, which will again help them lever their fixed cost base. So stepping back, Hertz today is a much more leaner, more efficient company with, frankly, an enviable young fleet that its peers don't have. And on top of the core rental business, the company is also developing multiple new profit streams, as I mentioned, such as the retail used car sales, servicing AVs as well as serving the broader mobility segment. So we continue to believe that Hertz has asymmetric upside from current prices. But obviously, in light of the fact that it's going through an operational turnaround, we have sized this as a smaller investment than our typical holdings. William Ackman: Why is the stock so cheap in light of all of the above? Feroz Qayyum: So it's not immune to some of the consumer issues that we're seeing in the broader space. What's also notable is that the government shutdown has obviously had an impact on travel broadly. And so people are traveling a little bit less. Hertz does benefit to an extent as people have been taking out what are called one-way rentals. So instead of flying, you just take a car. But certainly, I think it's probably a net negative if the consumer environment is weaker and then people are traveling as much. And there's also -- there's been broader concern around RPDs. We think that's a little bit misguided. The way Hertz sort of reports RPDs, it's really burdened by the fact that they have mix towards smaller cars, which certainly have lower prices, but they're EBITDA accretive. And so next year, that should be a tailwind. And candidly, I think these car rental companies are generally misunderstood. There isn't a lot of market cap for long investors to dig into and to get excited. And so both Hertz and Avis have the potential to gather some of these long-only investors as they come out of the turnaround starting next year. And I think Hertz specifically has a very interesting opportunity to grow its EBITDA from basically nothing today to $1 billion in the coming years. William Ackman: Okay. Good. Thanks, Feroz. We've always received questions in advance of the call. We do our best to answer them during the pendency of the call. Just a couple that we didn't kind of get to. One is since both Howard Hughes and the Pershing Square funds are managed by Pershing Square, how should investors think about investing in Howard Hughes versus Pershing Square's core strategy? The answer is these are, I would say, different investments with some overlap. Howard Hughes, of course, the core business today is a master planned community business. It's a business we like. It's a business that we expect to generate a lot of cash over the next years and decades, and we think provides a very good base to build our version of a diversified holding company. With the acquisition of an insurance subsidiary or insurance company that becomes a subsidiary of the company, over time, as that business scales, that will become a more important part of the operation of the company. We intend to manage that insurance company portfolio, the float in U.S. treasuries, the equity and common stocks using the same kind of investment philosophy we have at Pershing Square. So there are clearly some similar elements. But it's an operating company. It's a C-corp. We intend to take the cash that the business generates over time and to deploy that capital in acquiring -- principally controlling interest in most likely private businesses. So the portfolio will look different. It's not a large cap or mega cap minority stake investment vehicle. It will be an operating company that will buy for the very long-term various businesses. Today, you're buying Howard Hughes at about a 15% discount to the price we paid for shares and an even bigger discount to kind of the, I would say, the NAV of the real estate portfolio. So that's a nice place to start an investment. But ultimately, the success of Howard Hughes will depend on how we do with our various initiatives there. I like Howard Hughes a lot, excited about what we're going to do there. An entity where you have -- that's a public company, we have access to the capital markets, may create some flexibility over time for us to do some things that we can't do in the Pershing Square funds. So over time, I would say they will be different entities, but the same investment principles will be applied and shareholder, I would say, orientation will be applied to both. And then I would -- the other thing I would say is that the Pershing Square management team has a very large investment in all of the above. So about approaching 30% of the AUM that we manage today is -- or I guess, 28% or so today is employee capital in the funds. And then on a look-through basis, therefore, the employees own an interest -- a meaningful interest in Howard Hughes. And then on top of that, the Pershing Square management company made a $900 million investment in the company. So we have, I would say, a very high degree of what you might call skin in the game in both the funds as well as Howard Hughes. I think Howard Hughes itself is at this point, still not well recognized. I think if and when we are successful in beginning to make this business look less like a real estate master planned community and more like a diversified holding company, we expect we deliver results and we expect the market to notice. With respect to hedging, our approach, as you likely know, is, one, we pay careful attention to what's going on in the world from a macro perspective, from a geopolitical perspective, from a political perspective, all these things can have an impact on markets. And we focus -- our first priority is what are the risks in the system that could cause a massive market decline. And to the extent we identify risks like that as we did pre-financial crisis or pre-COVID crisis or pre-Fed interest rate inflation, I wouldn't quite call it a crisis, but where the Fed was forced to raise rates very aggressively, we were able to hedge those risks because of the sort of surveillance of what's kind of going on in the world. Today, we really have no hedges in place. We don't try to hedge short-term kind of stock market declines or what some people might think of as a periodic -- the overall multiple, the market is above normal. There are lots of reasons why a market cap weighted index today appropriately should be trading at a higher multiple. If you think back to '09, we didn't warrant businesses, frankly, like NVIDIA, and we didn't have this massive growth driven by a major change in technology. We are seeing interesting places to put capital. We're doing due diligence. And our approach is to -- as we say, we sort of build a library of businesses that we get to know pretty well. Occasionally, new companies emerge, go public, get spun off. We track as many of them as we can in terms of ones that meet our criteria for business quality, and then every once in a while, they get really cheap. Amazon being kind of a recent example of a company we admired for years. It was always a little too expensive, but a business we want to own. And I think we started buying stock at something like $161 a share, which seem to be a really kind of unique opportunity. With that, I just want to thank you for joining the call, and we look forward to updating you. I think our next event will be our Annual Meeting that we will stream at some point in January or an Analyst Day. Thanks so much. Operator: Thank you, everyone. This concludes your conference call for today. You may now disconnect, and have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings Third Quarter Earnings Call. [Operator Instructions] As a reminder, this call is being webcast and recorded on November 20, 2025. I will now turn the conference over to Daniel Tapia, Director of Investor Relations. Sir, you may begin. Daniel Tapia: Thank you, Michelle, and welcome, everyone, to our third quarter earnings call. Joining me today are Pedro Heilbron, CEO of Copa Holdings; and Peter Donkersloot, our CFO. Pedro will begin with an overview of our third quarter highlights, followed by Peter, who will walk us through the financial results. After that, we'll open the call for questions from analysts. Copa Holdings' financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures which are reconciled to IFRS figures and our earnings release available on our website, copaair.com. Our discussion today will also contain forward-looking statements, not limited to historical facts that reflect the company's current beliefs, expectations and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change. Many of these are discussed in our annual report filed with the SEC. With that, I will turn the call over to our CEO, Mr. Pedro Heilbron. Pedro Heilbron: Thank you, Daniel. Good morning, and thank you for joining us today. Before we begin, I want to thank all of our coworkers across the organization. As always, the dedication and hard work are instrumental in our financial and operational success. Copa delivered another strong quarter reinforcing the strength of our business model and our competitive advantages in Latin America. During the quarter, we achieved industry-leading profitability with an operating margin of 23.2%, up 2.9 percentage points year-over-year and a net margin of 19%, up 1.9 percentage points year-over-year. These results are driven by our continued focus on cost discipline and a healthy demand environment in the region. Now over to the key highlights for the quarter. Capacity in ASMs increased 5.8% compared to Q3 '24. Load factor increased by 1.8 percentage points to 88%. Passenger yields came in 2.6% lower year-over-year. Unit revenues or RASM increased 1% to $0.111 compared to Q3 '24. And unit cost, our CASM decreased 2.7% to $0.085 compared to Q3 '24, while CASM, excluding fuel, decreased 0.8% to $0.056. Operationally, Copa Airlines delivered an on-time performance of 89.7% and a flight completion factor of 99.8%, maintaining our position among the best in the industry. During the quarter, we started flights to Salta and Tocumen in Argentina. And as mentioned in our previous call, in the next few months, we expect to add service to Los Cabos, Mexico, Puerto Plata and Santiago in the Dominican Republic and Salvador, Bahia in Brazil, further strengthening our position as the most complete and convenient connecting hub for travel in the Americas. With regards to our fleet, during the quarter, we took delivery of five 737 MAX 8 aircraft. We added a second Boeing 737-800 freighter under an operating lease and Copa transferred an aircraft to Wingo, growing its fleet to 10 Boeing 737-800 NGs. We closed the quarter with 121 aircraft and we have since incorporated 2 additional MAX 8, bringing our fleet to 123 aircraft. We expect to receive 1 more MAX 8 before year-end finishing 2025 with 124 aircraft. For 2026, we anticipate adding 8 more 737 MAX 8, 2 of which we previously expected to receive in December 2025, ending 2026 with a total projected fleet of 132 aircraft. To conclude, in the third quarter, we again reported strong operational and financial results. Going forward, our guidance demonstrates confidence in our future performance, driven by healthy demand in the region and the strength of our business model, which consists of the best geographic position with our Hub of the Americas in Panama, structurally low unit cost and a strong balance sheet and a passenger-friendly product with industry-leading on-time performance. Our focus on these pillars enables us to consistently deliver industry leading results. Now I'll turn the call over to Peter, who will walk us through the financials in more detail. Peter Donkersloot Ponce: Thank you, Pedro, and good morning to all. I'd like to start by reinforcing Pedro's recognition of our team's continued dedication to achieving industry-leading performance. Let me provide some detail on our financial results for the quarter. Net profit came in at $173 million or $4.20 per share compared to $146 million or $3.50 per share in the third quarter of 2024, representing a year-over-year increase of 18.7% and 20.1%, respectively. Operating income reached $212 million or 22.2% higher year-over-year, and an industry-leading operating margin of 23.2%, 2.9 percentage points higher than the third quarter of 2024. On the cost side, CASM decreased 2.7% year-over-year to $0.085, driven primarily by lower fuel cost and maintenance expense. CASM, excluding fuel, came in at $0.056, down 0.8% compared to third quarter 2024. This figure reflects a realized gain from engine exchange transactions and a benefit related to the extension of 1 leased aircraft. Regarding our balance sheet, we ended the quarter with $1.3 billion in cash, short-term and long-term investments, representing 38% of the last 12-month revenues. Further demonstrating our financial strength and flexibility, we also have approximately $600 million in predelivery deposits for future aircraft. Additionally, we currently have 45 unencumbered aircraft. Total debt stood at $2.2 billion, entirely related to aircraft financing. Our adjusted net debt-to-EBITDA ratio came in at 0.7x and our average cost of debt continues to be highly competitive at 3.5%. Regarding the return of value to our shareholders, I'm pleased to announce that the company will make its fourth dividend payment of the year of $1.61 per share on December 15 to all shareholders of record as of December 1. As for our 2025 outlook, we remain confident in our full year performance. We are reaffirming our guidance and narrowing the operating margin range to the upper end now expected between 22% and 23%, with a full year capacity growth projected at approximately 8%. This outlook reflects a healthy demand environment in the region as well as our continued cost discipline. Our outlook is based on the following assumptions: load factor of approximately 87%; RASM of approximately $0.112; ex-fuel CASM of approximately $0.058; and an all-in fuel price of $2.40 per gallon. Looking ahead to 2026, we preliminary expect full year ASM capacity growth in the range between 11% to 13%, with an ex-fuel CASM in the range of $0.057 to $0.058. To conclude, we remain confident that our proven business model, robust balance sheet and disciplined execution provides a solid foundation to continue delivering consistent growth, strong financial results and industry-leading margins. Finally, I'd like to remind everyone that our Investor Day will take place at the New York Stock Exchange on December 11 at 11:00 a.m. Eastern Time. We look forward to sharing more about our company during this event. Thank you, and we'll now open the call for questions from the analysts. Operator: [Operator Instructions] Our first question will come from the line of Savi Syth with Raymond James. Savanthi Syth: Could you talk a little bit about the timing and nature of the kind of co-branded credit card renewal that you noted in third quarter? And just about the opportunity that you see in loyalty in general? Peter Donkersloot Ponce: Yes. Thank you, Savi. And yes, we had a renewal of our Visa agreement during the third quarter, and that's part of what you see, an 86%. We cannot disclose too much on that due to the confidentiality of the deal. But if we take that out, if the growth of the loyalty program would have been similar to the second quarter, there was over 30% growth year-over-year. Savanthi Syth: Great. Anything around the loyalty program initiatives? Is that just kind of the normal renewal? Any other kind of thoughts on how that program can kind of contribute in the future? Peter Donkersloot Ponce: So it's an important growth, 30% year-over-year over a small basis. We continue to grow. The program is maturing. We expect the program to continue to grow. There's a lot of new non-air partners in the program, and we expect the program to continue maturing and to continue growing at a decent rate going forward. And it's one of the priorities that we have for coming years. So the 30% growth, I mean, it's over a smaller base, and we expect that growth to continue and go -- slightly going down as the program matures. Savanthi Syth: Got it. And if I can ask just a clarification question on the growth next year. Could you tell like the 11% to 13%, how much of that is kind of [indiscernible] versus [ seat ]? Peter Donkersloot Ponce: Yes. So the full year growth that we are projecting between 11% to 13%, I would first say that half of that growth comes from the full year effect of the backloaded aircraft that we received this year. Of the other half, I would say, that 50%, 40 percentage points of that will come from adding frequencies to current destinations. And then the other 10% will come from adding new dots on the map. Some of them Pedro alluded to during his intervention. That's more or less the breakdown of our 11% to 13% growth in ASM for next year. Operator: Our next question comes from the line of Michael Linenberg with Deutsche Bank. Michael Linenberg: Yes. Just -- Peter, maybe to pick up on Savi's question on that growth for next year, sort of half of it is just the annualization of 2025 and then another large chunk of that remaining half, 40 points is frequencies. As we see that type of growth, what is the view on unit revenue trends? Normally, when we see a step-up in growth, we tend to see pressure, especially when you move into new markets. But it seems like if you're just focused on really strengthening what is already a strong position in the region, we should assume that unit revenue next year could be maybe somewhat flattish. What -- any thoughts on that or how you think about it for 2026? Pedro Heilbron: Mike, it's Pedro here. Yes. So I think in a way, you helped us answer the question. I mean we're not giving yet guidance on unit revenues. But you're right, most of the growth comes either full year effect or from adding frequencies. And of course, we're adding those frequencies in high-demand routes. When we average 88% for a quarter like we did in Q3, that means that many, many routes, many markets are above 90%. And that's where we're adding frequency. So the impact on unit revenues should be much less than one we would expect from double-digit ASM growth. Michael Linenberg: Great. And then just second question, since it is frequencies, when we look at the number of gates at Panama City and how full up you are and the number of banks, where are you when we think about banks and connectivity? I see some markets like you have 8 flights a day to Miami, you have 10 flights to Bogota. I recall where it was 2 banks, 3 banks, 4 banks. How many defined banks are you -- do you have today? And how much actually additional room do you have to add these additional frequencies because presumably, they're all in and out of Panama City. When do you start topping off or where do you start running out of connecting banks? Pedro Heilbron: Yes. Pedro here again, Mike. And so 2 things I'll say. First is that the airport is already working on its next phase of expansion. They're coming out with bids by the end of this year or early next year to expand the new T2 terminal and also to do some work on the taxiways and runways, one of those contracts actually has already been assigned. And then our civil aviation authorities is also bidding a redesign of the airspace. So all of this is going to happen in the next 3 to 4 years, and it's going to be done in a very pragmatic, I would say, way. That's going to be very good for the airport and for our hub. So we're really happy with that. In terms of frequencies, we're running 6 defined banks today, 6. Our first arrivals are like at 6 in the morning and our last departures are nearly at 11:00 p.m. And we do run wingtips, sometimes even triple wingtips at certain times of the day, like early in the morning, we run wingtips to the Caribbean, to Miami and places like that. And depending on the banks, we might run wingtips to maybe South America and other points. So they're still -- with this new phase of expansion that we're very, very involved with the airport authorities and the design even, and there's an international institution also very involved. We're going to have plenty of room to add wingtips if needed or even if it comes to adding banks, there will be room for that also. Operator: Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Jacob Gunning: This is Jake Gunning on for Duane. To ask a question about next year a little differently, not looking for guidance, but could you maybe talk about how you're preliminary thoughts on 2026 margins and earnings have changed over the last quarter? Pedro Heilbron: Yes. Again -- Pedro again. They haven't really changed. I mean in terms of our -- what we expect for unit cost, unit revenues, et cetera, we are kind of in the same place. Maybe the only wild card is what happens to fuel. And we've seen in the last few weeks, an increase in the crack spread for jet fuel, but that could change again in the next 2 weeks, and it has a lot to do with the conflict in Russia and mainly that and a few other reasons. So I would say that, that's the only wild card, and we haven't modeled how yields would react to that when there's -- when jet fuel is higher, usually, there's more pressure for everyone to adjust fares, but we haven't really modeled that. Jacob Gunning: Okay. And then just given the really healthy leverage, is there any debate or discussion on leaning more heavily into share buybacks versus dividends? Peter Donkersloot Ponce: Yes. So Peter now, and thank you for the question. And I'm going to talk a little bit about all the capital allocation plan that we have. And basically, we have, after this year around 46, 47 planes pending delivery from the order book we have. And given the fact that we are performing as Pedro said, 88% load factors, pretty decent margins. One of our top priorities right now is continue to reinvesting in the business. We believe the business can continue delivering healthy margin and growth. So that's one of our priorities for the capital allocation. And secondly, of course, we'll continue returning value to our shareholders as part of our capital allocation plan, and we have 2 ways to do that. One is our dividend policy that, as you know, it's 40% of last year's net income. We will maintain that dividend policy and maintain those quarterly payments. And then the second is we have a buyback -- a share buyback program open that was approved by the Board. It was approved around -- for $200 million. We have executed half of it, and we'll continue executing on the other half on an opportunistic basis. We don't have an end date for the plan. We will just continue delivering when we see the opportunity to do so. Operator: Our next question comes from the line of Filipe Nielsen with Citi. Filipe Ferreira Nielsen: I have 2 questions on CASM Ex. Looking at this year, you're continuing guiding to $0.058. And just trying to understand what are the moving parts after this quarter's one-off, positive one-offs if maybe you're being too conservative on this assumption? And the second one, looking for 2026. Maybe if we could -- you could like guide us on the moving parts of this expectation. Maybe for us, sounded a little too conservative given that you potentially could increase fixed cost dilution from the capacity expansion. Just trying to understand those points. Peter Donkersloot Ponce: Thank you, Filipe. Peter here. So yes, on the CASM Ex, we're guiding to approximately $0.058 for the quarter, of course, [ we're up ] for the year. We only use 1 decimal. So there's a range to that [ $0.058 ] that we are alluding to, it's not necessarily going to be exactly [ $0.0580 ] for the full year. And I would say that a -- I would also like to comment on the 2 items that we highlighted on our earnings release yesterday. First, we did highlight those 2 items more to make it easier to compare. And to give some color, the return conditions, it's every time we do a lease extension, what happens is we spread the provision for a longer period of time. So we did execute one, a lease extension during the quarter, and that's what you see that. That's around 1/3 of the effect of what we call out there. And the other 2/3, which I may say that are not necessarily one-offs, is the engine exchange and mainly due to the longer turnaround time that we have been seeing, the team is sending some engines to do engine exchange instead of sending into engine restoration. This transaction usually see some accounting benefits due to the difference between the book value and the transaction price. This transaction is something that we're doing this year, and most will continue doing next year. So I wanted to highlight that it's not necessarily a one-off transaction for the engine exchange. And for the year -- for the 2025, I address, it's a range of the [ $0.0580 ]. So we would need to model what is within that range of that decimal. And for 2026, we feel pretty comfortable what we wanted to guide is that we have enough levers in our tool of cost initiatives to offset inflation at the least and push the CASM even lower. So I think that's the guidance we're giving to CASM. It's directionality of the CASM that we have enough initiatives to address inflation and push the CASM at least even lower. That's the main point we want to address. Operator: Our next question comes from the line of Daniel McKenzie with Seaport Global. Daniel McKenzie: A couple of questions here. First, going back to the script, the healthy demand backdrop in the region. I'm wondering if you can elaborate on that. Macro has been especially volatile this year. And Latin America, just seems to be completely disregarding it, plowing through it. And so I'm just wondering, what is driving that? And -- or is it just that the demand is inelastic, given the wealth demographic of your customers. I'm just wondering if you can break it apart for us? Pedro Heilbron: Okay. So Pedro here, Dan. And it's -- I'm not going to say we have all the answers or that we can share all the answers we might have. There might be something with demographics, as you will explain. We have a lower percent of people that travel in Latin America versus what you would find in Europe or the U.S. but the traveling class does have, on average, the resources to travel so. And they're traveling more than before, I must say, and before the pandemic, that's noticeable and that's very clear. So an analysis of the demographic is not going to be easy. But demand remains healthy, we -- it continues to grow. There's a lot of capacity coming in, but load factors are holding up. And I would say that, that's what we're seeing in most regions and the regions where maybe that won't be the case are easy to point out. For example, we had the strong devaluation in Brazil last year, starting in mid last year, but the currency has been stable and even recuperated some ground since. So we see Brazil slowly coming back, maybe not all the way back to what it was in 2023, but it's on its way. The rest of South America looks fine, the [indiscernible] looks fine. The U.S. is pretty stable. Maybe just slightly down, but with a lot more capacity. So -- and I'm saying load factors, of course, demand is up. It's up double digits. Argentina has seen a lot of capacity come in. So still a strong market, but not nearly as strong as before because of all that capacity. But I think that's going to taper down. We ourselves are going to grow. We've grown quite a bit in Argentina. We won't be growing that much, if at all, in the future. So we're also adjusting our capacity and putting our capacity where it makes the most sense. So yes, I mean, in general, it's a healthy demand environment. Sometimes the additional $0.08 hit on yields a little bit, but even that has not been significant. Daniel McKenzie: Yes. Very impressive. The second question here. I'm wondering if you could speak to the durability of growth opportunities beyond 2026. So should we be thinking low double digits for the foreseeable future? Or how should we be thinking about growth longer term, say, 3 years out or so? Pedro Heilbron: Yes. I'll go with our aircraft order, which I think is the better way of understanding our growth plans. And as you know, we've always been very rational, very pragmatic. We never do crazy things. But for -- yes, you know us well. Like for the last 3 years, we have delivered plus 20% margins every quarter. One quarter we missed, we were 19.5%. So okay, we're right there. And that's because we're really careful. I mean, we focus on our business model. We focus on our low-cost and we grow capacity by what makes sense to us, not necessarily in response to anything else. So if you look at our fleet plan, it follows that same pattern. And it points to somewhere between 7% and 8% per year consistently. We have a little bit over 40 planes pending delivery for the next 4 years. And if you do the math, it's going to be around 7%, 8% average growth CAGR for that period. And I think that we have the opportunities, given the strength of our hub and network, our leading unit costs and customer service, on time performance. When we put everything together, we think that's really reasonable growth that we can sustain in a profitable way. Peter Donkersloot Ponce: And I would just add that, as Pedro alluded to, that's our plan of growth and should be around the 6%, 7% as Pedro alluded to the next couple of years. But Pedro said it very well, we're not obsessed with growth. We will only grow if there's profitability in that growth. We'll be more focused on making sure we can get the most profitability. And we have a lot of flexibility for that growth on the downside. And we have the lease aircraft. We have 4,500 unencumbered aircraft. We have the 700s that by any point, demand softens, we can decide to park, harvest the engines and even help us grow in the CASM. So there are a lot of tools we have to address whatever market comes to us, and we'll try to make the best out of it. Operator: Our next question comes from the line of Alberto Valerio with UBS. Alberto Valerio: One more on my side in terms of yields was, you see a healthy environment, but I think market was expecting a little bit more in terms of yields for this quarter as well for the next one, maybe a revising -- revision on the guidance. If there is any specific detail that make you guys be a little bit more conservative? And another one, if I may, in terms of competition in the region, we see an IPO in Mexico, we may see another IPO next year in Latin America and also in Brazil, Azul come back from Chapter 11. What is the perspective? And how is the market in the region, if you can take some details in terms of competition? Pedro Heilbron: Okay. A few things. So I think we already spoke quite a bit about 2026 yield. You're asking about fourth quarter. We do not give a quarter-by-quarter yield guidance but we did narrow our operating margin guidance to somewhere between 22% and 23%. So we narrowed it to the higher end of our previous guidance. So that's what we can share now. In terms of competition, it's something that we've lived with for a long time, always, I would say, but even more so in the last 4 years, in the last 4 years or 3 years, and we work on the -- on our competitive advantages to make them stronger. And that's our product, our unit costs and the strength of our network. So we're confident that we can continue delivering in 2026 and beyond the strong margins you've seen before. And the IPOs you alluded to, well, those are companies that were public before. So they're going back to where they were before they went through bankruptcy and all the other troubles they got into. We work hard to avoid that kind of situation and try to be a little bit more steady on everything we do. Operator: Our next question comes from the line of Tom Fitzgerald with TD Cowen. Thomas Fitzgerald: Just kind of going back to the high-level conceptually for next year. How do you think about like how -- from the incremental frequencies and then the 10 points for the new dots, just like in a normal year, how would you think about how those should theoretically compare to like system RASM? Peter Donkersloot Ponce: Yes. So normally, in a regular year, most of our growth goes to adding frequencies and then we always have a little of that growth to put on new markets. And then for those new markets for the next year, normally mature, and then they go in the first category of adding frequencies to those new markets as we normally open markets with 3 to 4 daily -- weekly flights and then we go building up. So that's more or less how we have deployed growth in the past years and how we've done it. Most of it going to frequencies and then a smaller portion go into new markets. Thomas Fitzgerald: Got it. Okay. I mean, normally just thinking about the like the -- just thinking about like the maturity ramp for like the incremental like departures, do you think that like is a decent discount like a 10-point discount to system average or pretty much in line with the system that you're producing? Pedro Heilbron: I would say it's pretty much in line. And kind of a related factor is that as we all know, Boeing deliveries were -- have been delayed quite a bit for the last 2 years. This year, they've been on time even earlier so there's a noticeable improvement there. But overall, we're still behind where we thought we were going to be if we had talked 3 years ago. So these are kind of overdue deliveries and we feel we have the demand for those aircraft, especially that we're adding frequencies as Peter mentioned. Thomas Fitzgerald: Okay. That's really helpful color. And then just as a follow-up, I was wondering if you could talk -- you've talked in the past about some of your -- some of the kind of lower-hanging fruit you guys have with technology and your ability to maybe price better, whether incorporating more dynamic pricing or upselling products like Economy Extra. I'm just wondering if you could -- maybe it's more of a preview for Investor Day, but I love the latest thinking there. Pedro Heilbron: Yes, we have to keep something for the Investor Day, you're right. You just helped me answer that question. There's still a lot of opportunities. We continue investing quite a bit in our digital tools and especially -- actually not necessarily in new digital tools, but making better what we already have. And there's an opportunity we have in doing better merchandiser -- merchandising, I'm sorry, better UX, better user experience. Those products we're offering make them more visible to our customers, especially in the booking flow and in the check-in flow. We're working on that and focusing on 3 things and 3 ancillary categories. Baggage, of course, upgrades to business class, and we're having a lot of success there. And also our premium economy cabin, which we call Economy Extra. We haven't given that enough visibility and there's nice upside there. So yes, that's where we're focusing, and we expect to continue increasing revenues in those categories. Operator: Our next question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: First one is just a follow-up on the competition. Pedro, you mentioned about Argentina being especially competitive and you also mentioned about Brazil, but which other regions do you see, let's say, higher-than-average competitive environment? And the second one, Pedro, you also mentioned about fuel being in the white card for 2026. Given that a potential environment, do you see Copa changed its hedging policy in some way? Pedro Heilbron: Okay. Yes. So yes, what I said in general terms is demand is healthy. It's growing at the pace of capacity in all of Latin America. So load factors are holding up well. I highlighted a few regions. Brazil got hit hard last year and at the beginning of this year because there was a sudden devaluation of the currency and a lot of capacity had come in because of that success, that was during the first half of 2024. Since the currency, and you know that very well, the currency has been stable, actually has improved since 12 months ago. And that market is coming back little by little. Less capacity has come in compared to the first half of last year. So we're seeing an improvement in our Brazil -- load factors and in our Brazil PRASM. So we're seeing improvement in those. And Q4 should be better in Q3 and Q3 was better in Q2. So it's going in the right direction. Not all the way back to where it was at the end of 2023, but it's in the right direction. And then Argentina has been booming, has been quite a market with all the economic changes that the new government has implemented in Argentina has been booming in general terms. The devaluation has been more predictable and not as significant as before. Inflation has been a lot more under control and traveling public in a country that loves to trouble -- loves to travel, it has been growing at a very strong pace. That has attracted a lot of capacity from us and from everyone. And when that happens, well, yield soften a little bit, but they're still very strong. And what I said is that we will not be growing so much in Argentina as we've done in the past, let's say, 12 months. And that's probably going to be the case with most other airlines serving the country. So it's going to stabilize, I would say. Guilherme Mendes: Pedro, maybe on the hedging policy? Pedro Heilbron: Oh, okay, the hedging policy. I forgot about hedging because we haven't done hedging in so long that it's -- yes, no, that's not going to change. What -- and usually the hedges -- many hedges are on WTI or Brent. And this what has shut up lately is the crack spread, so as jet fuel. And I don't know for how long that's going to happen and that's going to stay up there. So we're not planning to change our hedging strategy. We're happy with not hedging. It has worked well for us and it's going to remain that way. Operator: Our next question comes from the line of Savi Syth with Raymond James. Savanthi Syth: Just can I give an update on the densification plan, just how many aircraft are yet to go and just curious on how much of next year's unit costs might be driven by that and if there's anything kind of further that it will drive in '27? Peter Donkersloot Ponce: Yes. Thank you, Savi. We've done around half of the densification that we've planned to. And that was one additional row. So around 6 more seats per plane. We've done half of it. So around 25 of the -- let's call it, 50 that we said we were going to do, and we have another 25 left that we are planning to do during 2026. Savanthi Syth: Great. That's helpful. And just a clarification on the credit card benefit this quarter. Is that something that's just onetime this quarter? Or is that something that now is layered on and kind of continues going forward? Peter Donkersloot Ponce: So the -- again, on the credit card benefit, we saw 2 separate pieces and let's call it, to oversimplify half and half. Half is related to the extension of our agreement with Visa, and that is onetime every x amount of years. And then the other one is the growth of the program by itself, and that's the other half, and that's similar to what we saw in the second quarter, and that should be continued -- that growth should be continued and stable in that program. Operator: And our last question will come from the line of Jens Spiess with Morgan Stanley. Jens Spiess: Sorry, I joined late, so if you already answered this question, please disregard. I just wanted to get a sense of how much conservatism is built into your guidance. So backing out like fourth quarter at the midrange of your annual guidance for 2025, we get to an operating margin of around 22% and yields of 11.4%. So I just wanted to get a sense of how comfortable you feel with that number in the fourth quarter? And how much at the end, conservatism is built into it? Pedro Heilbron: So our hedging. Our fourth quarter 2025 guidance was narrowed down to between 22% and 23%, which was like the upper part of our previous guidance, which was 21% to 23%. And we're very comfortable with that range between 22% and 23%. Jens Spiess: All right. Perfect. And just in terms of yields, it does imply a deceleration of yields versus this third quarter. So I just wanted to get a sense of that and how you're looking into the next few quarters maybe? Pedro Heilbron: Yes, that question was asked before, and the response was that we do not guide a yield on a quarterly basis. Jens Spiess: Sorry, yes. I mean, looking at your RASM guidance for the full year, we are able to back out like the fourth quarter RASM, right, which does imply, I think, [ 11.4 ]? And does imply deceleration quarter-over-quarter. So I just want to get a sense of -- do you think there's potential upside to that or you feel quite comfortable with that number? Pedro Heilbron: I believe that our RASM guidance for the year is [ 11.2 ], and we haven't changed that guidance. Jens Spiess: Got it. So you feel comfortable with that guidance. All perfect. Operator: I would now like to hand the conference back over to Pedro Heilbron for closing remarks. Pedro Heilbron: Okay. Thank you all for your questions and for joining us today. We appreciate your continued interest and support. Of course, I look forward to seeing you in person at our Investor Day and answer even more questions. So as always, you can feel confident that we will keep working really hard to strengthen and develop our competitive advantage, and I'm confident we'll continue delivering very strong results in years to come. So thank you, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Magnera Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference being recorded. I would now like to turn the conference over to your speaker today, Robert Weilminster. Please go ahead. Robert Weilminster: Thank you, operator, and thank you, everyone, for joining Magnera's Fourth Fiscal Quarter 2025 Earnings Call. Joining me I have Magnera's Chief Executive Officer, Curt Begle; and Chief Financial Officer, Jim Till. Following our prepared remarks, we will have a question-and-answer session. To allow everyone the opportunity to participate we ask that you limit yourself to one question with a brief follow-up, then fall back into the queue for any additional questions. A few things to note before handing over the call on our website at magnera.com, you can find today's press release and earnings call presentation under Investor Relations. You can also go directly to ir.magnera.com to review the investor presentations from our recent conference attendance. As referenced on Slide 2, during the call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and in the appendix of the presentation available on our website. Additionally, a reminder that we will make certain forward-looking statements. These statements are made based upon management's expectations and beliefs concerning future events impacting the company therefore, are subject to risks and uncertainties. Actual results or outcomes may differ materially from those expressed or implied in our forward-looking statements. Some factors that could cause the results or outcomes to differ are in the company's latest SEC filings and our news releases. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to Magnera's CEO, Curt Bagle. Curtis Begle: Thank you, Robert. Good morning, and thank you for joining our call. I am pleased to present our fourth quarter results and discuss the significant progress achieved as we marked our first anniversary as Magnera. During this update, I would like to emphasize 3 key takeaways: First, our strategy to establish ourselves as a leader in advanced specialty materials is yielding positive results. Our global stature as an innovative organization with substantial scale and strategic geographic presence has enabled us to consistently succeed in the current bid cycle with top tier customers. We've been able to gain share in markets and product segments of our choosing. Second, the macroeconomic conditions across our operating regions remain challenging with a cautious outlook as we begin fiscal year 2026. Third, our focus remains on controllable factors. We have made measurable improvements in our synergy run rate performance and have already demonstrated substantial advancement with Project CORE introduced last quarter. The Magnera team delivered robust results to close the fiscal year, achieving $839 million in sales and adjusted EBITDA of $90 million for the quarter. For the full year, revenues reached $3.2 billion with an adjusted EBITDA standing at $362 million. We generated $126 million of free cash flow, representing a yield exceeding 30%. I wish to express my gratitude to our teams who have collaborated effectively, stabilized our organization, developed optimization plans and taken decisive actions positioning us for continued success. These financial outcomes were underpinned by several notable successes with our customers. In a subdued personal care market, we experienced ongoing product mix enhancements as consumers increasingly opted for premium softness and comfort. Our adult incontinence products experienced mid-single-digit growth through increased adoption rate and our customers increasingly seeking innovative features similar to those found in baby care items. Within consumer solutions, Increased demand for wipes and infrastructure contributed to our segment's portfolio increasing from 51% to 53% of our total revenue. Our consumer solutions portfolio utilization is tracking nicely with growth projects and targeted asset upgrades. Sales of infection prevention wipes rose 10% year-over-year, with balanced growth from both branded and private label customers. Demand for convenience surface cleaning and disinfecting remains strong across households and institutional use. Our strong positioning in cable wrap and specialty solutions has benefited from ongoing electrification and infrastructure growth worldwide. In response to growing sustainability requirements, we have provided advanced material solutions for wipes, tea and coffee filtration and compostable offerings for in-home and away from home usage. Looking forward to 2026, we anticipate an earnings improvement of approximately 9% and driven by synergy realization, project CORE initiatives and further advances in product mix and innovation. The company has successfully completed its stabilization phase following our formation and maintained uninterrupted delivery of premium products to our customers over the past year. Now entering the optimization phase of our transformation, we are cultivating an innovative culture aligned with our commitments to our customers. Our commercial teams have been integrated to ensure consistent service. Operational metrics and processes are being standardized and efficiency initiatives are underway throughout the organization. We continue to be action-oriented with our purpose, promise and beliefs providing our guiding compass. At this point, I will conclude opening remarks and invite Jim to provide a detailed overview of our financial performance. James Till: Thank you, Curt, and good morning, everyone. Before we dive into our results, I want to remind everyone that when we compare our performance to the prior quarter, all the prior period figures are adjusted on a constant currency basis to eliminate the impact of exchange rate fluctuations. Additionally, last year's results incorporate the full impact of the merger. For those interested in the details, the reconciliations between our adjusted and reported results are included in the appendix of today's presentation. Now turning to our financial results on Slide 9. We delivered performance that aligns with the expectations that we shared during the previous quarterly call. Volumes and earnings came in as anticipated, while cash flows exceeded our projections, reflecting the strong execution and discipline of our global teams. Our teams have done an exceptional job advancing synergy realization since the merger, implementing new robust cost reduction initiatives and optimizing our product mix capacity and allocations across the portfolio. During the quarter, these efforts helped offset softer baby demand in South America as well as general market softness in Europe. Despite the external challenges, adjusted EBITDA remained essentially flat for the quarter. Looking at the full year results, fiscal 2025 was a year of disciplined execution, strategic progress and solid cash generation. Our teams delivered strong operational performance, advanced merger synergies and maintained financial discipline. Free cash flow for the year exceeded the high end of our originally provided guidance range, reflecting an intense focus on CapEx and prudent working capital improvements. This strong cash generation is a testament to the dedication of our operational focus of our teams worldwide. Since the merger, we generated $126 million of free cash flow, representing a free cash flow yield of more than 30% relative to our year-end market capitalization. This performance has allowed us to strengthen our balance sheet and reduce our debt leverage to 3.8x at the end of the fourth quarter. We concluded the year with approximately $600 million of available liquidity, providing a solid financial foundation to support strategic investments, pursue growth opportunities and maintain flexibility in a dynamic market environment. Moving forward, we will continue to prioritize strengthening the balance sheet and maintaining operational agility. Moving on to my fourth quarter segment reviews, starting with Rest of World on Slide 10. Revenue declined 3% for the quarter as stronger performance in the select consumer solutions categories was offset by the pass-through of lower raw material costs and weaker consumption levels in Europe. Adjusted EBITDA for the segment increased $4 million, reflecting operational efficiencies, rigorous cost reduction programs and continued synergy benefits from the integration. These improvements underscore our resilience of our business model and effectiveness of our disciplined global operations. Turning to Americas on Slide 11. Revenues were down 9% for the quarter as a result of the pass-through of lower raw material costs and competitive pressures from imports in South America. For the full year, headwinds were partially offset by stronger demand in infrastructure and wipes end markets, which helped stabilize our overall annual results. Adjusted EBITDA in the Americas segment declined $5 million for the quarter, largely reflecting the volume and product mix challenges in South America. Despite the decline, we are confident that our ongoing improvement initiatives and synergy realization will support margin recovery in the coming quarters as operational excellence remains a central focus. Looking ahead to fiscal 2026. Our guidance assumptions are shown on Slide 12. At the $395 million midpoint, we are expecting EBITDA growth of approximately 9% year-over-year. This growth reflects continued synergy realization and ongoing benefits from Project CORE, including cost reductions and capacity rationalization. In terms of the free cash flow, we expect a range of $90 million to $110 million, including $80 million of capital investments which includes $10 million from the IT conversion related CapEx. This guidance reflects a prudent assessment of the near-term environment and a disciplined execution of our operational and financial strategies. This concludes my financial review, and I'll now turn it back over to Curt. Curtis Begle: Closing 2025, I'm pleased with the progress we made as a new company. We over-delivered on our free cash flow, delivered on our updated EBITDA guidance and CapEx commitments and strengthen our balance sheet. Looking forward to 2026, we are forecasting an increase in earnings as we continue to leverage our scale, unique value proposition and reliability to deliver for our stakeholders. We are confident in our ability to drive value creation through both EBITDA growth and robust free cash flow generation. Our priorities are clear: operational excellence; balance sheet strength; disciplined capital allocation and strategic investment in growth opportunities. These actions position us to continue building long-term shareholder value while maintaining flexibility in a dynamic global environment. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Richard Carlson with Wells Fargo. Richard Carlson: Congrats on the progress and happy anniversary. Curtis Begle: Thanks, Richard. Richard Carlson: So I actually have several questions, but I'll ask the first one, it's a big one and then I'll get back in the queue for the rest. But I just want to dig in a little bit more to EBITDA and some of the puts and takes. I think your range is plus 5% to plus 13%. So what are some of the moving parts there? What's maybe the underlying volume assumptions mix, price, things like that. And then it seems like -- and also a lot of this is from EBITDA margin expansion. So what's driving that, too? James Till: Thanks, Richard. Thanks for the questions. As we think about the guide for next year, the margin expansion is really -- the continued synergy realization that we've highlighted kind of throughout the year, it starts hitting more of a full run rate next year. So we've talked about kind of realizing 75% -- or 70% to 75% of the remaining outstanding unrealized synergies next year as well as Project CORE that we highlighted last quarter. So that will begin to ramp up here in the back half of Q1 and then we'll begin to get full realization in Q2, 3 and 4. So that's the lift on the EBITDA side in terms of margin expansion. In terms of the volumes, we're expecting sort of flattish for the overall business as we look at it today with some puts and takes between the regions. And that's really the driving factors. And so as you go to the bottom end of the range, the top end of the range, volume is going to be kind of the outstanding question for us and is the reason for the little bit wider range than you may expect. Curtis Begle: Yes. Richard, the other comment I would make is, we've highlighted in previous calls and commented again on this quarter, we'll be lapping some of the South America comes from prior year in the first 2 quarters. And so that's being offset by some of the positive signals of growth that we're seeing in the U.S. and a cautious outlook on Europe. Operator: Our next question comes from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Thank you, and good morning, everyone. Curt, in listening to your prepared remarks, it sounds like you're having some success here in bid season. Can you just elaborate on where you're targeting share gains and having success and maybe just put that into the context of what you see unfolding mix-wise within the portfolio in '26. And the volume trends that you foresee globally? Curtis Begle: Yes. Thanks, Kevin. Appreciate you joining. As we've talked about historically, we had -- going into this year, obviously, there were contracts that we needed to see through and then we needed to understand from a cost profile and a differentiation, where we stood from an organization as we realized synergies and make sure that we were getting the value for the products that we were selling, also maximizing throughput and output on our most contemporary line. So as we've gone through the season, and we're probably 70% to 75% through. Typically, some of this carries into Q1 or Q2 of our fiscal year. We feel very good about how we position not only our ability to service our customers. As you can imagine, when there's a large combination of this size. One of the risks that a customer may see is how will they be treated and we'll be able to deliver for them with the quality and service that they deserve and expect. And I'm very proud of what the group has been able to accomplish. So that that certainly provided us with the right discussions at the highest levels inside of those organizations. And I will say that all of our customers are living in a very competitive environment as well. So finding ways to help them optimize their cost structure, but more importantly, provide some differentiated features through products such as lamination and some of our soft applications within the nonwoven segment, is really giving a good mix lift, particularly in our personal care side. We're seeing healthcare recover a little bit as well, which is a positive signal. And in some cases, seeing some growth in geographies that we hadn't historically looked at, and that's been a good job by our sales forces across the globe. And we look at consumer solutions, we comment on the fact that the mix of our portfolio is shifting from 51% to 53% in consumer solutions. As you look at -- it's difficult sometimes to see the forest through the trees. And so we try to really bucket those into major segments. We've talked about wipes. We have a great franchise inside of our consumer solutions space, both our own branded products for dry wipes that goes into institutional services and distribution channels with Sontara and Chicopee. But also, as you look at our broad portfolio globally within differentiated substrates inside of our portfolio, our spinlace technology continues to be preferred by the consumer and a great product and delivery for our customers as well as we round out with airlaid and spunlace technologies, which I think you have a little bit of an idea now that you've had a chance to visit 1 of the sites. So we're able to kind of capture general surface cleaning, general personal care cleaning and then also the institutional dry wipes goods. So we're excited about that. I talked about electrification initiatives. Our cable wrap business continues to build momentum through projects, green energy projects and high-voltage cable needs. That product line, and we believe, is, again, another great niche application where we have some unique value propositions there. And then on the infrastructure side, while you may see some softness in different parts of the world, the broad part of our portfolio is not just the building construction wrap, but in some of the other products that we've highlighted is a nice complement to those kind of total systems solutions for contractors and various distributors alike. So we continue to lean in on that front. And I don't want to be remiss if I didn't talk about some of the filtration projects we have, particularly in -- when you think about the beverage space, the 1 thing that we've really grown to appreciate over the past year is how significant and how trusted the sites that we had acquired are in that space, very high-quality demand, as you can expect. But more importantly, our ability to service and deliver for those customers is something that we really pride ourselves on and look to continue to improve in certain areas. And then there's demands on being on the front end of the ever change needs in the markets on compostable opportunities and addressing the customers' requirements from their ESG metrics, but more importantly, the safety and security of the products that they're putting in the market. Make no mistake across the board, we are -- we have to maintain the highest quality levels, highest service levels, not only who we do business with, but the applications, the end-use applications that we supply to. We are touching skin. We are in the operating room. We are protecting babies, adults, et cetera, and that's something that we take very seriously, but also something that, again, is a differentiation for us in a space that, again, can be competitive at times, but we are the trusted and reliable player in the geographies that we serve. Kevin McCarthy: Curt, my second question relates to free cash flow. I thought you did a nice job generating cash and deleveraging in the quarter. Specifically, can you unpack the forward-looking free cash flow range of $90 million to $110 million in 2026. Just looking for your thoughts on things like cash cost for integration and Project CORE, what you're baking in for working capital, cash taxes and other items you may care to call out? James Till: Sure. Thanks, Kevin. Absolutely. So when -- obviously, you start at the top of the house with the EBITDA. and then we've highlighted the $80 million of capital expenditures, which is $10 million of IT-related integration costs. On the integration and tax question, there's roughly $20 million of CORE, and then we have in the range of $30 million to $35 million for cash taxes. We've sort of highlighted that 10% to 11% of EBITDA, but we have some projects we think can offset that next year to help lower that number a little bit. And then the remaining is just our normal integration is we're in year 2 of a sort of a 3-year path. And so that -- the overall total of that category is roughly $80 million. And we highlighted that on Slide 12 to help you with the walks. Kevin McCarthy: Okay. And is working capital, Jim, expected to be smallish number? Or how would you characterize that? James Till: I apologize, right. In working capital, we assume flat. We have some items that were -- came in at the end of the quarter this year. There were onetime benefits. Roughly $10 million of that benefit will offset in next year. But we do have some items as we go off of legacy GLT terms, the remaining portion that should offset that. So we would assume flat for next year. Operator: Our next question comes from Roger Spitz with Bank of America. Roger Spitz: Maybe I missed it, but for fiscal 2025 overall, on a pro forma basis, what was the volume growth? Curtis Begle: Yes. Thanks, Roger. I think we finished right about 3% negative, 3.5%, and that was -- for the Americas, the decline was really because of the South America challenges that we have faced from a competitive standpoint. And then Europe was roughly 4%. So in total tonnage sold, right about the 3.5%, 4% negative for the year. Roger Spitz: Got it. And then for thinking about fiscal 2026, you're up 9% year-over-year. How should we think about the quarterly tempo of outperforming the 2025 fiscal quarters? Curtis Begle: Yes. So we don't provide quarterly details, but what I will tell you is we've highlighted, we are on a good trajectory into the synergy realization on the procurement side. I'm really proud of what the group had and the team has been able to do from offsetting the stand-alone costs from the SG&A front. We continue to make good progress from our overall BECCS programs inside of the facilities to offset other inflation. But Project CORE as we have communicated, will continue to ramp up throughout the year. We're going to see most of that benefit come in Q3, Q4, but we'll see that phased-in in a little bit of an impact this quarter and in Q2. So that's in terms of what we see, not a tremendous hockey stick going into next year. But in general, South America, the big kind of initial lap that we have for Q1, Q2 just because of the business that we were doing last year, and we've highlighted that in previous quarters, and that was -- those are the negotiations that are taking place right now. We feel like we're very well positioned going into 2026, back half of 2026 in particular. Operator: Our next question. Our next question comes from Edward Brucker with Barclays. Edward Brucker: congrats on the quarter. The first one, would you be able to just dive into the demand environment? It sounds like you're being cautious, which is prudent given what we've seen from a bunch of other packaging companies. But is it something where it's cyclical, where the consumer is just weaker right now and buying less product? Or do you think there's something more structural going on? Curtis Begle: Thanks for the question. I mean if you look at the portfolio that we have, these are products that are needed every day, essential goods and products, both on the disposal and durable side. Yes, we listen very intently and closely to our customers and even through various negotiations of what we can do to help them, not only secure business on the shelf, but find ways to cost reduce. So that comes from a number of different areas, whether it's new materials that we can provide, a new platform that we can run it on, but also down-gauging as they look for high-performance materials at lighter weight. So that's been a major point of emphasis. But in general, I would say that the European market is -- certainly has more caution to it based on what you're hearing, what everybody is talking up in the space. As we communicated before, we sell to both branded and private label. So again, as consumers make choices on the shelf, we're there. The 1 comment that I would make on the personal care front, there's always the concern about baby and whether birth rates are going to negatively impact this business long term. Fortunately for us, we highlighted at our adult incontinence products continue to really expand in terms of the acceptance rate and the need as aging populations are going on across the world. And when you talk about form, fit and function. That's a really important part of our developments with our customers, both from a discretion standpoint, but ultimately a performance standpoint. I could go into a number of different chemistries. We just reviewed some pH levels and helping to avoid rashes, things like that. But in terms of overall demand, I would say, consumption rates in various product lines, maybe a little bit softer in certain geographies with a little bit more positive demand than others, and we see that really by region. Even in the South American markets, where we've had more challenging run from import price pressure, which we've highlighted. What our customers have, I think, grown to appreciate is our ability to service them and be able to respond in very short order. And so we're there to service and take care of customers when they need us, but at the same time, making sure that we're getting the value for the products that we're manufacturing and selling. So in general, Asia, albeit small for us, pretty stable. Europe, definitely some concerns and that's why we provided some of that range. And then the Americas we'll see that. North America being positive and offset initially by some of the South America comps, but [ evening out ] throughout the year. Edward Brucker: Got it. That's helpful. And then the debt paydown on the term loan was a pleasant surprise. Would you be able to explain the rationale behind paying down that debt? And do you expect to use excess cash flow next year to do the same? Curtis Begle: Yes. Look, that was part of the capital allocation priorities that we've laid out, that we review with the Board every quarter. So that was just doing what we said we were going to do. At this point, we'll continue down that path with a focus on deleveraging and making sure that we're appropriately managing our cash and liquidity. As you can appreciate, working with our vendors and negotiating the best terms that we possibly can, the best prices we possibly can, proving that we have a very sound and solid liquidity and robust balance sheet. And so we'll continue to evaluate with our Board of Directors. But we believe that at this point, we'll continue down the path of the focus on deleveraging and debt reduction. Operator: our next question comes from Richard Carlson with Wells Fargo. Richard Carlson: Thanks for the follow-up. And actually, just piggybacking on that last question with the delevering. Of course, this is something you've been telling us that you plan on doing, but just wondering based on where your stock price has been recently, did the thought of spending that cash on repurchases come up at all or the thought of buying your debt in the open market? Curtis Begle: Richard, thanks for the question. As I mentioned, this is something that we have -- we review every quarter with our Board of Directors. And certainly, it's part of the conversation. But again, for us, we continue to believe that sticking to our original plan of debt reduction. As we talked about before, this is an opportunity for us to do what we say we're going to do and focus on the deleveraging portion. In terms of buying back debt. Again, I would say, I'm not really in a position to answer that other than I can fall back on the fact that we continue to keep all of those discussions in front of our Board of Directors and have robust dialogue each quarter. Richard Carlson: Understood. And then a couple of modeling questions, Jim. I think D&A was down quite a bit in the fourth quarter. How should we think about that? Is this a new run rate going forward? Or is that just some catch-up in the year? And then I don't think there is a share count in your press release. So is it safe to assume it was flat quarter-over-quarter? James Till: Yes. Share count was flat, correct on that. And then for the D&A guide, if you look at the year-to-date, there was some just purchase accounting finalization that got caught up for the year, as you highlighted. So I'd look at our year-to-date number as a better representative of the go forward. Richard Carlson: Got it. And then just 1 more if I could squeeze it in. CapEx is running in line with what you guys have been telling us for a year now. But I guess we're still just a little wondering if that 2% to 3% of sales, how long does that last? And are you able to properly capitalize the business at that level? I think there was a mention of eventually stepping that up a little bit. But I guess, maybe just remind us maybe from what you told us a year ago as far as how you see your CapEx projecting over a multiyear period? Curtis Begle: Yes. Thanks. Very good question. We -- again, coming into the combination of the 2 organizations, we had the opportunity to review and do a number of site visits. There was I think some expectation that plants or sites or lines were undercapitalized, and that certainly wasn't the case. We felt very comfortable coming into the year that we both had well-capitalized facility, capitalized businesses. And so the one thing that we'd be able to put into our overall spending discipline is a capital committee that we have internally, that review projects, both on stand-alone from an ROIC standpoint, but also our maintenance and our safety CapEx which I will tell you with 100% certainty, we've not sacrificed in any of those areas. So the normal maintenance PM programs, site maintenance, but more importantly, the safety guarding, et cetera, is the top priority. As you look at growth projects inside of the businesses as well, we have a large fleet of contemporary assets and also niche assets. And so our ability to upgrade some of those lines falls within the CapEx spend where we're not having to go out and buy a new line for $50 million or $90 million. We can take with what we have and provide that. The other thing that has been a really, really good work by the teams, understanding where we had like vendors or things such as belts on our lines that we process through every year from an expense standpoint, but also from spare parts on the capital side. So lining up vendors on that front, coordinating that with our procurement team and making sure that, again, offsetting that inflation that normally takes place. In equipment supply, the team has done an excellent job there. So in terms of the foreseeable future, as we've highlighted before, there will be a time that will pivot to large growth investments, new lines as the market warrants it and as we pick our places to put that capacity. But it goes back to our initiatives with Project CORE and prioritizing where we're going to spend that CapEx and where we have the greatest -- what business has the greatest right to win, opportunity to win and take care of our sites and ultimately, the safety of our employees. Operator: Our next question comes from Kevin McCarthy with Vertical Research. Kevin McCarthy: Appreciate you taking the follow-up. I was wondering if you could review and elaborate on the integration process? Maybe provide a little bit more color on what you've accomplished to date and what still lies ahead for fiscal '26 with regard to procurement, G&A and on the operational side as well? Any additional color there would be helpful. Curtis Begle: No. Thanks, Kevin. As we talked about early on, culture s a big thing, right, and putting organizations together and identifying the Magnera culture and then implementing that is a day-to-day job and making sure that we're touching and getting our 9,000 employees walking lockstep with us. So that journey will continue on and employee engagement is going to continue to be a main focus for us going into 2026 and beyond. But get good momentum from that front. Great work from the HR team on benefits and things like that as we peeled off of the need for some of the transition services agreement with Berry. The procurement team is well ahead from where we had anticipated. We've staffed that organization well with very key talent, done a fantastic job of really taking on the reins and going out and making sure that we're getting our best cost analysis and coordinating that with our innovation team. So good progress made there. And as I think we highlighted in the script or in the call, we're already seeing a little bit of that. We've experienced some of that procurement savings in Q4, a little bit in Q3. And that run rate coming into this year as part of our overall walk and range. So we continue to build momentum, and we continue to increase that pipeline. We're going to be moving away from, hey, this is synergy realization to just the savings programs and productivity savings that we look for every year. The one thing that I would say that, we've made also good progress on. It's just understanding and really putting together the right key operating metrics that we've populated throughout the organization. Some facilities are further along than others. And so as we're ramping them up and they're looking at the metrics that make the most sense for our business, that's been encouraging to see, again, the engagement, not only from the shop floor itself, but the entire team, especially when you can see some of the benefits of the run rate. Project CORE is certainly something that has a lot of attention on it internally. We review that quite frequently. And it does, as a reminder, it does impact all regions, the exception of Asia. And the purpose of that, again, from the capacity optimization standpoint is, the work that was done throughout this year, and we talked about the ability to cross qualify not only other raw materials with competing vendors, but more importantly, building flexibility in our network to be able to shift product from 1 asset, 1 site to another to make sure that we're getting the appropriate load that's a benefit to the customer, but it provides us with the lowest cost scenario. And as we continue to progress on the separation with the TSA needs, transition services agreement with Amkor, Berry Amcor now. We're going to be doing that through the systems changes throughout this year. And I would say that we're well ahead of schedule in terms of what our expectations were coming into the combination, and encouraged by what we've seen in -- over the course of the last month. Operator: I'm not showing any further questions at this time. I'd like to turn the call over to -- turn the call back to Curt Begle for any further remarks. Curtis Begle: We appreciate everybody joining the call today and your interest in Magnera. We continue to be very excited about the business, the future. And despite all the noise that goes on throughout the world, we're in a great position from having the best products and best capabilities to service not only our customers but the end consumers as we continue to protect the world. I look forward to speaking to many of you through our investment calls and investor calls as well as some of the investor conferences coming up. So everybody have a great day, and we look forward to connecting on our next quarter earnings call. Operator: Thank you. Ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Financial Results Conference Call. [Operator Instructions]. Thank you. And I would now like to turn the conference over to Adam Prior, Director of Investor Relations. You may begin. Adam Prior: Thank you. Welcome to New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Conference Call and Webcast. I'm joined here today by Steve Westhoven, our President and CEO; Roberto Bel, our Senior Vice President and Chief Financial Officer; as well as other members of our senior management team. Certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions and beliefs forming the basis of our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to materially differ from our expectations as found on Slide 2. These items can also be found in the forward-looking statements section of yesterday's earnings release. Furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We'll also be referring to certain non-GAAP financial measures such as net financial earnings or NFE. We believe that NFE net financial loss utility gross margin, financial margin, adjusted funds from operations and adjusted debt provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K. The plan for today's presentation are available on our website and were furnished on our Form 8-K filed yesterday. Steve will start with this year's highlights and a business unit overview beginning on Slide 5. Roberto will then review our financial results. Then we will open it up for your questions. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve. Stephen D. Westhoven: Thanks, Adam, and good morning, everyone. I hope you all had a chance to review our earnings materials, which include detailed disclosures on our growth prospects. I wanted to start by discussing a few highlights. We delivered excellent results in fiscal 2025, driven by strong execution and performance. For the fifth year in a row, we exceeded initial earnings guidance and long-term growth targets. After a successful 2025, there are a few key themes as we look ahead for fiscal 2026 and beyond. First, consistency and execution. We're guiding to NFEPS of $3.03 to $3.18 per share in fiscal 2026. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. Second, targeted capital deployment. We expect to invest roughly $5 billion over the next 5 years across the whole company with roughly 60% allocated to our utility New Jersey Natural Gas. To put the $5 billion in the context, this represents a 40% increase compared to the CapEx spend over the last 5 years. Third, a healthy balance sheet anchored and disciplined financial management. We expect credit metrics to remain strong with healthy cash flows, ample liquidity and a balanced debt maturity profile that supports long-term stability. Importantly, NJR requires no block equity issuance to execute on its capital plan. On the next slide, we highlight a few of the key drivers of our business segments. To begin, New Jersey Natural Gas is positioned for high single-digit rate base growth through 2030. S&T is expected to more than double net financial earnings by 2027, driven by favorable recontracting of both Adelphia and Leaf River. Looking ahead, we recently filed with FERC, a plan to increase working gas capacity by over 70% at Leaf River. And in Clean Energy Ventures, we expect to expand capacity by more than 50% over the next 2 years with a robust pipeline of safe harbor projects. In short, through a disciplined capital investment strategy, we have visibility to deliver sustainable growth well into the future, supported by a solid balance sheet. And we are able to achieve all this with minimal dilution to shareholders. Let me turn to a brief discussion of each business units, starting with the New Jersey Natural Gas on Slide 7. Our planned investments at New Jersey Natural Gas are expected to drive high single-digit rate base growth through 2030. The New Jersey Natural Gas operates within a constructive utility framework and continues to make responsible investments in safety and reliability while prioritizing affordability for our customers. Natural gas is by far the cheapest option for customers to eat their home. Energy efficiency programs such as SAVEGREEN further reduce usage and costs while aligning with environmental goals. For example, residential customers who fully participate in say agreeing a whole home offerings see a reduction of up to 30% in their energy usage, saving hundreds of dollars in utility costs every year. Moving to the next slide. Storage & Transportation is emerging as a key earnings growth driver for NJR. Over the next 2 years, we expect NFE to more than double at S&T, and this is largely driven by strong recontracting in both the Adelphia and Leaf River. These are fixed-price contracts with quality and creditworthy counterparties. When we recently reached a settlement in our FERC rate case Philadelphia, this constructive outcome enables recovery of the substantial investments and operational improvements made in recent years. While near-term earnings are set to double, we are actively pursuing organic growth opportunities for additional upside of Leaf River, which we outlined on the next slide. When we acquired Leaf River in 2019, we positioned NJR as a leading service provider in the Gulf Coast, one of the highest growing energy demand centers in the United States. In addition to the prime location, the long-term value of the asset was enhanced by expansion options beyond the three existing operating taverns. Since our purchase of the asset, market demand has strengthened. Throughout fiscal 2025, we conducted a number of nonbinding open seasons, which confirmed the high level of commercial interest and capacity expansion. Following this favorable response we filed a FERC application at the end of October that included several complementary investments to increase Leaf River's working gas capacity by over 70%. They include the expansion of our existing caverns to working gas capacity of 43 Bcf by 2028, and the development of an additional for cabin that will bring total capacity to 55 Bcf. Each phase of the investment is expected to be backed by long-term fee-based contracts, building on our already strong entity growth. This phased approach has an inherent speed to market advantage that positions NJR ahead of greenfield development options. To conclude, we see considerable upside in both the near and long term as S&T becomes a greater contributor to NJR's earnings profile. Moving to Clean Energy Ventures on Slide 10, we expect to grow in service capacity by more than 50% over the next 2 years. Looking ahead, we have a strong project pipeline designed to maintain investment tax credits through strategic safe harboring. This position CEV to deliver continued growth in high single-digit unlevered returns. So with that, I'll turn the call over to Roberto for a financial review. Roberto? Roberto Bel: Thanks, Steve. Fiscal 2025 was an excellent year with strong even growth, a solid balance sheet and continued investment across our businesses. Slide 12 highlights a few fiscal 2025 accomplishments. New Jersey Natural Gas achieved a constructive outcome in its recent rate case and deliver record investments for Leaf Green. Clean Energy Ventures added record new capacity. In fiscal 2025, CV placed 93 megawatts of new commercial solar capacity into service, expanding our portfolio to 479 megawatts. In addition, CD secured investment options for years to come through effective safe harboring. In Storage & Transportation, Adelphia received approval settlement on its third rate case we levering our advanced expansion initiatives. Energy Services achieved strong cash flow generation and our Home Services business was named a road top 20 ProPartner for the ninth consecutive year. We also marked an important milestone, 30 consecutive years of dividend increases and reporting confidence in our long-term plan. On the next slide, we finished the year at the top end of our guidance range, which was raised earlier this year. We deliver financial results ahead of expectations, roughly 2/3 of total EPS came from the utility. And when you exclude the net impact of the sale of our residential solar assets, that figure raises over 70% underscoring the stability of our earnings. Drivers of our performance include the completion of our rate case and a record year of saving investment. Additional drivers include approximately $0.30 per share from the sale of our initial solar portfolio, improved performance from our storage and transportation business and a solid winter results from Energy Services. Moving to a discussion of CapEx on Slide 14. We deployed $850 million across our businesses, which I'll highlight in the next few slides. On Slide 15, New Jersey Natural Gas represented approximately 64% of total CapEx with investments directed towards strengthening core infrastructure, enhancing system safety and reliability and supporting customer growth. Almost half of these investments are recovered with minimal lag. As shown on Slide 16, fiscal 2025 CapEx for CV came in well above expectations, reflecting accelerated progress. Importantly, our capital deployment target is fully safe harbor securing tax benefit for future capital expenditures. Building on this from 2025, I wanted to shift our CapEx outlook on Slide 17. We're sharing a 5-year CapEx outlook of $4.8 billion to $5.2 billion through fiscal 2030. This represents a 40% increase over the previous 5 years of capital spending across our businesses. We expect that more than 60% of our total projected CapEx will be dedicated to the utility with CV and S&P representing the balance. Together, these investments support our 7% to 9% long-term NFEPS growth target while maintaining a solid balance sheet as discussed in the next slide. Strong cash generation across our businesses translate into an adjusted FFO to adjusted debt ratio that is projected to remain at around 20% for the next 5 years with no block equity needed. Additionally, ample liquidity and a well laser debt maturity profile minimize near-term refinancing risk and preserve financial flexibility. And finally, we're initiating fiscal 2026 and EPS guidance with a range of $3.03 to $3.18 per share. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. The utility is expected to contribute approximately 70% of fiscal 2026 in the CPS complemented by earnings growth from CB and S&P and a baseline outlook for Energy Services. With that, I'll turn it back to Steve for concluding remarks on Slide 21. Stephen D. Westhoven: Thanks, Roberto. Over the last 25 years, we've delivered industry-leading returns, reflecting both the quality of our utility investments and disciplined contributions from our nonutility businesses. While our infrastructure investments have been the foundation of this performance energy services that complement that strength, enhancing consolidated returns and providing flexibility to reinvest in our infrastructure businesses. To recap fiscal 2025 was another year of solid execution, marking 5 consecutive years of exceeding initial earnings expectations. Our long-term growth remains anchored by our regulated utility with clear visibility into capital spending at New Jersey Natural Gas. Storage and Transportation is set for accelerated growth with earnings expected to more than double in the near term before we even begin to factor in those capacity expansions we highlighted earlier. Over the next 2 years, Clean Energy Ventures expects a 50% increase in installed capacity, and our project pipeline is secured into the future through proactive safe harboring. As they are today stands as a balanced diversified energy infrastructure company built for long-term stability and value creation. The outlook for fiscal 2026 and beyond is clear, well-funded and utility anchored. As we all know, New Jersey recently had a gubernatorial election electricity prices and affordability issues were front and center. We understand the challenges this data is facing today, and we look forward to working with you coming governor to meet your call for swift deployment of clean energy solutions and to continue providing affordable natural gas service to families and businesses. And finally, a sincere thank you to all NJR employees for your dedication and hard work throughout the past year. Your commitment is the foundation for our continued success. So with that, let's open the line for questions. Operator: [Operator Instructions]. And our first question comes from the line of Gabe Moreen with Mizuho. Gabriel Moreen: Good morning, everyone. Just a question maybe to start off on S&T here and Leaf River. It seems like a lot of positive developments. One, can you just talk about contract renegotiations and the extent to which, at this point, maybe all the original contracts have rolled over on a remarketed or resigned at market rates at this point? Or is there still more to go on that front in the years ahead? And then secondly, around the FID of some of the bigger expansions that you may be looking at, can you just talk about potential timing for FID-ing those projects given the customer interest that you've seen in some of the nonbinding open seasons? Stephen D. Westhoven: Yes, sure. So talking about the contracts the contract tenure at Leaf River, they've got various terms. So we've always got contracts that are coming on and off. I would say there's probably a bias towards the longer-term contracts currently. And certainly, the way the market is moving, any contract that you're signed enough for in the future is higher than ones in the past. Remember, when we purchased that deal, the average contract rate was probably about $0.09 a dekatherm per month. We're now up to almost $0.20 dekatherm per month on average. So big contract upgrade there. And that's really driving the doubling of the net from S&T over the next few years. And then moving forward, further constructive story, the open season provided for about 3x the amount of capacity that we had available. And if you look at the first filing we've got a few stages or phases of investment and expansion at that facility. I would say that before we make any investment, we've got contracts to back it. That's something we've talked about for a long time and we're not going to deviate from that. So we've got signed contracts in certain really quite a bit of clarity on where the revenues are coming to support those investments. So you can make that assumption moving forward. So as we make these investments, first two, we've got a expansion of the compressor station. We've got the enlargement of some of the existing facilities those -- we're starting to spend money and put this in motion. You can see this in our capital plan moving forward. Those are going to lead really nicely into a fourth cavern expansion in the out years, we'll make that idea as we get closer to that. But like we said, the open season certainly supports it, and it's very instructive for that business moving forward. Gabriel Moreen: And maybe if I can turn to CV, and I think a little bit more confidence in terms of the growth outlook there. Can you just talk about has anything shifted on the ground in terms of your ability to start construction, how much of the 50% increase here has actually started construction or waiting on interconnects and why you think you may be past some of the delays, I think that you may have seen in the past at this segment? Stephen D. Westhoven: Yes, we certainly have spent quite a bit of money. As you can imagine, the construction cycles are a little bit longer and they go across fiscal years. So we're spending money now for products that are going to be coming into service in the next fiscal year and then the fiscal year afterwards. When we talked about in the last call, we've safe harbor a little bit of projects, a large amount of megawatts. So we've got great options moving forward. I think the other thing to consider as well is that the capacity electric capacity shortfall, the State of New Jersey and PJM the quickest way to bring capacity to the market? Are those projects that are shovel-ready and we have a number of those. So we feel well positioned going forward. That combined with the fact that we've got mature positions within the PJM as well. So everything is moving forward. We've got a good position, a great number of options. And you can see by our capital plan and the extension of that capital plan out 5 years, the confidence that we have in our investments moving forward. Operator: And our next question comes from the line of Jamieson Ward with Jefferies. Jamieson Ward: Congrats on another strong result, and thanks for the extra visibility with the 5-year look on CapEx and on CEV, which I'll maybe build on Gabe's question here. With the favorable treasury guidelines and then, of course, all the planned investment in safe harbor, what's the realistic deployment time line. It's probably the most common inbound question we get. But as we think about that pipeline, how should we model the earnings cadence? Stephen D. Westhoven: So for the investments, we've got the capital plan that we put out there. Certainly, I just talked about it with Gabe from a policy perspective, we believe that there's going to be a lot of pressure to add as much capacity as great as possible, and that's favorable for our business. If you look at the amount of safe harbor projects we have especially over the next 2 years, we've got projects that are safe harbor that are far in excess of what we need in our capital plan. So you've got some ability to accelerate that. But the capital plan that we have is the most accurate picture of what we're going to be able to achieve. And I think looking at that, you can take your guidance from there. Jamieson Ward: That's terrific. I'll skip S&P because it was a very thorough answer before. I'll just ask one more quick one on CEV and then on the overall plan. So as we think about SREs, TREs, et cetera, what's the weighted average contract life? How should we be thinking about the time frame. That's the second most common question we get and it's CEV related. I think you're going to find a lot less questions after this deck. So thanks for all the information. But I'll just ask that one. Stephen D. Westhoven: So you say from a time-related perspective, the amount of time allotted into kind of TREs and SREs and how long they live? What's the -- I'm trying to get to the specifics of what you're asking. Jamieson Ward: Yes. So just at a high level, so we modeled like roll off over the next few years. And the question that we get is just how confident are you in basically the numbers that you've got there. So just looking for a very high level, just a weighted average life remaining, right? Because, of course, the strike sort of trimmed down or tailored down over the last few years, and you're going to have SMT, which you were speaking to earlier. Obviously doubling and picking up a lot of that lag there. So just a quick question on that and then one on the overall 2030 CapEx plan. Stephen D. Westhoven: So I'll talk about solar just from a kind of a broader perspective. We just talked about it was the quickest way to bring capacity to the market, and you can see the capital that we're able to deploy over the next 2 years being significant and potentially maybe be able to accelerate with certain policy adjustments. The process that we have, we've got the schedule for TRECs, SRECs, everybody knows the longevity of those I would also add that as infrastructure becomes harder to build in each of these facilities you've got the ability to repower or put in battery. You've already got an interconnect that's there as well. You've got kind of increases in Class 1 RECs that have been having over time. So speaking to just the long-term value of these facilities. As we need more capacity, it's not going to be constructive to retire capacity. So there's going to be some expectation that you continue to operate these facilities and moving forward? And then how do you make improvements in them as well. So we really view this as a long-term business, one that's supportive of the growing energy need that is certainly in the east, but over the entire U.S. as well. And you're going to see us looking to enhance whatever we can do with these facilities move forward, just like you'd expect, organic growth is important to us and how do we organically improve and grow those facilities as well. So hopefully, that answers your kind of long-term view of how we're how we're thinking about these assets. Jamieson Ward: Actually, that's terrific. I think actually, I'm good on the 4.8% to 5.2% through 2030 as well as I go through here. I was going to ask one on affordability, but saw your slides towards the end of the deck in the appendix there. You want to throw it down because that's the other -- as a final question. It's the other one we get, of course, just given everything in New Jersey, you spoke to it in the prepared remarks, you've got some great slides here, but anything else you'd want to add as we think about the next rate case. Of course, we just got new rates November of '24. But as we look ahead, how should we think about your affordability efforts in New Jersey specifically. And that's it for me. Stephen D. Westhoven: Thanks, Jamieson. So natural gas is the cheapest way that you can keep your home in business. So we like our position when the affordability conversation comes up. And like I said in the presentation, we've got energy efficiency programs and SAVEGREEN, we're able to save customers' money as well. And we look forward to working with the new administration and seeing ways that we can keep the affordability story going from our company and helping our customers reduce costs as much as possible. Operator: And our next question comes from the line of Eli Jossen with JPMorgan. Elias Jossen: Just wanted to start on the EPS growth outlook. Seeing some kind of drivers within the Leaf River storage capacity and overall S&T earnings upside. Are there any kind of headwinds elsewhere in the business to keep the growth rate largely the same possible decline in CEV contributions? Or can you just kind of frame tailwinds and headwinds for the overall range? Stephen D. Westhoven: Yes. I'd say that we're an energy infrastructure energy services company, and this country needs more energy. So we're going to make investments in order to grow that. And you can see that reflected in our capital. So it's all positive at this point. And we're at this point, just looking to execute on that plan in order to increase our earnings going forward. So confident in all those things. Elias Jossen: Got it. Maybe just to frame it differently. Is there sort of material upside from this S&T business within the growth range should you execute on some of the projects that you outlined? Stephen D. Westhoven: I mean there's always upside in our business. We're the same business that we were last year and the year before, and we've always been able to grab some upside in these markets. We certainly kind of normalize our expectations on basis, there's an ability to accelerate any of these infrastructure projects given the right policy initiatives. So there's always an ability to upside, but we put together a plan that we believe is executable. And we hope for the best. So hopefully, some of those things will come through, and we'll be able to execute maybe more quickly. Operator: [Operator Instructions]. The next question comes from the line of Travis Miller with Morningstar. Travis Miller: Kind of a combined question here on Slides 8 and 9. How much of that increase from fiscal 2025 to '27 on 8? Is the Adelphia rate case versus the recontracting and leaf River and then going to Slide 9, is that capacity expansion trajectory also earnings trajectory I guess the crux in both of those is the recontracting element. So first, that split between Adelphia rate case and the recontracting. And then is the recontracting and extra above that capacity addition. That makes sense? Stephen D. Westhoven: But there's probably more coming on Leaf River recontracting at sectors numbers. But the bottom line is that for existing assets and no capital investment we've been able to double the earnings coming from those assets, and that's really driven by better contracts, higher contracts coming from the customers. So great story. As far as looking at your forward growth opportunities, you're stating the beginning of expansion at Leaf River. We didn't talk about it, but you still got the ability to expand a little bit at Adelphia Gateway and add more customers in that pipeline as well. So depending on how far this market goes, and I believe it is going to go forward is going to need more and more energy and expansion of organic infrastructure. It's hard to determine where it will stop, right. But certainly, because we've got existing assets, we're able to expand that, and we're also able to make the investments that you see, at least in the short term. And then I would guess it is going to continue in the longer term as well. Travis Miller: Okay. Is that recontracting assumption based on today's rate at $0.27 -- at $0.20 dekatherm that you mentioned? Or is there another assumption you're making on the recontract? Stephen D. Westhoven: Yes. It's not assumption, Travis. These are contracts that we have in hand. So these aren't estimates of what forward value are. These are contracts that we've got signed in our hands and are driving our earnings over the next 2 years in that business unit. Travis Miller: The one high-level question. With all the CapEx you have and obviously the Leaf River, et cetera, how much capacity might you have to do more M&A in organic growth, either logistical, operational or financial. Stephen D. Westhoven: Yes. I mean we're always looking to kind of bolt-on acquisitions and things in happen or assets that are available. we're building these businesses. So if something comes along and it happens to fit and fits organically, we would take a look at it. So we've got the capacity on our balance sheet, and we like these businesses, the infrastructure business. So we'll continue to pursue it like we have in the past. Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Adam Prior for closing remarks. Adam Prior: Thanks, Abby, and I'd like to thank all of you for joining us. As always, we appreciate your interest and investment in NJR and we look forward to talking to all of you at Utility Week in a couple of weeks, and thanks so much. Have a good rest of your day Operator: And this concludes today's call, and we thank you for your participation. You may now disconnect.