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Operator: Greetings. Welcome to Walmart's Third Quarter Fiscal Year twenty twenty six Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I'll now turn the conference over to Steph Wissink. Senior Vice President, Investor Relations. Thank you, Steph. You may begin. Stephanie Wissink: Welcome, everyone. Thank you for your interest in Walmart. Joining me today from our home office in Bentonville are Walmart's CEO, Doug McMillon; and CFO, John David Rainey. Doug will begin with remarks about our upcoming leadership transition. Then we will hear from John Furner, recently named as CEO of Walmart, Inc. beginning February 1, 2026. Doug and John David will then share their views on the third quarter and our business trends. Thereafter, we'll open the line for your questions. During the question-and-answer portion, we'll invite segment leaders to join in responding to your questions. John for Walmart U.S., Kath McLay for Walmart International; and Chris Nicholas for Sam's Club U.S. We will make every effort to answer as many questions as we can in the hour we have scheduled for this call. As a courtesy to others, please limit yourself to 1 question. For additional detail on our results, including highlights by segment, please see our earnings release and supplemental presentation on our website. Today's call is being recorded, and management may make forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Please review our press release and slide presentation for a cautionary statement regarding forward-looking statements as well as our entire safe harbor statement and non-GAAP reconciliations on our website at stock.walmart.com. That concludes my introduction. Doug, it's my privilege to turn the earnings call over to you one last time. Doug McMillon: Good morning, and thanks for joining us. The team delivered another strong quarter. Our associates have us well positioned to finish the year with momentum. It's been an honor to serve them as CEO, and I'm as excited about the future of this company as I've ever been. John's ready. He knows our business so well and he has the characteristics to lead us into the future. I couldn't be happier for him and for our company. Congratulations, John. John Furner: Thank you, Doug. I'm excited about our future. I'm appreciative and humbled by this opportunity and look forward to accepting the responsibility to serve Walmart more broadly as President and CEO. I love this company and I love our associates. I believe in our values and in our purpose to help people save money and live better. I believe we're well positioned to fulfill our purpose. Doug McMillon: You'll be great. Back to the quarter, the team delivered strong sales and profit growth across each of our segments. Sales grew 5.9% overall in constant currency, and adjusted operating income grew even faster at 8%. We drove positive transaction counts and unit volumes, and we're gaining market share in grocery and general merchandise, including here in the U.S., where we saw strength across income cohorts and especially with higher income households. It's great to see the positive general merchandise sales across the company, and I'm excited about what we're seeing with our fashion categories in Walmart U.S. in particular. E-commerce was a highlight again in Q3, up 27% in total. Each segment delivered growth in e-commerce above 20%. The way we're driving growth on the top line is helping us strengthen and differentiate our bottom line. Globally, advertising grew 53%, including VIZIO, and membership income was up 17%. Let's talk about each segment. I'll start with International, which continues to lift the growth rate for the company. International drove the strongest performance with a sales increase of 11.4% in constant currency and adjusted operating income grew 16.9%. We continue to benefit from business mix changes and lower losses in e-commerce. Transaction counts and unit volumes are up across markets, and we're gaining market share. E-commerce sales for international were up 26%. That included our Flipkart team in India executing a record big billion days event. Almost 1/3 of our business outside the U.S. is digital with e-commerce in China at 50% penetration. And the team in China is delivering orders fast. Nearly 80% of digital orders arrived in under an hour. In October, I got to visit 3 Chinese cities. In Hefei, a city of about 10 million people, we visited a relatively new Sam's Club that was outstanding. We now have 60 Sam's Clubs in the country and a healthy pipeline of new clubs coming. China is more advanced in terms of digital retail than anywhere we operate, and there's always a lot to learn that helps inform what we do around the world. I also got a chance to visit our team in Canada last month. I'm excited about the leadership team and the opportunity we have to grow market share, reinforced by EDLP and tapping into our omnichannel advantages. For Walmart U.S., we drove comp sales of 4.5%, and we grew e-commerce by 28% with marketplace sales growth of 17%. We continue to deliver the value people are looking for with healthy growth in both transactions and units sold. Comps were good across each month of the quarter, and share gains were consistent with what we've seen this year. Delivery speed matters, and we're delivering faster than ever. For Q3, 35% of digital orders were delivered in under 3 hours. At a category level, sales in general merchandise were positive with fashion, home and automotive leading the way. Grocery performed well with good unit growth and health and wellness was up low double digits. For Sam's Club here in the U.S., the team delivered comp sales of 3.8% with strength across categories. The comp was driven by transaction counts, and we're gaining market share in grocery and general merchandise. Sam's continues to do a great job of engaging our members digitally. We have a profitable e-commerce business that outpaced our expectations again this quarter, up 22% in sales. For Sam's membership, we see good growth in member count, renewal rates and plus member penetration. As we look at our customers and members here in the U.S., they're still spending with upper and middle income households driving our growth. We continue to benefit from higher income families choosing to shop with us more often. Middle income households have been steady, and while lower income families have been under additional pressure of late, were encouraged by how our teams are meeting them with greater value across necessities and doing what we can to help them stretch their dollars further. For the quarter, like-for-like inflation in Walmart U.S. was 1.3% with food and general merchandise up low single digits. We continue working to resist the upward pressure on our cost of goods and to manage our mix. We have about 7,400 active rollbacks in Walmart U.S. right now, with more than half of those in the grocery category. Often, our 90-day rollbacks lead to a permanent price reduction, a new EDLP. Since the beginning of the year, more than 2,000 rollbacks have become the new everyday price. We'll keep strengthening our ability to save people time and money, and we'll keep finding ways to keep our prices as low as possible and being strategic in our pricing actions. Everyone wants value. Inventory management is always important, and it's especially important in this environment as we reduce markdown risk to help fund stronger price gaps. Our team continues to do a great job. The ability of our Walmart U.S. team in particular, to make good quantity decisions and manage pricing and mix well has been impressive. Both Walmart and Sam's U.S. delivered strong seasonal sell-throughs for back-to-school and Halloween. The results we're delivering today are powered by our people and by technology. We continue to get better at putting our data to work, building more capable tech products and platforms and by deploying physical automation. The investments to automate our supply chain continue to go well. The team is delivering according to plan, and it's helping our associates and our stores receive and manage inventory better than before. As it relates to AI, we continue building towards an e-commerce experience that is one, more personalized and relevant; two, multimodal, meaning a voice, text, image and video experience that is more conversational. Interacting with our app will include improved imagery, short-form video, live streaming and interaction with influencers. Ads will still be present, but in a more contextual and helpful way. Surfacing as recommendations or sponsored bundles that add value. There'll be attention, capture and decision influence through data. And three, the new experience will be contextual, understanding customer intent and anticipating needs to save them time. As we think about new tech products and capabilities, sometimes we build our own tech and sometimes we partner. Our recent announcement with OpenAI as an example. This new partnership will allow customers and members to purchase items from Walmart and Sam's Club directly through ChatGPT. This starts relatively simplistically with the checkout process. It will become more immersive, integrated and seamlessly connected experiences that bring Walmart closer to customers in new ways. We're adopting artificial intelligence in its various forms across the company. Take software development, for example. When AI is used for software development, more than 40% of the new code is either AI-generated or AI-assisted. We're helping our associates build the skills they will need to thrive in an AI-powered workplace through things like embracing OpenAI certifications, enrolling out ChatGPT enterprise licenses. I'll wrap up by saying thank you and conveying my excitement about our future. Our strategy is clear, and we're focused on innovating and consistently executing to deliver greater sales, margins and returns. Our associates continue to impress. They care, they learn, they step up and change. They're moving forward. They bring our purpose and our values to life. This company and our team's ability to change should not be underestimated. That ability enables us to adapt and thrive. Our timeless purpose and values, combined with the ability to innovate, ensure our strong future. John David, over to you. John Rainey: Thanks, Doug. We're pleased with how the team executed this quarter and with the strength of our business across markets, continued share gains and disciplined cost control. Our results were better than expected on the top and bottom line and reflect the advantages of our omnichannel model and the diversified nature of our profit streams. As we indicated earlier this year, we're playing offense. Accelerating our growth, reinforcing our customer and member value proposition, evolving our model and diversifying our profits. Importantly, we're delivering on our financial framework of growing profit faster than sales. Our strategy of offering everyday low prices while leveraging our physical and digital assets to provide greater convenience is clearly resonating. Now I'll get into some of the details of our third quarter performance. Consolidated revenue in constant currency increased 6% or more than $10 billion, led by continued e-commerce momentum with 27% growth. In all of our markets, we're getting faster with delivery speeds, reaching more households across a broader assortment and improving execution. For example, in Walmart U.S., approximately 35% of store-fulfilled orders were expedited or delivered in under 3 hours. And sales through these expedited channels increased nearly 70% this quarter. The notable thing about our e-commerce growth is the consistency of it across our markets. In Walmart U.S. comp sales grew 4.5% with traffic growth both in stores and online. E-commerce sales grew 28%, led by strength in pickup and delivery and advertising. This was the seventh consecutive quarter of e-commerce growth above 20%. We're encouraged by the share gains across grocery, health and wellness and general merchandise categories. Fashion in particular, has been a bright spot with improving comp trends throughout this year. The U.S. team continues to do an excellent job balancing price and mix to reinforce our value proposition. We're leaning into price rollbacks and making both everyday essentials and seasonal celebrations more affordable for customers and members. Walmart's Thanksgiving mill basket is a great example. It will feed a group of 10 people for less than $40. The International segment delivered over 11% sales growth in constant currency, led by strength in Flipkart, China and Walmex. Flipkart had strong results aided by the earlier timing of the Big Billion Days or BBD sales event. The BBD event saw strong customer engagement with sales growth led by mobile devices, electronics and fashion. At our peak, we delivered 87 orders per second with the fastest delivery in about 3 minutes. Sales in China increased 22% in Q3, reflecting ongoing strength at Sam's Club and more than 30% growth in e-commerce. Sam's Club U.S. comp sales ex fuel increased 3.8%. Recall that we're lapping a multiday period of strong comps in Q3 last year related to a port strike that equated to an approximate 120 basis point benefit to comp sales in last year's period. Members continue to engage more digitally, both inside the club using Scan & Go as well as through the convenience of curbside pickup and delivery options. Member adoption of Scan & Go reached 36% in Q3, an increase of 450 basis points versus last year, and club fulfilled delivery grew triple digits again this quarter. The Sam's team continues to enhance member benefits related to e-commerce. Curbside pickup is now free for all members with no minimum purchase requirements, and we've accelerated the speed of delivery by leveraging Walmart's Spark driver platform to pick and fulfill delivery orders. These actions have contributed to stronger e-commerce sales and improved average delivery types. Consolidated gross profit was relatively flat year-over-year. Walmart U.S. increased 19 basis points as a result of disciplined inventory management and favorable business mix. This was offset by pressure in the international segment from channel and format mix due in part to Flipkart's BBD event as well as ongoing price investments in Mexico. Merchandise category mix in Walmart U.S. remains a headwind to sales growth in grocery and health and wellness outpaced general merchandise. Across the enterprise, our business model continues to evolve with operating income increasingly influenced by improved e-commerce economics, particularly in Walmart U.S. and Flipkart, with growing contributions from business mix, most notably in higher-margin areas like advertising and membership fees. This quarter, the combination of advertising and membership fee income represented approximately 1/3 of our consolidated adjusted operating income. With continued strong momentum in e-commerce, our advertising business globally increased 53%, including VIZIO. Walmart Connect in the U.S. ex VIZIO grew 33% as we continue to grow advertiser counts, including through our third-party marketplace. We also saw 34% growth in international advertising led by Flipkart. Membership income increased 17% across the enterprise, led by 34% growth in international, primarily due to Sam's Club China. In the U.S., Walmart+ membership income continued to grow at double-digit pace. Across all income cohorts, we saw membership income growth accelerate with overall Q3 net adds our strongest on record, supported by new benefits like our One Pay Cash Rewards credit card and expanded streaming services. Sam's Club U.S. membership income grew 7%. We're encouraged by the strength of new member acquisition at Sam's globally, particularly among younger demographics. Adjusted SG&A expenses leveraged slightly in Q3. Expenses are being well managed across the business. Technology and AI have been enablers of efficiency gains. We're using AI across the organization to manage cost effectively and to accelerate our growth. As we continue to invest in supply chain automation, we're also seeing improved efficiency and fulfillment economics. In Walmart U.S., more than 60% of our stores are now receiving some freight from automated distribution centers, and more than 50% of our e-commerce fulfillment center volume is now automated, which is driving better unit productivity and helping to lower the cost to serve. Enterprise adjusted operating income increased 8% in constant currency, growing faster than sales across each of our operating segments. International delivered strong operating income growth of nearly 17%, reflecting contributions from business mix, improved e-commerce economics and growth of membership income, while we saw mid-single-digit growth from both of our U.S. segments. Adjusted EPS was slightly better than we expected, up nearly 7% to $0.62. Our third quarter GAAP results include a charge of approximately $700 million related to our PhonePe subsidiary in India. This was a discrete noncash charge related to share-based compensation expense and contemplation of a potential IPO. Our teams continue to do a great job managing inventory in this dynamic environment. Inventory levels increased approximately 3% for the total company, with Walmart U.S. inventory up 2.6% despite higher costs from tariffs. With our growing 3P marketplace, we have the ability to better balance owned and third-party inventory, improving our working capital efficiency, while still offering the customer a broader assortment. Return on investment is measured over the last 12 months declined slightly, primarily due to the PhonePe charge discussed earlier. Underlying ROI performance continues to improve, supported by capital discipline and operating cash flow strength. The business continues to generate strong cash flow with year-to-date operating cash flow of $27 billion, up $4.5 billion compared to last year. This provides flexibility to reinvest in the business while at the same time returning significant capital to shareholders. Year-to-date, we've returned nearly $13 billion through dividends and share repurchases. Overall, Q3 results demonstrate the underlying strength and resiliency of our business model. Our diverse portfolio of businesses are scale and our commitment to innovation give us confidence in our ability to deliver sustainable growth. Now turning to guidance. Recall at our Investor Day in April, on the heels of the tariff announcements, we said that we're going to play offense. We said that we would look to gain share. And we said that despite some of the obvious headwinds, we're not giving up on our goal of growing profits faster than sales. Given the year-to-date performance and our outlook for Q4, we're raising our guidance for sales and operating income for the year. Full year sales in constant currency is expected to grow between 4.8% and 5.1%, up from 3.75% to 4.75% prior. This reflects our confidence in our team's ability to continue driving share gains in Q4. Fourth quarter constant currency sales guidance is for growth of 3.75% to 4.75%. Notably, if currency exchange rates stay where they are today for the entire fourth quarter, we would expect a $1.1 billion benefit to reported sales growth. For operating income, we expect full year growth in a range of 4.8% to 5.5% on a constant currency basis, with Q4 growth in a range of 8% to 11%. Currency is expected to be an approximate 100 basis point benefit to fourth quarter reported operating income growth. Importantly, despite 150 basis points of headwinds from the VIZIO acquisition and lapping leap year, as well as higher-than-expected claims expense, we still expect to grow operating income faster than sales for the year, which aligns with our longer-term financial framework. For Q4, our operating income guide reflects the timing shift of Flipkart's BBD event as well as the lapping of wage investments in Sam's Club U.S. Business mix will continue to be a margin benefit and we expect merchandise category mix to continue to be a headwind. For adjusted EPS, we expect the full year to be in a range of $2.58 to $2.63 with Q4 in a range of $0.67 to $0.72. The consumer environment remains dynamic, and we continue to monitor customer member behavior alongside tracking the macro environment. We're entering Q4 with strong momentum, healthy inventory and a clear focus on our value proposition. Price, convenience and a broad assortment. I'd like to extend my gratitude to our associates who are serving our customers and members every day during a busy holiday season. I'd also like to share that we're excited to announce that our stock listing will be moving to NASDAQ, aligning with the people-led tech-powered approach of our long-term strategy. Walmart is setting a new standard for omnichannel retail by integrating automation and AI to build smarter, faster and more connected experiences for customers while enabling our associates to deliver even greater value at scale. We are appreciative of our long partnership with such a story institution as the New York Stock Exchange. But we're excited about partnering with NASDAQ on this next chapter of our growth story. Lastly, I'd like to say a couple of comments about our leadership change. I think I speak for many people at Walmart when I say that it has been the honor of my career to work alongside Doug. His mark will forever be on Walmart. This company would not be what it is today without his leadership. Doug, we will miss you. At the same time, I can't think of a better leader to hand over the reins to then John. John was the first person on the Walmart management team that I had the opportunity to meet several years before coming here, and he's a big reason why I am at Walmart today. Every company should be so fortunate to have such a capable and qualified leader to transition to. John, you have 2.1 million associates standing behind you as you lead us in this next chapter. We're now ready to take your questions. Operator: [Operator Instructions] And our first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: Congratulations, Doug and John. So I have 1 question and there might be a part A to it. The question is, do you think Agentic will supercharge Walmart's e-comm growth? And in that answer, talk about the advantages that can uniquely help Walmart. And the Part A, I know, John, you just mentioned that you feel strong heading into the good start -- I think strong heading into the fourth quarter. Do you have enough read from Q3 and Q4 to date to predict how the consumer may perform over the holiday? Doug McMillon: Thanks for the question, Simeon. I'll kick off this agentic discussion, but I invite my colleagues to chime in with me. I'm really excited about what's possible. We're always trying to find ways to serve customers better. And I think the advantages that we have include our breadth of assortment being so close to people, which will help us with delivery speed and, of course, everyday low prices. I wouldn't underestimate the physical aspects that kind of underpin the advantages that we have. But at the same time, we've gotten so much better with technology that we have the ability to execute a vision that will be multimodal, more personalized, understand context, and it will help people save time and have more fun shopping. And I think when we put all those things together, it will be a very important growth aspect or channel for us. It won't be the only one. We say omnichannel these days, and I think people frequently think of just stores and e-comm, but social commerce and all kinds of forms of shopping are happening today. And I think we're well set up to be able to participate in all those channels going forward. John Furner: Simeon, this is John David. That's really well said. And we're really excited about some of the capabilities that our customers are engaging in with what we call Sparky today, our digital agent that's live in the app. We continue to hit new milestones. I'm also really excited about some of the new capabilities coming over the next few months as Sparky, you can take more action on behalf of our customers. And when you put that on top of this platform that Doug described with physical assets with 4 deployed inventory all around the country, increasing the speed of delivery, we're using agentic AI to help people think about the things that they may want to reorder or in other words, give them nudges about staying in stock. There are so many ways that we can serve customers, which is very different than where we were 5 to 10 years ago. We can serve people in minutes. We can keep you in stock at home. We have a really broad assortment and having a digital agent that is there working for you, we think it's going to be really powerful. And then there are a couple of things behind the scenes that agentic AI and other types of technology are helping with things like maintaining the accuracy of our catalog, helping us know where there are gaps in our assortment so that we can serve people however they want to be served or whatever is going on in their lives. I'm really excited about how this is all coming together. I think it's going to be a really strong enabler. And I think it will take a lot of time and friction out of the customers' lives as they shop with us. Kathryn McLay: I would just add to that. So we have all of the data from our customers who shop with us in-store every day. And all of that transactional data is really helpful for us to be able to predict baskets for our customers. One of the things that's useful about having an international segment is that we have markets where we can trial new capabilities. And we've been trialing something called [ Corredo Listo ] down in Chile, where we actually create customers' orders for them, send them Whatsapp prompt to ask them if they're interested in buying that basket. They go into the app, and they can see we've created a basket for them that actually has all the brands that they normally buy in the kind of intervals that they like to buy it. And they have full agency over whether they want to accept that basket, whether they want to add to the basket, whether they want to take from the basket. And what we're seeing is that it's really attractive, and it's become up to about 20% of our e-comm business in Chile already. And so we're excited about that capability. We're bringing it to other markets. But I think we know our customers, we know what they want, and we can anticipate that and make their lives easier. Unknown Executive: Yes. And for Sam's Club, I think there's probably just 2 quick points to make. The first is it looks like a really smart decision that we leverage the Walmart Enterprise capabilities so that Sam's Club gets access to everything you just heard about. And the way you should think about Sam's Club is that the member data that we have is richer than any other form of data we have across the enterprise because we have complete understanding of what the member wants and that allows us to personalize at an even deeper level. John Rainey: Simeon, this is John David, on the second part of your question regarding the read on the consumer in Q4. We'd say that overall, the environment feels pretty consistent. There's certainly some pockets of moderation that we're keeping an eye on. But if you look at our guidance for 4Q, it would indicate that we have an expectation that it's going to look pretty similar to the other quarters this year. Holiday is off to a pretty good start. Back-to-school tends to be an early indicator for how that goes, Halloween, likewise for Thanksgiving and everything that we've seen far makes us optimistic and encouraged about customers and members leaning into the seasonal events and holiday shopping period. There is one thing to note as it pertains to our business. The maximum fair pricing legislation that was enacted and goes into effect in January, will affect our health and wellness business, specifically our pharmacy business. That will influence the comp in January a little bit, but all in, if you look at our revenue guidance, it's very much in line with the first part of the year. Operator: Our next question is from the line of Greg Melich with Evercore ISI. Gregory Melich: First, Doug, I just want to thank you for all your leadership, not just to Walmart the last decade, but I would say society. It's been a while time and you've been great to have there. So thank you. And John, congrats, you'll get sick of us soon enough. So I'll launch into my question that way. If we -- I do want to unpack Walmart+ membership, it's that nice growth. It seems like an acceleration. I guess what are the constraints to getting that to grow even faster? Is it logistical? Is it -- what do we have to do to see that really take off? John Furner: Greg, it's John. Thanks for the question. We're excited about the momentum in Walmart+, and you heard in the comments earlier, John David noted, that this is the best quarter we've had in terms of net addition since we launched the program. There are really a couple of things that are driving that, and I want to congratulate the team for. The first is delivery and delivery speed. You heard this morning also that about 35% of our deliveries that are coming from our stores are sub 3 hours and our fastest growth channel is sub an hour, and that's holding up and it's growing at a fast pace. So providing this flexibility to our members is really important. The second thing is our NPS levels on total delivery and shipping are the highest we've seen. That's highly correlated to speed and accuracy. These investments we've made over the last few years that we're excited about in terms of supply chain and inventory accuracy, the digital agents that are helping us understand how our assortments can improve, all of that is working to help people be able to find the things that they're looking for, the things that they need, and they can have those delivered whenever they want, whether that's keeping in stock or it's really quick. The second, we're really proud of the launch of the One Pay credit card that's featured prominently on our homepage even this morning, where members can earn 5% back on all their purchases. We've had really good uptake with the program. So I think it's an exciting time when there are customers who are, of course, always looking for a value. We're proud of our price position with 7,400 rollbacks. So that's another way to reinforce that there are great values at Walmart. And then the third is we did add a streaming option for customers to be able to choose. We think that's important as well. But I'd really pull it back to the work and the progress that we've made with delivery, with speed, accuracy and then the launch of the credit card. Operator: Our next question comes from the line of Kate McShane with Goldman Sachs. Katharine McShane: Doug, I just wanted to thank you for some really great years here. It's been a lot of fun covering Walmart under your leadership. And John, just wanted to wish you a really big congratulations as well. With regards to our question, you mentioned the level of inflation across the store was about 1.3%. Can you talk about how you've managed higher cost through price increases and what elasticity impacts you've seen? And how should we think about where prices should go in Q4 and early 2026? John Furner: Kate, it's John. First, we are seeing inflation in the low 1% range. That's pretty consistent across the business, including food and slightly higher in general merchandise. I would first point to, I think the team has done a really nice job managing inventory, and that's been a consistent trend for a few years. Inventory closed the quarter up 2.6%. So roughly half the rate of what we're growing sales and we feel good about where the inventory is positioned in categories like fashion, where we've seen higher growth rates in the quarter. We're really proud of our fashion business. Our inventory is in good shape. So what that does is it allows flexibility and takes pressure off any end-of-season markdowns. We've been disciplined over the last few quarters of ensuring that at the end of each season, whether it's back-to-school or back to college, Halloween that we in clean and we move on to the next season. The third thing, I think the last thing I would say is the team has also done a nice job of managing mix throughout the last couple of quarters. We've been thoughtful about how we adjust our buys in terms of what we think people will buy in seasons. So where things that are for kids, obviously, have run strong. People tend to prioritize their families in times where there could be cost pressure. So all those put together have put us in a good shape to where we can keep our inventory in line, we can maintain margins with low markdowns on the backside. Operator: Our next question is from the line of Seth Sigman with Barclays. Seth Sigman: Doug, John, congrats to both of you guys. So I wanted to talk about operating leverage and how you're thinking about the fourth quarter. It does imply an improvement in the operating leverage here. Can you just bridge that -- how much of that is the shift in Big Billion Days versus other drivers? And then related, you guys have done a really good job of managing tariffs. How are tariffs starting to show up in the model? And should we assume that the tariff impact continues to increase, but you are able to offset that. Maybe walk us through how you're doing that? John Rainey: Sure. This is John, David. I'll take the first part of that question, and maybe a couple of us will address the second part of it. We are really pleased to be able to demonstrate that we had leverage in the business this quarter. I believe that's the first time in 2 years, given some of the mix changes that have been happening with our shift of e-commerce to -- shift from in-store to e-commerce. There's a number of areas where the team is really performing well. And I talked about the use of AI and technology. But an example I would give you, I'd point to our supply chain. Roughly 50%, in fact, more than 50% of our volume from fulfillment centers is coming from automation. And that translates into lower shipping costs. Our shipping costs have been down consistently for many quarters in the 30% range. This was another quarter where we saw double-digit improvements. And that really helps our e-comm economics, but also helps the overall SG&A of the company. I think there's sometimes a bit of a sense of there needs to be a trade-off between value and convenience. And I think that's a false choice at Walmart. We've demonstrated for years that we can provide value through everyday low prices in the items that we sell. We're doing the same thing now with convenience by continuing to lower our cost of delivery, that helps customers have the ability to have the value that they want with the convenience that they expect. And what we're seeing is that customers are willing to give their business to those companies that, one, provide value; two, give the convenience they expect; and three, are executing consistently well. And so we feel good about going into the fourth quarter. Costs are always going to be an issue that we're trying to be more efficient and bring them down. But I think we're in a better place right now than we have been at some point. John Furner: Yes, John David, I think those are really important points. The point you made on value, convenience and execution. Hopefully, it's just building trust, trust that customers can depend on us for whatever it is they're looking for in their lives. In terms of the impact of tariffs, certainly, I think we have seen less impact than what we thought we would have expected early in the year. There has been some relief on some key food categories, which certainly is helping. You also heard earlier the 7,400 rollbacks, -- about half of those are in food. Really, the only price pressure that we're seeing in food generally right now is in the beef category, which is largely a reflection of the commodity and the cyclical nature of the herd size in the U.S. So commodities do what they tend to do, but the team has done a nice job all across the business at creating great value on particular items like the price of turkeys for Thanksgiving. And we have the ability to sell customers up to 10 people, $4 a person for their meal. We have a VIZIO television that's 50-inch for $128. So really proud of the value that exists all throughout the assortment. And I think we can become and continue to be a great place for customers to find what they need for the holiday season. Doug McMillon: Really impressed with how the team has managed through tariffs this year. If you look at it holistically, the job they've done to manage inventory, to manage price gaps to improve our mix with categories like fashion being so strong. That, combined with the business mix shifts in the company have enabled us to get through this year and become even stronger as we've done it. And then I'll just also add our appreciation on the relief we're seeing on things not growing in the United States. That's really appreciated. I think our customers will appreciate that, too. Kathryn McLay: Can I take a little tangent on that, too, because you did mention BBD. And I think it's worth noting that BBD is housed within our Q3 result this year, and our operating income was up 16.9%. So it's quite a change in kind of what we've seen at the impact of BBD in a quarter. We also saw a lot lower losses from e-commerce in international, and probably the best BBD that we've experienced in the history of the company. It was reflected in the other day that we did over $1 billion of sales in the first day. And I think we did something like 700 orders per second during the first hour of the event. So, it's an extraordinary event. And yet despite that, we had lower e-commerce losses, and we had an opt-in for growth for International adjusted at 16.9%. Doug McMillon: It took Walmart a lot longer to get to $1 billion a day. Christopher Nicholas: This is also relevant to Sam's Club too. I do need to take this opportunity to thank our associates though for a really strong quarter. And maybe just touch on something John David talked about, which is the headline comp for Sam's Club may look a little off, but we're lapping a lot from last year. We talked about it 2 storms and the port strike that impacted us disproportionately. So what I'd ask you to do is look through that. Our 2-year stack is consistent with Q1 and Q2 around 11%. So it's consistent good momentum. I think just to push in, Seth, into your question, we're working really hard to -- every single day to take cost out through using AI, using leverage, taking the benefits we're getting from ads, and we are going on the offense on things like price and on experience. We've seen really incredible growth in e-commerce, too. And the innovations that the team are landing every single day. So leveraging the Walmart app has increased conversion materially. We've changed the value proposition again because we are restless on behalf of the member. We reduced basket minimums for our club members for curbside pickup, and we saw a 20%-plus pickup, which is just great. And the fourth quarter now of -- from a delivery point of view, is the fourth quarter in a row that we've seen triple-digit growth. And I think some of that is how easy it is and how sharp we are on price, but some of it is just great items, too. I would just touch on -- we've got some great GM items coming through Pokemon, LEGO Gameboy, Disney Princess Parade, and the [indiscernible] set, which I don't know if you will know, but [ Marjan ] is the new pickable, so please go out and invest in that item too. John Rainey: Yes. Just one thing to add to what Chris said because I think it's important to note, I think it's fair to say, and the team could disagree with me here if they feel differently. But I think we're better leveraging the assets of the various segments than at any time in history. Whether you look from a technology perspective, a supply chain perspective, even from a people perspective. We -- there are synergies with what we're doing in leveraging some of these platforms and technologies, and that's really starting to translate into improved financial results. Operator: Our next question is from the line of Kelly Bania with BMO Capital Markets. Kelly Bania: And Doug and John, I just want to echo the comments from my colleagues and add my congratulations to both of you. I think we've all learned a lot from your leadership, Doug. My question and more observation, I guess, is just how incredibly consistent, so many of the key metrics are really across the board. And I think it's just particularly notable at a time when there are more complaints about the U.S. consumer signs of pockets of weakness. And so I was wondering if you could just maybe talk a little bit about how much month-to-month volatility you're seeing, if there's any signs of trade down or changes of behavior underneath the hood? And if you can add to that how much flexibility are in your plans to be more aggressive with pricing or other elements of your model, if there is, by chance, any delayed consumer reaction to either the tariffs or the cost of living dynamics not only in the fourth quarter but into next year? John Rainey: Kelly, this is John David. I'll hit on that and maybe start with the last point. I think the team here feels really good about where our relative price gaps are right now and the value that we're providing to our customers and members. We have over 7,000 rollbacks in place in Walmart U.S. John talked about the value of a basket of items for Thanksgiving dinner and how that compares to prior years. It's -- I think we're feeling really good about this. And we're seeing that customers are moving their business to companies that provide that value with that convenience. In terms of the month-to-month volatility in the business, the quarter was actually quite consistent. When we look across the entire business, there wasn't necessarily 1 month that was an outlier. There are pockets of moderation when we look by income cohort. And I don't want to sound alarmist in any way here because, again, overall, the business is very consistent, and that's our outlook into the fourth quarter. But when we look by low-income cohort versus middle versus higher income, we have seen some moderation in spending in the low income cohort, and that's consistent with things you've seen from a macro perspective, an October wage growth, the disparity in wage growth between those cohorts was as large as it's been in almost a decade. And so we're seeing the same things that others are, and we're keeping a watchful eye on it. But again, I think Walmart is better insulated than just about anybody, given the value proposition that we have. If pocketbooks are being stretched and kind of consumers are being choiceful and value seeking, it stands to reason. If there's more pressure on the consumer, they're only going to become more so. And so we like the value proposition that we're offering for our customers, and you see that's why we're gaining share. John Furner: And John David, something you said earlier is important that more than one thing can be true at a time. The flexibility that we are offering the breadth of assortment helps us have an appeal to a lot of customers all around the country. And while everything you said is true, it's also true as we saw accelerated games with higher income customers throughout the quarter. And I think you can see that in the categories with categories like apparel that grew over 5% every month of the quarter and continues to be one of our best categories. Other categories like home hardlines are in that mix. So we're seeing a lot of growth in general merchandise that has a wide appeal to a lot of income levels. It is interesting that all income levels are participating in delivery and faster delivery choices. And I think it's just great to see that whatever it is the customer is looking for, we built capabilities over the last few years that can help them experience our great assortment and great value however they choose to. John Rainey: One of the things with our marketplace business, it's really allowing us to provide a much broader assortment than we have historically. And if you look on a category-by-category basis, there are places in our marketplace business like automotive, toys, electronics, apparel, that are all growing north of 40% year-on-year. And so it really shows that customers are coming to us with this broader assortment, and it's allowing us to cater to a broader set of customers than we have historically. Christopher Nicholas: I think it's really worth pointing out that this is the moment for a business like ours. So Sam's Club, we are trusted for great value. And when we give people and have great value, but with incredible assortment and incredible experiences, people really value that. And when they do have to make choices where the place they're coming to. Really great items that -- where you drop the price, you do see a response. So I'll give you an example. We reduced our incredible, very big box of [indiscernible], a bit of fresh baked in club by $1 from $5.98 to $4.98 and the volume doubled is incredible. We had to remove the shelf that we put them on because the volume that we were selling was so -- was so huge. I think people really respond to great items at great prices. Operator: The next question is from the line of Michael Lasser with UBS. Michael Lasser: Best wishes to everyone. How do you respond to those who say, the timing of this leadership succession is a signal of an inflection point where Walmart will usher in another phase of investments that will pressure the company's profitability, either because of the need to support the top line growth or be prepared for the next phase of retail, which [indiscernible] commerce. And this is anywhere near the case, could it delay the potential acceleration in operating income growth over the next few years as alternative revenues gain scale and make up a growing portion of the company's overall profitability? John Furner: Michael, it's John. I want to say a couple of things. First, I'm really excited to be a 32-year Walmart associate. I'm proud of that. I'm proud of the work that our associates have done for so many years around the country. We have a strong purpose, and I love our core values. As far as the strategy, I've been here at this table with this team for a long time. I'm in my seventh year in the role of Walmart U.S. CEO. I've been a part of developing our strategy on capital for automation, the transformation from having a store business and an e-commerce business to becoming omni. We have a lot of momentum, and I think that strategy is solid. We're looking forward to make improvements to the strategy as we go. And just specifically on capital, we take a really disciplined approach to capital. Over the last few years, we've been really transparent about the things that we're developing. A lot of those investments are going to remodels and stores. We're on about a 7-year cycle. I think that's about right, and we want to maintain that. And then second, the capital investments we've made in our supply chain, we're even more optimistic about the returns that those can create, which leads to the final point. When it comes to capital investments and operational investments in the business, will take a disciplined measured approach to those investments and will ensure that they provide the right returns for our shareholders. John Rainey: I'd like to add one thing. Just my perspective as a CFO. I've been in finance for 3 decades and in a role like this for about half of that. I've never worked on a management team that has more alignment around the financial metrics on how to run the business, focusing on the top line, making sure that those sales are profitable and also focusing on ROI. And so we're going to continue to do that. We recognize that we spent more capital than we have historically, but there is a universal alignment on the -- with this management team that we need to make sure that those investments pay off for investors. And so the goal that we have or the metrics that we hold ourselves to is we need to make sure that ROI is going up every year. And you've seen that performance been demonstrated here after some of the important investments that we made a decade ago, those were starting to pay dividends. And so I hope I can lay any concerns that there's going to be some dramatic shift in our posture on this. Operator: The next question is from the line of Christopher Horvers with JPMorgan. Christopher Horvers: Congratulations to Doug and best wishes in the next part of your journey and John as well as you take over the reins. A bit of a multipart U.S. grocery question. The low single-digit performance in Walmart U.S. in the quarter, to what extent did the port strike and snap impact the trend. Would you expect this to revert back to mid-single-digit range? Or does this inflation on eggs and perhaps tariff changes inhibit that? And on a related question, it's clear that you've been investing in price, grocery inflation of around 1% versus what's being reported externally, you're driving price gaps. Is that because you felt they were narrowing or you were intentionally widening the gap in anticipation of some disinflation? John Furner: Chris. Let me take part of the question -- or the first part of the question on grocery. In terms of where we are pricing, we're always looking for ways that we can keep prices as low as we can and invest in price. Walmart has provided an everyday low price value for many, many years and that certainly is relevant now for food pricing. For the holiday season, we're proud of the offer that we have. You can feed 10 people for just under $4. I think that's really exciting. Items like Turkey, butter wall turkeys will be $0.97 a pound. That's the lowest price we've had in Turkey since 2019. So our strategy has always been -- the philosophy has always been to keep prices as low as we can on a basket of goods over time, and we will continue to do that. And then as far as how the mix is coming together, our merchants, they start every week talking about unit growth. And we focus heavily on how we're growing units. We think about unit share in food, particularly in fresh food, where there are commodity prices that do what commodity prices do over time, we want to ensure that we have a value, but we look at unit share. So our unit share growth has been strong. It was stronger in the quarter than our dollar share. And so over the long term, we'll take the units, and we'll focus on that and then the dollars will tend to work their way out. The last thing I'll say, there likely is some egg deflation right ahead of us. That is in our forecast, and we're thinking about that. And then we do have some inflation in the beef category that we think will take a bit longer to work out. Operator: Our next question is from the line of Robby Ohmes from Bank of America. Robert Ohmes: Doug, congrats, you will be missed. I will miss you personally. And John, congrats. I mean I honestly can't imagine anyone better to follow, Doug. So just congrats to both of you. My question is on merchandise category mix, you guys mentioned that you expected merchandise category mix to still be a headwind in the gross margin in the fourth quarter. You've got really good commentary on early holiday spending. You've got good performance in apparel and home doing better. I mean just what will it take for merchandise category mix to not be a headwind to gross margin, like what's the secret sauce? John Furner: I think the comment is reflective of the fact that health and wellness has been stronger and our pharmacy business has been stronger, and we think that will continue into the fourth quarter. You did hear John David mentioned some impact we may see in January related to the top line in health and wellness. So the comment is really reflective of that overall category mix. We are very encouraged by the fashion business. The fact it grew over 5% in the quarter, and we see more and more customers choosing Walmart for their source of fashion and the unit growth across basics for kids, men's, women's, the growth was really consistent across the categories, I think, is encouraging. And then overall business mix, it is also encouraging that e-commerce has shifted from lost profitability. And so over time, we think the mix -- we will definitely see improvements amongst the -- between the channels. John Rainey: Robby, if you were to go back and pinpoint when we started seeing merchandise or the merchandise category mix pressure, it really goes back to a couple of years ago when we were seeing inflation in the high single digits. And so I think it's reflective of the macro environment, much more so than anything that's happening at Walmart. As pocket books have been stretched, you're seeing more consumer dollars go to necessities versus discretionary items. I think, fortunately, for us, we've done a great job of improving our assortment. And the example I gave earlier with some of the categories that we're selling in our marketplace, you're seeing that we're doing a great job there of growing some of these categories where there's been pressure. John noted, if you just take apparel, apparel grew over 5% each of the 3 months of the quarter on a unit basis. So that's -- if you go back a year ago, that was an area that we were really pressured with. So Walmart is doing the things that it can to influence this. But I think what's happening here from a merchandise category mix is really more of a macro phenomenon than anything. Operator: The next question is from the line of Paul Lejuez with Citigroup. Paul Lejuez: Doug and John, congrats. We'd love to hear a little bit about elasticity. Any early signs based on price increases that you've taken, which categories you might be seeing greater elasticity or lower elasticity than you might have thought? And then just a quick one, maybe you can give an update on marketplace. Number of SKUs that you're at right now, where do you expect that to go next year? And how important will marketplace be this holiday season compared to the first 3 quarters of the year? John Rainey: Well, I was just going to address elasticities. It really differs by category, but maybe one category that is a little more pronounced for us is electronics, toys and seasonal, where we've seen some higher AURs and think of that being in the high single digits and units are kind of in the flattish range. So that's been one where I think you've seen higher price increases overall, where other parts of the basket we've done, we've not had the same pressure from tariffs, and we've been able to mix out the baskets in a way that have minimized the impact on consumers. John Furner: And on marketplace specifically, it is important that we -- as we've noted, that customers can find a really broad assortment at Walmart, whatever you're looking for. And we've been focused on ensuring that customers can trust us for a broad assortment. So we're still in that $500 million or north of range. It fluctuates month-to-month, quarter-to-quarter. But we're really focused on ensuring that now that we use things like AI to determine where their gaps in the assortment to ensure that customers can get their entire basket from us. And that could include whether it's an item for a specific event or part of a basket or regimen, we want to make sure that the assortments are complete. So over the next few quarters, we'll really be focused on ensuring that it's the right number of items and the right quality of SKUs that are listed in the assortment. Christopher Nicholas: Great innovation is so important, along with price and where we see growth in general merchandise, for example, and higher AUR items, it's where we see great innovation too. And I think we just need to keep our foot down on the gas on driving really great innovation with greater great items. Operator: The next question is from the line of Rupesh Parikh with Oppenheimer. Rupesh Parikh: Congrats to Doug and John. So I guess for me, the international side of your business, continued significant strength. It's trending above, I think, the algorithm that you guys laid out earlier this year. Just how do you feel about the sustainability of the top line momentum you're seeing in your key markets there? Kathryn McLay: Thanks for the question. So I think we've just seen really consistent results in international from a top and a bottom line -- or sorry, from a top line perspective. We took a moment in the first half of this year to invest into convenience and speed and into price, and we're seeing that kind of come back in this back half. So we continue to feel really strong about the top line trajectory that we have in international. And it's a mix of being in high-growth markets, like India and China, as well as really truly kind of maturing our omni playbook in other markets like Mexico and Canada and Chile. So really good things to say in international. Operator: Our final question is coming from the line of Chuck Grom with Gordon Haskett. Charles Grom: Congrats, Doug. Great career and John [indiscernible] when you ran Sam's Club. This what happened. So congrats to you as well. With greater visibility here on tariffs than a few months ago, have you made any changes to assortments for the holidays? And then one follow-up for John David. On the maximum fair pricing change in January, any idea how much that could potentially cap health and wellness sales, not necessarily for 4Q, but also into 2026? John Furner: It's John. Thanks for the question. No big changes on assortment for the holiday. I think many customers will follow-through traditions. I think many customers are looking forward to a great holiday. Throughout the summer, we did make some adjustments on the quantities that we decided to purchase and prioritize things like gifts or backpacks, back-to-school things for kids. We, in some cases, even increase though. So it was really more of a shift in the quantities that we bought, but no big change in assortment plans. John Rainey: And on maximum fare pricing, I believe that there's still information coming in on this in terms of which drugs they're applied to. So probably a little premature to give you a number on the impact. But overall, the health and wellness business is still going to continue to grow. It's been the part of our business that has seen the most growth over the last couple of years, and we still expect that. Operator: Thank you. At this time, this concludes our question-and-answer session. I'd like to turn the floor back to Doug McMillon for closing comments. Doug McMillon: Thanks, everybody. I really appreciate the relationships that we developed over the years. I appreciate how closely you follow the company, the pressure, healthy pressure you put on us, the critical thinking test you've given us and I think the company is better off because of your engagement and I just want to say thank you, all miss you guys. As it relates to the company, what a great business this is. In any environment, you've seen times when the customer has more money and how Walmart is well positioned and times when people are pressured, they come to us. And now the business is stronger in terms of our ability to make it more convenient to shop with us. I think that's been a big development. We're not just known for price, we're known for more than that now. And the runway looks like a long one to me. I have a high degree of confidence in the potential and what this company will deliver with John's leadership and with this leadership team, and I'll be cheering them on and helping in any way that I can. Thank you all. Operator: Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.
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: 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: Good evening, welcome to Webull Corporation Class A Ordinary Shares' Third Quarter 2025 Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Carlos Questell, Webull Corporation Class A Ordinary Shares' Head of Investor Relations. Please go ahead. Carlos Questell: Good morning, good afternoon, and good evening everyone. Welcome to Webull Corporation Class A Ordinary Shares' third quarter 2025 conference call. Earlier today, we issued a press release detailing our third quarter financial results. A copy of the release can be found on our IR website at webullcorp.com under the Investor Relations tab. Please note that this call is being recorded and will be available for replay via our IR website. During the call, we will be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to the cautionary statement and risk factors contained in our filings with the Securities and Exchange Commission and press release, both of which can be accessed via our website. The presentation will include a discussion on adjusted operating expenses, adjusted operating profit, and adjusted net income, all non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to their most directly comparative GAAP measures are included in the press release that we issued today. It's important to note that although we believe that these non-GAAP measures provide useful information about our operating results, they should not be considered in isolation or construed as an alternative to their directly comparative GAAP measures. Furthermore, other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure. With me today is our Group President and U.S. CEO, Anthony Michael Denier, and our Group CFO, H. C. Wang. We will begin with prepared remarks and then take questions at the end. With that, I would like to turn it over to Anthony. Anthony Michael Denier: Thank you, Carlos, and hello, everyone. Thanks for joining us today. Webull Corporation Class A Ordinary Shares' third quarter results demonstrate continued momentum and growth in what remains a highly favorable market environment for our business. Our Q3 results reflect this environment, but also our global team's continued ability to achieve our goals, drove strong results across almost every metric. Strong corporate earnings, interest rate reductions, and rallies in technology and AI stocks have driven robust market conditions with the S&P maintaining near record levels throughout the quarter. This backdrop, combined with our ongoing technological innovation, product expansion, and increased access across geographies, continues to create significant opportunities for our customers worldwide. Webull Corporation Class A Ordinary Shares is exceptionally well positioned to continue to capitalize on the global consumer shift towards mobile-first trading. We are executing well against this favorable backdrop. This quarter marks significant milestones in product diversification and geographic expansion as we continue to see high growth across our platform. On the heels of our public listing, we successfully reintroduced crypto back to the Webull app and expanded our offerings in the space to include crypto futures trading. We also introduced sports prediction markets through our partnership with Kalshi and are on track to achieve a major international milestone as Webull Canada will soon become the first non-U.S. brokerage in our group to reach $1 billion in assets under management. Just last week, we launched Vega, the latest evolution of our AI-powered decision-making partner, which will enhance the investor experience by providing personalized insights and analysis to inform trading decisions for our users. These offerings are already leading to meaningful ROI. We are seeing strong adoption among both new and existing customers as the platform successfully reengages dormant accounts through compelling new products. During the quarter, we brought crypto trading back to the Webull platform and brought Webull Pay back into our group, which added $1.2 billion in 140,000 funded accounts. Now over 50% of new funded accounts are trading crypto. We will continue to meet investors where they are and increase our share of wallet by introducing them to our expanded products and solutions over time. Our differentiated offerings, including direct deposit enablement and the launch of corporate bonds, continue to set Webull Corporation Class A Ordinary Shares apart from competitors. With each new product, we continue to strive to be the one-stop platform for traders looking to get the most personalized and agile investment opportunities on the market. I am proud of the Webull Corporation Class A Ordinary Shares team for the innovation and execution they have shown in reaching these milestones. We have reached another important milestone in our journey as a public company with the expiration of all shareholder lockup restrictions on October 8, which significantly increased our public float, further enhancing our market liquidity. With that, let me now walk you through the key highlights from the quarter in more detail. Here on Slide two, I'll walk you through our third quarter highlights. We delivered another strong quarter for Webull Corporation Class A Ordinary Shares shareholders. With the year-over-year revenue growth significantly outpacing increasing operating expenses, driving solid margin expansion for another quarter. We recorded top-line revenue of $156.9 million, representing 55% growth year over year driven by four key factors. First, customer assets reached an all-time high of $21.2 billion, inclusive of the $1.2 billion in assets from the acquisition of Webull Pay, marking the third consecutive quarter of AUM growth. Second, equity trading volume surged for the third straight quarter, up 71% year over year. Third, our on-time delivery of new product offerings, including crypto futures and prediction markets, enhanced stickiness and new user growth. Fourth, we continue to broaden access to our leading platform across new and varied geographies. We recorded adjusted operating expenses for the quarter of $120 million, representing a year-over-year increase of just 13%. Our increase in expenses was mainly driven by increased brokerage and transaction expenses, reflecting higher trading volume as well as higher general and administrative expenses driven by increased compensation and bonus accruals reflecting headcount growth and stronger than expected performance. The increase in G&A expenses was partially offset by a lower marketing spend. Lastly, we delivered a fourth straight quarter of operating profitability with a strong 28.7% increase in adjusted operating margin on a year-over-year basis to 23.4%, representing adjusted operating profit of $36.7 million for the third quarter. We continue to focus on execution and margin expansion, reflecting our commitment to delivering sustainable growth and value for our shareholders. Turning now to Slide three and our 2025 roadmap. We continue to enhance our existing product offering while executing against the ambitious roadmap we outlined in Q2 to support our growing customer base and expand market share through new offerings and geographies. We are particularly excited about the launch of Vega. Vega is an AI tool that combines news, earnings, and technical data to deliver a focused, intuitive experience that helps both new and seasoned investors navigate modern trading and make smarter decisions. Other key features of Vega include statistical insights, options trading that showcase investment opportunities, and voice commands for placing trades as we continue to enable accessibility on our platform. As we continue to broaden our offerings to solidify our position as a one-stop investment platform for retail and sophisticated investors, Vega will play a crucial role in enabling further consolidation as investors gain powerful insights across their portfolio of equities, bonds, crypto, and more. Webull Premium, our subscription-based service for active traders and long-term investors, has now reached 90,000 subscribers, a 20% increase from just last quarter and is tracking well ahead of our internal target of 100,000 subscribers by year-end. Our premium offerings have been further bolstered by the introduction of corporate bonds during Q3. Corporate bonds provide customers with low-risk investment opportunities and steady yields while also facilitating asset transfers from traditional brokerages, positioning Webull Corporation Class A Ordinary Shares as the one-stop platform for sophisticated investors. I am excited to discuss the launch of prediction markets. Through our partnership with Kalshi, we have introduced sports prediction markets covering NFL, NBA, NASCAR, F1, and college football events. This offering provides an engaging and accessible trading experience that lowers barriers to entry. Results have been exceptional. More than 30 million prediction contracts were placed in October, nearly twice as many as were placed in September, over half of which were sports contracts. As I stated previously, the return of crypto to our platform has delivered instant results and has become a significant driver of funded account growth. While we currently offer crypto trading to our customers in the U.S., Brazil, and Australia, we will continue expanding crypto offerings across geographies and are actively exploring digital asset licenses in numerous other markets. Finally, our expansion of products available internationally continues to progress. During the quarter, we launched our Webull platform in the EU, beginning in The Netherlands, and anticipate launching in additional European markets over the coming months. We also entered into a strategic partnership with Merits Financial Group to offer U.S. market access to Merits customers in South Korea. In addition, Level three options trading is now live in Singapore and Hong Kong and is set to launch in Japan imminently. We are excited to continue to scale and reach even more global customers as our product offerings continue to grow. We have now over 700,000 funded accounts outside the U.S., and we continue to prioritize delivering U.S. products to international markets and building diversified revenue streams globally. On Slide four, I'll discuss our growth in both users and funded accounts. During the third quarter, we added roughly 1 million registered users, bringing the platform to a total of 25.9 million registered users, a more than 3 million increase from the third quarter of last year, representing a 17% increase. Importantly, that 1 million increase also represents a large sequential increase, showcasing that our product and geographic expansion is driving robust user growth. Webull Corporation Class A Ordinary Shares was originally launched as a global market data platform before evolving to become the leading digital investment platform we are today. As a result, we have a significant number of registered users in geographies where our trading platform is not yet available. We are committed to offering access to best-in-class market data and information to everyone, whether or not they currently have a brokerage account with us. On the right side of the slide, you can see funded account metrics. Funded accounts, defined as accounts where customers have made an initial deposit that has remained above zero for forty-five consecutive calendar days as of the record date, showed healthy growth. We added approximately 200,000 new funded accounts this quarter, inclusive of accounts onboarded through our acquisition of Webull Pay, bringing the total number of funded accounts to 4.93 million, a 9% year-over-year increase. As we continue to innovate and enhance our offering, I am also happy to report that our quarterly retention rate remained high and grew slightly on a sequential basis to 97.7%. Turning to Slide five, as I previously mentioned, Webull Corporation Class A Ordinary Shares customer assets reached an all-time high of $21.2 billion, inclusive of $1.2 billion in assets from the acquisition of Webull Pay, representing an 84% increase on a year-over-year basis and a $5.3 billion sequential increase. The growth in customer assets reflects strong momentum driven by favorable market dynamics and robust deposit activity. Our customers deposited over $2.1 billion during the quarter, a 31% increase year over year, bringing our cumulative net deposits over the last twelve months to $5.9 billion. On Slide six, I'll provide an overview of trading volumes for the quarter. While we are always looking to expand and enhance our product offerings, growth in our core products also continues to accelerate. Our equity volume increased by 71% on a year-over-year basis and 26.7% sequentially, totaling $24 billion. Our options contract volume was 147 million in the third quarter. The associated revenue continues to outpace contract volume growth after implementing a new pricing model in the second half of last year. We are pleased to see the continued results of that initiative with a steady increase in the monetization of our options business. We are now midway through Q4 and are on pace for further growth. October was our best month ever in terms of customer deposits, trading volumes, and revenues. Our new products are driving increases in market share and the consolidation of users' portfolios onto the Webull app. With that, I'll pass the call over to H. C. Wang for a closer look at our financial results for the quarter. H. C. Wang: Thank you, Anthony, and thanks to everyone for joining us today. Slide seven shows that in the third quarter, Webull Corporation Class A Ordinary Shares generated revenue of $156.9 million, up 55% year over year. Adjusted operating expenses for the quarter came in at $120.2 million, an increase of 13% from a year ago. We continue to take a disciplined approach to balancing execution costs and operating efficiency as we continue to scale the business. We are pleased with our continued margin expansion and profitability. On the following slides, I will walk through the components of revenues and expenses in more detail. Now turning to Slide eight, on our profitability performance. As Anthony mentioned earlier, Webull Corporation Class A Ordinary Shares has now recorded its fourth consecutive quarter of operating profitability. In Q3, adjusted operating profit reached $36.7 million, our most profitable quarter ever, representing a 28.7% improvement in adjusted operating profit margin year over year. Adjusted net income for the quarter was $32.9 million, up RMB38.6 million year over year. Adjusted net profit margin improved 26.5% year over year, reaching 20.9% of revenue. Turning to Slide nine. Our trading-related revenues continue to accelerate, supported by higher trading volumes across all asset classes and improved monetization, particularly in options. Momentum from the second quarter carried through to Q3, with daily average revenue trade increasing 56% year over year, driving a 64% rise in trading-related revenues. On a per trade basis, revenue increased to $1.53. Turning to Slide 10, our interest-related income. This category includes interest earned on client and corporate cash as well as revenues from margin financing and stock lending activities. In the third quarter, interest-related income grew 32% year over year to RMB43.4 million, driven by higher interest-earning balances across all categories: corporate cash, client cash, margin lending, and fully paid stock lending, reflecting the continued growth of our client assets. Finally, let's turn to Slide 11 for a closer look at operating expenses. As a high-growth business with meaningful operating leverage, we expect operating expenses to increase as we scale, but at a much slower pace compared to revenue growth. In the third quarter, operating expenses grew 13% year over year, primarily due to higher brokerage and transaction costs associated with rapid growth in trading volumes and product expansion. General and administrative expenses also increased, reflecting headcount growth and higher bonus accruals tied to stronger than expected performance. These increases were partially offset by lower marketing spend as we continue to optimize our marketing and branding strategy. We remain committed to maintaining expense discipline while continuing to invest strategically in innovation, customer acquisition, and wallet share expansion to capture sustainable long-term growth opportunities. Now thank you everyone. With that, I will turn the call back to Anthony before we open the line for questions. Anthony Michael Denier: Thanks, H. C. This was a record quarter for Webull Corporation Class A Ordinary Shares on many metrics, including revenue and funded account growth, marking an exciting new chapter for our platform as we successfully unveiled innovative product offerings, including crypto futures, sports prediction markets, and our AI-powered decision partner Vega. We remain energized as we continue to deliver our product roadmap for U.S. and global investors. I want to recognize the global Webull Corporation Class A Ordinary Shares team for their continued dedication as we continue to grow our platform following our public listing in early 2025. We look forward to engaging with you at several upcoming industry and investor conferences. On that note, we welcome any questions you may have either here on the call or one-on-one. Operator: Thank you. We will now begin the question and answer session. Your first question today will come from Kareem Saif with Bank of America Securities. Please go ahead. Kareem Saif: Everyone. Can you hear me okay? Anthony Michael Denier: Loud and clear. Kareem Saif: Perfect. Okay. Well, congrats on a great quarter. My first question is on prediction markets. It was very nice to see you guys added sports contracts to the offering. So Anthony, was wondering if you maybe like help size the revenue opportunity for Webull Corporation Class A Ordinary Shares from the prediction markets offering as well as like maybe share some of the any of the economics that you have with Kalshi? Anthony Michael Denier: Sure. Happy to, Kareem. So yes. So many people do not know this, but we have been partnering with Kalshi since the very beginning of the year. We just recently got into the sports prediction markets, at the beginning of the NFL season. Late August, I believe, for Thursday night football. And the prediction market pre-sports has seen some really nice growth as we did, like, SPY hourlies, NBX hourlies, some major Fed events. But the sports numbers have been completely blowing us away, right? And we have all seen the headlines how much growth we have seen from Kalshi and Polymarket on a notional value. We are seeing that lockstep. And the value of offering these sports predictive contracts are multifold the way I look at it. Right? We announced 30 million contracts in October. You know, we are already now halfway into Q4 on the November 20. And that number is completely gone. We are blowing that number away already in November. Right? And I would not be surprised if we see a month-on-month growth at over 100% on a pretty consistent level. Now the opportunity from a monetary standpoint is different with every partner that Kalshi has. So we do charge a $0.01 commission to our clients that are trading per contract. And we also get an exchange rebate from Kalshi. And the blended rate comes in anywhere between 1.25 to 1.5¢ per contract. On the revenue side. That being said, I do not think it is merely a revenue catalyst for our business. These sports prediction markets are reengaging dormant accounts right? And it is also addressing a completely new TAM of customer. And so you know, if we have customers that have come on the platform in 2021 during GameStop, the world opened up. They got quiet, right? Life got in the way, and they were not actively trading. Now they are back because of these sports prediction markets in a big way. And it is a great way to reengage customers that have gone dormant. It is a great way to address a whole new addressable market of clients. So very exciting time for our industry. And I do think prediction markets are going to be something that is going to continue to push us not only on new to customer acquisition, but product expansion. Kareem Saif: Got it. That was very helpful. Thank you very much. And then for my follow-up, so obviously, it was very nice to see, I believe you called it in your prepared remarks, net deposits in October were very strong. The best I believe, the best months for Webull Corporation Class A Ordinary Shares. But when I look at net deposits in 3Q, very strong also at $2.1 billion which I believe like when I look at it as a percentage of your AUA or AUC, it is like almost 53% annualized. So I was wondering if you could maybe like help unpack that a little bit for us, where are you seeing that strength coming from? If you could maybe unpack it by geography, that would be very helpful. Anthony Michael Denier: Absolutely. So one of the great advantages we have versus a lot of our peers is the fact that we are truly a global platform. We have 14 broker-dealers that are currently operating around the world. The U.S. is the largest and the oldest but we just opened up in The Netherlands in September. Went live in 2025 and we continue to look to expand. That expansion and us taking significant market share not only in The U.S. but outside The U.S. is one of the great drivers for that AUM growth, right. So we took in $2.1 billion of net deposits in Q3 alone. That is not including the acquisition of Webull Pay and the money we received as part of the AUM in that acquisition. And I would put it on two different catalysts for that impressive net new money coming in. One is the evolution of our marketing style. So we have been evolving our marketing over time and we have seen a lot of success and great ROI on our incentive transfer programs. So offering like sticky money to rollover 401(k)s into Webull Corporation Class A Ordinary Shares, where we are offering matching deposits, extremely successful in bringing new AUM into the platform and then back to the geographic expansion. We are seeing huge growth in markets like Canada that we did not announce about to cross $1 billion in AUM alone in that market. That is only call it, twenty months old at this point. We have other locations that we are seeing huge amounts of growth like Australia, of all places, Thailand, is growing in the it's doubling on a quarter-over-quarter basis in terms of what we are seeing in transaction. And that is a recurring theme that we are seeing outside of The U.S. As The U.S. As we start expanding on U.S. Products outside to the non-U.S. Entities, we are seeing the customer demand for increase for U.S. Products really push new customer acquisition and new AUM coming into the platform. Kareem Saif: Got it. That was very helpful. Thank you so much for taking my questions. I'll hop back in the queue. Operator: The next question will come from Steven Chubak with Wolfe Research. Please go ahead. Steven Chubak: Hi, good afternoon and thanks for taking my questions. Wanted to hey. I hope you guys are well. So I wanted to ask, a two a multiparter just on expenses and margins. So we really good expense discipline in the quarter. Total revenues were up 55%, adjusted expense up 13%. So impressive incremental margin just north of 75%. I wanted to understand the sustainability of those incremental margins, just given myriad opportunities to lean in on the investment side? And then for the second part, given the comments you just made, Anthony, around the marketing strategy, why not choose to lean in a little bit more in terms of marketing spend just given the strong momentum in 3Q in October? I recognize the high ROI is that was the one bucket that actually saw declines year on year. I wanted to better understand how you're thinking about the opportunity to lean in there as well. Anthony Michael Denier: Sure. Happy pick that up. So when we look at, when we look at our customers being able to transfer assets in, we are constantly in improving on the product and the rails for them to do so easily. And when we think of margin expansion, we are very cognizant that we are in an extreme growth phase of our business. So right where we are now in the mid kind of 20s, of margin, think is extremely healthy for a growth company. And we are going to continue to deliver on that. I can hand it over to H. C. for a little more detail on the actual margin and the expenses side. H. C. Wang: Sure. Thanks, Anthony, and thank you for the question. Yes. So for us, as you can see that we have consistently maintained our adjusted operating margin around 20% for the last four quarters. And so we are constantly optimizing and adjusting how we are approaching expenses, for example, marketing. I think you asked about why not overinvest in marketing when the market is good. I think in a certain sense, we are very opportunistic. We actually do a lot of work and review on a market-by-market basis to see where we get the highest ROIs in terms of our marketing dollars. But we also want to be smart about investing in forms of the forms of different promotions that we take. And so we have over time shifted more from giving away free stocks to customers to more of these like asset matching promotions. And as a result of that, we are seeing significant increases in net deposits in AUM growth. Another result of that is there is a greater amortization of marketing expenses. So it's not just given away immediately when the customer fund their accounts. The customer would have to deposit AUM and maintain their AUM for a number of months before they accrue and earn the whole marketing spend. So actually that helps us in managing expenses to make the marketing expense more predictable quarter over quarter. Which I think is a good thing in terms of managing the P and L. And also for the for the G and A expense, I think a lot of it is just proportionate to our headcount growth and to our continued investment in in R and D as we continue to enter into new geographies and expand products. So we'll continue to remain disciplined and and manage our expenses to make sure that we continue on the right path of margin expansion. And continue to capitalize on this market environment and and continue to drive growth. Steven Chubak: That's great color. And for my follow-up, I did want to ask, given the relaunch of crypto in The U.S, how your crypto strategy might evolve now that you're getting that second at that and specifically wanted to better understand where the crypto pricing is today? Do you see an to potentially be more aggressive in terms of take rates to attract more users? And how you see that pricing evolving over time as competition intensifies in the space? Anthony Michael Denier: Yeah. No. I appreciate that question. Extremely excited about the relaunch of crypto, and and appreciate you mentioning it's kind of our second at bat. We obviously we had crypto when we launched crypto back in 2019, through the process of trying to get our company listed. Previous administration, we spun it out to Webull Pay. We brought We brought that crypto back to the brokerage platform, the main brokerage platform. Back in August, kind of like a light speed project, if you will. And so I look at it exactly like that. This is our second opportunity to really knock it out of the park. What does that mean for us? Right? So we are still in the early innings of crypto. At least the crypto for our at least crypto offering on our platform I think we lean into the sophisticated fact of our active trading user base. And so right now we have approximately 100 basis points. Coinbase retail is about 150 basis points. I know some of our competitors use a variable model based on the actual token itself for pricing. And we are going to aggressively lean in to squeezing those take rates to attract active crypto traders. Now timeline, on that business is probably going to be early in '26 I have to be careful on guidance. But when I think about it, we have an amazing opportunity to relaunch our crypto product with a whole new vigor that attracts the customers that call Webull Corporation Class A Ordinary Shares home. Sophisticated, experienced and active retail traders. We are to cater our crypto trading products specifically to them as we roll out especially new products in the crypto world. I do not want to give up too much on this call. We'll be announcing a lot of major new additions to our crypto offering. To get us on the same level playing field as all of our competitors. Once we are on that playing field, we're going to aggressively take those active traders from our comps. Steven Chubak: That's great color. Thanks so much for taking my questions. Operator: The next question will come from Michael John Grondahl with Northland Securities. Please go ahead. Michael John Grondahl: Hey, thanks guys. Anthony, can you talk a little bit about the Merits announcement and kind of the opportunity you have there globally? And is Merits the first? Do you have other customers internationally you're helping like that? Anthony Michael Denier: So Merits is the first publicly announced but not the first. And when we say Merits, we're talking about institutional customer bases or B2B business. Which is a completely new line of business for us. We have been 100% focused on retail since we launched in 2018. Now we're spending a significant amount of internal resources and a significant amount of focus on targeting B2B partnerships in geographies where we don't currently operate a broker-dealer. We're even talking to B and D partnerships to institutional type partners in places where we actually do have retail. A retail platform. Having said that, none of this revenue is yet even factored in to our current models and our current growth. And so the future, so Merits is an example of getting access to South Korean retail without having to have a South Korean retail brokerage license. We're going to continue to focus on opportunities like that. And in my opinion, the institutional side of our business, which is just beginning, Merits is the first announcement on a very long list of clients that are in the pipeline. That's going to be a huge boom. Not only for our market share, but for our top and bottom lines. Michael John Grondahl: And when would you expect Merits to go live? Has it started? What is that timeline look like to ramp up? Anthony Michael Denier: So typically institutional onboarding takes much longer than retail onboarding. Right? We can we can open up a retail account in minutes and our retail customers can typically trade within five minutes of downloading the app. It's very different for institutional. There is a lot more checks. There is a lot more approvals, sometimes even up at the board level. That being said, we are currently live with Merits. We are currently trading on behalf of their clients' orders. And as we continue to grow the relationships that the amount of flow that we receive from Merits will continue to grow over time. Michael John Grondahl: Got it. And then just lastly related to that, where will that revenue show up? Is that other revenues or in the equity and options line? Anthony Michael Denier: So, this is actually one of the fun parts. So the revenues actually show up in our transaction volumes. So even if we see a slowdown in U.S. Retail, trading volumes. Our trading volumes will continue to tick up because we're onboarding a lot of these B2B relationships. So it's going to be baked into the transaction revenue mixed in the equities and hopefully in the next several months options. Currently, we're trading equities only with Merits. Michael John Grondahl: Got it. Hey, thank you and good luck. Operator: Next question will come from Christopher Charles Brendler with Rosenblatt. Please go ahead. Christopher Charles Brendler: Hey, thanks. Good evening and congratulations on the strong results here. I'd like to ask about the funded accounts, which ticked up. I know even if you back out the crypto, you did see a nice tick up there. I know there's been a little bit of a refocus of your marketing strategy towards assets over accounts, but given the gap between registered and funding, I'd love to see that close a little bit. So how are you thinking about funded account growth as you head into 2026? Thanks. Anthony Michael Denier: Sure. Hey, Chris. Well, funded account growth in my opinion, we're going to see so so we're going to start seeing a lot more attribution coming from outside of The U.S. Like we mentioned on the call earlier, we have more than 700,000 funded accounts now that are outside The U.S. And we've seen the momentum in onboarding of funded accounts outside of The U.S. Basically for the last six months, it was about 55%, 50 Right? 55% of new funded accounts coming from The U.S, broker. About 45% coming from outside. That number is now completely equalizing. And we're at about fifty-fifty. And in fact, wouldn't be surprised if we start seeing new funded account growth outpace new fund outside of The U.S, outpace funded account growth in The U.S. I believe that's going to be the continued driver as the 13 broker-dealers that we operate outside The U.S. Start to really mature. If you remember, the first brokerage outside of The U.S. We opened was Hong Kong in 2021. The second one wasn't until 2022, which is Singapore. We just opened our latest one in The Netherlands in September '25. So these are all relatively young businesses that are in hyperscale mode. And so we're gonna see a lot of low cost, low customer acquisition costs, new funded accounts really being driven from outside The U.S. And in The U.S, we're going to continue to focus on quality of our customers. Christopher Charles Brendler: That's super helpful color. Thanks so much for that. I wanted to add a quick follow-up on numbers. Does crypto or prediction markets have any impact on third quarter metrics like DARTs or trading revenues? And will those kind of transactions show up in those metrics in the fourth quarter? H. C. Wang: Yes, sure. So we actually closed the Webull Pay transaction at the very end of the third quarter. So what the third quarter metrics include is the AUM and funded accounts that we that were consolidated. As part of the transaction. What's not included is the revenues, the transaction volumes and the DARTs because those those take place over the course of the quarter. But the transaction did not close until the very end. But they will start to be included and presented as part of the consolidated group results starting in Q4. Christopher Charles Brendler: Okay, great. That's helpful. And then I just have one more quick one. Which is on Vega, It seems like this is a a product that would help attract folks here platform and potentially stay there longer? Any insights on the initial impact of Vega? And on the expense side, is it an there's an ongoing expense from running this AI that you're outsourcing or is it all developed in house there won't be much additional expense? Anthony Michael Denier: Yes. So the Vega AI launch is not only not only a huge thing for Webull Corporation Class A Ordinary Shares. This is the future of investing. Right? There is so much news flow, so much information at all investors' fingertips. Often it's like drinking out of a fire hose. Now we have created in house, to answer that question, in house we've created our Vega AI trading assistant, not only analyzes your portfolio, but can advise you on high levels of risk and give you insights into implied volatility in some of your options positions. Right? This is a game changer for the industry. And so because we developed it all in house, there is no increased cost and the user engagement has been phenomenal. We're seeing tens of millions of engagements of Vega. Whether it's for actionable trading through the Vega AI trade assistant, or just analysis of earnings or consolidation of news. And every day, we're seeing more and more engagements we're seeing regular engagements. Meaning, we're seeing users come back to Vega regularly. And I believe that this is now the beginning of a whole new way that retail engages their own portfolio and accesses market information market opportunity. Christopher Charles Brendler: Well, that's great. I obviously need to try it out. Thanks so much. Operator: The next question will come from Brian Vieten with Seiberg. Please go ahead. Brian Vieten: Great. Thanks guys. Anthony, so nice pickup in funded accounts this quarter. I think you said 50% of new accounts. Are trading crypto. Does that include the Webull Pay folks? And then looking ahead, could you speak to the opportunity in converting existing Webull funded accounts? I'm just curious on that as I know your customer demographic is younger and digitally native. Thanks. Anthony Michael Denier: Yes, exactly right. So the average Webull Corporation Class A Ordinary Shares customer is in their young 30s. So very, very crypto native. And you know, it it it really pains me back in September 2023 when we had to strip out our crypto offering from our brokerage platform. Our customers were not happy with it. So bringing it back was imperative. Now that we have it back, and we have the opportunity not only to knock it out of the park with, you know, a better offering of crypto, especially for our customer type. We've been seeing great engagement for crypto native customers either coming back to Webull Corporation Class A Ordinary Shares or discovering Webull Corporation Class A Ordinary Shares for the first time. So like you mentioned, 50% of new funded accounts 50% of them the first trade they made was with cryptocurrency on the Webull Corporation Class A Ordinary Shares platform. Those are not customers coming over from Webull Pay. Those are new customers to Webull Corporation Class A Ordinary Shares in and of itself simply because we now offer crypto. So we're going to continue to lean in to that type of customer. And like I mentioned before, make sure we give the tightest spreads and the best trading experience for the customer that calls us home, and that's the active sophisticated type. Brian Vieten: Very good. Thank you. And then just one more if I may. Just on the future listings, think at one point the plan was to get to 100 by year end, not sure if maybe there's some it's a little contingent on some of the regulatory dynamics, which you alluded to, but just the complexion of those future listings. Are you envisioning more so listing established crypto protocols or kind of newer tokenized assets where you might be more differentiated? Just any commentary on the listing strategy would be great. Thank you. Anthony Michael Denier: Yes. So I mean, one of the fundamentals that we've always held here whether it's crypto it's equities, it's options, again, prediction markets. We want to give our customers the availability to trade as much as we possibly can offer. If that means so you mentioned 100 as a number, I do not want to go on record and say we're going to have 100 different, different tokens available to trade by year end. But that certainly is our goal. Having said that, when we look at know, when we look at the opportunity for crypto, it's more than just offering new product types it's offering a better experience to do so. So yes, the short answer is yes. We plan to have as many as many different opportunities and as many different offerings on the platform as we possibly can bring. And we plan to to really lean into making sure our customers feel that this is the best place, Webull Corporation Class A Ordinary Shares is the best place to trade. Brian Vieten: Thanks, Anthony. Congrats on a great quarter. Operator: Next question will come from Edward Lee Engel with Compass Point. Please go ahead. Edward Lee Engel: Hi, everyone. Thanks for taking my question. Appreciate some of the color you gave about funded accounts outside The U.S. Just kind of wanted to get a better sense on maybe some of the localized features that you're offering in some of these markets in kind of where the roadmap is, whether it's tax wrappers or savings accounts, or local banking connectivity? Thanks. Anthony Michael Denier: Sure. So it really depends on the region. We've always had a single mentality here. We have one global vision but we make sure that we execute locally. What does that mean? It's simply every Webull Corporation Class A Ordinary Shares broker-dealer that we have, 14 around the world, has a local team. It's it's not, you know, it's it's not an American that's sitting in London. You know, we have we have a Brit sitting in London, running the office there. There's a reason for that. Not only did they have a better feel for what that customer needs, they also have a better opportunity for local marketing. How to differentiate. That being said, a lot of those businesses are still relatively young and we're constantly adding new products, things like tax wrappers, for example. IRAs in The U.S. Or ESAs, ISAs, in The UK, I'm thinking UK maybe too much, but as soon as we have the regulatory approval to add those products, we always do. And for the most part, there are two or three exceptions, but for the most part, every Webull Corporation Class A Ordinary Shares entity will trade the local security in that country as well as give customers the ability to trade U.S. Products. The one example I can think of is Indonesia. There is no license yet in Indonesia for our customers, sorry, Indonesian customers to trade U.S. Securities. However, hopefully that'll change by year end. That all being said, we see the majority of transactions happening our non-U.S. Entities the transactions are happening in U.S. Products. And that goes back to things I've been talking about for the last year and change. The exportation of The U.S. Retail trading experience is one of the largest growth factors that I believe we're going to see in the next year, year and a half. Right, especially when it comes to retail out of The U.S. We have seen the adoption of not only obviously ETF trading outside The U.S, but options trading specifically, for example, you know, customer sitting in New York City has a position in NVIDIA yesterday. Coming out with earnings at the close. And we have a customer sitting in Japan Also, with a position in NVIDIA. They're looking at the same news flows. They're listening to the same podcast. They're listening to they're they're watching the same Reddit feeds, they're reading the same comments on the Webull Corporation Class A Ordinary Shares community. Yet, a lot of times, they're not able to trade the same products. We're changing that. Now our customers in in Japan can trade calendar spreads, can put on a Condor. Right? That doesn't exist for the most part outside of The U.S. And we are working very hard to make sure that we export that U.S. Retail investor experience to everywhere outside The U.S. Which is one of the main reasons why we're seeing such amazing growth in our non-U.S. Brokerages. Edward Lee Engel: Great. Appreciate that color. And then, I mean, I guess, to date, we have seen a bit of volatility in U.S. IVD market. Curious if you're able to provide any color on, I guess, how your users are kind of holding up through some of that? Thanks. Anthony Michael Denier: Sure. I think uniquely Webull Corporation Class A Ordinary Shares we are extremely well positioned for a rising VIX. Our customers, I mean, we've been offering the ability to short sell since the first day that we launched the platform in 2018. Right? Our customers, again, I keep saying this word sophisticated. I keep saying this word experienced. When there's volatility, our customers are trading more. And so just the past couple of weeks, we've seen explosive volume due to volatility. And I think Webull Corporation Class A Ordinary Shares is probably uniquely positioned to weather volatile markets a lot better than our peers. That of course being said, long-term volatility is never amazing for a cyclical business. But I believe as a platform, we are accelerating into this volatility in the short term. Edward Lee Engel: Great. Thanks for that. And then, yeah, congrats on another recent progress. Anthony Michael Denier: Thanks. Operator: We'll conclude our question and answer session as well as conference call. Thank you all for attending today's presentation. You may now disconnect.
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: Greetings, and welcome to the Fiscal 2025 Fourth Quarter and Year End Earnings Conference Call. At this time, participants are in a listen-only mode. A 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, James Francis, Vice President of Investor Relations. Good morning and thanks for joining us. James Francis: With me today is Bruce Caswell, President and CEO, David Mutryn, CFO, and Jessica Batt, Vice President of Investor Relations. I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially as a result of risks we face, including those discussed in Item 1A of our most recent Forms 10-Q and 10-Ks. I encourage you to review the information contained in our recent filings with the SEC and our earnings press release. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances except as required by law. Today's presentation also contains non-GAAP financial information. For a reconciliation of the non-GAAP measures presented, please see the company's most recent Forms 10-Q and 10-Ks. And with that, I'll hand the call over to Bruce. Bruce Caswell: Thanks, James, and good morning. I'll begin by recapping fiscal year 2025, which was notable not only for the financial results but for our team's ability to remain focused on serving our customers amidst a period of significant change in the government services sector. I'll then cover our priorities for fiscal year 2026, aligned with our strategic vision and current and anticipated future market conditions, including investments that are designed to prepare Maximus, Inc. for what we believe are meaningful growth and market expansion opportunities. Investments in AI capabilities are an important priority and reflect our evolution as a technology-driven partner to governments. Fiscal year 2025 was a year of significant achievement for Maximus, marked by success across multiple domains. We entered the year with strong visibility into the underlying portfolio of the business both in terms of revenue and backlog and certain programs returning to more steady-state levels following post-pandemic upticks. We guided with prudent judgment given the changing political environment. In what emerged as a markedly different approach by the current administration, following the transition, we carefully navigated an uncertain environment that brought new priorities and opportunities that developed as the year progressed. Looking back at where we started, I'm pleased to report that revenue and profitability came in higher than projected, reflecting both the strength of our core operations and the disciplined execution of our strategy throughout the year. The organic growth rate of the consolidated business was 3.9%, with 12.1% organic growth and the Outside The U.S. Segment delivering 4.1% organic growth. This outcome is attributable to the dedication of our teams across the enterprise in delivering on customer priorities. Equally important, our contractual relationships remained stable and secure throughout the year, with cancellations or impacts at just 1.5% of fiscal year 2025 revenue, a figure that is unchanged from our prior earnings call. This underscores the essential nature of the services we provide and the trust our customers place in us to support their mission and deliver outcomes that matter in a dynamic operating environment. Even as policy and technology continue to evolve, we believe that maintaining and expanding these long-term commitments is a testament to the value we deliver and the quality and reliability of our services. Taken together, the strong fiscal year 2025 financial results, the durability of our customer relationships, and the strategic investments we are making give us confidence in our future as a tech-enabled mission-critical partner to government. We are proud of what we accomplished and we are energized by the momentum we're carrying into fiscal 2026. Our focus remains on delivering consistent performance, maintaining trusted partnerships, and utilizing our increased customer presence and evolving capabilities for future growth. Looking ahead, I want to share three strategic priorities on which we are executing during fiscal 2026 that we believe are favorably positioning the business for opportunities to accelerate growth in fiscal year 2027 and beyond. These priorities include first, expanding in U.S. Federal markets; second, policy-driven initiatives mainly around the One Big Beautiful Bill Act actionable in our U.S. Services segment; and third, deployment of AI and related tech-enabled automation. Our commitment to advancing this third priority is driving an important transformation across Maximus. From how we execute internal functions and support our employees to the delivery of our performance-based contracts and also to the expansion of our technology-based solutions for governments. I'll note that these and other investments were made possible by our earlier focus on what we called Maximus Forward, an organization-wide commitment to rethinking critical business functions and their cost. Starting with our U.S. Federal business, our commitment to delivering even greater value to our customers is unwavering. We also believe the investments we made through both inorganic and organic means have expanded capacity, enhanced our competitiveness, and created platforms that we believe can provide durable organic growth. In prior quarters, I've spoken about our efforts to strengthen our infrastructure. For example, rapidly achieving CMMC level two certification and capabilities through what we call mission threads that tie directly to the pipeline we are prosecuting over the next several years. We believe our foundation for sustained growth is robust, and that we are aligned with and in many cases ahead of the evolving needs of our customers. We are confident in the opportunities ahead and our ability to continue to create long-term value for shareholders. Our federal leaders and teams are aligned strategically to civilian, health, and defense and national security markets. I'll speak briefly to each. We are recognized for having a distinguished portfolio of civilian work, delivering essential services for student loan management, the IRS, and the SEC as examples. We occupy a vital corridor of the civilian space and have deliberately aligned to bipartisan priorities that are fundamental to the government's role of supporting its citizens. We continue to see opportunities to deliver on the administration's priorities for modernized, accountable, and cost-effective citizen services while recognizing how budget priorities are increasing the importance of blending deep program expertise with commercial innovation. Many modernization needs remain unaddressed and we believe that Maximus is well-positioned to address these priorities. With an earned reputation in the delivery of performance-based contracts and tech modernization, we are regularly engaged as trusted advisors. Leveraging our investment in solution architects, we are favorably positioned for the opportunities we are tracking. To our knowledge, Maximus is the only public company in our sector that has formally documented its mix of contracts that are performance-based, which stands at 54.4% for fiscal year 2025. We believe this distinction reinforces our leadership in driving accountable and measurable results. I've commented previously that the timing of procurements is less certain in the civilian pipeline than we've historically experienced, which highlights the importance of supporting our customers and delivering our current programs with a continued emphasis on quality and efficiency. Additionally, we've noted our investment in further differentiating Maximus as a leader in enabling the citizen experience or CX of the future. Our total experience management or TXM solution, which I've mentioned on prior calls, is a FedRAMP secure, modular, flexible, scalable, and configurable platform that helps enable federal agencies to deliver smarter citizen-centric services. AI-infused and packaged and sold as a cloud-based service, which is rapidly becoming the preferred procurement method of government agencies. We believe that TXM is well-positioned to replace end-of-life on-premise systems. I'm proud of what our team has developed, as evidenced by a recent demo where TXM was said to be one of the most advanced and integrated demonstrations of AI in a CX platform for government yet experienced by the customer. We believe TXM is a strong fit for the pipeline of contact center consolidations we see in the market. On to the health market, which we define as including defense and non-defense related programs and opportunities. After setting a deliberate course in this market with the 2021 acquisition of Veterans Valuation Services, we are pleased to see synergy pipeline opportunities for new customers coming to bid and Maximus well-positioned with what we believe are competitive solutions. Compared to the civilian pipeline, I'm encouraged by the procurement tempo of health opportunities, with key procurement milestones largely on track. Given current conditions and the nature of the programs we're bidding, we anticipate that outcomes could be consequential for fiscal 2027 and beyond. In the defense and national security area, our strategic pursuit of certain opportunities has been affirmed by the highly credible wins with new customers we've seen seeking a change from traditional providers. Let me share one example. Most recently, Maximus was awarded a new Joint Cyber Command and Control Readiness contract by the United States Air Force Lifecycle Management Centers Cryptologic and Cyber Systems Division. This award, with a potential value of $86 million, marks our second major engagement with the Air Force under this program and represents meaningful expansion of our technology services portfolio within the defense sector. Through this contract, Maximus will lead engineering analysis, software modification, maintenance, and enhancement as well as the maturation of existing architecture and infrastructure. The period of performance includes a base year, four one-year option periods, and an optional six-month extension. We believe this award reflects the depth of our technology expertise and delivery capability, underscoring our ability to support the Air Force's defense readiness mission. It highlights our capabilities in software engineering, development, and modernization, and reinforces our position as a trusted partner in advancing mission outcomes. Our highly skilled technology professionals will deliver modeling and application analysis to help enable mission execution, further strengthening our role in supporting national security objectives. I'm proud of the progress we've made overcoming barriers that make expanding in this business area challenging. We believe that recent directives emphasizing speed, outcomes, access to commercial tech, and streamlining contracting fit our strategic offerings well. In support of this strategy, expanding our participation in other transaction authorities or OTAs, which the Department of War increasingly favors as a faster and more flexible acquisition path. David Mutryn: Collectively, we believe these actions suggest an evolution in contracting that will accommodate newer entrants like Maximus and support longer-term defense national security policy objectives. In further support of this strategy, we've formed and are investing in our first Cooperative Research and Development Agreement or CRADA, providing a mechanism for developing, maturing, and retaining Maximus intellectual property through collaboration with the Department of War. This agreement supports hosting of recurring hackathon events, capability demonstrations, and technology experiments in a Maximus operated sensitive compartmented information facility, or SCIF. This CRADA positions Maximus closer to the men and women in uniform that conduct global operations for the department and positions Maximus at the center of advanced research and development. These activities align directly with the department's evolving acquisition strategies for rapid prototyping, IT, and modernization. Recent commentary from department leadership has signaled the desire for greater investment by the industry. While this may present challenges for some competitors, Maximus is actively demonstrating on contract innovation as part of our technology forward strategy. More than four months on, the landscape around the One Big Beautiful Bill Act remains largely unchanged, but the priorities it established continue to be front and center for our state customers within our U.S. Services segment. The legislation creates meaningful opportunities for Maximus in both Medicaid and SNAP. And we remain actively engaged with clients to prepare for the requirements ahead. On Medicaid, administration continues its focus on managing federal spend, with new rules requiring twice-yearly eligibility determinations for the expansion population and codifying work requirements beginning in early 2027. States must review and adjust their processes to comply, and our U.S. Services team is working closely with clients to ensure readiness. As we noted previously, we believe Maximus is well-positioned as a conflict-free partner to support these compliance efforts, having done so for similar requirements in TANF and SNAP for almost thirty years. While the Medicaid changes are significant, states' foremost priority at the moment based on active discussions is around SNAP. The budget implications of the new payment accuracy requirements are far greater as states with higher payment error rates will be required to absorb more of the program's expense. This shift is driving strong interest in technology-led solutions that can improve efficiency and payment accuracy. As I mentioned on the last call, Maximus already has an expanded role with a longstanding state customer, and we expect SNAP to remain a focal point of engagement given potential state budget implications. Although the policy environment has not materially shifted since our last call, these initiatives continue to be priorities for our customers. In our view, we are the right partner to help states navigate the changes, mitigate risk, and deliver high-quality outcomes across both SNAP and Medicaid. I'll close my discussion of strategic priorities with AI, where Maximus is proud to be a leader for government customers in this unprecedented era, demonstrating the art of the possible and transforming public service delivery. Our role is not only to provide solutions but to show what is achievable when innovation is combined with decades of deep program knowledge, policy experience, and operational data. By embedding AI directly into our business processes, we are enabling customers to benefit from advanced automation, AI-powered quality monitoring, and real-time insights. These capabilities are helping agencies operate more efficiently, make better decisions, and deliver improved outcomes for the people they serve. We have already successfully deployed AI-driven tools across enterprise programs where these solutions have accelerated service delivery, strengthened compliance, and enhanced customer satisfaction. In addition to our AI-powered TXM solution I mentioned earlier, we are also serving as customer zero for our own large-scale deployments of AI solutions in ITSM, or service management, and HR help desk support, as well as knowledge management. This first-to-deploy experience provides us with deep insights, enabling our solutions to be tested, refined, and proven before being extended to our customers. Maximus' AI guiding principles form a robust framework for responsible innovation, grounded in ethical governance, human-centric design, and mission-aligned outcomes. Our governance structure is designed to ensure that our innovation is both responsible and sustainable. Looking ahead, we have approximately 30 AI-related deployments either planned or in process across Maximus. These initiatives vary in scale from small pilots to large enterprise implementations, with further full deployments expected in fiscal 2026. This pipeline reflects both the demand for AI-enabled solutions and our commitment to investing in the future of government services. Let me turn now to our award metrics and pipeline. For fiscal year 2025, signed awards total $4.7 billion of total contract value. Further, at September 30, there were $331 million worth of contracts that have been awarded but not yet signed. These awards translate into a book-to-bill of approximately 0.9 times for the trailing twelve-month period and reflect ongoing progress toward increasing this metric, a previously stated goal of ours. As a reminder, we continue to view book-to-bill as a relevant forward indicator to pipeline conversion over the broader horizon, but not the sole determinant of the business' ability to grow organically. Also, in periods of lower than normal rebid activity, as we've experienced recently, the TTM book-to-bill is expected to be below 1.0. Then in periods of greater rebid activity and given our larger contract lengths and values, the metric tends to show outsized performance. It's worth noting that the improvement to TTM book-to-bill of 0.9 was driven by more dramatic quarterly sequential improvement. The quarter ended September 30 book-to-bill was 1.0 times compared to 0.3 times for the June 30 quarter, a marked improvement in the pipeline conversion of both recurring and new work. Our pipeline at September 30 was $51.3 billion compared to $44.7 billion reported in 2025. The September 30 pipeline is comprised of approximately $3.4 billion in proposals pending, $1.4 billion in proposals in preparation, and $46.6 billion in opportunities tracking. Of our total pipeline of sales opportunities, approximately 64% represents new work. Additionally, 66% of the $51.3 billion total pipeline is attributable to our U.S. Federal Services segment. Notably, in this latest pipeline view, U.S. Services segment opportunities tied to the One Big Beautiful Bill Act remain in the development stage, with potential revenue in fiscal 2027, and therefore are not yet captured in the pipeline. And with that, I'll turn the call over to David. Thanks, Bruce, and good morning. David Mutryn: I'd like to recap our strong fiscal year 2025 with a few financial highlights and then walk through results in our typical fashion. I'll close with formal fiscal year 2026 guidance and commentary. First, I'm proud of the team's strong execution to enable finishing fiscal year 2025 right on the mark for revenue, which totaled $5.43 billion. This equates to organic growth of 3.9% over the prior year. From an earnings standpoint, the full-year adjusted EBITDA margin was 12.9% and adjusted earnings per share were $7.36. The fourth quarter included a higher level of severance charges related to ongoing cost management efforts. Second, the fourth quarter was also notable for its strong cash flows as we anticipated, enabling us to deliver $366 million of free cash flow for the full fiscal year 2025. Third, from a capital allocation standpoint, we stayed focused on debt pay down and opportunistic share repurchases. At September 30, our net leverage was 1.5 times. Looking back across the full fiscal year, we repurchased approximately $457 million worth of shares, including $151 million in the fourth quarter. Finally, our official guidance for 2026 aligns with the early color we provided in August. The midpoint of $5.325 billion of revenue reflects our current view of volume dynamics on some of our variable work that I will discuss in more detail. Meanwhile, the $8.1 midpoint of adjusted EPS guidance reflects ongoing margin expansion and 10% growth over fiscal 2025. Continued adoption of technology and careful cost management are key enablers on the bottom line outlook. While the recent share repurchase activity further benefited diluted EPS by lowering the weighted average shares outstanding. Last, the midpoint of our free cash flow guidance is $475 million, representing about 30% year-over-year growth. Those are the key highlights, so let's turn to total company results. For the full fiscal year 2025, revenue increased 2.4% to $5.43 billion. As I mentioned, organic revenue growth was 3.9% and aligned with our long-term target of sustainable mid-single-digit organic growth. The U.S. Federal Services segment drove the growth thanks to several programs in the clinical and natural disaster support domains, experiencing high demand for our services. Our profitability improved to deliver a 12.9% adjusted EBITDA margin for the full fiscal 2025 as compared to 11.6% for the prior year. This was attributable to the higher demand in the U.S. Federal Service segment coupled with technology and cost initiatives. Fiscal 2025 adjusted EPS was $7.36 as compared to $6.11 for the prior year, representing a healthy 20% increase. While most of it was improved profitability, as evidenced by the higher adjusted EBITDA margin, a portion of the year-over-year improvement stemmed from the share repurchase activity this year. I would like to make a note about our just completed fourth quarter earnings. During the quarter, we took deliberate action to yield cost savings in future periods, which included severance charges totaling approximately $16 million. These were booked within the two domestic segments and had a more pronounced effect on the operating margins of the U.S. Services segment. Let's go to segment results. Starting with the U.S. Federal Services segment, revenue increased 12.1% over the prior fiscal year to $3.07 billion. All growth was organic and driven by a combination of expected and unexpected volume growth across several programs, primarily in the clinical domain. In addition, this segment includes contracts to rapidly stand up support in the wake of natural disasters, which generated higher revenue than a typical year. The higher volumes in both areas extended across several quarters this year and by the fourth quarter had settled back to more typical levels. The operating income margin for U.S. Federal Services was 15.3% in fiscal 2025 as compared to 12.2% in the prior year. The same demand that drove the segment's top line also benefited the margin since incremental volumes often provide operating leverage. Another reason for the margin expansion is greater implementation of technology initiatives that increase the productivity of staff on the programs. For the U.S. Services segment, revenue decreased to $1.76 billion as compared to the prior year revenue of $1.91 billion. As we've noted on recent quarterly calls, across fiscal year 2024, we were successful with helping our state customers process unprecedented engagements tied to the Medicaid unwinding exercise. This was essentially the last of the pandemic-related impacts to the segment. By this year, fiscal 2025, the effort was complete and Medicaid engagements reflected both normal course assistance to states and a more typical Medicaid population. The U.S. Services operating income margin was 9.7% as compared to 12.9% in the prior year. As a reminder, last year's margin benefited from the overperformance and we anticipated that it would not reoccur. Also, the segment's margin in the fourth quarter of this fiscal year was impacted by a meaningful portion of the $16 million total company severance costs that I referenced earlier. We expect this cost management effort to lift full fiscal 2026 margins in this segment. For the Outside The U.S. Segment, revenue decreased year over year to $600 million due to divestitures of multiple employment services businesses in prior periods. The related decrease in revenue was partially offset by positive organic growth totaling 4.1% and a small currency benefit. The operating income margin for the Outside The U.S. Segment was 3.7% as compared to 1.2% in the prior year. We have stated previously that we intend for the segment to reliably deliver in the 3% to 7% margin range and over time move up in that range and closer to the profitability of the domestic segment. We are pleased with progress so far. Beyond that, we continue to see a healthy pipeline of opportunities to deliver higher value services, which could support margin improvement. Turning to cash flow items. As expected, we had strong collections in the fourth quarter. Fiscal year 2025 cash flows from operating activities totaled $429 million and free cash flow was $366 million. The fourth quarter alone had free cash flows of $642 million. Our days sales outstanding or DSO improved substantially from the third quarter's ninety-six days landing at sixty-two days at 09/30/2025. We ended fiscal year 2025 with gross debt of $1.35 billion and we had unrestricted cash and cash equivalents of $222 million. At September 30, our debt ratio was 1.5 times. As a reminder, this ratio is our debt net of allowed cash to consolidated EBITDA for the last twelve months as calculated in accordance with our credit agreement. We achieved our goal of ending the year comfortably below two times and one quarter ago at June 30 the ratio was 2.1. The improvement came from expedited pay down after catching up collections on two contracts that had created a temporarily higher DSO in prior quarters. During fiscal year 2025, we repurchased approximately 5.8 million shares totaling about $457 million, which was enabled by two Board of Directors authorization announcements. Following an additional $31 million of repurchase subsequent to year-end, we have approximately $250 million remaining as of today on the current $400 million authorization granted by the Board of Directors in September. Moving to capital allocation, our framework for priorities is unchanged. We first make organic investments, most of which flow through the income statement. We also maintain a $0.30 per share quarterly dividend that we intend to grow over time with earnings. Following these, we prioritize strategic acquisitions intended to accelerate organic growth. We also repurchase our shares opportunistically depending on current market conditions. As we move further into fiscal year 2026, we continue to evaluate suitable M&A targets, which could bring new or enhanced capabilities and new or expanded customer sets or a combination of both. We will maintain our disciplined approach to evaluation of deals and we intend to stay within our two to three times target debt ratio range. Given our high annual cash conversion and current 1.5 times debt ratio, we believe that there is ample capacity for a transaction of varying sizes ranging from more of a tuck-in style deal to a larger deal proportional to our balance sheet capacity. If we do not conduct a transaction in fiscal year 2026, and do not complete any further share repurchases, we anticipate a debt ratio of roughly 1.0 times at 09/30/2026. Let's go to official guidance. For fiscal year 2026, revenue is projected to be between $5.225 billion and $5.425 billion with a midpoint of $5.325 billion. Adjusted EBITDA margin is estimated to be approximately 13.7% and adjusted EPS is projected to be between $7.95 and $8.25 per share, giving a midpoint of $8.1. Free cash flow for fiscal year 2026 is projected to be between $450 million and $500 million. This guidance is aligned with the early thinking we provided on the Q3 earnings call where we acknowledged that fiscal year 2026, particularly revenue, had wide-ranging scenarios. Fortunately, this year is coming into sharper focus as we typically expect at this point. With the revenue guidance reflecting how a portion of the excess volumes in fiscal 2025 are not anticipated to recur in fiscal 2026 along with seasonal natural disaster support that is inherently difficult to forecast. Those components are responsible for a year-over-year revenue headwind of approximately 3%, which we expect to partially offset with 1% of organic growth netting to a 2% year-over-year delta at the midpoint of guidance. We acknowledge that in prior periods, we have benefited from higher volumes that increased guidance multiple times but the circumstances causing them were not forecastable at the start of the fiscal year. For example, once into fiscal 2025, there emerged a clear and stated priority to reduce backlogs across multiple programs. By the fourth quarter, the temporary extra work requested by our government customers for us to collectively meet those priorities had moderated. Another positive development on our top-line forecast is that some of the risks we had contemplated in the early color on the Q3 call, such as possible budget constraints from customers, are not believed to be as large a threat to fiscal year 2026. We also see opportunities tied to new work that if awarded in fiscal year 2026, could contribute to the year but given the difficulty in predicting the timing, we expect would be a more meaningful driver of revenue in fiscal year 2027 and beyond. We believe that we remain on target with our goal to achieve a mid-single-digit organic growth rate over the longer term. Of note, the compound annual growth rate from fiscal year 2023 to the midpoint of fiscal 2026 guidance is 4% on an organic basis, which is not impacted by excess volumes we experienced in both fiscal years 2024 and 2025. Turning to the bottom line, since the early color in August, our adjusted EBITDA margin expectation has improved to 13.7% for formal guidance. The projected improvement stems from numerous areas such as the U.S. Federal Services segment where the benefits of our technology initiatives combined with stable volumes are resulting in opportunities to increase profitability. This applies to our clinical work and our tech-enabled customer service programs where small efficiency improvements can result in meaningful cost avoidance. Notably, the margin guidance exceeds the company's target range of 10% to 13% that I stated at this point last year. Our intent is to leave this range intact and target the high end for the periods following fiscal 2026 to account for the prospect of a higher share of new work in the business. Often new programs at Maximus begin at a lower margin and improve over time, with the profile depending on the nature and pricing structure of the work. Walking down to the EPS level, the $8.1 adjusted earnings per share midpoint reflects both the improved profitability and the denominator benefit from the share repurchase activity throughout fiscal year 2025. It's worth noting the three-year compound annual growth rate using the adjusted EPS guidance is 28%, demonstrating not only the post-pandemic recovery but our ability to gain significant earnings improvement through pursuit of higher value work and disciplined management of the business. A quick word on estimated segment operating margins for the full year fiscal 2026. We expect the U.S. Federal Services margin to range between 15.5% and 16%. We expect our U.S. Services segment margin to be in the 10% to 11% range. And for Outside The U.S., we estimate a margin between 3% and 5%. For the free cash flow guidance, the midpoint of $475 million represents year-over-year growth of 30%. We typically have a negative free cash flow in Q1, a result of seasonality and timing of certain payments. We are expecting a temporary delay of payments from some customers, including expected lingering impacts from the recently concluded government shutdown, which would further impact Q1. We then anticipate strong cash flows across the remainder of the fiscal year, effectively catching up from the expected low first quarter. Other assumptions around fiscal year 2026 include an estimated $81 million of intangibles amortization expense, and $58 million of depreciation and amortization tied to PP&E and capitalized software. Interest expense is estimated to be about $69 million. Finally, the full-year effective income tax rate should be around 25% and weighted average shares should be about 55.5 million on a full-year basis. I'll conclude by reiterating our belief in a favorable outlook for Maximus beyond the formal guidance we have laid out today. Underpinning this is our strong visibility to our portfolio of programs, ongoing attention to cost management, and focus on delivering operational excellence increasingly with more automation. Our proposal activity continues to build notably in the U.S. Federal Services segment, which successful conversion could have positive implications for fiscal year 2027 and beyond. On the state side, we believe that the business is poised to respond to fast-evolving needs of customers required to be more diligent in their administration of Medicaid and SNAP. We currently anticipate that fiscal year 2026 will be defined by shaping efforts with actual work and associated revenue coming to bear beginning in fiscal year 2027. And with that, we'll open the line for Q&A. Operator? Operator: Thank you. We'll now be conducting a question and answer session. Our questions are coming from Charlie Strauzer with CJS Securities. Please proceed with your questions. Charlie Strauzer: Hi, this is Will on for Charlie. Congrats on the strong quarter. Bruce Caswell: Thanks, Will. Good morning. Charlie Strauzer: Morning. Looking at the guidance, the EBITDA margin is for 26% a lot stronger than we expected. Can you give some more color on what's driving that expansion even with the expectation for flat revenue? Is it related to mix shift or all productivity and efficiency initiatives? Thank you. Bruce Caswell: David is going to start out with that and I may add some color commentary. Thanks. David Mutryn: Yes, if you look at the margin guidance we laid out for each of the segments, all three are actually slightly higher than where they finished fiscal year 2025. For U.S. Services, it's worth pointing out, as I did in the prepared remarks, that the portion of severance that they incurred in the fourth quarter hurt their margin in that quarter and the related savings are supporting the guide for 2026 there. I think the theme across all three segments really is the continued deployment of technology and automation as well as cost management. And on the cost management front, you may notice on the P&L total company SG&A, if you consider that there was $40 million of divestiture charges in the first year in 2025, the rest of SG&A is essentially flat from 2024 to 2025 despite the revenue growth. So we're very focused on continuing to stay competitive on the cost side. And then maybe one other detail I'll point out that related to the EBITDA and also the cash flow for that matter is that a number of capitalized software projects that have been driving CapEx the past couple of years are now operational and therefore amortizing. So you can see in our in the various FY 2026 guidance metrics a higher forecast for D&A and a lower forecast for CapEx. Charlie Strauzer: That is super helpful. Thank you. And then looking at the revenue guidance, can you add any more color detail around growth by segment? David Mutryn: Sure. Yes. Without maybe going all the way to specific guidance by segment, I'll point out that both U.S. Federal and U.S. Services may see mild contraction. We expect a little bit more erosion on the U.S. Federal side given their overperformance in 2025. And what I had called out on the call specifically was clinical work and disaster response work for context there. The clinical work is in both U.S. Federal and U.S. Services. And the disaster response is on the federal side. Bruce Caswell: So federal has a little bit more of what we called out as headwinds, but also the strongest pipeline in the near term as well. So those are kind of the commentary between the segments. Charlie Strauzer: Thank you. And then switching gears a little bit. How are you thinking about the effects of the government shutdown on your results both in Q1 and the full year? Bruce Caswell: Sure. It's Bruce. I'll take that. We really don't anticipate any negative impacts on our delivery on our contract portfolio in Q1 FY 2026. Nearly all of our programs were deemed essential services by the government. And in some cases, some of those programs had received sufficient funding prior to the shutdown through other legislative vehicles like the IRA, for example. And my top comment there would be that this really reflects the very deliberate strategy of the company over the years to develop a very durable contract portfolio that fares well in these types of situations. So to put a little more color on it, I believe that across our base of nearly 40,000 employees, we were very fortunate to have fewer than a dozen that were impacted by funding curtailments in the portfolio. And we, of course, kept those staff on salary and employed and gave them an opportunity to do some refresher training and some upskilling training and so forth during that period. Of course, now certain departments and agencies could be impacted going forward because the CR presently only extends funding for those through January 30. So like others in our sector, we're going to continue to monitor that. But prior shutdowns, including the most recent one, are any indication, we all remain optimistic that any impact for us would be minimal. I did want to note that the Department of Veterans Affairs and the USDA, which includes SNAP funding, both have full-year funding in place already. Therefore, they'd be unaffected by any potential further shutdown, potentially in January. So it's also our understanding as we come into this that funding for essential entitlement programs like Medicaid would continue for an additional thirty days after January 30. So should any subsequent partial government shutdown come to pass? So David, anything you'd add further to that? David Mutryn: Yes, just on the a little commentary on the cash flow front. As I mentioned in the prepared remarks, we've seen some payment delays from a portion of our federal customers. So I'll point out, also we have we've had several federal customers continue to pay us through the month of October. So the month of October was really in fairly good shape considering that the government was shut down the whole month. But nonetheless, we do expect currently that December 31 will have an elevated DSO. Bruce Caswell: Hope that helps. Further questions, Will? Charlie Strauzer: That helps. And then along those lines, you guys collected a lot of receivables in Q4 and leverage is down to 1.5 turns. So what are your priorities for allocating that capital in the short term? And you briefly talked about M&A. Could you add some color on the type of things that you're looking for? Bruce Caswell: Sure. Happy to do that. Fundamentally, well, our criteria that we apply remain the same as they've been for some time, meaning that we'll be disciplined in deploying capital to combine with high-quality companies that can create new growth platforms for Maximus. That's the fundamental. We've been fairly explicit with our investors in the marketplace noting that our priority in the near term is growth in the U.S. Federal market. And within that, we do have a bias toward the defense and national security space. Our research suggests that the CAGR in that area over the next several years is north of about 9%. We also believe from our research that the overall services marketplace and software spend in the defense community is well in excess of $150 billion and we believe the addressable component for Maximus to be nearly $50 billion. So an excellent market and one that's growing and one candidly that we've now established, our ability to win in on an organic basis. So if we think about how we would further accelerate our growth potential as a business, there are three categories, if you will, that we've been considering. The first is access to customer relationships, because qualified past performance is just so important in this market to win in this market. And in some cases, there would be contract vehicles that we could potentially gain access to through a combination with another company. The second category is technical capabilities to augment what we are already bringing to bear in the marketplace through the mission threads and the accelerator work that I mentioned in my prepared remarks. And the third is business systems capabilities. While some of those can be and certifications, if you will, while some of those can be achieved organically like the CMMC level two certification that we've mentioned, others like having a certified purchasing procurement system, the faster path to those is sometimes through a combination or an acquisition. So from that perspective, in terms of criteria, that's what we'd be focusing on in terms of priorities. But I'll let David add to that in terms of any other metrics or criteria he'd like to share. David Mutryn: Sure. Maybe I'll just add, we certainly consider other uses of capital, including repurchases, which as you've seen, we've done a fair amount over the past year, especially in this environment. But I do want to emphasize that our primary reason for M&A is to unlock organic growth potential, which we believe can deliver significant value over the longer term. So that's really what we look for is revenue synergies and organic growth acceleration. Charlie Strauzer: That is helpful. Thank you. I think just one more for me. Thanks for the update on the opportunities related to Big Beautiful Bill. What phase of the opportunity would you say we are in right now and what are you actively working on with states? And then can you provide any detail on the timing of RFPs coming out from the states? Bruce Caswell: Sure. I'm happy to do that. So as I mentioned in the prepared remarks, there's been no real update from a policy perspective and not surprisingly, no regulatory updates either. Our understanding is that if we're going to see implementing regulations, for example, related to work requirements, those wouldn't be coming out until this summer. States are working with imperfect information, but in our view, they're in a situation where they can plan out an awful lot of what it's going to take to be compliant with these requirements, think about the impacts on their business process and on their state systems and how they're going to go about engaging the beneficiaries. And of course, for Medicaid, are the beneficiaries in the expansion population. That's estimated to be about 21 million people on a national basis. So there's a lot of pre-planning that can be done. And in fact, there have been articles out there saying from notable consultants saying if states started planning, they're already behind. The update for this quarter, based on our engagement in the marketplace, and it makes sense when we think about the timeline, is that SNAP is being taken very seriously. And why is that? The SNAP payment error rate issue as it's addressed in the bill can lead to a significant financial lift for states who don't bring their error rates down below 6%. The federal payments related to SNAP will be affected in federal fiscal year 2028. So beginning in October 2027, those payments could be affecting. Those payments payment impacts can take two forms. The first is on the benefit component of the SNAP funding and the second is on the federal administrative component, which would drop from 50% to 25%. The assessment of the error rates that will affect that payment impact in October '27 is based on federal fiscal year '25, or '26. So work has to begin ASAP to start addressing those error rates so that the measurement period, within that measurement period, states can bring them into alignment and be able to avoid, in many cases, hundreds of millions of dollars of lost federal benefit and administrative cost reimbursement. So we're out there very much engaging with our customers, doing demonstrations, having conversations about what we believe from our research and are the main causes of error rates in the SNAP payment process. And I think I've mentioned on a prior call, if not, I'll mention it now. From our analysis, we believe that we've got the ability to help states address about 90% of the causes of error. How do we do that? It's a combination of our historical program knowledge and business process expertise and interpretation of how policy can be implemented in an operational environment more effectively. Sometimes, quite frankly, that's as simple as improving training. One of the sources of error, just as a brief anecdote, is sometimes a caseworker might enter semimonthly income as if it were biweekly. Or the opposite. And candidly, I think a lot of people out there, including myself, would struggle to immediately define what the difference is. So with that said, technology can play a big part in this and we've developed AI-driven tools that can help states go through their database and their systems of record and identify likely sources of error in their cases. And then put plans in place to address that, both for existing cases to improve the error rates there, but also for new incoming cases that come into the system. I mentioned in my prepared remarks too that we have thirty years of experience already helping state customers with the federal regulations pertaining to work requirements. And I wanted to amplify that just a little bit. And interestingly, folks may not be aware that there have been really a work requirement component to the SNAP program and the TANF program for many years. In the SNAP program, it's known as FSET, which is the Food Stamp Employment and Training Program, whereby able-bodied adults without dependents or referred to in Washington policies speak as ABODS have to meet certain work requirements. TANF's requirements actually go back to their legislative heritage to the early 1990s. I think probably the welfare reform bill under Bill Clinton known as PERWARA. In both cases, those programs have requirements for beneficiaries to demonstrate and states to demonstrate compliance of the beneficiaries in a far more complicated way than other programs classically have like unemployment insurance, where it's really just a brief self-attestation. We've built technology and deployed technology to enable our customers to meet those complex federal requirements over the course of decades. So we feel like the similarity between that requirement and what we'd expect to see in the Medicaid work requirements is substantial and should position us well to address those needs. To close, we're cautiously optimistic that this increased urgency around SNAP will lead to procurement activity already. For example, I'm familiar with one state that's put a request for information out to the vendor community asking for how they would assist in addressing the SNAP payment error rates. RFIs usually lead to RFPs that then lead to awards and engagement. And I've been very bullish on this market because many states have, as we've been referring to, bought and paid for infrastructure with Maximus, already established where we, every day, engage many of the beneficiaries who are going to be impacted by these programs, both in Medicaid and SNAP because there is shared eligibility often among this population between those two programs. So Will, that is, I'm sorry to go on to quite a bit there, but this is an area we're obviously quite passionate about. I would say in summary, we think it's the most significant expansion opportunity for our U.S. Services business that we've seen since the Affordable Care Act. Charlie Strauzer: There you go. Thank you very much. Operator: Okay. Thanks, Will. Operator, back to you. Thank you so much, everyone. This does conclude today's question and answer session. And with that, we will bring the call to a close. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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: Welcome to Warner Music Group's Fourth Quarter Earnings Call for the Period and Fiscal Year Ended September 30, 2025. At the request of Warner Music Group, today's call is being recorded for replay purposes. And if you object, you may disconnect at any time. Now I would like to turn today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin. Kareem Chin: Good morning, everyone, and welcome to Warner Music Group's Fiscal Fourth Quarter and Full Year Earnings Conference Call. Please note that our earnings press release, earnings snapshot and Form 10-K are available on our website. On today's call, we have our CEO, Robert Kyncl; and our CFO, Armin Zerza, who will take you through our results, and then we'll answer your questions. Before our prepared remarks, I would like to refer you to the second slide of the earnings snapshot to remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results during this conference call and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. All forward statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert. Robert Kyncl: Thanks, Kareem, and hello, everyone. If you hopped on the call early, you just got a taste of the range of our artist roster from the massive breakout track from [indiscernible] , to the latest chart toppers from Cardi B and 21 pilots to the resurgent Google Dow's 1998, which currently sits in the global top 15 on Spotify. It's an incredibly exciting time to be at Warner Music Group. Against the backdrop of a rapidly changing landscape, we've improved our market share and delivered profitable growth, all while realigning our company to capitalize on the tremendous set of opportunities we have ahead. Our growth plan continues to bear fruit, and we've seen steady global market share gains over the past year. In the United States, were up 0.6 percentage points over the prior year quarter according to Luminate. Globally, our share of the Spotify top 200 has jumped by around 6 percentage points versus fiscal 2024. And for the entire quarter, we had the #2 market share. Importantly, we're carrying this momentum into fiscal '26 as we continue to execute on our strategy. I'll dig into this in more depth but first, let's cover our Q4 highlights. I'm pleased to say that we've seen acceleration on the top and bottom lines, driven by impressive performance across the company. Total revenue grew 13% and on an adjusted basis, recorded music subscription streaming increased 8.4%. These results prove that our strategy is working. Let me bring you a picture from just a year ago when both the industry and WMG were in a much different place. A year ago, WMG was facing market share pressure. Today, with laser focused our resources and investment on the highest return areas of our core music business. This has led to market share gains that have translated into strong measurable improvement in our financial performance. A year ago, the music industry was navigate on the transition from just volume-driven streaming growth to growth that is driven by volume and wholesale price increases. Today, our new agreements with key DSP partners better reflect music's ever-growing value and provide greater certainty around our economics. A year ago, our operational structure wasn't optimized to navigate a more globalized and digital environment. Today, we focus and simplified our organization to deliver greater intensity and impact. I'm pleased with the progress that we've made. And I'm truly grateful to our leadership team and our operators across the globe and our amazing artists and songwriters for pushing WMG to new heights. All of these actions have better positioned us to execute quickly and effectively on the opportunities we see ahead and to maximize the value we deliver to artists, songwriters, fans and shareholders. Performance & Growth Strategy Robert Kyncl: Let's turn to the impressive run of hits we've been seeing with our new releases as well as our catalog successes. On new releases. In September alone, we had back-to-back #1 albums in 2 of the world's biggest music markets, thanks to Cardi-B and 21 pilots in the United States and Sharon and [indiscernible] the U.K. On the international front, we had #1 in China, India, Finland, Italy and Spain and on Billboard's Latin Airplay chart. And in a terrific vote of confidence, one of our legendary superstars Madonna has returned to where it all began for her, Warner Records with a new album coming in 2026. The performance of our global catalog division in Q4 showcased our ability to revitalize our timeless legacy, making it relevant to a range of new audiences. A major highlight was the release of Buckingham next to long out-of-print 1973 album by Fleetwood Mac, TV next and Lindsey Buckingham. A targeted marketing campaign capitalized on fan demand, selling it to #11 on the main Billboard album chart and #6 in the U.K., a remarkable achievement for an album more than half a century old. Warner Chappell continued its resurgence with our songwriters contributing to 7 of Luminate's midyear top 10 most seasons in the world and in the United States. And multi-Grammy winner, Amy Allen, held the top spot on the Billboard Hot 100 songwriters chart for 9 weeks in 2025. These Q4 success stories capped off a year of achievements. During fiscal '25, our recording artists set up the Billboard Global 200 for 22 weeks. This 42% share of the #1 spot on the chart with Atlantic, Warner Records and Warner Chappell, harder than ever, we're delivering success across geographies and genres. Robert Kyncl: Next, I'd like to cover our focus on increasing the value of music. Streaming's growth formula is made up of 3 components: market share, global subscriber growth and wholesale price. Against the backdrop of healthy subscriber growth and a market share improvement, we've also made progress on wholesale price. Since the beginning of 2025, we've signed renewals with 4 of the largest DSPs. All of these deals have wholesale price increases, providing certainty around economics and setting up monetization models for the future use cases. A critical component of ensuring we grow the value of music is addressing the promise as well as the potential risks of generative AI. First, we need to acknowledge the reality that generative AI technology has arrived, and it is not going away. So we need to be proactive and lean into the future. The music industry is no stranger to disruption from the invention of the phonograph to the Napster era to the rise of the day streaming ecosystem, the introduction of new technologies over many decades as opposed both challenges and opportunities. AI represents another defining moment. And as always, our focus remains on protecting the rights of our artists and songwriters while simultaneously growing new revenue streams on their behalf. With this in mind, we've developed a set of principles that will govern how we engage with AI platforms. We will only make agreements with partners who commit to licensed models while securing economic terms that properly reflect the value of music. Crucially, our audits and songwriters will have a choice to opt in to any use of their name, image, likeness or voice in new AI-generated sales. We believe that the combined power of our music with innovative technology will drive greater engagement and interactivity for fans and will result in significant incremental revenue over time. I'm pleased to say that we've already done deals with partners like Udio, stability AI and [indiscernible] that are consistent with these principles that I just outlined. Our ability to sign 3 deals with 3 new companies in quick succession highlights the attractiveness of the music business and the opportunity to create value through new technology. These agreements enable us to get ahead of the game, ensuring that our artists and song getters participate fairly in the AI revolution. Robert Kyncl: As I mentioned earlier, we've taken major steps to optimize our organization to drive efficiency and effectiveness, all while reaccelerating growth and gaining market share. Among our recent changes are some moves designed to foster closer collaboration. We directly align Atlantic and Warner records in the U.K. with their counterparts in the U.S. creating a more seamless transatlantic approach to breaking artists globally. In Italy, we've organized our operations into 2 frontline labels Atlantic and Warner records, mirroring the label structure in the U.S. and the U.K. We've also unified our Australasia and Southeast Asia businesses to create bigger opportunities in this region. Additionally, we streamlined operations and strengthened the impact for artists in Central Europe. -- by merging Benelux with Germany, Switzerland and Austria. On the tech front, we've continued to modernize our infrastructure, including strengthening our global digital supply chain to position the company for further scale and growth. We've implemented tools to help auditors and songwriters make faster and smarter data-driven decisions about their careers as well as tools for employees to be better informed and more effective. Our emerging stars are building the catalogs of tomorrow, laying the foundation for future stability, while our recent Superstar releases have set us up well for 2026. In Q1, we have highly anticipated new albums from Fredegan, [ FKA Twiks ] not for Radio, anacamura and Robert Plant, along with Deluxe album additions from Aceron, Cardi B and PinkPantheress. We also have new singles from Charlie XCX, Charlie Puth, Gesu, Hillary Duff, Tiesto, Alex Foran, David GiaantenySwins and many, many more. We're proud of the progress we've made in 2025, and I look forward to carrying this momentum into 2026 and beyond. And now I'll pass it over to Armin. Armin Zerza: Thank you, Robert, and good morning, everyone. First, I'd like to thank our teams around the world for the tremendous work they have been doing to accelerate top and bottom line growth while we organize our company for the future. As Robert mentioned, Q4 has been a quarter of acceleration as we delivered record high quarterly revenue as well as our highest year-over-year growth in nearly 2 years. This reflects steady progress on market share with notable improvement in the second half of the fiscal year. In quarter 4, total revenue growth of 13% reflects double-digit growth across recorded music and music publishing. This was highlighted by a sequential improvement in recorded music streaming and 64% growth in Artist Services, WMX led merch campaigns for Oasis and my chemical enrollments. These projects demonstrate our capabilities to support our artists and capitalize on the opportunities to grow revenue streams beyond Com Music, more net to come. Recorded music subscription streaming grew 8.4%, underpinned by global subscriber growth and supported by our strong market and charge share performance. As a reminder, in calendar year 2026, we will start to see the impact of wholesale price increases from our new DSP deals which should provide incremental tailwinds. At [indiscernible] the streaming grew 3% on an adjusted basis, driven by the performance of our music and the timing of certain DSP payments. Music Publishing grew 13%, driven by double-digit growth across performance, mechanical and[indiscernible] . Adjusted OIBDA rose by 12% and our margins declined slightly due to revenue mix as the significant growth in Artist service revenue carries a lower margin profile. For full year 2025, we delivered total revenue and adjusted OIBDA growth of 8% on an adjusted basis, reflecting our impressive recovery from the first half. This was spotted by high single-digit recorded music subscription streaming growth. We also achieved operating cash flow conversion of 47% as we increased our A&R investments. We remain committed to delivering our target conversion range of 50% to 60% over the long term. As of September 30, we had a cash balance of $532 million, total debt of $4.4 billion and net debt of $3.8 million. Our weighted average cost of debt was 4.1% and our nearest maturity date remains 2028. With our strategy in place and a clear road map to deliver higher, more consistent growth and drive shareholder value, we are extremely excited about the opportunities ahead. We're operationalizing the strategic pillars that Robert laid out with several key priorities and initiatives, which are shared on our last earnings call, and I'd like to provide an update on our progress. First, on investing into [indiscernible] music to accelerate growth, we're making progress across geographies and vintages. Recall, we prioritized investments in markets with the most attractive return profiles. As a result, we are now growing market share in every key region, including the U.S., the largest music market of the world. Additionally, our balanced approach to driving performance across vintages has resulted in higher new release market share at Atlantic as well as a jump in global catalog share. As Robert mentioned, this has improved our Spotify Top 200 share by 6 percentage points. In addition to these investments in our core, we see tremendous opportunity to accelerate growth in distribution and direct to consumer. We have a large and growing distribution business today and under new leadership. We've been building or acquiring new capabilities to accelerate profitable growth in 2026. We also see tremendous opportunities to capitalize on the passionate demand from fans all over the world for physical music and direct-to-consumer offerings. Areas adjacent to our core music business, more on this in upcoming quarters. Second, on our commitment to driving efficiency to free up more capital to invest and enhance our margins. We are on track to deliver against our reorganization and related cost savings program of $200 million in annualized savings in 2026, increasing to $300 million in 2027. Third, we are committed to driving incremental growth and value creation through accretive M&A. We have developed a robust deal pipeline and look forward to sharing updates in the near future. These efforts will be turbocharged in a capital-efficient manner through our joint venture with Bain, but also through organic investments as we improve free cash flow. Finally, our focus on thoughtful capital allocation is delivering. As the investments we are making in the highest reporter markets, which include the U.S., U.K., Mexico, China and Japan are delivering share growth. In addition, we're improving capital spend efficiency and with the bulk of our major tech investments behind us. We should see an improvement in our free cash flow starting in 2026. Looking forward, we see an attractive formula for us to drive shareholder value and are excited to be operating in a healthy industry with an immense set of opportunities. The macro factors that underpin our outlook include robust global subscriber growth and rising wholesale price environment underpinned by contracts that better reflect music's increasing value, new premium offerings from DSPs. AI is emerging as an incremental top and bottom line opportunity for the music industry and our artists and songwriters. We are poised to capitalize on this environment with a strategy that will see us intensify our investments to deliver more consistent, higher growth, improve margin and drive shareholder value. For 2026, we expect to see strong top line growth which we look to bolster through focused organic investments and initiatives in our core music business and high-impact accretive M&A as well as contribution from adjacent areas such as distribution and direct-to-consumer offerings. In addition, we will drive bottom line growth via operating leverage and our cost savings plan, which will contribute 150 to 200 basis points of adjusted OIBDA margin improvement. We expect savings to increase sequentially as we progress through the year. And finally, we see tremendous potential in new incremental growth areas, particularly in AI licensing deals, which we plan to discuss in future calls. In conclusion, we are proud of how we rebounded from a challenging first half in 2025 to deliver solid top and bottom line growth in the second half with strong momentum as we head into 2020. We look forward to providing regular updates as we meet our milestones. With that, we'll take your questions. Operator: [Operator Instructions] Your first question comes from Kutgun Maral Evercore ISI.. Kutgun Maral: Great. There's a lot to unpack, but one area that I'd love to get your updated outlook on is with rights monetization, especially in the context of rising music engagement across platforms. We've seen the pace of innovation and product rollouts across the DSPs accelerate meaningfully and everyone from the streaming services to artists to even ticketing platforms like Ticketmaster, exploring new ways to leverage AI, all with the goal of driving deeper engagement. That said, there's an ongoing debate between those who see the labels as uniquely positioned to benefit from these innovations and those who believe that the labels will remain maybe more passive beneficiaries and therefore, not necessarily see upside. So Robert, you've already touched on parts of this, but as you've gone through the latest round of DSP renewals and clearly continue to engage with other partners across the ecosystem. How are you thinking about WMG's role in capturing incremental value in this next chapter of industry growth? Robert Kyncl: Thank you. I will start with the word incremental that you just mentioned. We see this as an incremental -- sorry, we see this as an incremental opportunity for not just for WMG but for the music industry as a whole. Secondly, we are determined and have decided that were the drivers, not the passengers of this incremental opportunity. The reason for that is this space is moving lightning fast. There's a great demand for IP. There's a great demand for State and companies like ours who are working to represent both of those need to drive this change. And that's exactly what we decided to do. I posted a block close last night in case not all of you got a chance to read it, please do. It's listed on our website, and it outlines our principles under which we focus and guide our dealmaking in the AI. There are 3 simple principles. We'll do agreements with partners who commit to licensed models. We'll do it on economic terms that properly reflect the value of music. And what I mean by that is that our deal terms are tied to usage and revenue growth. And importantly, that artists and songwriters have the opportunity and right to opt in for any new songs that implicate their name, image, likeness and voice. We see this as an incremental opportunity because the past has shown us that changes like this always create one. If you go back 20, 25 years, with the democratization of distribution. It has unlocked unlimited shore space, which has unlocked deep personalization of music for users, which has unlocked growth and volume of people signing up for subscription services and enjoying them. And it has unlocked tremendous value in catalogs and music IP overall for all of us. So it has been a net positive for us that has created a lot of value. We see AI as the marketization of creation, and we believe that it brings what we've lacked, which is interactivity, which is generally correlated with value creation. If you look at across all kinds of media industries, the more lean forward or with your content, whether you focused on it and watching it. or whether you're interacting with your hands and your fingers or whether you go in person and engage the value per hour goes up. That's why we're focused on it. That's why I believe this is a tremendous incremental opportunity for us. and we are going to be in the driver seat. In terms of our approach in addition to our 3 principles, our strategy is simple. We have 3 health legislate, litigate and license. And you're familiar with our legislation efforts like the OpEx that we're working on in D.C. on a litigation front. We're also familiar with various lawsuits which have been out there. But we use those first 2 in order to achieve the third, which is licensed because that is the most powfullever. To chart the path for the future for our artists and songwriters to drive the incremental value and to make sure that we have our fair and correlated share of usage and revenue driving. So we're really excited about this. The company is energized and onward. Operator: The next question comes from Benjamin Black with Deutsche Bank. Benjamin Black: For Armin, I mean could you talk about the building blocks behind your expectations for top line growth in 2026. Maybe dig into how you're thinking about paid streaming growth, just given the broader expectation for wholesale or parts of minimum increases beginning in calendar 2026. And then secondly, on margins, cost savings aside, how much margin expansion do you expect to deliver organically next year I mean what's your -- what's your longer-term margin target, perhaps sort of talk us through the puts and takes in achieving that as you look to drive incremental revenue growth in lower-margin areas like distribution and DTC? Armin Zerza: First of all, Ben, we are, first, very, very happy with the results we delivered in the last 2 quarters, not just the last quarter. And as it relates to streaming, we believe that these results are pretty much reflective of what we should expect in the first quarter of '26. Now to your question on additional growth building blocks starting in calendar sorry, '26. There are a few that I'd like to mention. The first one is that in addition to the market momentum that we have seen in global subscriber growth we will, of course, benefit from the contractual wholesale price increases that we have agreed now with several top SSPs. As Robert mentioned, we have actually agreements now with 4 of the 5 top 20 starting to start to increase wholesale prices starting in calendar '26. The second area is that in addition to the investments that we have been doing on high ROI markets and projects. We have a very robust pipeline of accretive M&A that will start to materialize in 2026 including on many projects that we have been working on through our joint venture with Bain. The third area is that we are working or have been working on expanding adjacent areas. One area I'd like to mention is distribution. As you know, we have a new leader there, and we've done a lot of work to better understand how excellent can accelerate growth in this area. We now feel confident that we can accelerate growth in that area starting in calender '26. And last but not least, there are many upside opportunities that are not included in our guide like premium offerings from ESPs. And obviously, AI as an opportunity, as Robert just discussed. Finally, from a leadership perspective, we are very confident that we have no leadership in place across the company that will help us deliver and accelerate growth. But to your margin question, Ben, we have a very strong program to improve margin over time. The first program we are implementing is a big strategic reorganization. And as you have seen, while we're doing this reorganization, we're actually accelerating growth. That program will deliver savings in its fiscal year '26 and up to [indiscernible] fiscal year '27. So we're actually very, very comfortable with our guide of margin expansion of 160 basis points next fiscal year. In addition to that, we will improve margins through operating leverage. There are a few areas which we are leveraging. The first one is as we accelerate our high-margin streaming business. Margin will improve. The second one is through our work on accretive M&A, especially catalog M&A which is higher margin accretive businesses will improve margin. And last but not least, ESP pricing will flow through the margin. So net, we're really, really confident in our margin drilling books from a cost savings perspective. but also overall from an organic perspective. In fact, in the mid- to long term, we are targeting margins in the mid- to high 20s. And you shouldn't be surprised about that. When you look at our EBITDA margins in fiscal year '25, we closed '25 with an EBITDA margin of about 25%. As you know, EBITDA includes our normalized cost savings. We're now basically delivering over the next couple of years. And so you should expect over time that our OIBDA will approach adjusted EBITDA margins in the mid-20s and then we'll start to do that to contain the growth margins. Operator: The next question comes from Peter Supino with Wolfe Research. Peter Supino: I wondered if you would talk about your successful market share gains over the last year. Maybe discuss what you're doing differently? And if you could provide any context on how each of your flagship frontline labels are performing. . Robert Kyncl: Sure. Thank you. So first, I'm just pleased to say and keep on reiterating that our strategy is working. It's great for it to show up in the results and see the progress that we're making our market share hasn't grown just in 1 or 2 places. It's really been broad-based across both our flagship labels as well as all of our regions. in the U.S. We've increased by 0.6% in the U.S. year-on-year in Q4 '25. This is according to Luminate. And we had similar improvement around the world in EMEA, LatAm and APAC. And plus 6 percentage points on Spotify top 200 in fiscal '25. And notably, we've occupied the #2 spot for nearly half the year there, which is incredible. So it is really great to see the company firing on all cylinders creatively as well as financially. And it really has come down to a lot of focus on artist development, which obviously has been there for a long time. It's in our DNA, and we continue to lean into it. But we also focus on our distribution business. We focus on our catalog. We've had a lot of success in terms of revitalizing our catalogs, [indiscernible] of Buckingham. Next, which was originally released in 1973 and being #11 on Billboard Album Chart and #6 in the U.S. it's incredible to see the power of IP and what it is that we can do with it in terms of our returning artists Cardi B and 21 pilots beginning #1 with our albums in the U.S. and at Sharon and if Claro in the U.K. And obviously, I mentioned our [indiscernible] stories with Alex Baron spending 10 weeks on a #1 on Billboard Hot 100 and Global 200 and Saber hitting #1 on Spotify global chart. And so there are for 3 set in the top 3 for over 10 weeks. So it's just broad-based, Artis development, returning artists, catalogs, all regions, all divisions. So there's just been a lot of work that really started to hit together. And we just -- we have really focused on our operations, making sure that we're making the right decisions around capital allocation. And that we have strong pipelines, both for our artist releases as well as for M&A, as Armin mentioned. So our playbook is working, and our investment is our investment is a key priority in market, and it's really bearing fruit. Operator: The next question comes from Michael Morris with Guggenheim Securities. Michael Morris: I wanted to follow up on some of the growth components that you highlighted as we look into '26 and beyond First, on your M&A plans, Armin, you alluded to M&A as a potential accelerant to growth in the coming year? And can you share more detail on what we can look forward to -- and how much of an incremental growth driver this can be for you? And then also, you just mentioned distribution as a strategic focus area and a potential driver of growth as early as '26 as well. So can you expand on this a bit. What changed about your strategy, if anything? And what gives you confidence that this can be a bigger contributor to growth in the coming year. . Armin Zerza: So on the M&A side, we have a very strong pipeline in place, which, as I mentioned, we expect to start to materialize starting in -- as you probably know, we are focused on a few large opportunities where we, as a publisher can add value in a way that creates value not just for artist and songwriters but also in a way that delivers a strong return for us. The key focus simply is our catalog business or a couple of businesses out there in the market. Why? Because they are highly accretive and therefore, deliver to and bottom line growth. We'll do this in a very capital-efficient way, as we mentioned before, by our joint venture with Bain which will provide us with more than $1 billion of funding and it's obviously a key name to accelerate growth in this area. Well, from a status perspective, we've been working very well with Bain as a partner, and we are very pleased with the progress that we have been making. So we'll hear from us soon starting in , but some of those acquisitions, which gives us confidence that this can accelerate growth in addition to the other building blocks I discussed before. From a distribution perspective, distribution is a significant part of our industry and very often a source of new talent. And in fact, we haven't talked much about this, but we actually have a large growing and profitable distribution business today. And as we have announced before, we have recently appointed a new leader with [indiscernible] Alejandro, who, as you know, has been leading our Latin America business for many years. And as you probably know, this business is heavily distribution focused yet under and his team grew this business double digit, and frankly, at attractive margins for a long time now. So really encouraged by what he has done with his business, and therefore, he is the perfect leader for our distribution business. We have spent a lot of time with him to better understand what we need to win in this marketplace not just in Latin America and U.S. but also globally. And we have spent quite some time now to build capabilities that allow us to provide better customer service on the one hand, but also to integrate clients faster and more efficient so we can do this business profitably. So we're now at a point where we are really, really confident that we can accelerate growth on this business, particularly starting in 2026. Now having said all of this, as I talked before many times, we're looking at our business from a portfolio banking perspective. So we do it in a way that grows our business on the one hand, but also enhances margin. So net, both this strategy are really perfect for [indiscernible] to accelerate growth and enhance market in that time. Operator: The next question comes from Doug Creutz with TD Cowen. . Douglas Creutz: Robert, I know one of your priorities has been to make sure the company is investing in the right technologies to position for future growth. And I wondered if you could share some color on how those investments are contributing to the growth outlook you've laid out today? And then also whether some of those priorities might be changing given the rapidly evolving landscape? Robert Kyncl: Sure. Thank you. Yes. The priorities are not changing. They remain the same. We're focused on -- as you think about our business, it's a large-scale business with lots of SKUs, lots of albums, lots of tone, clouds of artists, and they have to be managed across large number of DSPs. And so we're in a high-volume business, and it requires infrastructure, solid strong infrastructure that is scalable. And so we focused on that. We strengthened our digital supply chain sped up our solar payments, introduced more transparent accounting. In publishing, we stabilized and upgraded our core systems, which would include royalty processing and sync licensing systems, and we're nearly fully live with our financial transformation initiative, which unlocks a whole host of benefits and a better and more insightful P&L, more transparency for audience matters, et cetera. So we've really focused a lot on core infrastructure so that we can accelerate the business and handle the volume. Armin mentioned the deal pipelines that we have, whether it's organic ones or M&A, all of that requires infrastructure. So we've been focusing on that, preparing the company for growth, and that will continue. And we've made a lot of progress in that area. So that's why we feel confident about our acceleration. Armin Zerza: I just want to add to that. Obviously, this also helps us scale many of our services globally is a key enabler also for the cost savings program that we discussed last time. Operator: The next question comes from Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: You highlighted having deals with 4 of the top 5 DSPs and having secured kind of wholesale rate increases across all of those platforms. I'm wondering, Robert, you've talked in the past about kind of the benefits of variability in licensing terms across platform partners and that being a positive with regard to facilitating experimentation. Is that still -- would you say that's still the case across the new platforms that you've locked in deals with or have we reached kind of more of a standardized type of deal structure at this point in time? . Robert Kyncl: Sorry, can I just clarify a question? You were talking about existing DSPs or new platform? The rest into 4 of the 5 larger existing ones? Right. And the question is on -- sorry, I couldn't really fully understand the question. Cameron Mansson-Perrone: I'm really just trying to -- yes, really just trying to clarify. In the past, you've talked about the benefits of having kind of variation in your DSP deals. I'm wondering if that's still the case or if there is more standardization kind of in conjunction with locking in wholesale rate increases? Robert Kyncl: Got it. Thank you for the clarification. Look, we generally, when you begin -- you have different partners, which have different objectives and you strike slightly different deals. As time goes by, businesses grow things standardize more, so do the deal terms. Obviously, different platforms are slightly different. Some have prefunnels, some don't, et cetera. So that kind of variability. However, we strive for a fair marketplace where people -- where our partners pay the same prices for the carton that we licensed to them. So consistency is very important for us and making sure that no partner feels disadvantaged versus another one that we have a very healthy competition on [indiscernible] term. So there's much more standardization in place than it was in the past. Cameron Mansson-Perrone: Got it. And then if I could follow up on the market share gains that you've had been able to deliver on this year. How do you think with regard to the savings initiatives, like how do you balance those 2 in terms of trying to deliver on your savings initiatives but -- and reinvesting to continue to drive market share gains in the future. Armin Zerza: Yes, maybe I can take that. We are very focused on ensuring that we actually invest more in our core markets and key shares as well as in the most promising projects. So from a savings perspective, we are not cutting our spending on the front line, as we call it. So we're actually increasing in our investments. The savings are mostly reflective of us becoming more efficient on the back office side. Robert mentioned technology as a key enabler. So I'll give you a few examples. In finance, we have just introduced SAP, and we're obviously bidding with millions of transactions. This will enable us to become more efficient as a financing organization. In marketing as we kind of organize our data, we are leveraging more and more the standard data set we have to drive marketing efficiencies on deal making and we're now introducing AI, we actually have introduced a new office globally and working with an AI company to help us optimism or deal making. So think about the savings really coming from becoming more operational efficient as a company and backoffice savings, which we leverage to invest more in the most promising markets, more on the most promising arts and more and the most promising goes. And that's really how we balance this. Operator: The next question comes from Ian Moore with Bernstein. Ian Moore: So looking through the AI licensing announcements that have come out in the past couple of weeks, looks like these services kind of point to different -- very different parts of the value chain. You got some professional grade production tools in there, some more like listening discovery platforms. I was wondering how you could -- if you could maybe bucket the commercial opportunity you see across like the spectrum of new services that you're licensing to. Robert Kyncl: Sure. So first, I'd like to say it's a very energizing moment in the industry. When you see so many new companies popping up attracting venture capital. We have not had this in the last 10 to 15 years. All of the players that have been established in the first decade really. And now there's a crop of new companies, new investment, new excitement, new talent, just tremendous momentum. So we decided that we are going to seize this opportunity. We're not going to be a passenger, we're going to be the driver because it is important to get in early, set the terms and define the future for us rather than let other people define it for us. That means that this will cut across all the different segments that you highlighted there may be professional content, there may be user content. There's all kinds of consumption creation. It's certainly a lot of work for our teams, but it's very exciting and energizing. And the opportunity that we see is one of interactivity. Interactivity is something that drives value. It's been proven over and over, whether it's in the video gaming industry, even going to a concert is interactive. The revenue per hour is always higher when somebody is looking at something with their eyes and using their fingers and their hands to create something. So the value gets created and we'll capture it. And what happens is also that there's a very, very high correlation between interactivity and iconic familiarity. It thrives on it. What does that mean? It means that stars will get bigger and that will be benefit from this trend and that iconic IP will benefit from this trend. So we're focusing on all of the elements here, and we want to make sure that we capture this incremental and expensive opportunity. And I think of it a bit more like user cumulated content early on YouTube that started and it was seen as a threat. And in fact, it has actually developing something that was very, very positive and commercially successful for all parties involved. So we're very excited about this, and we're open for business. Operator: Your next question comes from Kannan Venkat with Barclays. Kannan Venkateshwar: Robert, maybe just following up on that point and maybe presenting a little bit of a pushback to see what your reaction to be, but why isn't AI a threat to an equal measure given that obviously, your content can be used. Your another label content can be used to create new forms of content or at least the models can be trained on it. And over the longer time horizon that could completely bypass content creators theoretically. And that's obviously a big debate. So I would love to get your reaction on that. And then more on the financials. I mean if you look at the guidance for next year in terms of margin expansion, I think the growth in EBITDA that's implied by that is roughly equal to or most of the growth seems to be coming from the cost cuts. And so in terms of operating leverage, would be great to understand. I mean, the underlying trends, excluding things like M&A, for instance, or cost savings, how you guys are trending? If you could just get some more details, that would be helpful. Robert Kyncl: Sounds good. I'll take the first part, and Armin will take the second. So of course, with every change, every technology change, there's always a threat and an opportunity. The market decision of distribution was a threat. Everybody was predicting our demise and sidestepping the major music companies. And obviously, the opposite has proven to be true over time. And we believe the same happens here. Of course, we look at the threat that this could pose in terms of dilution, et cetera. But at the same time, we need to focus on how do we actually turn this into an advantage for all of us and drive the value of the industry and the value that we provide. It's also important to know that -- and I've said this many times before, the value of the large music companies and the contribution that we have to the industry is rising, not declining. With all of these challenges, this is becoming a much more of a big business to big business interaction. It is very hard for individual creators to deal with large technology companies that is much better for these matters to be handled by large music companies, large IT companies who have the capabilities and know-how, the technology, the scale to ensure the right outcomes. So we view this as this is our role is to shape the industry. and make sure that it benefits artists and songwriters as well as us and our shareholders. Armin Zerza: Yes, on the margin, I think it's important to note that our guide is, of course, after investments we make into the business, it's really a net margin guide. The guide is also mostly focused on 2 areas. One is the cost savings program that we delivered into the organic margin growth that we plan to rebound. There's really 3 drivers that will help us do that. One is as we start to accelerate our streaming business that is a higher-margin business that is actually driving margin growth already for us to price increases will go to the bottom line and will have us improve margin. And three, there are certain interval areas. So think about this as a net margin guide. But the biggest organic drivers for us will be on streaming growth and to the PSM price increases that were [indiscernible]. So that is all the time we have for questions. Operator: I will turn the call to Robert Kyncl for closing remarks. Robert Kyncl: So thank you for your attention today. I just want to reiterate that it's evident from our results that our strategy is working. It's a labor of quite a few years of work, both on the technology front, on the investment front, on artist development administration. It's really all divisions at the company have been firing on all cylinders, and it's great to see it all come together through a sustained growth, market share expansion. And on top of it now is accelerating and seizing the opportunity to shape the AI future and create new incremental business that will be set up the right way for the future to capture the right possibilities both creative and economic for artists and songwriters and our shareholders. Thank you so much for being here. Talk to you in 90 days. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good afternoon, and welcome to the Ross Stores, Inc. third quarter 2025 Earnings Release Conference Call. The call will begin with prepared comments by management followed by a question and answer session. Before we get started, on behalf of Ross Stores, Inc., I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results including sales and earnings forecasts, new store openings, and other matters are based on the company's current forecast of aspects of its future business. These forward-looking statements are subject to risks that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today's press release and the company's fiscal 2024 Form 10-Ks and fiscal 2025 Form 10-Qs and 8-Ks on file with the SEC. And now I'd like to turn the call over to Jim Conroy, Chief Executive Officer. Good afternoon. Joining me on our call today are Michael Hartshorn, Group President and Chief Operating Officer, Bill Sheehan, Executive Vice President and Chief Financial Officer, and Connie Kao, Senior Vice President, Investor Relations. Jim Conroy: As noted in today's press release, we are very pleased with our third quarter sales results, which accelerated from the prior quarter. Total sales for the period grew 10% to $5.6 billion with comparable store sales increasing a strong 7%. Our merchants delivered a compelling assortment of brand name values which led to broad-based growth across all major merchandise categories. Those assortments, coupled with our new marketing campaigns, drove excitement, higher customer engagement, and increased store traffic. We had an excellent back-to-school selling season, strong trends that continued through the balance of the quarter. Additionally, the stores and supply chain organizations executed extremely well to support the elevated sales and inventory flow. The strength in top line, coupled with our continued focus on expense control, resulted in an operating margin of 11.6% that was much stronger than expected. Earnings per share for the thirteen weeks ended November 1, 2025, were $1.58 on net income of $512 million. Included in this year's third quarter earnings is an approximate $0.05 per share negative impact from tariff-related costs. These results compared to $1.48 per share on net earnings of $489 million in the prior year period. For the first nine months, earnings per share were $4.61 on net earnings of $1.5 billion compared to $4.53 per share on net income of $1.5 billion for the same period last year. Included in year-to-date 2025 earnings is an approximate $0.16 per share negative impact from tariff-related costs. Sales for the year-to-date period grew to $16.1 billion with comparable store sales up 3% over last year. For the third quarter at Ross Stores, Inc., cosmetics, shoes, and ladies were the strongest merchandise areas. By geography, we saw broad-based strength with the Southeast and the Midwest performing the best. BD's discounts, strong value, and fashion offerings continue to resonate with shoppers, and delivered comp gains relatively similar to Ross Stores, Inc. for the period. At quarter end, total consolidated inventories were up 9% versus last year, and average store inventories were up 15% as we advanced the inventory build for the holiday season into October. Packaway merchandise represented 36% of total inventories, compared to 38% last year. We feel very good about the health and levels of our inventory, and are well positioned to deliver a broad assortment of values this holiday selling season. During the third quarter, we opened 36 new Ross Stores, Inc. and four DD's discount stores. Similar to our summer opening group, we are pleased with the performance of our fall openings, particularly the results in the new markets, including the New York Metro Area. The openings in the third quarter completed our expansion program for 2025. For the year, we added a total of 90 locations, comprised of 80 Ross Stores, Inc. and 10 DD's. We plan to close and/or relocate 10 locations in the fourth quarter and expect to end the year with 1,903 Ross Stores, Inc. and 360 DD's locations. At this point, I would like to provide an update on our branded strategy which has now been fully embedded in our merchandising approach for more than a year. Over this period of time, the merchants have been laser-focused on delivering high-quality, branded bargains at compelling values. They've been able to deliver an assortment that spans good, better, and best brands to ensure that we are providing exceptional values to our diverse customer base. We would attribute a portion of the sequential improvement in the business to the successful implementation of the branded strategy. This strategy has particularly helped the ladies' business, which further accelerated this quarter and comped above the chain average. Additionally, the increased emphasis on brands has further strengthened our vendor partnerships and increased closeout opportunities. These efforts not only drove higher sales, but also helped us partially offset tariff impacts resulting in better-than-expected merchandise margins for the third quarter. While tariff uncertainties persist, we are encouraged by the exceptional product availability in the marketplace. This has enabled us to secure opportunistic buys that position us favorably for the holiday season. As a result, we now expect tariff-related costs in the fourth quarter to be negligible. From a pricing perspective, it is clear the consumer is prioritizing value and our updated assortment is driving stronger customer engagement. While pricing has increased across the retail environment, our commitment to delivering value remains unchanged. We will continue to maintain a strong value proposition relative to traditional retailers, while working to mitigate the impact on our merchandise margin. Bill will now provide further details on our third quarter results and fourth quarter guidance. Bill Sheehan: Thank you, Jim. As previously stated, comparable store sales rose 7% in the quarter. The gain was a result of both higher transaction and a larger average basket size. Operating margin decreased by 35 basis points to 11.6% mainly due to the impact of tariffs. Cost of goods sold increased by 35 basis points in the quarter. Distribution costs were higher by 60 basis points primarily due to the opening of a new distribution center earlier this year and tariff-related processing costs. Merchandise margin deleveraged by 10 basis points while buying expenses were flat compared to the prior year. Partially offsetting the higher costs in the quarter, were lower domestic freight and occupancy costs of 25 and 10 basis points, respectively. SG&A costs were flat year over year despite the headwinds from CEO transition costs. During the quarter, we repurchased 1.7 million shares of common stock for an aggregate cost of $262 million. We remain on track to buy back a total of $1.05 billion in shares this year. Now let's discuss our fourth quarter guidance. We're encouraged by our business momentum as we enter the critical holiday season. As a result, for the thirteen weeks ending January 31, 2026, we are raising our comparable store sales forecast to be up 3% to 4% with earnings per share in the range of $1.77 to $1.85. This updated guidance range reflects approximately $0.03 earnings per share of unfavorable timing of Packaway-related expenses that benefited the third quarter. Based on our year-to-date results, and updated fourth quarter forecast, we are increasing our earnings per share guidance for fiscal 2025 to be in the range of $6.38 to $6.46. As for tariffs, we now forecast the fourth quarter impact to be negligible, leading to a full-year cost of approximately $0.15 per share. These estimates are based on the current level of tariffs. In addition, and as a reminder, 2024 fourth quarter and full-year earnings per share of $1.79 and $6.32 respectively, include the benefit of approximately $0.14 in earnings per share related to the sale of a Packaway facility. Operating statement assumptions that support our fourth quarter guidance include the following. Total sales are projected to increase 6% to 8%. We expect operating margin to be in the range of 11.5% to 11.8% compared to 12.4% last year. Year-over-year change primarily reflects last year's benefit from the sale of a Packaway facility that was worth about 105 basis points. Net interest income is estimated to be about $30 million. Our tax rate is expected to be approximately 24% and weighted average diluted shares outstanding are projected to be about 322 million. Now I'll turn the call back to Jim for closing comments. Jim Conroy: Thank you, Bill. To sum up, we are pleased with our third quarter results and encouraged by our sales momentum. With a strong merchandising plan and a terrific product assortment, we are optimistic about our prospects for the fourth quarter. Additionally, the store and supply chain teams are well-positioned for the holiday season and our marketing campaigns have continued to build excitement. We believe that this multifaceted approach will help us continue our positive momentum and enable us to capture additional market share. Finally, I would like to thank the entire organization for their hard work and solid execution, which enabled us to deliver a strong third quarter performance. Despite the ongoing challenges and uncertainty in the macro environment, we remain focused on our core strategies, and executed well as a cohesive team across the entire company. At this point, we would like to open the call and respond to any questions you might have. Operator: John? Thank you. We will now be conducting a question and answer session. You may press 2 to remove yourself from the queue. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment, please, while we poll for questions. And the first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question. Thanks, and congrats on a really great print. Jim Conroy: Thank you, Matt. Matthew Boss: So, Jim, could you help break down the inflection in same-store sales? Or the 500 basis points sequential acceleration that you saw? How much would you attribute to company-specific initiatives as we think about marketing or the early stages of store experience? Relative to the macro backdrop? And could you just elaborate on the strong momentum that you cited in November that supported the fourth quarter raise? Jim Conroy: Sure. It was a really nice sequential improvement. And I think in the prepared remarks, we used the word broad-based. So the merchandise categories, every single merchandise category in the third quarter, every single major merchandise category anyway, was positive or nicely positive. We had some businesses in the second quarter that were somewhat under, and they've really caught up. We've seen some really great improvement in most categories across the business. We also had broad-based strength across the country in terms of our geographic regions, including regions that you would otherwise think would be under pressure. So broad-based strength across the business. How much of it is internal versus external, it's hard to say. We acknowledge that there probably has been some tailwinds out there. Some people are calling out that weather may have been a help. Last year we called out that weather was a hindrance to our business a little bit. But in terms of headwinds, there's a whole bunch of other macro uncertainties that have probably left consumers a little bit uneasy in their shopping. So I give a lot of credit to the team. The product team leads the charge. The assortments look fantastic. They've navigated through tariffs very strategically, have maneuvered AURs. The marketing team has done a very nice job. Stores team has stepped up, really, the whole company. So I'm sure there might be something in the macro backdrop that's a tailwind to us, but I also give some credit to the team for just executing extremely well. Operator: And the next question comes from the line of Corey Tarlowe with Jefferies. Please proceed with your question. Corey Tarlowe: Great. Thanks, and good afternoon, and congrats on the strong results. Jim, I just wanted to hone in on this element of change. And you've come into the business and we were comping flat to start the year. And we've really substantially accelerated. And I wanted to get a flavor for what in your view are the major drivers of this improvement in the momentum? And then what do you think is perhaps the stickiest of all of these changes that is going to propel the business on a multiyear trajectory for continued growth and improvement in outperformance? Jim Conroy: Sure. Happy to have a shot at that. First, I'd start with I absolutely inherited a strong company that was being managed extremely well. So, you know, the company has been growing for years before I showed up. The first quarter was a bit of an anomaly. Right? We had a lot of macro headwinds that pushed the business to a flat after a challenging January and a very challenging February, which we called out last year. In terms of some of the things that have changed, it's not very different than my remarks on some of the first couple of investor calls. The merchandising team is extremely strong, and some of the best merchants in the world work for Ross Stores, Inc. And that strength continues to propel the business forward. If I added anything to the business, it's to sort of raise or amplify the voices of the marketing group and the stores team. So we can drive more traffic from a marketing standpoint. And when they get to the stores, they can enjoy a slightly better, or hopefully much better in-store shopping environment. And the overarching strategy is quite simple, which is just to get merchandising, marketing, and stores, perhaps add supply chain to that mix, operating in unison. So we're all kind of pushing the business forward for more growth. Corey Tarlowe: Understood. And then just as a follow-up, the new marketing campaigns have clearly resonated. What is it in your view that you think has materially helped to accelerate the amplification of all of these improvements that you've made in the business, particularly from a branded perspective that's really working from a marketing standpoint? And that's helping amplify the message even more and resonate with consumers. Jim Conroy: Sure. Sure. And coming in as an outsider, there's some disadvantages. I wasn't an off-price person, and I'm not a true merchant. But perhaps if there was one advantage, it was a set of fresh eyes. So from a marketing standpoint, we absolutely want to remain rooted in great branded values. But the challenge that I gave to the marketing team and the new agency was how do we create cut-through with a refreshed marketing message. So we've really contemporized how we go to market in terms of a creative standpoint. We've tweaked the merchandise mix a bit. Notably, we have an increased marketing expense, at least as a percentage of sales. But I think sort of this refreshed view of how you can look at the store and reach out to customers in a slightly different way and perhaps reach out to younger customers in a more aggressive way. It seems to be taking root. We are encouraged by it. We're excited by it. We've seen some hard metrics improve, and we've seen some qualitative factors improve nicely. And I certainly don't want to dampen anybody's enthusiasm because it's fantastic to see. But let's just remember that it's only been a few months now. Right? We've got a very busy holiday season to get through. And then, you know, we'll see what becomes sticky in your mind. Coming back to that part of your question, I think probably the stickiest thing ultimately will be the power of the Ross Stores, Inc. brand and just what that means for customers and the promise that it delivers to shoppers. And it's had a great legacy up to this point. And if I had any impact on it, it's, you know, how can we modernize it slightly so we continue to resonate with all customers, particularly younger customers. Corey Tarlowe: It's great color. Thank you so much, and best of luck. Jim Conroy: Thank you. Operator: And the next question comes from the line of Mark Altschwager with Baird. Please proceed with your question. Mark Altschwager: You're expecting tariff costs now to be negligible in Q4, which is great to hear. I was hoping you could update us on the mitigation efforts, you know, what's working, what's giving you the comfort with your ability to fully offset. And, you know, with that, hoping you could just speak specifically to the AUR trend you're seeing and also how we should interpret that Q4 guide as we think about the wraparound effects of tariffs for early 2026? Michael Hartshorn: Hi, Mark. It's Michael Hartshorn. Similar to what happened in the second quarter, as you saw in our commentary, the tariff-related costs came in lower than we expected. And our merchant teams have done a tremendous job balancing cost concessions with modest market-driven price increases where we can maintain our value gap against other retailers. In addition, they were able to take advantage, given the closeout availability, take advantage of closeouts in the marketplace, and chase above-plan sales. As we expected, as we imagined the year when we had lead time from the initial tariff announcements and had open to buy to fill. Our merchant teams have been able to mitigate the impact of tariffs as we progress through the year. In addition, with some tariff stability, we've been able to normalize ticketing activities in our distribution centers. For going forward, it's too early to speak to 2026, but barring any meaningful changes in the tariff policy, we would expect pricing stability which would eliminate the need for our merchants to make pricing decisions against a moving target. Mark Altschwager: Thank you. And then a quick follow-up on the comp acceleration. I believe you said consistency or you said strength across regions, but I'm wondering if there's any call out by demographic or income cohort. Michael Hartshorn: Sure. And just to follow-up on your AUR. So the comp components for the quarter, traffic, UPT, and AUR all increased in transactions where the biggest of those. In terms of demographic performance, we called out in previous quarters our Hispanic stores during the quarter. At both Ross Stores, Inc. and DD's, stores that have what I'd say is high trade area Hispanic population saw an improvement that was similar to the chain from quarter to quarter and ended up posting solid comps despite trailing the chain slightly. Other call outs, did mention in the call Southeast and Midwest were above our top performing market. In terms of bigger markets, California, Florida, and Texas were all relatively in line with the chain. Mark Altschwager: Thank you. Sure. Operator: And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question. Chuck Grom: Hey. Thanks. Good afternoon. Thanks. On the marketing change, can we double click on that a little bit and do you think you're driving new or lapsed customers think you're increasing engagement with existing customers? Where do you still see opportunity on that front? Jim Conroy: It's hard to tease out the components of the traffic. Do believe we're gaining some new customers. And reengaging with last customers. If you go through the analytics provided by Meta Platform and you go through TikTok, you we I think it's safe to say we have improved our engagement. In terms of where we are in terms of our evolution from a marketing and branding standpoint, it very, very early. Right? We we we hired an agency in the beginning of the year. Their first output was in the July time frame. We just released a couple of new spots for holiday that then translate across all the digital platforms as well. So very early innings. And Deepa and the marketing team have done an unbelievable job. But there's there's just even more in front of us, I think, for us to continue to learn and and react to that and, you know, continue to deliver some great messaging. Chuck Grom: That's great. And and just as a follow-up, you you noted that as a percentage of sales, you didn't increase, the spend. But it's well known that that you spend far less in dollars and as a percentage of sales relative to your largest peer. When you look ahead, do you think you need to grow that, or do you think you would continue to just reinvest and redeploy those dollars? Jim Conroy: It's a good question. Right now, we're gonna maintain our percent of sales where it is. You know, we have a financial and operating model that I wanna kinda work within. Clearly if we can spur on more business and and drive more customers and drive more sales, even at the same rate, we'll get them our marketing dollars. So it's it's too early to say we're we'll invest anymore in it and right now, the the the amount we're spending seems to be paying dividends. So stay tuned for that. But right there's there's no immediate plans for an increased spend there. Chuck Grom: Got it. Thank you. Thank you. Operator: And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question. Lorraine Hutchinson: Jim, you called out the branded strategy as a key driver of the comp acceleration. Can you talk about how this benefit has built over time and how much more opportunity you see going forward? Jim Conroy: Sure. Absolutely. And if you wanna go through the timeline, in the fourth quarter, last year, we had a decent quarter. We called out it it the the branded strategy touches everything, but it's probably most impactful to ladies. So if we just look at the ladies business and how it's sequentially changed over the last few quarters. Last year fourth quarter was pretty strong, but ladies was a drag on the comp. Then in Q1 and in Q2, the ladies business was slightly better, but still flattish. In Q2, it started to show some improvement. And a slight drag on the comp in Q1. With kind of in line with the company, maybe slightly comp enhancing. And in this most recent quarter, the entire business got better, substantially better. And the ladies business was actually comp enhancing. So if we posted a plus seven, you can intuit that the ladies business better than a plus seven. Lorraine Hutchinson: And how much more opportunity do you see in the How much more opportunity going forward do you see in the this lady's business from the branded strategy? Jim Conroy: I a fair amount, I think. I mean, we we as you know, we've been investing in that over four or five quarters. It had a drag on our merchandise margin that we thought would be an investment in the business. And that investment seems to be paying off now. I think, you know, what with one very solid quarter under our belt, I'd like to think that, you know, for the next three quarters until we at least anniversary that, we'll we'll see some outsized growth. And then, of course, the you know, that that team has has really started to build excitement. Some great leadership there. And I think after even after we anniversary this quarter, I think they'll they'll find some opportunities for for more comp improvement. There's not a lack of ideas innovation in that part of the business. Lorraine Hutchinson: Thank you. Operator: And the next question comes from the line of Paul Lejuez with Citibank. Please proceed with your question. Paul Lejuez: Hey, thanks. Jim, sorry if I missed a bit. Did you say anything about the monthly cadence? Curious if you could share anything on that front. Home versus apparel, and specifically, not just performance, home versus apparel, but AURs. In each of those categories? And then is there any quantification of how your customer base has changed? Like, within that ladies business, you know, can you can you isolate that you are getting a customer of a certain age that you did not previously have. Is there any quantification to that? Michael Hartshorn: I'll just start on a couple of those, Paul. During the quarter, we had a very strong back to school and held the trend, throughout the quarter. So throughout the the trends were fairly consistent, and that was true for both Ross Stores, Inc. and, DD's. On the AUR, I said in a previous commentary that was driven by traffic increases in traffic UPT and AUR with with the traffic or transactions for us. The biggest of those traffic and the basket were very similar. In terms of overall category performance, we mentioned children's and men's were relatively in line with the chain. Cosmetics, shoes, and ladies were best performers. Home was slightly below the chain average. If you you also ask about shifts in in business. You know, the things we measure against, usually you see bigger trends over time. We certainly talked about demographics and Hispanic customer. In terms of household income, the not only was the the sales very broad based across geographies and merchandise categories, they're also very broad based, across trade area income levels. And we did not see any significant shifts there. Paul Lejuez: Thank you. Good luck. Thank you. Operator: And the next question comes from the line of Alex Stratton with Morgan Stanley. Please proceed with your question. Alexandra Straton: Congrats on a great quarter. Just on maybe for you, Jim, on the upgrading the store experience. I think you highlighted that as an opportunity when you first started. Did any changes there play a role in the comp acceleration? Maybe how do you gauge effectiveness of those strategies? And what are your priorities on that front as you think about 4Q and into next year? Michael Hartshorn: I can take that. We're addressing the store experience on a couple different factors. First, we have begun refreshing, we expect to refresh all stores in the chain. Which we believe will provide a more modern look and feel the customer. This includes new parameter signing, wayfinding signage along with addressing cosmetic type repairs. We're halfway through the chain there, and though it's very, very early, the customer feedback has been good. The other focus areas within the store is you can imagine improving line lengths and throughput through the front end of the store and also improving our recovery throughout the day. And we're finding places to get efficiencies within the store and then reinvest it in those focus areas. In terms of immediate impact in quarter, I think it's very, very early days and if anything, we'd expect to build momentum over time. Alexandra Straton: Great. Thank you. Good luck. Sure. Thank you. Operator: And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question. Brooke Roach: Good afternoon, and thank you for taking our question. Jim, I wanted to get your thoughts on Ross Stores, Inc.'s approach to value gaps into holiday and 2026 as market prices move up. How much of the AUR growth in the third quarter was driven by price actions versus mix? And are there any categories where you've taken action on pricing where you're starting to see any signs of consumer elasticity? Jim Conroy: Sure. Happy to take it. In terms of the first part of your question, our strategy is, I think, a pretty typical off-price strategy of keeping an umbrella under traditional retailers in terms of pricing. We tend to be very intensely focused on the values that we provide which is one of the reasons why we were a little bit slower to make any changes to AUR because we really wanted to underscore what the customer that we were going to be delivering values including during a tariff environment. And holding true to that, and we've called out tariff impacts over the last couple of quarters, although they're going away for the fourth quarter, but holding true to that sort of promise perhaps has helped us pull in some new customers or bring back lapsed customers. So we're excited about that. I think Michael talked about in terms of transactions, AUR and UPT transactions was still the biggest driver of the comp. As we look at the fourth quarter, we've been pretty much bought up for the fourth quarter for a while. So wouldn't expect any significant changes in our strategy from a pricing standpoint for fourth quarter. I think it was encouraging that we were able to have a modest increase in our AUR. And not see degradation in units per transaction. That was up a little bit. And also continue to see transactions. But hopefully, that answers the question. I mean, it's been a very difficult thing to navigate for the last several months looking at the changing in tariffs and the changes in the retail environment and trying to find exactly the right set of prices for every single category. Have we made mistakes within that? Probably. And, you know, it's what ultimately falls out of that is a business that may start turning slightly slower, so you may mark it down in you move through it. But on balance, we haven't had any significant footfalls that have created massively increased markdowns or slow down in our terms. Brooke Roach: Thanks so much. Best of luck going forward. Thanks, Operator: And the next question comes from the line of Michael Binetti with Evercore. Please proceed with your question. Michael Binetti: Hey, guys. Thanks for taking our questions here. Congrats on a nice quarter. I guess as you look at marketing and some of the store refresh in the state of the fleet today, as you look at some of the initial successes and the top line impact here, how do you think about what to invest in and accelerate those things that are working to keep the top line going versus how you think about flowing through some of the earnings on these initiatives to investors next year? I think just at the highest level, maybe some thinking on the trade-offs between pushing sales harder. Now you've got some things that are very obviously working and then flow through versus investment next year. And then separately, you know, spoken a little bit about a strong pipeline of DD stores in the past. How are the Ross Stores, Inc. Banner stores in the Northeast area doing? And do you see an opportunity to accelerate store growth both chains at Ross Stores, Inc. in addition to DD's? Jim Conroy: Sure. Maybe I'll take the first one and Mike will take the second piece of that in terms of store growth. On the investors' flow through, yeah, I'm not even here a year, and I was very cautious when I first got here to quote, unquote, listen, learn, and lead. Right? I really wanted to learn a new business. I'm not bigger business, and the off-price sector, etcetera. for change as did the team, And while I had some hypotheses we I really wanted to be respectful of the financial model and the operating model that has been successful for the company for so long. So while we've made some changes over the last couple of quarters and perhaps we're seeing fruits of that, of those changes now. You know, I'd like to let some more time go before we come out and say, we're gonna over-invest betting on the come for future results. So anything we've done so far has been again, within the expense structure, the financial model of the company has, And we haven't spent anything from in an outsized way from a marketing perspective. Or really even from a store's perspective outside the sort of capital plan that was here when I when I got here. Three months from now, six months from now, if we continue to see positive ROI, to your point, we may then get more aggressive and say, look, you know, if we can break the model slightly from a financial standpoint, will we deliver higher comps and additional earnings perhaps. But right now, I'm I think we're all kinda committed to the operating model that's worked for the company for decades. Michael Hartshorn: Michael, on real estate, first on this year's store openings. As we said in the commentary, opened eighty Ross Stores, Inc. and DD's. As an entire group, the new stores have outperformed our plan and we're very excited, although it's very early. With the success in both Northeast and the New York stores, and also in our Puerto Rico stores that opened over the summer. So as I said, what we've seen thus far, we're really optimistic about the Northeast. Expansion. We feel good about the real estate lands. We have a very healthy pipeline. We've said before that we're going to reaccelerate the DD's growth in terms of the combined groups, we'll have more to say when we get to the end of the year in our 2026 guidance. Michael Binetti: Alright, guys. Congrats again. Best of luck to the holiday. Thank you. Jim Conroy: Thank you very much. Operator: And the next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question. Ike Boruchow: Hey, everyone. Jim, I was figured I would ask about self-checkout. I think it's something you've talked about in the past as a driver. Where how many stores is that rolled out to? How meaningful can that be, you know, or maybe over the next twelve months? And just kinda how are you thinking about ROI on that investment? Michael Hartshorn: Sure, Ike. It's in 80 stores today. And it's taken us a while to get to this point. We tried a couple different models, and it's taken us a while to get the shrink aspect of self-checkout correct. We now have a prototype that's worked well for us over the last year and we're not only seeing lower shrink, but we're seeing higher high customer adoption. We're seeing sales impacts in the stores that we put it in, and we'll be rolling it out to further stores next year. How big it will be depends on kind of the next phase of rollout, but where it works best for us is in our high volume stores. So we'll continue to roll it out. We'll have more to say on how many of those stores in the in the 2026 preview. Ike Boruchow: Thank you. Operator: And the next question comes from the line of Adrienne Yih with Barclays. Please proceed with your question. Adrienne Yih: Great. Thank you. Good afternoon. Congrats on a great acceleration into holiday. First question on DD's. Did you see any I mean, was it patterned very similarly to the Ross Stores, Inc. Dress for Less stores? Or did you see any pressure, particularly in the early part of November, with the delay of the SNAP benefits? So has that rebounded? And then secondly, you mentioned that the results fully offset all of the tariff, the gross tariff amount. So should we assume that, that obviously is the case for the fourth quarter? But that kind of the biggest impact because of your turns being so fast that the biggest impact would have been felt in 2025, and we enter '26 in a pretty normal way state. In terms of tariffs, or there's probably a little bit of overhang in Q1? Thank you. Michael Hartshorn: Adrienne, on the DD's, DD's was very similar to Ross Stores, Inc. The business was very consistent across the quarter, so there's nothing that I would call out there. In terms of tariffs, We did say there continued to be an impact in Q3. But it will be neutral in Q4 as we've been able to chase the business with closeouts. We've been able to work with vendors and cost concessions. And I would expect it to be somewhat neutral. It is neutral in Q4 and expect it to be neutral as we move into '26. Adrienne Yih: Okay. And then my quick follow-up is just going to be there are very few companies that are the third quarter with overall sales growing faster than inventory. On an average basis or even at the end of the quarter. Obviously, you've built some inventory up. The availability is fantastic. Is this just sort of do you feel well, I'm gonna ask you questions I know the answer to. I mean, clearly, you can chase that inventory. But, I guess, as you think about kind of, like, heading into spring, what are you seeing in terms of kind of being a little bit more maybe disciplined or judicious about taking some of that pack away? Any changes to strategy as we head into spring when we think that broader retail will raise prices across the board. Michael Hartshorn: On the ending in the as we said in the commentary, we did end up 15% on the last day of the quarter. Actually, during the quarter, inventory was in line with sales. Which similar to prior year's holiday shopping and promotions. Are well underway ahead of Thanksgiving holiday and in anticipation of shifts, we set the sales floor for the holiday as we at the October, which is earlier than last year, and also advanced some of the inventory into the store. Adrienne Yih: Okay. Perfect. Thanks. Best of luck. Great quarter. Michael Hartshorn: Thank you. Operator: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Dana Telsey: Hi. Good afternoon, everyone, and congratulations on the terrific results. As you take a look at your customer, thanks. As you take a look at your customer, particularly an assessment of the lower-income customers, Are you seeing anything? Are you seeing a trade down to the core Ross Stores, Inc.? What are you seeing in DD's? And is there any difference in performance of the lower-income stores and lower-income areas versus others? And then just lastly, with the expansion into the New York area or the Northeast, If you think about your store expansion plans for next year, will a greater portion of those stores be in the Northeast? And how do you see opening cost? And is there is the opportunity greater sales from those stores in more dense areas leveraging the cost given it may be a higher cost structure? Thank you. Michael Hartshorn: Dana, on the trade down customer, it's really hard to peel apart in the data. We do measure the trade area demographics around the stores. And the seven comp was very broad-based across all income levels. So we didn't see any distinction between the lower higher income customers. In terms of entry into the Northeast, today about 70% of our store openings are in what I call existing markets and 30% in newer markets, would now include the Northeast and Puerto Rico, over the last couple years. It's included the Upper Midwest, I'd expect that pace to continue, and we'll gradually continue to add in New York over time into Puerto Rico. And continue to expand those markets. We don't think our return on opening a new store will decline as we enter the Northeast. As you say, the it's more dense population should drive a higher sales to support the additional investment and higher cost in some of the store base there. Dana Telsey: Got it. And then just one more thing, Jim. In terms of what you're seeing with the store refreshes, the great enhancements that you're making in brand in general, other categories besides women's where you're seeing this opportunity for? And when you think about the store refreshes, anything that is particularly notable that you see at the opportunity for next year? Thank you. Jim Conroy: Well, we certainly have some ideas about next year and, you we don't wanna sort of necessarily divulge those just yet. In terms of categories that have improved, we've seen sequential improvement across a number of different businesses. Perhaps the one to call out is the home business was a drag in Q2 and was nicely positive in Q3. And we feel, you know, well-positioned in that piece of the business as we go into the fourth quarter when it spikes as a percent of sales. So I think that may be another category that we can talk about some of the wins that that merchandise team has pulled together. And yes, I'm glad to hear the enthusiasm on store refreshes and the stores I think, are looking a bit better. I would come to come back to some of my earlier comments that it's still very early innings in some of these changes. So maybe that's just is good news in terms of the best is yet to come. Dana Telsey: Thank you. Thank you. Operator: And the next question comes from the line of John Kernan with TD Cowen. Please proceed with your question. John Kernan: Congrats on the great quarter, guys. Jon. Thanks, So just wanted to circle back to gross margin. The merch margin was down slightly. You're now lapping a lot of the initiatives in the branded segment. I'm just curious what you think the opportunities for merch margin are going forward. You are comfortably above the levels you were at pre-COVID as a benchmark. I'm just curious what you see as long-term drivers. And I just have a quick follow-up on distribution costs. Michael Hartshorn: I mean, you said, merch margin although it declined, it was a little better than we expected. As had less ticketing and some stronger shrink results helped there. Moving forward, you know, it's an area of continued focus. And certainly, we would like it to get better, but I think currently, we'd expect it to be relatively stable over time. I think there is Okay, got. We talked about we're a year and a half into the brand strategy. I think there's gonna continue to be opportunity to gain some leverage as we move through time as we built the branded relationships with the vendors. Gives us opportunity for closeouts. So I think there's still some opportunity there within gross margin, you know, the transportation cost will be a year-to-year, kinda market-based discussion. But I think there's ongoing improvement capture in merchandise margins. John Kernan: Yeah. Obviously, the new DCs gonna give you a lot of capacity. Just curious on, you know, distribution and deleverage. Is that something that continues into next year? Looks like it picked up in Q2 this year and I'm assuming it continues a little bit in the fourth quarter. Michael Hartshorn: Yeah. In Q3, that deleverage, like, talked about a bit before, the full impact of the opening of a new distribution center and also some tariff-related processing costs. As we move forward, we'd expect that that pressure from the new DC continued, but that pre-ticketing pressure we've seen before related to tariffs should improve a bit. So we'd expect just a slight headwind in Q4. As we grow capacity, we look beyond this year, we'll be able to continue to lever that new capacity until we open our next due distribution center, which is two to three years away. John Kernan: That's great. Thanks, guys. Operator: And the next question comes from the line of Aneesha Sherman with Bernstein. Please proceed with your question. Aneesha Sherman: Wanna follow-up on the brand strategy. As you've discussed it in the past, you've talked about not changing the good, better, best mix. But rather increasing the availability of branded goods versus, you know, unbranded and labeled. As you're now attracting new customers and growing AUR in basket size, are you rethinking that and potentially considering adding more higher-end brands to expand the mix on the higher side? And then a follow-up on home. Jim, you talked about home getting better this quarter, though it was still weaker than the chain for two quarters in a row. Have you pulled back on the assortment at all in response to that weakness? And are there any implications there in terms of holiday and gifting and home decor assortment going into the holiday period? Thank you. Jim Conroy: Of course. On the home piece, absolutely not. You know, we feel that the home business is really building momentum, and the team there has just created tremendous sequential improvement. As we get into the fourth quarter, the categories change a bit. Right? Toys increase quite a bit, food increases, etcetera. So, you know, those businesses kind of have nothing to do with the incoming trend line. And we feel extremely well-positioned from a gifting standpoint and from a toy standpoint. In terms of branded versus unbranded, a couple of points I would I guess I would say is over the last several years, right, the reason the brand strategy was put in place and certainly predated me was there was a notion that the company had migrated away a little bit too much from known brands chasing higher margin or higher markup kind of tertiary players. And we needed to rate that shift. That doesn't always mean higher-end brands, though. Right? There are some really great brands at all price points within the store, And we have a very diverse customer base in every definition of that term. So we wanna have the best-branded values for a good, better, or best pricing tier. Is there some opportunity to stretch higher? Perhaps. The merchants are always out there looking for the next new brand. It's always a small celebration within the buying office when we've opened a new brand and we've gotten access to new closeouts, etcetera. Over time, perhaps that will be that will include, you know, reaching up a little bit. But I would say it's across the board. Aneesha Sherman: That's helpful. Thank you. Of course. Operator: And the next question comes from the line of Marni Shapiro with Retail Tracker. Please proceed with your question. Marni Shapiro: Hey, guys. Congratulations on a great quarter, and congratulations on the New York store. I hear it is the place to be. I'm just curious on the marketing. You did what I'm hearing. It's what people say. So I'm so curious on the marketing side as you kinda dive a little bit more into marketing. Two things. Will you, at some point consider a loyalty program, and how would what would that look like if you thought about it? And are you doing even some of the more basic stuff like email or phone number captures that you can more directly talk to your consumers. Jim Conroy: So I'm not sure about the loyalty program. On the email and text, but we do have a pretty decent email database in existence today. You know, a few million active email addresses. And while we don't constantly update that number to the street, we saw a really nice increase in active emails over the last quarter. So that was great. We don't have an active text program at the moment. But who knows? The first order of business from a marketing standpoint was to experiment with some slightly different messaging, and maybe a slightly more contemporary aesthetic. And, over time, you might try some of these other ideas. Yes. The Brooklyn store has been just a great addition to the portfolio. Glad it's the place to be seen. We've seen a lot of interesting people come in recently. And we're constantly kind of spying on it with our CCTV. So we kinda know everybody that goes in and out. But yeah. So it's four of the yeah. Yeah. No. Everybody competitors, everybody. That story has been a really nice arrow in the quiver and who knows what it bodes for future stores there. I mean, that particular location is pretty unique, very high traffic. There are other stores that we've seen open up in that area, in the New York Metro Area that have had very strong openings, perhaps, you know, that that would probably be the outlier one. The one in Brooklyn that you're talking about. Marni Shapiro: Yep. Alright. Great. Thanks, guys. Best of luck for the holiday. Have a nice Thanksgiving holiday. Jim Conroy: Likewise. Thank you. Thanks, Marni. Bye. Operator: We have time for one last question coming from the line of Jay Sole with UBS. Please proceed with your question. Jay Sole: Great. Jim, my question is about the guidance because you're guiding to 3% to 4% comp. And I look back, you know, ex the post-COVID period, every company hasn't guided above a two to three in at least ten years. I'm just wondering what this signals. I mean, are you taking a different approach to guiding now being CEO? Or is it just that the quarter-to-date trends you're seeing are so good that you just felt like two to three just wasn't even relevant and you had to guide to three to four? Because sometimes the thought is that the guide is as much as internal signals and external signals sort of a signal to sort of plan conservatively and then just be prepared to chase, keep a lot of open liquidity. If opportunities materialize in the quarter. So just kind of wondering how you're thinking about guiding and why you decided to go to 3% to 4% instead of just sticking to the same old two to three. Michael Hartshorn: Yeah. It's Michael Hartshorn. It's probably less tricky than you think. It is our internal plan. So, you know, currently coming off a seven comp, that's how the underlying business is planned. And we always try to align the internal latest forecast with the plan. So there was there's no change in methodology. It is really how we're planning the business for the fourth quarter based on the momentum in Q3. Jay Sole: Got it. Alright. Thank you so much. You're welcome. Of course. Operator: There are no further questions at this time, and I would like to turn the floor back over to Jim Conroy for closing remarks. Jim Conroy: Very good. Well, thank you everybody for your interest in Ross Stores, Inc. We wish you all a very happy holiday season. Take care. Operator: Thank you. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
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.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Allot's third quarter 2025 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Allot Investors Relations team at EK Global Investor Relations at +1 212378040 or view it in the News section of the company's site at www.allot.com. I would like now to hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin please? Kenny Green: Good day to all of you, welcome to Allot's conference call to discuss its financial results for the quarter. I would like to thank Allot's management for hosting this conference call. All participants are present. Following the formal presentation, instructions will be given for the question and answer session. As a reminder, this conference call is being recorded. If you have not received the company's press release, please check the company's website at www.allot.com. With me today on the line are Eyal Harari, CEO, and Liat Nahum, CFO. Following Eyal's prepared remarks, we will open the call for the question and answer session. Both Eyal and Liat will be available to answer those questions. You can all find the highlights of the quarter, including the financial highlights and metrics, in today's earnings press release. Before we start, I'd like to point out the following safe harbor statement. This conference call may contain projections or other forward-looking statements regarding future events or the future performance of the company. Those statements are early predictions, and Allot cannot guarantee that they will, in fact, occur. Allot does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing market trends, delays in the launch of services by Allot's customers, reduced demand, and the competitive nature of the security services industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission. Also, the financial results in this call will be presented mainly on a non-GAAP basis. Allot believes that these non-GAAP financial measures provide more consistent and comparable measures to help investors understand Allot's operating performance. For all the data, please refer to the financial tables published in the results press release issued earlier today, which also include the GAAP to non-GAAP reconciliation tables. And with that, I would now like to hand the call over to Eyal Harari, CEO of Allot. Eyal, please go ahead. Eyal Harari: Thank you, Ken. We are pleased with our excellent third quarter 2025 results. We reported double-digit year-over-year revenue growth for the first time in multiple years. Continued strong CCaaS momentum and our highest level of operating profitability in over a decade. We saw strength across all parts of our business, both in cybersecurity as well as network intelligence solutions. Revenue for the quarter was $26.4 million, up 14% year over year. Our profitability has likewise expanded strongly, and we reported solid operating profit in the quarter versus a loss last year. Our Cybersecurity as a Service growth engine continued with its excellent performance. As of September 2025, our CCaaS ARR was up 60% year over year, which demonstrates very strong traction for our service among end customers. As each quarter passes, CCaaS is becoming an ever more important part of the revenue pie, and it made up 28% of our revenues for the quarter. We ended the quarter with over $80 million in cash and no debt. Allot is back to a very strong financial position with the resources to further execute on our growth strategy. Overall, our results demonstrate that we are executing exceptionally well on our cybersecurity-first strategy and renewed go-to-market focus. Looking at some of the trends within the business, I first want to discuss our biggest growth engine. We are seeing increased traction among major telcos for cybersecurity as a service solutions. As we progress, we are starting to see the fruits of our long-term investments in this solution. The recent customer launches of our cybersecurity service are going very well. We are actively supporting our customer launches and offering gaining traction with their end customers, driving our strong sales momentum. During the quarter, we gained our first customer for our newly released Ofnet Secure solution. Ofnet Secure will allow the extending of network-based cybersecurity protection beyond the operator's infrastructure to subscribers using any network or Wi-Fi connection. It allows operators to better seamless always-on security experience that travels with the user without requiring complex installations or device-level configuration. For the operator, Ofnet Secure strengthens their customer loyalty, increases subscription-based revenue opportunities, and reinforces the role as a trusted provider of digital security backed by Allot Technology. The pipeline of new potential business continues to increase. Our CCaaS offering is gaining traction not only with new CSPs and telcos but also among the end customers of our existing partners. The positive momentum is allowing us to show accelerated growth and is providing us with strong forward visibility. As you can see, we are working hard to successfully bring new CCaaS customers to Allot. Our smart product network intelligence continued to perform well and was also a contributor to our growth in the quarter. We are winning new customers, which are driving higher revenues, stronger backlog, improved visibility, and we have a robust pipeline. Today, our smart product is being sold as part of our Unified Cybersecurity First platform. This integrated solution, with best-in-class technology and innovation, is enabling us to generate increased demand. We are actively executing on the various projects we have recently won, including new Terra three deployments and upgrades, where we are working closely with the customers to roll out the platform. We are investing to bring new capabilities and functionality to maintain our technology leadership, and our recent enhancement around visibility is creating new opportunities for us. Overall, our efforts to grow the business and product line continue to progress well, and the backlog that we have built over the past few months provides us with solid visibility heading into next year. In summary, we are very pleased with our third quarter 2025 results, driven by strong performance across all parts of our business, namely accelerating CCaaS traction and increased Network Intelligence solution sales. Looking ahead, we have good visibility. Our backlog is strong, and our pipeline continues to be broad with many opportunities. I am increasingly optimistic about our long-term future, and I am excited to continue progressing on our cybersecurity-first strategy. Given the continued accelerated CCaaS growth, our solid visibility, and high level of backlog, we are increasing our guidance. We expect 2025 year-end CCaaS ARR to show an exceptionally strong year-over-year growth surpassing 60%. We are also raising our full-year 2025 revenue guidance to between $100 and $103 million. As we move into 2026, Allot is exceptionally well-positioned for the year ahead, and we see ourselves at the inflection point of a longer-term trend of ongoing profitable growth. And now I would like to hand it over to our CFO, Liat Nahum, for the financial summary. Liat, please go ahead. Liat Nahum: Thanks, Eyal. Revenue in the third quarter was $26.4 million, up 14% year over year. Revenue from our growth engine CCaaS was $7.3 million in the quarter, up 60% year over year and comprising 28% of our revenue in the quarter. Our CCaaS annual recurring revenue, ARR, as of September 2025 was $27.6 million. Our revenue increase was driven by growth in both our CCaaS and our Smart products. From a geographic perspective, I want to point out that in the third quarter, we had an increased level of Americas sales, in line with our strategy to increase business in this region. Specifically, we recognized revenue on a relatively large smart order, and on the CCaaS front, we experienced a growing contribution from the U.S. Finally, I want to point out that recurring revenue continued to grow as a percentage of our overall revenues, standing at 63% in Q3 2025 versus 58% in Q3 2024. I will now discuss the non-GAAP financial measures. For all our financial results, including the GAAP financial measures, and the various other breakdowns of our revenues, please refer to the table in our results press release. Non-GAAP gross margin in the quarter was 72.2% compared with 71.7% in the third quarter of last year. Non-GAAP operating expenses were $15.4 million compared with $15.6 million in the third quarter of last year. During the quarter, we received a grant of approximately $1 million for research and development funding. This grant was also received in the third quarter of last year. We reported non-GAAP operating income of $3.7 million compared with $1.1 million in Q3 2024. The growth in revenue and improved gross margin on a similar operating expense base led to significant growth in our operating income. Allot had 497 full-time employees as of 09/30/2025. In terms of non-GAAP net income, we reported $4.6 million in the quarter, or a profit of $0.1 per diluted share, as compared with $1.3 million or $0.03 per diluted share in the third quarter of last year. During the quarter, we completed a $46 million follow-on share offering, of which $40 million in gross proceeds were received during the second quarter and the remaining $6 million in gross proceeds received this quarter. Our shares issued and outstanding as of September were 48.4 million shares. We reported $4 million positive operating cash flow in the third quarter, representing the third quarter in a row that we are generating positive operating cash flow. We added over $10 million to our cash balance, and we are well-positioned to drive profitable growth. Cash, bank deposits, and investments as of September 30, 2025, totaled $81 million versus $59 million as of 12/31/2024. Allot has no debt. That ends my summary. Eyal and I are now happy to take your questions. Operator: Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. If you have a question, please press 1. If you wish to cancel your request, please press 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Nihal Chokshi from Northland Capital Markets. Please go ahead. Nihal Chokshi: Good morning. Congratulations on a good quarter. You mentioned that you are seeing increased traction with the major telecom customer. Can you outline whether or not that's coming from higher attach rates or is that coming from more bundles potentially now bundled at the default base premium bundle here? Eyal Harari: Thank you, Nihal. So overall, we are seeing good progress with all of our new customer launches. I think we are seeing positive trends both on attach rates as well as we have good progress with the new services we launched with our customers. This quarter, we updated on a mass mobile in Panama that launched our CCaaS service and expanded our customer base. Overall, we are seeing good results with all of our customers that drove this very significant growth on both CCaaS revenue and ARR and supported our highest revenue growth for the company in a while. Nihal Chokshi: Okay. Great. You also mentioned that you secured your first customer for Ofnet Secure. Can you give a little bit more detail on what is the customer profile of this first customer here? Eyal Harari: So we have Ofnet Secure as a product we launched a few quarters ago with an aim to enhance our security protection for our end customers not only when they are connected to the operational network but also when they are leaving the network and using other ways to connect to their services. With the new product starting to build pipeline, we are in multiple sales opportunities with both new and existing customers that are looking to enhance their service with this option. I do not want to go too much into the specifics of this first launch, but I would say that the main value for these specific customers is that they really want their customers to be protected 24/7, and they wanted to combine our unique network security with the off-net so no matter where the customer is connected, they are always using our cybersecurity services, and they do not have to mitigate the risk or minimize the risk of being under security threats. Nihal Chokshi: Is it fair to say that this is a customer of materiality to Allot? Eyal Harari: We appreciate the customer and its event for that. I do not want to go into specifics. As I said, it is the first customer that we already had this service, but we have additional multiple opportunities with both new and existing customers that are looking to further enhance our cybersecurity service with Ofnet. Nihal Chokshi: Okay. Great. My final question is that in the past quarters, you have commented on a strong smart pipeline. Do you continue to see that? Eyal Harari: Yes. We announced earlier in the year that we won several multimillion-dollar deals as well as very large deals we announced, I believe, in July or August. We still see a strong pipeline with opportunities both with existing customers looking to further expand their platforms. We see good demand for the Terra three new product, which is a very high-capacity service gateway solution. We have a good mix of new and existing customers in the pipeline. So overall, as commented earlier by Liat, we see in this quarter strong results not only from the CCaaS but also from the smart product line. We are hoping for this trend to continue. Nihal Chokshi: Great. Thank you very much. Operator: Thank you, Nihal. The next question is from Jonathan Ho from William Blair. Please go ahead. Jonathan Ho: Hi, good morning and congratulations on the strong results. Starting with CCaaS, can you maybe unpack for us a little bit more what the drivers of the growth were? How much of this growth is maybe coming from newer contracts that are now coming online versus adoption and growth in existing contracts? Eyal Harari: Thank you, Jonathan. So our main growth is coming from the last year's contracts we announced in the last few quarters that onboarded, launched our service, and continue to onboard new and additional customers. Overall, we are very pleased with the results of most of our strategic accounts that are continuing to add new subscriptions and supporting the service. We announced this quarter about one new launch, mass mobile in Panama. Some of the new projects and activities are going to support our longer-term growth. But when we look at short-term quarterly changes, this is mainly by new customers joining on the services we already launched. Jonathan Ho: Got it. And in terms of your network intelligence offerings, can you talk a little bit about the competitive landscape and pricing environment? It looks like this has inflected back to growth, but I just wanted to understand sort of the sustainability of that growth opportunity. Eyal Harari: Our networking technologies are part of our core assets. We have a very large and significant installed base of customers. Overall, the competitive landscape is less, I would say, easier these days due to some of the changes in the dynamics. We see that overall telco CapEx spend is still tight, and the telecom industry is still challenging, but we believe we have unique technology, and with the Terra three product that is very unique, we are able to get the best price performance in the market and by that get a really competitive edge. I believe that in the next few quarters, there is definitely a potential to continue to grow well with this product. This still continues to be a significant part of our plans. While in parallel, as you could also see, the CCaaS starts to be very meaningful. We passed more than 25% of our business from the cybersecurity, and if we continue with this pace, we are going to about 30% of our business with the cybersecurity CCaaS service. This positions us very well to continue the growth next year. Jonathan Ho: Got it. And maybe one last one for me. Can you talk a little bit about the drivers of growth in some of your larger CCaaS contracts and whether some of the ad campaigns that were launched that were pretty public have had an impact in terms of adoption? Any way to measure that or anything that you've taken away from a learning perspective? Thank you. Eyal Harari: So, Jonathan, we are seeing four drivers for our CCaaS growth. One is obviously when we have new customers that are expanding our TAM into new subscriber bases. This is what we are busy with our expanded go-to-market team that is going after new accounts. On accounts that we already work with, usually we start with certain services. But we are continuing with our customer success teams to further offer additional services. For example, start with a mobile network, we are offering the fixed security. In some areas, we are doing the business customers. We are looking into the consumer and vice versa. So every account definitely does not stop once. It has a lot of potential to do more. So the services that are already launched, we are working closely with our marketing team and our consultants that bring best practices on what is the best way to go to market for our partners to reach their customers. We are trying to help them with marketing materials, marketing campaigns, and really more on a consultancy supporting mode. We are really relying on their go-to-market efforts. Typically, new services once launched are peaking between after two to three years. We see strong double-digit attach rates in many of our customers. This is why this growth is usually sustainable along this time. Lastly, we are looking to further upsell and cross-sell some new innovations, new products. We are very pleased that our latest release of the off-net is now part of the portfolio. This is helping us to get more revenue from the same customers that are already attached to the cybersecurity service. We are continuing to work on additional innovations and bring more value to our customers to further help them to protect their customers. So all of those are working together. Some are more longer-term growth, some of them are more shorter-term growth. Because we are investing in all those in parallel, we are seeing very good results in the 60% range year over year, which we are very pleased with. Jonathan Ho: Excellent. Thank you. Eyal Harari: Thank you, Jonathan. Operator: The next question is from Matthew Ryan Calitri of Needham and Company. Please go ahead. Matthew Ryan Calitri: Hey guys, this is Matt Calitri over at Needham. Thanks for taking our questions. On the CCaaS side, how is Verizon-like penetration trending versus expectations? Are you seeing fairly linear scaling here, or is it more of an exponential path? Eyal Harari: So we cannot refer to specific customers. But as commented before, we are overall very pleased with our progress with all of our customer base. We see the results in the quarterly numbers. As you saw, we raised our expectations to surpass 60% on a yearly level. Overall, we are very happy with the progress. Matthew Ryan Calitri: Okay. That makes sense. And then a cleanup here. When you said CCaaS revenue going to about 30% of the business, was that expectation like by the end of the year? Liat Nahum: Yes. So if we continue the current trend, then as we gave already guidelines for the remaining of the year to reach 60% and above year over year, then this is indeed the expectation. Yes. Matthew Ryan Calitri: Okay, great. And then last one for me. On the product revenue strength you are seeing, how is Terra three playing a role in customer conversations? And what kind of color can you give there as far as new opportunities that's opening up and how other segments are changing there? Thank you. Eyal Harari: So we do see a good mix in our pipeline of new opportunities as well as discussions with our existing customers. Overall, we are putting a lot of focus on our customer success and making sure we are helping to support our customers' business goals. A lot of the growth and a lot of the potential we see is already within a very impressive installed base. We have some of the best carriers in the world that are working with us both on the smart and secure product lines. We are trying to continue and improve and delight our customers to maximize the business value they get from our solution. Overall, in the telco industry, this is the best way to provide longer-term sustainable growth. We also see every quarter additional new customers that are adding to the potential. As we mentioned in the previous comments, we saw part of the quarters new logos joining in both product lines, and we are trying to keep the investment on hunting and going after new accounts. We are maintaining a healthy mix in our pipeline between the two. Matthew Ryan Calitri: Great. Thank you. Eyal Harari: Thank you, Matt. Operator: There are no further questions at this time. So that ends our question and answer session. In the next few hours, this call will be made available on Allot's IR website. I would like to thank everyone for joining this call today and especially to Allot's management for hosting this call. And with that, we end our call. Have a good day.
Operator: Good day, everyone, and welcome to today's BrightView Earnings Call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Chris Stoczko, Vice President of Finance and Investor Relations. Please go ahead, sir. Chris Stoczko: Good morning, and thank you for joining BrightView's Fourth Quarter and Full Year Fiscal 2025 Earnings Call. Dale Asplund, BrightView's President and Chief Executive Officer; and Brett Urban, Chief Financial Officer, are on the call. I will now refer you to Slide 2 of the presentation, which can also be found on our website and contains our safe harbor disclaimer. Our presentation includes forward-looking statements subject to risks and uncertainties. In addition, during the call, we will refer to certain non-GAAP financial measures. Please see our press release and 8-K issued yesterday for a reconciliation of these measures. With that, I will now turn the call over to Dale. Dale Asplund: Thank you, Chris, and good morning, everyone, 2025 was another transformational year here at BrightView. We continue prioritizing our frontline employees by investing in consistent service levels and refreshing our fleet, enabling a best-in-class service experience to our customers each and every day. We have also made progress in expanding our sales force, hiring about 100 new sellers in the year, which positions us to drive top line profitable growth in the near term. We offset the investments by continuing to leverage our size and scale and drive meaningful efficiencies within our business. These initiatives as well as the hard work and dedication of our nearly 19,000 team members resulted in the highest ever adjusted EBITDA and margin. Our unwavering focus on delivering world-class service to our customers continues to yield meaningful momentum in customer retention, improving about 200 basis points from the prior year and about 400 basis points since the beginning of my tenure in October of 2023. I want to thank our team members for their continued efforts to put the customer at the center of everything we do and position ourselves as the service provider of choice. Additionally, as part of our disciplined approach to capital allocation and commitment to driving shareholder value, we have increased our share repurchase authorization from $100 million to $150 million, and we are evaluating the pace at which we will execute. We believe our current valuation is dislocated from the tremendous progress we have made over the past 2 years and the significant opportunities that lie ahead. Our strong balance sheet and growth outlook gives me the confidence to expand the program and return capital to shareholders in a strategic and opportunistic way. As we turn the corner into fiscal 2026, I want to reemphasize my primary focus of delivering sustainable and profitable top line growth in the near and long term. I believe the investments we made and will continue to make such as consistent service levels and expanding our sales force have strengthened the foundation of our business and will position us to inflect top line growth in 2026 as reflected in our guidance, which Brett will touch on in a bit. Our formula remains the same: prioritize our front line, which, in turn, reduces turnover and leads to improved customer retention, all key fundamentals to top line growth and larger, more profitable branches. This, coupled with ramping up our sales force and unlocking our size and scale while strategically allocating capital will position BrightView as a clear investment of choice. Moving to Slide 5. We continue to see sequential improvements in our frontline turnover. Two years ago, this metric was nearly 100% with the bottom quartile of our workforce turning over 4 to 5x per year. This created inconsistent levels of service and required additional costs to hire and onboard new employees. Through continued investments in our employees, we've been able to drive meaningful improvement. The progress we've made continues to deliver cost savings, and we've reinvested into our frontline and will -- as well as more consistent service levels to our customers. This has been the key to solidifying our foundation and will continue to be a priority moving forward as we position BrightView as the employer of choice. Turning to Slide 6. I'd like to highlight the sequential improvement we've made in customer retention over the past 2 years, which is now approximately 83%, a 400 basis point improvement since the start of our transformation 2 years ago. This is a reflection of the exceptional service our employees deliver every day. Although we have seen great improvement, there is even more opportunity across our branch network as best-in-class branches sit at 90-plus percent customer retention. As I said from day 1, becoming the service provider of choice begins with prioritizing our employees and providing best-in-class service. This formula will continue to drive retention improvements across our business and contribute to our growth in 2026 and beyond. Now let's move to Slide 7. As I just outlined, we made significant progress in solidifying the foundation of our business and are making investments to expand our sales force. At our Investor Day in February, we committed to adding approximately 50% to our sales force, equating to about 500 net new hires through 2030. In 2025, we added roughly 100 sellers to the business, and we have been able to fund the investments through continued G&A savings and efficiencies. It's important to note that the hiring of these sellers was more heavily weighted to the back half of the year. In 2026, we will continue to leverage savings in G&A to fund the investment into our sales organization. In the bottom right, you can see that our current 10 year is relatively new, merely a function of ramping our sales force. Training of our new sellers takes time, and we typically see improved productivity after their first year. However, we continue to invest in technology and training to help onboard and speed up the effectiveness of both our new and tenured sellers. As we move forward, expanding our sales force, along with other key growth levers, which I will touch on in the next slide will be key to driving sustainable top line profitable growth. Moving on to Slide 8. In my first 2 years, we've made significant strides in unifying our business, enhancing operational efficiencies, investing for the future and continuing to prioritize our employees and customers, effectively solidifying the foundation of our business. Our development and maintenance teams are working together as a unified one BrightView, focused on cross-selling into future reoccurring maintenance work. Additionally, with our record capital spend last year, was an investment in over 30 new tree trucks, which more landing at branches in 2026. Investments like these will help bolster and expand our service offerings to our customers. Also by leveraging our national presence, we can effectively service large national accounts as a single point of contact provider. These multifaceted levers, along with the investments we are making in our sales force have positioned us to deliver top line profitable growth in 2026 and beyond and deliver value for all our stakeholders. With that, I will now turn the call over to Brett. Brett Urban: Thank you, Dale, and good morning, everyone. I'll start by reiterating Dale's enthusiasm for the progress we've made over the past 2 years as we actively transform this business. Our teams across the country continue to raise the bar, delivering exceptional service, driving operational excellence and strengthening the culture that makes BrightView poised for success. Moving to Slide 10. We delivered another year of record adjusted EBITDA and margin, which was made possible by our streamlined operating structure and unlocking scale advantages as the #1 provider in our industry. Fiscal '25 EBITDA was $352 million at a margin of 13.2%, representing a 260 basis point improvement from fiscal '23. We have made great progress in just 24 months, taking a business with shrinking margins and stagnated EBITDA to a business that has grown EBITDA over $50 million and delivered record margins all while investing at record levels back into the long-term success of the business. Let's now move to Slide 11 to take a look at how we were able to improve profitability in fiscal '25. Adjusted EBITDA was a record $352 million, an increase of $28 million or 8% higher than fiscal '24. Adjusted EBITDA margin of 13.2% was also a record and expanded 150 basis points year-over-year, marking another consecutive year of margin expansion. Operating efficiencies more than offset the revenue flow-through, and we saw the benefits from the record level of investments we made refreshing our fleet, centralizing procurement and continued efficiencies in G&A. As Dale mentioned, we are actively making investments back into expanding our sales organization, which will be one of the keys to sustainable top line growth. Turning now to Slide 12. We've taken substantial overhead costs out of our business, improving SG&A expense as a percentage of revenue by 180 basis points since 2023. Our streamlined operating structure has produced meaningful cost benefits that we are using to reinvest into our employees, client satisfaction and more recently, our sales organization. Going forward, we expect to unlock additional efficiencies by leveraging our size and scale which are built into our long-term plan we presented last fiscal year during Investor Day. Moving to Slide 13. We're encouraged by the progress we've made in our trajectory of land maintenance revenue over the past 2 years by aligning our sales and operating structure, we made sequential improvements in year-over-year revenue through Q2 2025. In Q3, we experienced some macro-related headwinds, but the sequential improvement we saw in Q4 gives us confidence that land revenue growth is on the near-term horizon. As Dale mentioned, we added 100 new sellers in fiscal '25. And going forward, we will continue to invest G&A savings back into our sales team that will ultimately be a driver of profitable top line growth. In fiscal '26, we expect these investments, coupled with our development conversion strategy and enhanced ancillary offerings to deliver land revenue growth. I'll touch further on our fiscal '26 guidance in a few minutes, but I'd first like to turn to Slide 14 to talk about our fleet management strategy, which has generated multifaceted benefits since its introduction. To start, our fleet was severely aged in 2023, given the lack of investment made previously into our core business. This led to a range of issues, including higher repair and maintenance expenses, higher rental expenses, lower residuals, frustrated employees and unsatisfied customers. But over the past 2 years, we've invested over $300 million of capital to refresh our trucks, mowers and other equipment, bringing down the average life of these assets considerably. The age of our core production vehicles has been reduced to just 5 years on average and our core mowers to 1 year. Another focus area for 2026 will be refreshing our fleet of trailers, which are about 11 years old on average. The investments we made have driven significant improvements in repairs, maintenance and equipment rental, all driving incremental margin. Additionally, we found that the refresh fleet has improved employee morale and employee retention as frontline workers are able to service our customers with the confidence of having reliable equipment. In turn, our customers have been more satisfied as evidenced through our improvement in customer retention. In total, our fleet refresh strategy has delivered both financial and operational benefits that we will continue to realize as we invest further in the years ahead. Moving to Slide 15. We remain disciplined in our strategic capital allocation focused on driving long-term shareholder value. Our strong balance sheet continues to support this approach, highlighted by ample liquidity and a favorable debt profile with no long-term maturities until 2029. Net leverage remained at 2.3x. We accelerated our fleet strategy in fiscal '25, and we'll continue to execute this strategy in fiscal '26 as I previously discussed. And as Dale mentioned, we have increased our share repurchase authorization from $100 million to $150 million. We believe there is a significant disconnect in our current valuation versus our earnings potential. The profits and margins we've generated since 2023 have been exceptional. We remain confident in our long-term growth strategy and coupled with our shares trading at an attractive multiple, believe that repurchases represent an accretive and efficient use of capital. The proactive management of our strong balance sheet reinforces our ability to reinvest in the business, support profitable growth and create meaningful long-term value for shareholders. Now let's turn to Slide 16, where we outline our guidance for fiscal '26, which is underpinned by a return to revenue growth in land maintenance and translates to yet another record adjusted EBITDA and continued margin expansion. We expect to deliver revenue in a range of $2.67 billion to $2.73 billion, adjusted EBITDA in the range of $363 million to $377 million and adjusted free cash flow in the range of $100 million to $115 million. The revenue guidance assumes the following: for maintenance land, we expect revenue to increase by 1% to 2% as we begin to realize the benefits of our growing sales force, the continued improvement in customer retention, expanding our ancillary offerings and higher development to maintenance conversions. For development, we expect revenue growth to be in the range of flat to positive 2%, reflecting a combination of a healthy backlog as well as the benefits from cold starts, partially offset by project delays early in the fiscal year. For snow, we are anticipating revenue to be in the range of $190 million to $220 million, reflecting a midpoint at our 5-year average and the shift to more fixed fee contracts. Moving to adjusted EBITDA. We expect margins in the Maintenance segment to expand by 50 to 70 basis points and margins in the Development segment to expand by 20 to 40 basis points. In total, we expect adjusted EBITDA margins to increase by 40 to 60 basis points, reflecting continued momentum in the multiple initiatives we've undertaken to drive profitable growth. Important to note the midpoint of our margin guidance would imply a 310 basis point improvement over the last 3 years, reinforcing our commitment from Investor Day to expanding margins on average 100 basis points per year. Before turning the call back over to Dale, I would like to remind you of the incredible progress we've made in just 24 months and the tremendous opportunity we have ahead as we continue to transform this business for long-term success. Also, I would like to express my gratitude to all of our committed team members. Without their unwavering focus and dedication, none of this would be possible. With that, I'll turn the call back to Dale. Dale Asplund: Thanks, Brett. Before we open the call for questions, I'd like to reemphasize what I've said from day 1, transforming this business would not be possible without the commitment and dedication of our employees. By investing in our people and becoming the employer of choice, we will continue providing world-class service and become a better partner to our customers. This, coupled with the ramp of our sales force, unlocking our size and scale, strategically allocating capital and returning our business to top line growth will make BrightView the investment of choice. With that, operator, you may now open the call for questions. Operator: Certainly. [Operator Instructions] We go first this morning to Tim Mulrooney of William Blair. Benjamin Luke McFadden: This is Luke McFadden on for Tim. So coming out of the third quarter, I think you felt like the worst was largely behind you in terms of tariff-related disruptions in your land maintenance business. I'm curious how performance in some of those more discretionary areas of land maintenance trended as you moved through the fourth quarter and how you're feeling about the setup for land maintenance sitting here today several weeks into the first quarter? Dale Asplund: Yes, great question, Luke. I'll start off and Brett can add. First of all, we sit here today in our branch in San Francisco, a little early, and I've got a little cold, so pardon my voice. But I would tell you that the progress we saw as we went through the quarter showed optimism that discretionary spend of ancillary, we could definitely see return. And probably more positive for me as I stood at the gate yesterday during gate check and watched all the new fleet that Brett just talked about roll out and the cultural change it has on our frontline workers. When we talk to them about the work they're going out to do, the feeling of our customers once again looking to return to those ancillary projects that were delayed when Liberation Day happened was very positive. So look, it's going to be a daily grind. We had last year some 2 named storms that hit us, one at the end of September, one in October. The one at the end of September, as many people remember, was right from the Panhandle of Florida all the way up through the Carolinas. So we're going to have to step over that, but we feel like the progress we saw right through Q4 is an indication of why we said we're going to grow this business as we go through 2026. Now just to remind everybody, these are our seasonal months, the next 6 months or 2 quarters, we could have some noise from the seasonality of the business. But like I used in my opening, I'd like to remind everybody, everything we've done has created a foundation that positions us to grow this business and where we feel when we get to our stronger months for the land revenue business in Q3 and Q4, we will be positioned right where we thought we would be to grow this business in the back half of the year. But we felt good, Luke. We're seeing some positive momentum as we went through the quarter. And most of that, as everybody heard in our Q3 call, was discretionary related. Brett, do you want to add anything? Brett Urban: Yes. I think Dale hit the nail on the head. We're seeing sequential improvement. We saw that in Q4. We do have to step over a couple of named storms that happened last year in Q1. But Q1 and Q2 is not really our busy land season. We do about 1/3 of our land revenue in the first half of the year. And we're doing everything we can now to ramp up our sales force and make investments into the sales force of the company so that we're well positioned as -- especially as we get into our busy season in the back half of the year. Benjamin Luke McFadden: That's really helpful color. And as my follow-up, I wanted to dig in a bit more on some of these investments you're making on the selling side. Maybe just how should we think about the productivity ramp on some of those new sales hires? I know you gave some context around the numbers in your prepared remarks, but maybe how that ramp fits in the context of your segment level organic growth outlook that you provided for 2026? Dale Asplund: Yes. Let me try to break it into thirds at a high level. And obviously, there's exceptions for everything. But usually the first 6 months of new sellers, they're learning the business, they're trying to get their arms around, and they're very, very limited on productivity. They're out making relationships. You could think of getting work to bid on. The second 6 months, traditionally, they see a little more of a ramping. And once they get over a year, we see them get closer to what our seasoned sales reps would say -- would sell. And once they get over 18 months, we feel like they're in that normal stride of, call it, $1.5 million a year is what we target for our seasoned sellers. So they take time, Luke. It takes us a little bit. We added a lot this year, and we feel great. And I will say this, they are paying dividends as I see us starting to get new business as we even enter 2026, and we will continue to make investments through 2026 that will add cost to the P&L that we've forecasted in our EBITDA number. We think we'll add a similar number of resources as we work through '26. Brett, do you want to add... Brett Urban: Yes, I would just add, Luke, the transformation of this business under Dale's leadership in such a short period of time has been nothing short of exceptional. And as you look at our trend over the last 2 years from a profitability standpoint and EBITDA and a quality of earnings standpoint and margin and you look at what we're able to produce to the balance sheet with cash to invest in the business, that's the beauty of where we are standing right now. That's why we're so excited. We have the ability to invest in the business. And you can see in our EBITDA bridge in '25, we invested about $7 million into the sales force, really starting in the April through June quarter. But we're going to continue to invest in the sales force is now the foundation of the business, as you see in some of the KPIs that we presented is solidified and significantly improved from just 24 short months ago. Our employee retention has improved significantly, and our customer retention has improved significantly. So now that, that foundation is set, that's why we're putting the gas pedal down right now so hard on adding to the sales force. And Dale talked to the timing of that and ramping those sellers up. It does take time, but we have the ability and the fortunate situation where we continue to grow earnings and have cash to invest back into the business. Operator: We'll go next now to Bob Labick at CJS Securities. Bob Labick: So I wanted to start with some other KPIs. Obviously, you've really done quite well. And you have the continuing progress on prioritizing your employees. There's a couple of blue, I guess, circles, a lot of green checks on that slide as well. Where can this go, I guess, is the question? How far are you along the road map of improving employee retention? And how much more progress is there to make? And how can this -- at what point does this continue to influence or stop influencing your customer retention rate? Where -- link those 2 together, but really with the employee retention goals and where can it go? Dale Asplund: Yes. Look, we've made progress and the blue checks that we're still working on to make it -- make us a better employer for our frontline workers. We're going to keep looking at new opportunities, Bob. Those aren't the final steps. Our goal is to make sure by far, our #1 most important asset that touches our customers every day feels that they work for the best landscape company in the industry. We have improved that line. From the day I arrived, I said we have to do a better job of prioritizing those employees. We have improved that statistic over 3,000 basis points since the end of 2022, which is an absolute amazing statistic when you think about it. I think, Bob, there's another, call it, 2,000 to 3,000 basis points that we can get to get to a more normalized level for that type of high churn workforce. But those people are so critical in driving our overall customer retention that we just have to keep thinking of new ways to make sure that they understand their importance. And that starts with yesterday, me standing at the gate, handing out doughnuts and coffee and thanking them for what they do. And it makes me feel good when they thank me for the new vehicle they have. So I fully believe, Bob, they are the key to keep driving that customer retention. And I feel like we're only halfway-ish on our journey of what we can accomplish with frontline turnover. Bob Labick: Okay. That's great. And then you talked, I think, about the $300 million of investment in fleet earlier on the call. Can you talk about how the new tax bill influences the rate of investment that you're going after? And how many more years of -- will it take to get to kind of a normalized range for your capital investment? Because obviously, you're getting rid of fully depreciated assets. At some point, you'll get something back for those assets as you get further down through your road map. Brett Urban: Absolutely, Bob. This is Brett. I'll take that one. So yes, we were, again, excited that we have the opportunity to invest in our fleet, invest in our people, as Dale just mentioned. So yes, you did see us in 2025, we benefited from the One Big Beautiful Bill where we did not pay any federal taxes. And we took that money for cash savings and accelerated our fleet refresh, as you can see in the capital we spent in 2025. So we're excited we're able to do that. We have our mowers in a spot now where it's exactly where we want to be for the long term, an average of 1-year old mowers, which is fantastic. We have our trucks right around 5 years old, our core production trucks. We probably have 1 more year to go to continue to refresh our trucks to bring that age down just a little bit further. And then in 2026 and even into 2027, we're going to really invest in refreshing our trailers, which we have about 4,500 trailers across the fleet. So we started a little bit of that at the end of '25, but you can see in our CapEx guide still heavier than normal, I guess, in 2026. And then when we get into 2027 and really in 2028, we'll start to get back into that 3.5% range of revenue for capital. But the beauty of it is with our debt structure the way it is and our ample liquidity, we're able to invest back in the fleet. And Dale said it, in about 1 minute, we're going to start seeing trucks roll out of the yard we're sitting in here in San Francisco and spending time with the crews and spending time with the managers here on site. I mean the team on the ground could not be happier with some of the investments we're making into their offices, into their trucks that they drive in every day, into the fleet of mowers, the reliability they have to service their customers. So that's really where we're seeing this pay off. Operator: We'll go next now to Andy Wittmann with Baird. Andrew J. Wittmann: I guess I wanted to build on the last question on capital. I mean -- so I just heard '26 is going to be obviously [ 6.4% ] of revenue. It sounds like next year is going to be above the 3.5%. What's the delta? You guys talked not that long ago about maybe '26 being a normalized year. Where was the CapEx bill higher than you expected? Was that just inflation and tariffs? Or is it just kind of a new look at the fleet from kind of where you were at Analyst Day? Brett Urban: Yes. Andy, it's a great question. Look, I think I'll start by saying we are fortunate to have our balance sheet in a position now to continue to invest in the business and refresh our fleet. And as you look at employee retention and that metric continuing to get better, you look at customer retention, that metric continuing to get better. That's directly related to some of the fleet investments we're making so that we can service our customers with the reliability that they deserve. And then secondly, as you think about the investment moving forward, yes, we're going to spend a little bit more this year because we want to get through kind of the refresh of our fleet. Previous to 2024, we spent a lot of cash in the company, but very little of that cash was on our core business, right? You guys know the story around M&A, et cetera. So we're now investing cash back into our core business. So we're going to continue to do that. Now you think about the P&L side of the equation, our repair, maintenance and rental expense, which was listed in our deck here is about $59 million a few years ago. We saw about a 15% reduction over the last 24 months, down about $51 million. We expect to see a reduction here in '26 and '27. And that number we said during Investor Day, we could probably get half into the P&L as savings, and we expect to see more of that come through '26 and '27 as we move forward. Dale Asplund: Yes. Andy, let me add a little color to that. I think the word that I would use is today, we have flexibility that we didn't have 24 months ago. We have the ability, if we see some reason to slow down capital, our fleet is at a level today that we could operate and customers would still see us as a great provider. We're going to continue to move that to the level that we want it to be, where we think that repair and maintenance will be at our opportunistic level. But right now, we do have flexibility. 2 years ago, we didn't have that, Andy. When I arrived, we needed fleet refreshments. We needed to invest money. We were already keeping fleet way too long. Today, I feel like we have flexibility, and that's the key. Andrew J. Wittmann: Okay. And then just, I guess, operationally, kind of a 2-part question probably for you, Dale. So there was a comment in the prepared remarks about new technology and training for sellers. I was just hoping maybe you could expand on that, how the tools that they're going to have in '26 are different from what's happened in the past. And then, Brett, you also mentioned in your comments, there's kind of the next round of efficiencies that are going to be able to fund some of those investments. And -- but maybe if you could help us get a tangible sense of that, maybe some examples of things that you plan to do that you haven't yet done that are going to afford you that opportunity. Dale Asplund: Yes. So I'll start with the training side. In the back half of '25, we brought in a new leader at our corporate level to drive training across our organizations and her primary first focus is on our sales organization. We have a lot of content, Andy, that we've digitized that we're now putting out there that our employees can access via their phone. They can access it via a computer or they can get printed materials if they want. We have to continue to invest in those materials, especially as we grow that sales force. And then as you heard in my prepared remarks, we continue to invest in ancillary services. As an example, the tree trucks we added, we have to make sure that every one of our branches have the ability to give tree service access to our customers. And that takes making sure our sales reps understand what that service provider is and make sure that we have professionals that can work with our customers to get them the proper quotes and then we can do the work safely and efficiently. So it's a lot of information gathering. And when you have a dispersed sales force, we have to have an easy way to make sure they can get to the content. Because what we found, Andy, when we look at it, our quickest sales rep to get up to speed to be able to produce are the ones that access that materials not just the day they join, but when they access it multiple times, and they use it as a reference. So making it visible, making it at the touch of a button is critical. Brett Urban: Yes, I would just add from an EBITDA standpoint, Andy, we are going to unlock more efficiencies in the business. We've seen significant efficiencies in our fleet strategy paying dividends. We've seen efficiencies and scale advantages by centralizing our procurement function. As you can see on Page 11 of our deck that we presented and the beauty of it is we are continuing to create that size and scale advantage as the #1 player in the industry, so we can reinvest back in the business. And we're reinvesting in our employees. As you see that, we're reinvesting in our fleet, as you talked about a minute ago. We're also reinvesting in technology. We're launching and digitizing how we -- as one example, in our field service management system, how we digitize and route our crews and we expect to add efficiency in the system by digitizing that, having it on your phone, being able to route and make adjustments throughout the day to add more service to customers as we go forward. So there's technology investments as well that's going to add to that efficiency. Operator: We'll go next now to Jeffrey Stevenson at Loop Capital. Jeffrey Stevenson: So Brett, following up on your point about the field service management system. Can you talk about the time line of the broad rollout across your branches for that? And whether you have any benefits from this baked into your second half guidance this year? Dale Asplund: Yes. Great question, Jeff. I'll start with that one because it's a project I'm very close to. And for those of you who visited our branches, we underinvested in the past in the use of technology. And with labor being 40% of our cost, there was no greater area than the management of our frontline crews. We did it far too manually with whiteboards. We have implemented a tool that integrates into our CRM system, so we know what jobs to service every day. We have rolled that system out in every one of my geographical regions for a couple of branches in a couple of different markets to make sure that it was efficient and added value to the branches. We tweaked it. We've gone back and started rolling it out to the masses across the whole company. We will be complete with that sometime after the new year, call it, in the first quarter of the new year or our second fiscal quarter, which is the time we want to do it in a lot of our markets where we have a little bit less land revenue, and that's the major focus is on our maintenance business. But yes, Jeff, we are very excited about what it can do for us, what we have built into our forecast and what we tell people as we roll that tool out, that is not a savings tool. That is a capacity creation tool for us. We want our employees to be more efficient doing the work that they do every day. And when we're growing this business in the back half of the year, we want to make sure we get the flow through on that incremental revenue as we work into 2027. That's the goal of field service. It's not a savings tool. It's a capacity creation tool, so we can do more work with our existing team as we grow this business. Brett Urban: I would just add, Jeff, that's why we sound so excited on this side of the conversation because we've created the ability in just a short 24 months to make sure we can continue to invest in the business. The amount of EBITDA that we've generated over $50 million since Dale has started in his chair as CEO, that we're able to use to reinvest into the business, the cash that we have on the balance sheet, we're able to use to reinvest in the business. And you hear some of it from ramping up our sales force, but technology is absolutely a big piece, and we're going to continue to invest in the business. And that's why I think we're so excited on this side of the table because we have the ability to invest and continue to invest in the business. Jeffrey Stevenson: Got it. No, that's very helpful. And then I was wondering if you could provide an update on the large project delays in your development business and how current segment backlogs have trended over the last 90 days? And then following up on that, how should we think about the time line of your development cold start initiative and whether you expect any benefits from this program in fiscal '26? Dale Asplund: Yes. Great question, Jeff. I mean the development business is a business that we see cyclicality in it. And the markets that did great in the back half of '25 were kind of the soft markets in the back half of '24. And the markets that did real well in 2024 were a little softer in '25. In fact, if you really look at that business, even though Q4 looked a little soft, we did the same in Q4 2025 as we did in Q4 2023. So a little bit of -- it's a comp issue of how well we were able to complete jobs last year in Q4. I think on the cold start side, if you think about where we're at, we mentioned we're going to do 10 cold starts. We have 5 of them that we're starting to try to get open the door now at existing real estate and starting to make productivity as we work through '26 in that area. We expect another 5 to be somewhere in the process within the end of 2026, hopefully, with leaders, with sales reps in those markets. The key of opening those development cold starts, it allows us to service a broader base of jobs without trying to service big jobs in all markets from one branch. So Denver is a great market for us that we have a very large branch, but they're doing jobs all over the state of Colorado. We need another branch that can do work so that the Denver group can focus on just the Denver market. So we made great progress, Jeff. We think that's why we feel confident. We're going to return that business to growth this year. And long term, by having more branches and more markets, our branches will go after more work within each market, not just the big jobs going chasing across the whole geographic area they can cover. So I hope that answers it. Brett Urban: Yes. And I would definitely say if you look at kind of the trajectory of the development business, they've grown significantly, Jeff, over the last few years, credit to the development teams and the branches we operate in. And that business has grown $60 million in '23. They grew $50 million in 2024, took a small step backwards here really towards the tail end due to some of that macro. But we're definitely coming down the other end of the bell curve. And if you look at kind of where Q4 came in at an 8% reduction in revenue quarter-over-quarter, Dale mentioned last Q4 was really impressive growth. But we're definitely coming down the other end of the bell curve. We expect it to be a little bit choppy here in the first half of the year, but that's just as those delays work its way through the system, and we're starting to see that free up here a little bit. And definitely, this business will be back to growing and growing at a nice pace here in the second half of the year. Dale Asplund: One other part of your question, Jeff, you asked about project delays. Let me just add this week for Pittsburgh Airport, which has been a very big project for us, actually switched to the new terminal. We're not done with our work there, but we're proud of the work that we did do. But where you see those things accelerate where we did have the delays, Jeff, we have other projects that haven't even started yet that we were counting on in Q3 and Q4. So there's always going to be give and take. There's a lot of noise out there, but there's plenty of work for our guys to go get. So we're motivating our development team. Let's get some new branches open. Let's all get more salespeople out there. Let's go get more work, because there's plenty of work for that team and the quality they do is second to none. So we're in great shape as we enter this year. We guided to 0% to 2% increase as we work through 2026 again. But great questions. Operator: We'll go next now to Greg Palm of Craig-Hallum. Greg Palm: Maybe just dovetailing on the last question. I don't know if we can spend a minute on labor and any impacts from sort of the changing immigration policy. But have you seen any direct or maybe indirect impacts there? And I guess if the industry is seeing some impact, at some point, are you able to use this to your advantage to maybe accelerate share gains if some of your competitors are having issues? Dale Asplund: Yes. Great question, Greg. Let me try to take that. So I believe that investing in our frontline people drives long-term customer retention and the quality of service that we deliver. But if I went back 2 years ago and I thought the challenges in the end labor markets due to immigration, we're going to be as hard as they are today. I would have made those same investments because today, the employees we have feel like BrightView cares more about them than ever. So I would tell you, as I talk to my operations team, what in the past was reactionary behavior every time somebody came to try to take one of our employees, our employees have seen the benefits, and we cover that on the trend that we showed of the improvement in turnover. Things that we put in this past year like PTO have been a huge benefit for our employees that when we get rain days or when there's a sick day they need to take. So I would tell you, Greg, we are so well positioned with where we're at. And yes, I do believe some of what we're seeing with our new sales that we're starting to see every month is because other providers are struggling to provide the level of service because of limited availability. As everybody knows, we e-verify our employees. We are very proud of that to make sure we can provide a good company to work for, for proper documented employees in the United States, and we don't have a fear about all the noise that's going around in some of these markets with some of the immigration challenges, but we feel great. And we think it's going to be a tailwind, not just where we felt so far, but as we work through '26, Greg. Greg Palm: Okay. I appreciate that color. And Dale, as you think about '26 and this sort of focus on growth. What do you -- what are the biggest near-term levers versus some of the stuff that I don't know, might trickle in a little bit and be more impactful in future years? Dale Asplund: Yes. Look, it's -- we talked about at our Investor Day talking about how we're going to get growth between now and 2030. It's the same levers, Greg. I am so proud of how far we've come on customer retention. We were up 400 basis points, granted from 79% to 83%. We are not done with that. Maybe the 200 basis points we've seen over the last couple of years, maybe it slows down a little, but there's somewhere between 100 and 200 basis points each year over the next several years. We have moved, this is the key, the underperforming branches. When we were at our Investor Day last February, 20% of our branches had customer retention below 70%. As of the end of the year, only 10% of our branches were below 70%. That's still roughly 20 branches that is below 70% that we have to improve. What we said and what we know, when branches are in the mid-80s, they are growing. We also have a litany of ancillary services. I talked about adding 30 tree trucks. We have a lot more tree trucks on order because what I want to do is be a full service provider to our customers. There's other ancillary work that we're working with our branches to go get. Today, a lot of the flowers and mulch and install work we do is with our existing customer base, we can do it for anybody, and our branches are starting to get more creative to go out and bid on work outside of their existing contract work to get more ancillary. So look, we have a lot of levers to pull here. That's why we're confident to say we're going to grow in 2026. Yes, we're always going to have a little noise. It's time for us to really put the foot down and get the accelerator going because this is our time for growth. So I hope that gives you an idea. I think adding sales resources, keep that customer retention, drive ancillary and let's go. I'm sick of talking about things in the past that create noise like a storm. We should be able to step over that stuff without any problem as we grow this business to mid-single digits annually. Operator: [Operator Instructions] We'll go next now to Stephanie Moore with Jefferies. Harold Antor: This is Harold Antor on for Stephanie Moore. I guess just one question for me. Capital allocation, you talked about your fleet investments. Just wanted to get any sense for your views on M&A. How that -- how have those conversations gone through the quarter? What are multiples looking at? Anything there would be helpful. Dale Asplund: Yes. Look, let's -- we'll take the topic of M&A. In a way, I think what I kicked off with and what Brett talked about, increasing our share repo to me, kind of sends a signal. If we're going to buy a quality company, those companies are trading at 8 to 10x very easily, Harold. Our company is drastically undervalued, trading around 7x. And with our new EBITDA guide, we're actually below 7x. So I'm going to take advantage. In fact, the word that I would use, our Board didn't approve the share -- increase in our share repo program. My Board encouraged it. They were supportive to say, we have come so far, not just in the financials that Brett covered, but in the culture. The fleet that we have today, 24 months later is a drastic change in our business. Our business is completely different than what it was 2 years ago. And today to be able to buy it at depressed levels, we're going to take all that cash right now until our stock trades at a more normalized level, and we're going to buy back our own stock. Is there a pipeline in M&A? Absolutely. Will we maybe look at something on the ancillary side such as tree businesses, aquatic businesses? If I find the right one, yes, but we're not going to chase deals. Our Board is supportive of what we're doing here in the short term with the dislocation in the stock price, and we're going to take advantage and accelerate that program. So opportunities are there, but to get the companies that deserve to be part of BrightView, the multiples are well above what we are willing to buy right now considering our stock price. Operator: We'll go next now to Toni Kaplan of Morgan Stanley. Yehuda Silverman: This is Yehuda Silverman on for Toni Kaplan. Just had a quick question on the snow side. So you mentioned that you're working towards getting to a customer contract base that's more fixed than variable. Heading into the upcoming snow season and looking into 2026, can you talk about the improvement in that area so far? And how this shift is expected to impact the business compared to a more variable heavy tactic? Dale Asplund: Yes. Look, I mean there's always markets, Yehuda, that is going to be very hard to switch to fix, take the Carolinas or Atlanta, where we saw some weather last year. So those will always be variable. But I would tell you, we focused on 2 things with our snow business. First, trying to get the majority of the customers that do land with us that need snow services to use us and limit us just providing snow removal services. We want to make sure we offer a full year service to our customer. And then go away from that riskier time and material, we've definitely seen an increase, which gave us the confidence to guide to that $180 million to $210 million or $205 million midpoint of -- or $220 million, I'm sorry, the $205 million midpoint that we guided to. We feel like we're in a great spot, and we continue to push. Here's what I would tell you. This is why I can't really give you the exact number. In many markets, it hasn't snowed yet. And some people don't like to refresh those snow deals until the flakes start to fly. So we've got a lot of paper out there that people will finally commit to. Once they know the storms are coming. We saw a little weather across the Midwest, but we have opportunities yet across Colorado and the Northeast where we've yet to see weather. But our strategy is working. We feel like we're making it a much more predictable business. And we feel like as we go through '26, once again, there's going to be no excuses because of snow. We told you guys what we believe is there. We think we can deliver on that. And if we can't deliver on it, it's not going to be a reason that we lower EBITDA. So we're committed to delivering this business and the forecast we put out there. And if snow is a little softer, we still think we can deliver the bottom line. Operator: We'll go next now to George Tong of Goldman Sachs. Keen Fai Tong: In your landscape maintenance business, can you provide some additional color on how your [ contract ] has performed relative to ancillary, especially the per occurrence side of contracted revenues? Dale Asplund: Yes. Great question, George. I think we feel great about where we're at with our book of business. When I look every day at where we're at for the month of adding and losing because I track it every day, and I send it to my direct reports, and they'll tell you, I can run the reports now. So it's great data for me to look at, and I track that contract because it should be very, very, very predictable. I would tell you, I think some of the areas where we saw some of that discretionary per occurrence were areas we saw some of that snow like the Carolinas, like Georgia, we feel like a lot of that noise is behind us. We feel good about what we're feeling with contract revenue and expect that to continue to be a tailwind for us as we go through 2026. Ancillary, like I started the conversation off with, we've come a long way. And it's not just what we're seeing in the numbers. It's really what the people in the branches are saying. I'm out here in San Francisco, and I had one of the local branch managers come to me yesterday that gave me great news that he has signed 2 deals, and I said that's great, keep going. Let's keep the team motivated and keep going, get it and let me know what I can get you from fleet or personnel to make sure you can keep getting that work. So I would tell you, we've come a long way. Yes, there's still some noise, but 2026 is our year to growth. Contract revenue will be up. Ancillary, we firmly believe will be up, and the investments we made in additional ancillary type assets like the tree will help us even drive that work. So we're positioned well, George. Great question. I would tell you, contract, where we felt some of that discretionary per occurrence, that's behind us now. We feel great as we enter 2026. Operator: And gentlemen, we have no further questions this morning. Mr. Asplund, I'd like to turn things back to you, sir, for any closing comments. Dale Asplund: Thank you, operator. Guys, as I complete my second year with BrightView, I want to take a moment to thank all of our employees on the incredible progress we've made together. Over the past 2 years, we've strengthened our culture, sharpened our execution and advanced our transformation. Together, we built a more efficient, stronger and significantly better foundational business to service our customers. My focus now is squarely on delivering consistent, profitable top line growth both in '26 and for years to come. So once again, operator, I want to thank everybody for joining us today. Thank you for your interest in BrightView. We look forward to giving you our progress as we work through 2026, which is a year we are very, very excited about. And the team, as we just left our annual meeting feels like there's so much upside based on the foundation we've built. So thank you, operator, and we'll talk to everybody in February. Operator: Thank you, Mr. Asplund, and thank you, Mr. Urban. Again, ladies and gentlemen, that will conclude today's BrightView earnings conference call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.
Operator: Thank you for standing by. This is the conference operator. Welcome to Vext Sciences Third Quarter 2025 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Priam Shahrabordi. Please go ahead. Unknown Executive: Thanks, operator. Good morning, everyone, and thank you for joining us today. Vext Third Quarter 2025 financial results were released earlier this morning. The press release, financial statements and MD&A are available on Plus as well as on the Vext website at vextscience.com. We would like to remind listeners that portions of today's discussion includes forward-looking statements and that forward-looking statements are included in today's filings. There can be no assurance that these forward-looking statements will prove to be accurate or that management's expectations or estimates of future developments, circumstances or results contained therein will materialize. Risks and uncertainties that could affect future developments, circumstances or results are detailed in the MD&A and Vext's other public filings that are made available on SEDAR and we encourage listeners to read those risk factors in conjunction with today's call. As a result of these risks and uncertainties, the developments, circumstances or results predicted in forward-looking statements may differ materially from actual developments, circumstances or results. This call also includes non-IFRS financial information, and such non-IFRS financial measures are subject to the disclosure and reconciliation included in our press release disseminated earlier today as well as the MD&A. Forward-looking statements made during this conference call are made as of the date of this call. Vext disclaims any intention or obligation to update or revise such information, except as required by applicable law. Next financial statements are presented in U.S. dollars and the results discussed during this call are in U.S. dollars. I will now pass the call over to Eric Offenberger, Chief Executive Officer of Vext. Eric Offenberger: Thanks, Priam. Good morning, everybody, and thank you for joining our third quarter 2025 financial results conference call. I am joined today by Trevor Smith, Vext's CFO. Q3 was a solid quarter for Vext. Our results reflect a mix of continued progress in Ohio and consistent execution in Arizona. Revenue was $12.7 million, up 41% year-over-year. driven by the full quarter contribution from our Athens and Jeffersonville dispensaries in Ohio and continued resilience in Arizona. We once again generated positive operating cash flow, something we've done for the fourth consecutive quarter now and continue to strengthen the foundation of our business. Across our 2 operating states, we're seeing very different market dynamics, and our model is proving resilient in both. Ohio continues to gain momentum as adult-use sales expand and our retail footprint grows. We're positioning the business to capture more of the demand through continued retail expansion and improved cultivation output. Arizona on the other hand, remains mature and competitive market that's working through excess supply and lower pricing. Our team continues to do a great job managing through it consistently outperforming state averages, generating positive adjusted EBITDA and protecting margins through a focus on efficiency and customer loyalty. Turning first to Ohio. Ohio continues to stand out as a growth engine for Vext. Revenue in the state was steady this quarter with retail growth from the ramp-up of our third and fourth dispensaries in Athens in Jeffersonville, offsetting intentionally lower third-party wholesale activity, consistent with our shift toward a more retail-focused model. Our 4 operating dispensaries continue to perform well, supported by steady customer traffic, strong customer retention and ramping up store level execution. The addition of drive-thrus to select dispensaries has also been a clear success, driving convenience, higher visit frequency and reinforcing the strength of our retail-centered vertical platform approach. We're adding drive-throughs across our retail platform wherever permitting allows and results have been consistently positive. During the quarter, we increased flower inventory in Ohio in anticipation of our next phase of retail growth. While the tagging of our well-positioned Fairfield store opening has shifted into early 2026 due to permitting related delays, we're excited to bring our 3 remaining locations online through 2026 and expect them to meaningfully contribute to our results. Trevor will speak to the financial impact in more detail but at a high level, we expect to monetize our excess inventory through the wholesale channel throughout the remainder of the year, enhancing cash generation. With Portsmith consolidated as of October 1, and cultivation yields improving meaningfully, we expect to see strong revenue growth in quarter 4 as throughput increases in more of our retail network contributes for a full quarter. Beyond that, we're focused on completing construction of our 3 remaining locations to reach state license cap of 8 dispensaries during 2026. While initial opening time lines targeted early 2026, store launches will ultimately align with the pace of permitting and regulatory approvals. As these milestones are achieved, we expect our larger footprint to meaningfully expand our reach, positioning Vext for continued growth in one of the country's most promising adult east markets. Turning to Arizona. Our operations continue to perform well with our sales exceeding state averages on a per store basis and demonstrating the strength of our retail execution and local customer base. The broader market, however, remains soft with statewide sales down about 12% sequentially and 6% year-over-year due to pricing pressure and typical summer seasonality. Our focus remains on efficiency and margin protection in what continues to be a competitive environment, selling our own brands through our retail network, maintaining tight operational controls and strong yields from our Eloy cultivation facility, which continues to exceed market averages have helped us maintain positive adjusted EBITDA despite multiyear revenue declines across the state. We believe our above-average execution in Arizona is a clear indicator of our ability to not only sustain performance but win in markets as they mature and grow increasingly competitive. Against this backdrop, we're entering year-end with momentum and a stronger foundation to build on. In Ohio, we're continuing to see strong high-margin growth as the adult use market expands, while in Arizona, our team is proving we can stay profitable and efficient in a competitive environment. That balance between growth and stability supported by our capital-light model and focus on vertically integrated disciplined operations has enabled us to deliver solid cash flow margins through the year. With much of the heavy lifting on acquisitions and build-outs now behind us, our focus is on converting more of that growth into free cash flow, strengthening our balance sheet in delivering steady long-term value for our shareholders. Before handing the call over to Trevor, I want to thank our team for their continued hard work and focus, even in a tougher quarter with increased seasonality in Arizona we delivered positive cash flow, kept expenses in line and stayed on track with our growth plan in Ohio. With that, over to Trevor for a review of the financials. Trevor? Trevor Smith: Thanks very much, Eric. The third quarter reflected continued execution in a mixed market environment. Revenue was $12.7 million compared with $13.4 million in the second quarter of 2025 and $8.9 million in the third quarter of 2024. On a year-to-date basis, revenue reached $37.6 million, up 46% from 2024, driven primarily by the expansion of our Ohio retail operations and steady performance in Arizona. Behind these top line results, we're seeing solid operational momentum, especially in cultivation. As noted last quarter, one of the areas we've been focused on is better aligning our cultivation footprint with retail demand to support margins across the business. Those efforts are showing real progress. Over the past 2 years, our weighted average yields have steadily improved, up about 10% in the third quarter of 2024 compared to the prior year and a further up 15% in the third quarter of this year. More recently, 2 pilot programs we initiated at incremental capital-light cultivation capacity, delivered test yields nearly 50% above our current averages. These early results highlight a meaningful opportunity to improve throughput and cost efficiency as the programs scale, and we look forward to keeping you updated. As Eric outlined, it's worth noting that we intentionally built additional flower inventory in Ohio during the quarter in anticipation of the Fairfield store launch and had more sellable grams on hand at the end of Q3 versus Q2. With that opening delayed slightly into 2026, there was a short-term impact on working capital and operational cash flow in the quarter. However, we remain well positioned to capture additional revenue and cash conversion over the next few months. Inventory stood at $8.3 million, a sequential decline. The decrease in inventory valuation despite the just mentioned increase in sellable grams, reflects the realignment of our inventory with current market conditions and production efficiencies. Under IFRS accounting, this adjustment temporarily increased cost of goods sold in the quarter, and we expect margins to normalize as that inventory sells through in Q4. Adjusted EBITDA came in at $2.1 million, representing a 16.7% margin. The decline in adjusted EBITDA compared to prior quarters was driven primarily by lower wholesale flower prices in Arizona, which compressed margins and reduced the IFRS fair value of biological assets. It is important to note that these impacts are noncash working capital adjustments tied to market pricing rather than operations. When adjusted for these temporary factors that are required under IFRS, our core profitability remained consistent with our run rate earlier this year. Operating cash flow for Q3 was $1.26 million, or a 9.9% cash flow margin. The wholesale pricing movement I just mentioned, created a working capital impact that drove much of the sequential decline in operating cash flow despite stable underlying demand. Adjusting for the temporary working capital items, including the Ohio inventory build combined with progress we made against legacy income tax payments, our operating cash flow would have been in line with our performance over the first half of the year which speaks to the strength of our core operations. Operating expenses were down year-over-year and down as a percentage of revenue, reflecting continued cost discipline even as we expanded our retail footprint. We're seeing operating leverage begin to show through and expect that to continue as new stores are consolidated. On the balance sheet, we ended the quarter with $3.7 million in cash. Looking ahead, the pieces are in place for a stronger finish to the year. With Portsmouth now consolidated, cultivation yields improving and a solid foundation in both states, we expect revenue, adjusted EBITDA and cash flow to step up meaningfully in the fourth quarter. Our focus remains on generating cash, maintaining cost discipline and funding our Ohio expansion through steady, internally driven growth. Supported by growing momentum in Ohio, steady operational improvements in Arizona and a disciplined capital-light strategy, we expect to deliver consistent financial performance through year-end and build on that strength heading into 2026. Thank you, everyone, for joining us for our third quarter 2025 financial results conference call. I'll now turn it over to the operator for your questions. Operator: [Operator Instructions] The first question comes from Paul Penney with Partner Capital Group. Paul Penny: Solid quarter. A couple of questions on Arizona, any positive impacts from the enforcement on hemp-related products? And secondly, can you give us a better feel for the seasonality on traffic trends and average spend in the summer when the weather is in the triple digits? And then thirdly, do you think the wholesale market has bottomed in Arizona? Just give us a feel for wholesale prices. And if you think they've bottomed out. Eric Offenberger: Thanks, Paul. As far as we can tell, the seasonal traffic was about the same patterns as last year. We didn't really see like an impact of customer base that was that significant compared to the pricing compression and what happened that way. So I think really most of the issues are still price driven. That said, you also have more stores this year than last year, but not significantly. But you did have some of that and people moving stores and doing some of those things that came online in the third quarter with the heat in Arizona. As far as wholesale prices, my gut feeling tells me no, it's not bottomed out yet. Does it fall as fast as it has been? I don't think so. I think some people are producing at below cash numbers to generate cash. It's a question of how deep their pockets are and how long they want to sustain that. And I think that really has created a problem. Just strictly pure economics oversupply. So that's kind of our take on the whole thing. Paul Penny: Great. And switching over to Ohio. Where are you seeing the most upside in terms of your expectations on the traffic side or the average price in basket size? And what's the best case and worst case in terms of opening all 8 stores into 2026? And then lastly, how many of the do you think can have drive-throughs? Eric Offenberger: So when we get all done, I'll start with the last part. The 7 out of the 8 can have drive-throughs, and we think we'll be there by the end of the year with them as they come online. Anything new is being built with a drive-through. There's 2 that have to be retrofitted and those are based upon state approvals and zoning. So that's it. As far as opening by the end of '28, it really gets down to is how do you do on permitting? Where are you at with zoning, that type of stuff. Fortunately, Scott, our in-house counsel is very good at real estate transactions and knows the space very well within Ohio and does a good job getting them up and going for us. So that's been a real positive. Ohio, what we see as traffic patterns are still pretty good in Ohio. Again, they're bringing on new stores and they're seeing some competition. I think what's really happening from our store standpoint is with our vertical model, we're maintaining market share, but you're doing that at a price, right? So the consumer is obviously getting a cheaper market, cheaper price than they have been getting but with the cultivation capped in Ohio, I think that's been a positive. I think some of the brands that were primarily wholesaling are bringing some of their own retail online. And lo and behold, they're starting to sell their brands through their own stores like everywhere else does in order to maintain their margins and keep their margins solid. So with Vext, we have good in-house brands, good product development. We've always worked on it. And we always talked that we're not a brand company, and we're really truly not. But we market our own brands and our own quality and ensure that into the store to help maintain the margin. So we just don't see it as being a big wholesale play for us as much as to control your costs like a private label. So the quality is there and the consistency, and getting the customer pattern and then peppering it in with other products that we have with people we work with. Paul Penny: Great. And Trevor, one quick one for you. Do you view the operating cash flow margin as bottoming this quarter in terms of when you look out the remainder of the quarters in the year? Trevor Smith: Yes, absolutely. Primarily a function of that markdown in average selling price per gram. So that had a ripple effect through all the IFRS valuations on inventory. And then we got caught up a bit on the legacy income tax payments. Of the almost $900,000, 2/3 of it related to the 2017 and 2018 audits that have already been completed. Operator: The next question comes from Andrew Semple with Ventum Financial. Andrew Semple: Yes, I just want to go back to the margins. Obviously, we're seeing quite a bit of volatility in that over the past few quarters and even in the past few years. I don't know if this is a question for Trevor, Eric, but where would you expect the margins to stabilize? I know you indicated the first half of this year, but even then margins were slowing around a fair bit quarter-on-quarter. So maybe if you had any color commentary on where you would expect the margins to stabilize once all the stores are open, your vertically integrated model humming in Ohio, that would be helpful. Trevor Smith: Sure. Yes, I still think it's probably going to revert back closer to the first half of the year. You have some price compression that we don't necessarily see recovery overnight on. But at the same time, we do expect meaningful improvements in yield, which will help on the cost structure side. So it's noisy and it has a lot to do with when we plant, how we plant, what day the end of the quarter ends on, the changes in valuation. And I think we're still one of the few companies under IFRS, so we get a lot of noise on the biological assets. But yes, I would expect margins, like I said, revert closer to the first half of the year, again, mostly due to cost efficiencies. Andrew Semple: Got it. Okay. And then on the cultivation yield we've been hearing yield improvements are kind of across the street from other operators, too. Though the quantum, I guess, Vext is looking at there with kind of the 10% and 15% and testing at 50%, that seems to be a bit larger than some of the peers are doing. So where do you think you stack up relative to the peers? Is this you guys catching up, keeping pace? Or do you think you're leapfrogging some folks? Some context on kind of where you think you are on the yield side would be helpful. Trevor Smith: Sure. I think historically, the company may have been a bit of a laggard, but over the last couple of years, we've caught pace. And I think if the pilot program widely adopts the way the 2 trial test runs have, we expect to leapfrog a fair amount of the pack. Andrew Semple: Got it. And then finally, maybe just in terms of 2026, obviously, opening or looking to open 3 additional Ohio stores. What else would be in your CapEx budget for next year? What kind of projects are you looking at? Eric Offenberger: I think at this point in time, Andrew, what we're doing is staying focused on opening the 8 stores and generating cash and improving the balance sheet, and looking for opportunities that make sense from a accretive standpoint, and maximizing the shareholder value. So we don't have anything that are jumping out at us or anything that we're not looking at as a general rule. That said, you follow the space as well as anybody, and we've always thought you do a great job with it. So you know what's happening with AYR, PharmaCann, the 4Fronts and stuff along those lines. We're trying to see kind of how those assets get released into the market and what happens with them, and we think there's going to be some other ones. So we think there's going to be some good opportunities and be prepared. Operator: [Operator Instructions] The next question comes from Josh Felker with CB1 Capital. Josh Felker: Eric, Trevor, congrats on the quarter. I've got a 3-parter and then a single question. That's okay. on Ohio, I'm just expecting -- I'm just wondering how you expect your wholesale business to trend as you continue to turn your stores online? Second part, how much of your current internal capacity do you think your 8 stores are utilized? And then I guess, going forward after that, what are your expectations for the Ohio wholesale business after those stores are online? Eric Offenberger: Josh, I'll get part of that, and then we'll let Trevor with the specifics because, obviously, he's -- that's his daily work. So from a wholesale strategy, it's not going to be any different. We're going to continue to support our stores and run the brands. We typically try to do at least 70% internal, 30% on the other ones, as the stores come online and open and the efficiency from the cultivation, that really will support where the mix ends up. And I think that's really been a good indication. So today, that strategy is working well, and we'll continue with that strategy until we see a condition change in the market. I'll let Trevor address kind of the specifics within that answer. Trevor Smith: Sure. cultivation yields taking a step forward and the delay of the Fairfield opening, we're sitting on a fair amount of inventory in Ohio more than we normally would in terms of sellable grams. So I would expect that to get sold through in the fourth quarter, retail promotion as well as wholesale sales. So year-over-year, we're already up about 50% from last year. I'd probably expect that to continue a little bit just because of the prior mentioned major leap forward and cultivation yields that we're expecting and when those will come in the first harvest relative to when the new stores will open and ramp. So we're always constantly managing that supply-demand curve. So I would expect wholesale to be elevated for probably next several quarters. And then as Eric mentioned, our long-term strategy is always to pair retail distribution with our wholesale or with our cultivation production. So we're not relying on the swings in the wholesale market. So long term, our facility is going to be designed to service all of those 8 at those 70% internal measures that Eric was mentioning. And I think we'll kind of see how the Ohio market develops in the coming quarters if we're going to make any decisions beyond that. Josh Felker: Super. Appreciate the detail there. And on the accounts receivable line, that's an issue that operators have been noting for upwards of a year now. I'm just wondering, are you seeing any of the accounts receivable issues that some of your peers are mentioning? Trevor Smith: No, thankfully, the team is doing a really good job on that front. As I mentioned, wholesale is up about 50% year-to-date. AR is only up about 35%, and our current status for AR as we disclosed in our MD&A is still at 90%. So we feel pretty good about our relationships with our customers. I appreciate their business. I think there's ample opportunity. We've carved out some shelf space there. but it is something that we are cognizant of has been kind of an industry-wide concern. Josh Felker: Forgive me if I try to sneak in a third question. I'm going to count my first one as one question. For the remaining 3 stores left open in Ohio, I know you've mentioned in the past maybe above average expectations versus the state. I'm just wondering, does those expectations still hold given what you've seen in the market? Eric Offenberger: Yes. We're still very optimistic about where we're at, the strategy, the traffic patterns, where we're trying to put these stores and how they've been embraced. As we've talked about before the 6 store is something we're really excited to see open. We really are happy with the landlord and the location. So we're really happy to see that. And we think Store 7 will be in the Columbus market. And hopefully, we'll get the permitting and can get the provisional done with the state here pretty quickly and get that up and going. Store 8, another -- it will be in the Cincinnati area and we're happy with where that store is going to be located, too. So yes, we're really -- yes, I can't -- Josh, I can't tell you how excited I am with what Scott has been able to accomplish in Ohio on the real estate front. It's just been phenomenal. Everything, the expectations of when we brought him on and my past work with him, he's lived up to it and so is the team in Ohio. So I could not be happier with everybody's performance. Operator: This concludes the question-and-answer session and today's conference call. You may disconnect your lines, and thank you for participating, and have a pleasant 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: Thank you for your continued patience. Your meeting will begin shortly. Leo: Please standby, your meeting is about to begin. Afternoon. My name is Leo. I will be your conference operator. At this time, I would like to welcome everyone to Intuit Inc.'s First Quarter 2026 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 period. With that, I'll now turn the call over to Kimberly Anderson Watkins, Intuit Inc.'s Vice President of Investor Relations. Ms. Watkins? Kimberly Anderson Watkins: Thanks, Leo. Good afternoon and welcome to Intuit Inc.'s first quarter fiscal 2026 conference call. I'm here with Intuit Inc.'s CEO, Sasan K. Goodarzi, and our CFO, Sandeep Singh Aujla. Before we start, I'd like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit Inc.'s results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-Ks for fiscal 2025, and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit Inc.'s website at intuit.com. We assume no obligation to update any forward-looking statement. Some of the numbers in these remarks are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period, and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial will be available on our website after this call ends. With that, I'll turn the call over to Sasan. Sasan K. Goodarzi: Thanks, Kim, and thanks to all of you for joining us today. We delivered an outstanding quarter with Q1 revenue growth of 18%, reflecting the momentum we have across the company. Our AI-driven expert platform strategy is fueling strong growth by helping businesses manage from lead to cash, consumers from credit building to wealth building, all in one place. We're becoming the system of intelligence, leveraging data, data services, AI, and human intelligence, which we will refer to as HI, that everyone depends on to power their prosperity and fuel growth. We're doubling down on the three big bets we shared at Investor Day, which represent our largest future growth opportunities. First, delivering done-for-you experiences with AI and HI, where customers never lift a finger but are always in control. Second, we're excited by putting money at the center of everything we do. Last month at Intuit Connect, our flagship event that reaches the leading accounting firms and mid-market businesses, we brought to life the power of our AI-driven expert platform strategy. We showcased our all-in-one business platform where a team of AI agents and AI-enabled human experts automate tasks, workflows, business functions, and provide a single pane of glass for customers' KPIs and dashboards all in one place. We also shared the strong early impact of our AI agents delivering just after four months in the market. We marked the one-year anniversary of Intuit Enterprise Suite, our AI-native ERP platform that is disrupting the mid-market. We are proud of the massive advancements we've made, including serving industry-specific needs and building more sophisticated go-to-market motions, including partnering with accounting firms to add new customers to our platform. We introduced Intuit Intelligence, a revolutionary system of intelligence where customers can ask anything. For example, customers can ask questions like, "How can I accelerate revenue in the next six months?" "How can I improve margins?" "Can you show me how to lower my cost of goods sold?" and "Can you add the performance of my top sales reps to my dashboard?" Using customers' data and any external data they wish to upload, Intuit Intelligent Actionable Answers will execute on a customer's behalf or hand off to a human expert. We have thousands of customers in beta and plan to be GA soon. Finally, we unveiled Intuit Accountant Suite, an AI-native offering that will transform accounting firms' efficiency and effectiveness in managing their clients, firm, and workforce, all to fuel their success. The suite provides client management and collaboration, multi-service delivery, business planning, and team management all in one place. Soon, we'll be launching more advanced capacity planning, productivity, and collaboration capabilities. Over time, firms can integrate to other functions. This is a game-changer and significantly deepens our partnership with accountants, fueling faster mid-market penetration. And for accountants, it drives tech stack consolidation and efficiency for their firm and encourages them to migrate clients to QBO Advanced and Intuit Enterprise Suite. Attendees walked away from Intuit Connect blown away by the amount of innovation in the last year and a clear message that we are well-positioned to fuel their growth. We're continuing to see momentum with our virtual team of AI agents, with 2.8 million customers leveraging these agents to do the work for them. Our accounting agent is saving customers up to twelve hours a month, and our payments agent helps customers get paid on average five days faster. We recently launched a payroll agent that automates tasks that typically take mid-market businesses two to three hours to complete each month, such as collecting hours directly from employees, spotting anomalies, generating insights, and sending customers a ready-to-approve draft of their payroll via text. We also launched a sales tax agent, which automatically helps businesses stay compliant. The combination of AI and HI is resonating. QuickBooks Live customer growth of 61% in Q1. Zooming out, it's clear we are delivering done-for-you experiences with AI and HI that will eventually do everything for our customers, powering their growth, saving them time and money, and consolidating their tech stack. We're making strong progress across our all-in-one platform, which includes accelerating money benefits by putting more money at the center of everything we do. We saw total online payment volume for our payments and bill pay customers grow 29%, reflecting continued momentum in helping our customers get paid faster and better manage their cash flow. Turning to the mid-market, we continue to make strong progress serving larger and more complex customers, with approximately 40% growth for online ecosystem revenue for QBO Advanced and Intuit Enterprise Suite in Q1. Mid-market customers are over-digitized, with their data trapped in a number of applications that take too much time and money to manage. Our offerings help businesses achieve their growth goals by automating complex tasks, workflows, and functions, and delivering insights and recommendations all in one place. Our AI-native ERP platform is disrupting the legacy way of managing their business, and the ROI is clear. With a Forrester study estimating that customers can see nearly 300% return on investment over three years when using Intuit Enterprise Suite. This value proposition is resonating. For example, a large customer with over 200 entities that we signed in Q4 quickly realized the value of our platform and expanded their contract to include an additional 46 entities in Q1. In aggregate, the total number of IES contracts at the end of the quarter was nearly 50% higher than it was at the end of Q4. We're also seeing early momentum with our accountant partnership strategy to bring new customers to Intuit Enterprise Suite. As a result of our partnership with Aphrio, a top 25 business advisory and accounting firm, we've already signed several new customers in multiple verticals. Earlier this month, we also signed accountant partnerships with Cherry Becker, a top 25 advisory tax assurance firm with clients across 14 industries, Raymond, a top 40 professional advisory firm that provides accounting assurance and other business services to clients across 11 industries, and Cogan and Taylor, a top 100 advisory tax accounting assurance and technology firm with clients across seven industries. We have many other opportunities of similar scale in the pipeline. Turning to our consumer platform, our AI-driven expert platform is delivering done-for-you experiences for consumers from credit building to wealth building to make smarter financial decisions year-round with confidence. We're seeing strong momentum in the areas that matter most, with 51% in Q1 reflecting continued strength as we concluded the 2024 tax season. Credit Karma had a strong quarter. In fiscal year 2025, we saw several point increases in share of member originations for personal loans and credit cards. We believe share gains continued in Q1 as members and partners find value in our platform. These strong results and the introduction of significant innovation with Done For You experiences, AI-powered local expertise, and faster access to money show the power of one consumer platform. Our done-for-you innovations include Credit Spark, everyday payments to build your credit score, as well as several agentic AI assistants. For example, our debt assistant will craft and deliver personalized debt pay-down plans. Our refund assistant will give a personalized recommendation when the customer receives their tax refund to pay down debt, build an emergency fund, build credit, or invest for the future. And with our tax assistant, consumers who answer easy quick questions in Credit Karma year-round can have up to 80% of their taxes ready to go at tax time. We're also expanding our AI-powered local presence, making local expertise more accessible than ever with a larger service footprint. As customers are five times more likely to book up with a pro within 50 miles, this local presence will also help us further scale business acts, which grew 3x last year. With our virtual or in-person filing and consultation option, we're offering the best experience, price, and speed to money. This is data, AI, and HI powering prosperity for consumers and businesses. One of our superpowers is experimenting and learning from our customers and then scaling what works. The results from more than 300 tests we ran in Q1 bolster our confidence in our strategy to win. We're excited about the growth potential for our all-in-one consumer platform with an untapped opportunity to penetrate a $142 billion consumer TAM. We have significant momentum across the company and are obsessively focused on execution with high velocity and fueling the success of our customers. Intuit Inc.'s brightest days are ahead of us. Let me now hand it over to Sandeep. Sandeep Singh Aujla: Thanks, Sasan. We delivered a strong 2026 across the company. Our first quarter results include revenue of $3.9 billion, up 18%, GAAP operating income of $534 million versus $271 million last year, non-GAAP operating income of $1.3 billion versus $953 million last year, GAAP diluted earnings per share of $1.59 versus $0.70 a year ago, and non-GAAP diluted earnings per share of $3.34 versus $2.50 last year, reflecting our overall disciplined approach to managing the business, including continued AI efficiencies. Turning to the business segments, starting with the Global Business Solutions Group, we continue to make progress serving businesses with our all-in-one platform and delivering done-for-you experiences with expertise. Global Business Solutions Group revenue grew 18% during the quarter, or 20% excluding Mailchimp, while Online Ecosystem revenue grew 21% in Q1, or 25% excluding Mailchimp. This includes approximately 40% growth for Online Ecosystem revenue for QBO Advanced and Intuit Enterprise Suite that serve the mid-market. All-in Ecosystem revenue for small businesses and the rest of the base grew a strong 18%. We saw robust growth in both online accounting and online services in Q1. QuickBooks Online Accounting revenue grew 25% from higher effective prices, customer growth, and mix shift. Online services revenue grew 17% in Q1, or 26% excluding Mailchimp. This growth was driven by money, which includes payments, capital, and bill pay, as well as payroll. Within money, revenue growth in the quarter reflects payments revenue growth, which was driven by customer growth, an increase in total payment volume per customer, and higher effective pricing, as well as 29% in Q1, reflecting our continued momentum in payments and adoption of our bill pay offering. All-in payment volume growth excluding bill pay was 18%, relatively consistent with the range you've seen over the last several quarters. Within payroll, revenue growth in the quarter reflects mix shift, customer growth, and higher effective prices. Within Mailchimp, revenue was down slightly versus a year ago, in line with our expectations for the quarter. We continue to target double-digit growth for Mailchimp exiting fiscal 2026. We are seeing strong results from a mid-market sales team within Mailchimp with several recent larger customer wins, as well as increasing retention rates in the mid-market segment. We are continuing to invest more in go-to-market for these higher-value customers and beginning to increase broader go-to-market spend to drive acquisition of smaller customers. Turning to desktop, Desktop ecosystem revenue grew 6% in Q1, and QuickBooks Desktop Enterprise revenue grew in the low double digits in Q1. We expect desktop ecosystem revenue to grow low single digits in fiscal 2026. Turning to our consumer platforms, we are pleased with our strong momentum. Q1 revenue grew 21%, driven by 27% TurboTax revenue growth, 6% Protex revenue growth, and 15% Credit Karma revenue growth. Within 13 points of growth, credit cards accounted for 10 points, and auto insurance for three points. Looking ahead, the results from more than 300 go-to-market and product experience tests run during Q1 bolster our confidence in our strategy to win this upcoming tax season. We are excited about the opportunity ahead for our all-in-one consumer platform powered by AI, human intelligence, and data to empower customers to take year-round control of their finances, from credit building to wealth building, while driving monetization for Intuit Inc. Shifting to our balance sheet and capital allocation, our financial principles guide our decisions that remain our long-term commitment and are unchanged. We finished the quarter with $3.7 billion in cash and investments and $6.1 billion in debt on our balance sheet. We repurchased $851 million of stock during the first quarter. Depending on market conditions and other factors, our aim is to be in the market each quarter. The board approved a quarterly dividend of $1.20 per share payable on January 16, 2026. This represents a 15% increase versus last year. Moving on to guidance, we are reaffirming our fiscal 2026 guidance. This includes total company revenue of $20.997 billion to $21.186 billion, growth of 12% to 13%. Our guidance includes Global Business Solutions Group revenue growth of 14% to 15%, up 15.5% to 16.5% revenue growth excluding Mailchimp. Our guidance also includes overall Consumer Group revenue growth of 8% to 9%, including TurboTax growth of 8%, Credit Karma growth of 10% to 13%, and Protex growth of 2% to 3%. GAAP diluted earnings per share of $15.49 to $15.69, growth of 13% to 15%, and non-GAAP diluted earnings per share of $22.98 to $23.18, growth of 14% to 15%. We expect a GAAP tax rate of approximately 23% in fiscal 2026. Our guidance for 2026 includes total company revenue growth of 14% to 15%, GAAP earnings per share of $1.76 to $1.81, and non-GAAP earnings per share of $3.63 to $3.68. You can find our full fiscal 2026 and Q2 guidance details in our press release and on our fact sheet. Before I turn it over to Sasan, I want to share that Kimberly Anderson Watkins has made the decision to leave Intuit Inc. to pursue a new opportunity outside the company. This will be her last earnings call. I want to take a moment to thank her for her tremendous contributions and partnership over the years. She's built a strong, highly respected Investor Relations team and has strengthened our relationship with the investment community in meaningful ways. Jeff Koehler, who has been a key part of the team, will step in as acting Head of IR. We're deeply grateful for all that Kim has done and wish her the very best in the next chapter. With that, I'll turn it back over to Sasan. Sasan K. Goodarzi: Great. Thank you, Sandeep. We are well on our way to becoming the system of intelligence enabling financial success for consumers, businesses, and accountants. Given our early bets on AI, our low penetration of our large $300 billion TAM, the significant investments we've made in the last decade, and our momentum, we are well-positioned to power the prosperity of our customers and win in the era of AI. Let's now open it up to your questions. Operator: Thank you. From Kirk Materne of Evercore ISI. Please go ahead. Kirk Materne: Yes. Thanks very much for taking the question, guys, and congrats on a nice start to the year. And Kim, congrats on your next venture. Sasan, the question for you, a lot of questions from clients this week on the OpenAI arrangement and deal you announced. Can you just give us a little bit more color on if there's any sort of revenue share as part of this deal? I think there's also some questions about sort of how data obviously, you guys have always been very protective of customer data. How does that stay within Intuit Inc. as people are now using Intuit Inc. solutions within OpenAI? Can you just give us maybe a little bit more color on those aspects of the new partnership? Thanks. Sasan K. Goodarzi: Yes. Thank you for your question. First of all, I'll start by saying it's an absolutely game-changing partnership and everything starts with people and the relationships to make any long-term partnership work, and the relationship with OpenAI is really magnificent. With that said, the way to think about this before I get to the specifics of your question is this is a huge opportunity for us to accelerate new customer growth. You have 800 million weekly active users that are engaging within the platform, and we have an opportunity to power their prosperity. Now to answer your question, I'll just break it very quickly into three buckets: experience, data and models, and economics. On the experience front, what happens today is when customers are asking questions about getting access to financial products like cards, loans, building their credit score, or how to grow their business, they get good yet generic answers, but that will change tomorrow. The way it's going to change is that our Intuit Inc. apps will be deeply integrated within ChatGPT, which means tomorrow you get the power of all of the Intuit Inc. platform and apps within ChatGPT. The experience, which I can get into a lot more detail if you all wish, will be game-changing because we'll know who you are, we will be able to leverage the power of our data and all of our models to be able to deliver experiences that are very personalized to you, just like the experiences you get when you're within an Intuit Inc. app today. So the experience will be absolutely game-changing for consumers and businesses and truly power their actions and insights within ChatGPT. The second on data and models, nothing changes from what we do today. Customers will be engaging within the Intuit Inc. app, they'll be within the Intuit Inc. four walls. We will continue to train our Intuit Inc. large language models with the customer's data, our data privacy, security, and privacy principles are unchanged. And that's very important because one of the game-changing elements that OpenAI is excited about is the fact that customers will be able to get accurate, secure answers that are personalized all within ChatGPT. So that's on the data and model. Nothing is unchanged from the way we operate today. On the economics, it is as the economics are today. There's no revenue share. And so the economics that we enjoy today when directly working with customers, we will enjoy tomorrow. And I'll just end with, you know, we're really excited about the partnership, by having access and working side by side with the OpenAI team, having access to their frontier models because, as you know, Intuit Inc.'s large language models are what gets trained by the customer's data, does not leave our four walls. But it also has the agency and authority to deliver the experiences and use other models, and we're excited about the acceleration of the use of some of their models that the RLMs will put in place. So I think those would be the headlines, Kirk, that I would share. Kirk Materne: That's great. Thanks very much. Congrats on the quarter. Sasan K. Goodarzi: Very welcome. Operator: We'll move next to Sitikantha Panigrahi of Mizuho. Please go ahead. Your line is open. Sitikantha Panigrahi: Thank you. Congrats again and a great start to this year. I wanted to dig into the mid-market so Sasan, which is one of your drivers for the aspirational goal to accelerate growth. First on IES side, it's been a year and you had 250 sales set, how is the productivity has been going on? And any plan to add more headcounts to this mid-market and also the partnership you announced, when should we start seeing that translate to revenue? Sasan K. Goodarzi: Yes. Thanks for the question, Siti. I'll break it down into three things: awareness, our platform innovation, and accountants. First and foremost, we're just starting to press on the gas with awareness. In terms of showing up at conferences, we were just at the faith conference in New York. We were everywhere to raise awareness because as much success as we've had, very few people still know about Intuit Enterprise Suite and what a disruptive, AI-driven, and AI-native ERP platform that it is. So we're doing a lot around awareness. One element is conferences and webinars, to really get the word out there. The second is the platform innovation is just accelerating, and it's having a dramatic impact with customers now across many verticals starting to refer us to customers like them, whether it's wealth management, dentists, or construction. The impact from our innovation and now beginning to customize and launch vertical-specific KPIs and dashboards is incredibly important and incredibly powerful. And more than ever, we win on experience, price, and total cost of ownership. The third is around accountants. We're just getting that flywheel going. In fact, we redirected a number of our internal sales folks above and beyond the 250 that you referred to, which I'll get to in a moment, that really are providing coverage across our large accounting firms. What you should look at is these are really best to come. We expect acceleration from these large partnerships that we've announced and many that are in the works to contribute to the back half of the year and into next year. Actually, not counting on that, but it's an important point to put out there, which is this is where the network effect comes in because we had the largest firms at Intuit Connect and I personally have been meeting with these large firms and they're blown away by our innovation and how they can use our platform to be able to drive accelerated growth and our productivity is significantly improving when we look at the last several quarters and we would expect to start adding more headcount in coming quarters. So those would be the way I would break down the answer to your question. We're really excited and bullish about what's possible. Operator: We'll move next to Brad Alan Zelnick of Deutsche Bank. Please go ahead. Your line is open. Brad Alan Zelnick: Great. Thanks so much and my congrats and Kim congrats on a fantastic run. It's been great and look forward to your next chapter. Maybe for you, can you talk us through any of the learnings that came out of this extension season on tax and those might apply to the season ahead? And maybe for Sandeep, saw the announcements around the TurboTax office footprint expanding which seems to clearly reflect leaning in on local search. How are you thinking about the investments necessary to sustain 15% to 20% assisted growth this year? And maybe how do they compare to last year? Thanks so much. Sasan K. Goodarzi: I'll get us started and then I'll let Sandeep take over on your question. First of all, Brad, I've been with the company twenty plus years. I've never been more bullish than the season we're about to step into. And the reason is all of the innovation across the platform. We ran, as we talked about earlier, 300 significant experiments from platform innovation to go-to-market tests inclusive of a lot of what we're doing to show up locally, which is the question you asked a moment ago for Sandeep. And just across what's possible for consumer tax and business tax, we are incredibly bullish and the bullishness comes from really three fronts. One, a lot of the work that we've done around data and AI that makes it far simpler and easier for folks to get their taxes done and get early access to their money to the innovation end-to-end to deliver a great experience at a great price for those that use the prior year assisted method from how we're leveraging data and AI concierge to greet customers to get them immediately connected to a live expert where most of the work is done already. By the time they get to the expert to doing a lot of the work for the expert where the expert really becomes a concierge that you would walk up to in a Four Seasons. That's really about the service that they provide, how they make you feel, while we ultimately deliver excellent service. The power of going from 400 locations that we showed up to 600 and then the 20 stores that we talked about with one flagship store that's going to be in New York is about showing up locally. It's also about shaping the market around the fact that we truly have AI plus HI. And once the one opens up in New York, I'd encourage you all to go into it because I think you'll want to sit there and have some coffee. It's tech-forward. It's friendly. It's warm. By the way, money in your pockets quickly, so I'll end with where I started before Sandeep takes over, which is I have not been this bullish going into a tax season, given the amazing work of the team. Sandeep Singh Aujla: Hey Brad, it's Sandeep. On local, key to winning in the as we have shared that our we see that customers convert five times better there's a local expert within a 50-mile radius of their location. And we are planning 600 expert locations, so that's up from 400 last year and as Sasan mentioned a unique flagship store in New York City. This is all part of our strategy of ensuring that we are showing up in key high-density areas and covering a majority of the tax filing population in the United States. And this showing up local, we know really extends the trust people have in the brand, it drives adoption. And our tests also show that 39% of full-service customers preferred zero-touch approach to engagement. So it's really more of a driving that trust. In terms of our investments, our approach to showing up local is truly asset-light and is scalable without long-term commitments. The rent OpEx cost here are relatively small. They're all included in part in our guidance that we gave earlier today. Brad Alan Zelnick: Thank you, both. Sasan K. Goodarzi: Very welcome. Operator: We'll move next to Keith Weiss of Morgan Stanley. Please go ahead. Your line is open. Keith Weiss: Excellent. Thank you guys for taking the Congratulations on a really strong start to the fiscal year. And I'll also add my congratulations to Kimberly Anderson Watkins. Truly has been a great partner to the financial community at Intuit Inc. So congratulations and best of luck on the new endeavors. You guys had a really solid quarter. We saw it in the Global Business Solutions. There's a lot of concern out there about the health of the overall U.S. consumer. And I know you guys get a lot of signals. So can you help us walk through if any of your signals turned or if this was more so Intuit Inc. just doing very well in what could be a shaky environment? Help us get a little bit of confidence about the durability of these types of results throughout the year. Sasan K. Goodarzi: Yes, Keith, thank you for that question. I'll actually tag team this with Sandeep. I would say two things. One, what we see in our data across 100 million consumers and 10 million plus businesses that we serve is stability. To provide more specifics, you know, profits and cash flows are stable and up. One of the things Sandeep and I and the team looked a lot at is payroll hours worked, and payroll hours worked are actually up. And as you can imagine, we're not concentrated in any particular industry. So we see a lot of industries. So if you double click, you see things like IT services, construction, manufacturing that are actually up quite nicely compared to the year prior, then you see places like real estate and lending that are down, compared to the prior year. Significantly, but down. And so it's industry-specific. But when you look at the aggregate of what we serve, they're quite successful. From what we see in the data. I think the second thing that I'll just end with is a lot of it is also our platform. And really what the platform is doing to fuel the success of businesses of all types. If you remember one of the things that we shared at Investor Day was that businesses that are on our platform are nearly 20 points more successful in terms of how they thrive their profits versus those that are not on our platform. So our platform is having a real impact on the livelihood of businesses. Sandeep Singh Aujla: Keith, let me build a little bit on Sasan's point. One thing, as you know, of course, we keep a keen eye on the macro environment, but what also gives us confidence in addition to the stability that we're seeing in the broader environment is the resilience of the Intuit Inc. business. Our offerings are not just nice to have, they are a must-have. In the forty years that we've been around, we've historically seen that when the economy is tougher, our products become more critical. And just also add on and highlight the stats from within our platform, is you saw that our charge volume was up 29% with bill pay up 18% excluding bill pay. On our Credit Karma side, we continue to see strong engagement with our partners. So both the macro data within the platform and also just how the business performed, it continues to give us confidence in the stability and the opportunity that lays ahead. Keith Weiss: Thanks so much, guys. Sasan K. Goodarzi: You're welcome. Operator: We'll move next to Mark Murphy of JPMorgan. Line is open. Please go ahead. Mark Murphy: Thank you so much. Congrats on the great results and also to Kim in your future endeavors. Sasan, the Credit Karma market share gains of several points in loan originations and credit card issuance are pretty staggering. Because the size of those markets is just utterly vast. Could you speak to whether you see ongoing runway to continue that type of motion where you're chipping away a couple of few points of share every year, maybe by leveraging the TurboTax customer base and that data, maybe by leveraging QuickBooks and the cash flow data has to be of interest to lenders? And at the end of the day, do you think you can create a more holistic financial health score than the traditional providers have? Sasan K. Goodarzi: Yes. Mark, thank you for your question. Actually love the nature of your question. I would lead with the following. I think now you're seeing the TurboTax Credit Karma platform coming together at work. And, you know, the thing that I would just also add to everything that you just shared around the market share increases is that Credit Karma contributed to an entire point of growth in TurboTax last season, and that's just over time only going to get larger. And it's because of what we are doing, customer back, to help them with problems like getting access to financial products that are right for them. Helping them with how to manage their debt and with our debt assistant actually helping them what they pay down first, second, and third. What they should do with their refund, and just being in their life on an ongoing basis. That's how you take market share. So that's the first point I would make. The second point, which is a more specific point, is this is data, AI, and all of our credit models at work. As you all know, one element of our AI capabilities is Lightbox, where financial institutions have put their credit models, their proprietary credit models as part of Lightbox. And we are able to leverage their credit models to be able to deliver personalized experiences. That's a game changer. And now we have more and more financial institutions that are now putting their credit models as part of Lightbox, don't do that with anybody else. They trusted Intuit Inc. It helps drive growth for them. And it delivers personalized experiences for us. And so I'll end with sort of the essence of the question that you asked. We're just getting started. We have runway and we're just getting started from what's possible to do at the platform. And even access to money and how we can monetize money offerings is yet to come. So we're excited about what's possible. Mark Murphy: Thank you. Sasan K. Goodarzi: You're very welcome. Operator: We'll move next to Daniel Jester of BMO Capital Markets. Your line is open. Daniel Jester: Great. Thank you for taking my question and also pass along my congrats to Kim. Best of luck. On Mailchimp, appreciate the additional color on the progress that has been made there specifically in the middle market. As we think about the reacceleration to double digits by year-end, is that something that could be accomplished solely through middle market improvement, or does this have to broaden out and also include some of the smaller customers coming back to the fold as well? Thank you. Sandeep Singh Aujla: Hey, Daniel. Mailchimp, we've taken a number of strategic steps that I feel really confident about. As you mentioned, we have scaled the mid-market sales team to build upon the momentum we have in that segment. We've improved the product experience and the onboarding flow across all customer segments. And now we're scaling up the go-to-market efforts, and those efforts, in addition to adding to the mid-market sales team, are dialing up the marketing on the platform, which we had dialed down while we were working on the product fix. In terms of getting to double digits, it takes a mix of both customers across the smaller customers as well as the mid-market customers. We have good momentum, and it's really going to be around early calendar year and springtime that we'll have a solid read on the Mailchimp progress. Daniel Jester: Okay. Thank you very much. Sandeep Singh Aujla: Absolutely. You're welcome. Operator: We'll move next to Aleksandr J. Zukin of Wolfe Research. Line is open. Please go ahead. Aleksandr J. Zukin: Hey, Thanks for taking the questions and I apologize for the background noise. I guess maybe can you speak to some of the margin leverage and efficiencies that you're seeing from deploying some increasing AI leverage and just any other efficiencies that you're seeing that are durable given continued outperformance on margins to that we're seeing now for I think, like the third or fourth straight quarter. Anything you can add there would be super helpful. Sandeep Singh Aujla: Hey, Alex. We continue to feel really confident about the ability as an organization to continue to scale margin that comes not just from efficiency, but we run the business leaning on economies of scale, being disciplined about when and how and where we are allocating capital to maximize ROI on it. And of course, complementing our workforce with AI technology to truly unleash their productivity. Areas that we continue to see strong improvement are across our technology organization, using AI to improve the productivity of the sales force, our time to market with how we are rolling out code. Across our customer success organization. As you know, a lot of that work is rules-based, super applicable for the AI to help complement those areas. And then across our entire organization, whether it's in finance, it's in legal, HR, you name it, using AI to unleash the productivity of our employee base. What you should continue to hold us accountable to is the discipline that we have demonstrated over the past multiple years, the same discipline continues. And it's not just about the AI efficiencies, but it's all about the learning, the culture of seeing what works and where we lean in marketing. Did marketing last year. There's many tests that work and we scaled them. There are other things that didn't work and we shut them off. That's a discipline you should all continue to hold us accountable to. Aleksandr J. Zukin: Excellent. I just want to give a big shout out to Kim. It's been a true pleasure working with you and can't wait to see where your next adventure takes you. Thank you so much. Kimberly Anderson Watkins: Thank you, Alex. Operator: We'll move next to Kasthuri Gopalan Rangan of Goldman Sachs. Your line is open. Kasthuri Gopalan Rangan: Hard to follow Alex Zukin, but I'm going to try my best. So I look at my congrats to Kim, but also to Jeff incoming. He's been waiting for a while. So well-deserved promotion. The question for you, Sasan, is the delta and growth rates between accounting, which certainly is very, very strong, and online services, a bit of a wider delta than what I would have thought. Maybe some of it has to do with Mailchimp in there. I remember the good old days into it, online services would typically grow faster than accounting because of the payroll payment attached, that sort of thing. Is there a break in that pattern that explains this performance and that you since you're getting going with IES, maybe there's a bit of a heavy accounting finance emphasis and maybe these services will follow suit in the future. If you can just help me understand the cycle of what you're going through, that will be great. And since this is my last Intuit Inc. call, I wish you many successes in your journeys ahead. Thank you. Sandeep Singh Aujla: Hey, Kash, it's Sandeep. Let me take this one. We continue to see tremendous opportunity across money and payroll offerings on our platform. It's a key part of our addressable market and it's a key part of the $90 billion addressable market that we have on mid-market as well. The deceleration that you're referring to is really due to pricing. That was a contribution in the last four quarters and now we are lapping across both payments and payroll. We continue to see strong momentum in our core business. And would point you to the charge volumes, 18% overall, 29% bill pay, and we're seeing improved adoption of services across both small and mid-sized businesses. As you pointed out with some of these things, it takes a while for those volumes to ramp up as their service providers. Furthermore, the innovation that we're rolling out, whether it's our agents or the new QuickBooks user interface, they provide us more opportunities to build upon the strength we have in platform adoption and services over time. So I would not read too much into the deceleration. We are quite excited about the opportunity that lays ahead. Sasan K. Goodarzi: And Kash, we wish you an amazing retirement. Kasthuri Gopalan Rangan: Thank you so much. Much appreciated. Operator: Cheers to the journey ahead. We'll move next to Raimo Lenschow of Barclays. Your line is open. Please go ahead. Raimo Lenschow: Hey, thanks. And following Kash is always an honor. Kim, all the best for you as well. Quick question for me was on Credit Karma. You talked about credit card loans driving it, insurance a little bit. How do you think about it in terms of the health of the consumer? Sasan, you talked a little bit about it earlier, but like Credit Karma has been kind of performing a lot better than you guided for several quarters now. Like how confident are you about what you're seeing there? Thank you. Sasan K. Goodarzi: Yes. Let me start with one element and I'll tag team this with Sandeep and actually it's really important to leverage this opportunity for everyone, to make a really a broader point. Credit Karma is working because of all the innovation that we've done customer back and the integration with TurboTax. So if you really think about the 45 million monthly active users, the fact that they engage more than five times a month, and the fact that we now can help them with so many things more, compared to when we first bought Credit Karma when the member has the opportunity to understand what to do with their debt to get access to financial products like credit cards, personal loans, insurance. Where they can get their taxes done, get help with what they can do with their money, get early access to that money, that customer then engages more and, and engages more because of the trusted benefits and the insights that they're getting, but also the fact that things are personalized, and we're doing it for them. And so that is what helps us then be able to accelerate taking market share that we that Sandeep and I talked about earlier. So that's a really important element to think about. It's not just about the health of the consumer. It's actually about what we are now doing for the consumer that is so far more advantageous for the consumer versus where we were just even a year ago, the two years ago. And from just a health perspective, you know, credit scores and balances are generally stable. You know, credit scores over the last several years have for the near-prime customers and subprime customers have gone down 10 plus points, but they've sort of stabilized. And credit balances and credit card balances, although higher for Gen Z by 20 to 30% now versus a couple of years ago, they've generally stabilized. So that's what we see from a consumer health perspective, but I think the most important is the innovation that I talked about earlier. Let me just also invite Sandeep to add a few thoughts. Sandeep Singh Aujla: Raimo, the only thing additional I would double down on is further that we're driving across the platform. It's that innovation that's helping our partners see better ROI of their spend on our platform, which is why we continue to take share. That's a tailwind into the business driven by innovation. Also from a consumer point of view, if the economy does get to a place where the consumer is under pressure, they'll be looking to a trusted platform to understand where they can consolidate debt on personal loans. Keep in mind, some of these near-prime customers, if they apply for a credit card, where they get dinged, they could become subprime and this is where our innovation such as Lightbox gives the customer the utmost confidence of their odds of getting approved. These are all innovations that are key to driving confidence and allowing us to continue to take share regardless of the macro environment. Raimo Lenschow: Okay, very clear. Thank you, both. Sasan K. Goodarzi: You're very welcome. Operator: We'll move next to Michael Turrin of Wells Fargo Securities. Please go ahead. Your line is open. Michael Turrin: Hey, great. Thanks so much. Appreciate you taking the Just a quick two-parter on the numbers, if I may. In terms of the QBO strength, you mentioned price is a leading factor there. So just any commentary you can add on how we should think about the shape of pricing on that line? Throughout the rest of the fiscal year? And then on margin, fiscal Q1 was very strong. 2Q was a touch lower than we were maybe modeling. So can you just also speak to expense timing and whether there are marketing-specific impacts to consider between those quarters as we're updating our forecast? Thank you. Sandeep Singh Aujla: Yes, absolutely. Hey, Michael, it's Sandeep. On the QBO side, we continue to see our innovation resonate with the customer and even after we did the price changes and the lineup innovation there last July, we saw that our customer attrition again came in below our expectations. So just highlighting how the pricing power we have as well as how well the innovation truly is resonating with our customers. And when we see some of this innovation, such as 45% of our customers telling us that they're saving up to twelve hours a month, that's a meaningful increase in the productivity of getting paid five days faster. A meaningful increase to the net working capital. So these I would highlight these as areas where we're driving innovation. And it's resonating. Pricing contribution is relatively consistent throughout the four quarters. And the other thing I'll point out on QBO is momentum we have as a point of the 40% revenue growth in IES. As well as in QBO Advanced that is a contributor to the accounting line on the online ecosystem. The second part of your question was around margin. So a couple of things I would point out there. If you look across the first half, we are actually ahead of what the Street expectations were on our margin. And what we saw for is for the full year and I continue to feel really confident in our ability to deliver on our commitments for the full year. There's always things any one quarter, for example, we learned from our consumer marketing this past year that allowed us to really hone in the timing of this spend between Q1 and Q2 to really maximize that ROI. So it's really our continued discipline in spend management making sure we're maximizing the money that we're driving with our spend that drove some of that shift. But look across the first half and you'll see that we are nicely ahead of consensus. On both revenue as well as EBIT. Michael Turrin: Appreciate all the details there. Thank you. Operator: We'll move next to Steven Lester Enders of Citi. Your line is open. Please go ahead. Steven Lester Enders: Okay. Great. Thanks for taking the question here and congrats to Kim as well. I guess I want to ask on the in-person, I guess, TurboTax experience that you're rolling out here. I guess, what's the hope or what's the kind of view of maybe how that changes, I guess, types of customers or could change the dynamics going through tax season here? Sasan K. Goodarzi: Yes. Thanks for your question. A couple of things I would say. This is really the strategy which is very consistent with what we've been talking about for several years to show up where the eyeballs are. And the notion of being in, you know, 600 locations and 20 stores, one of them being a flagship in New York is actually to be seen. When you do search, whether it's through an AI app or Google, or any other platform, that we show up locally. So that's a huge part of the strategy in terms of the type of customers and same customers that we serve today, this is about reach, and it's about access because what we have found is when we engage a customer and a customer finds us and we find the customer and we are where the customer is, we win hands down based on experience, price, and then access to money. So this is just based on our incredible progress last year. The incredible results last year. What you're seeing is we're just doubling down on winning in the assisted segment. And this is one key how to do just that. Steven Lester Enders: Thank you. Sasan K. Goodarzi: Yes, you're welcome. Operator: We'll move next to Brent John Thill of Jefferies. Your line is open. Please go ahead. Brent John Thill: Thank you. This is John on behalf of Brent Thill. Just kind of one question. So the advantage of Intuit Inc.'s platform is the ability to consolidate the dozens of apps for small businesses. I just wanted to see if you could talk about the progress there and then maybe compare between the small businesses versus the mid-market you reaching the potential? Thank you. Sasan K. Goodarzi: Yes, thank you for your question. It is really the essence of why we are winning. When you look at smaller businesses, they could have, you know, between three to 10 apps. When you look at larger businesses, they can have between 25 to 30 apps. And there's a real issue with that now more than ever where customers are spending more time trying to figure out what's going on in their business across all of these apps. They're actually spending more money than they did before. They're getting less value. Because they may have fallen in love with 34 apps. Then when they zoom out, don't know what's going on in their business. That's really been our strategy of a platform that helps customers from lead to cash but also a platform that does everything for customers. This is the power of data, AI, and HI. And ultimately being able to do everything for our customers. And so the acceleration that we are seeing across the board and particularly in mid-market and when you look at the results that we just talked about, which is online growing 20%, you've got mid-market growing at 40%. This is actually more and more customers and particularly the larger ones that see the value of having everything in one place, one because it can do the work for them. They get a better experience. But two, they may pay off more and more than likely they actually do. But they're actually spending a lot less, and that's a game changer for customers. And I think we're just based on all of our capabilities at the beginning of that cycle. It's another reason why you are seeing an accelerated set of partnership announcements with accountants. Because they actually see not only us being able to partner with them to help digitize their firm, through the Intuit Inc. accountant suite, which is a revolutionary platform we've launched, but also what we can do together to really digitize the clients that they serve. Because when clients use a lot of apps, it drives accountants crazy. And so this, this really is where the network effect comes in. Brent John Thill: Thank you very much. Sasan K. Goodarzi: Yes. You're very welcome. Operator: We'll move next to Bradley Hartwell Sills of Bank of America. Your line is open. Please go ahead. Bradley Hartwell Sills: Great. Thank you so much and I'll echo the congratulations to Kim on your next move. So many great agents in QuickBooks, this accounting agent, payments, customer, finance, the list just keeps going. Have you seen any one in particular or any use cases that you're seeing traction and what would customers say as to kind of the ROI, some of the savings here? Are there any that have surprised you that gosh, these are actually more effective than we thought and driving more value? Then what would that say about your kind of confidence and your ability to monetize these? Obviously, now it's through premium mix, eventually through separate SKUs. Thank you. Sasan K. Goodarzi: Yes. Thank you for the question. Actually love the nature of the question. Let me start with just a zoom out first and then I'll answer your specific question. The biggest thing that we continue to learn from customers is I need help for you to do it for me and with me. Because if you think about businesses of any size, unless they're an enterprise, they do not have all the resources that come with an enterprise to do data analytics to help. They don't have a large marketing team sitting around, a large finance team sitting around, a large data analytics team sitting around. They need help in terms of how to run their business. And really, that's where the power of our platform comes in, which is that can help them with making decisions, do the work for them, can do the work with them. By the way, when technology runs out of capacity, which it always will, that's where our human intelligence comes into play. So fundamentally, this is really, really important for customers, which has helped me get things done. It's by the way why they are always seeking advice in these AI apps. To get more specific, I'll just remind us with all of the AI agents we've been in the market for about four months, a lot more improvements, enhancements, and adoption. What we've seen in four months is one, the discovery and repeat engagement since we've launched is over 80%. And the two areas that are having the largest traction are the payments AI agent and the accounting AI agent. That's why we've cited the stats where with the use of the accounting agent, folks are saving twelve hours a month, which is significant and such as the time savings. It's actually the accuracy and the insights that they get. Second is that the customers that are getting paid five days earlier foremost, because we're learning literally every day in terms of how to make these more effective. Customers don't care about AI agents. They care about getting the work done for me, and that's really where I think the best is yet to come. Bradley Hartwell Sills: Very exciting. Thank you, Sasan. Sasan K. Goodarzi: Yes. Thank you. Operator: We'll move next to Taylor Anne McGinnis of UBS. Your line is open. Please go ahead. Taylor Anne McGinnis: Yes. Thanks for taking my question and Kim. Appreciate all the help these last couple of years and wishing you all the best. So I'd like to unpack the strength of the 2Q revenue guide. With the later start to the tax season this year and also a tougher Credit Karma comp, I think it would be helpful if you could just offer some additional color on the drivers of growth. Are there any segments where you're expecting growth to be more durable with the levels that we saw in 1Q or higher than implied in the full-year guide? Sandeep Singh Aujla: Hey, Taylor. In terms of the Q2 guide, it is a continuation of us continuing to execute on our strategy. The momentum that we saw in fiscal 2025 compared into fiscal 2026, you saw the Q1 results and you're seeing this in our Q2 guidance. Expect the momentum to continue its strength in GBSG online. We continue to expect strength in mid-market, continue to expect a CK offering to resonate with both partners and consumers. And on the TurboTax side, we're expecting similar to last several years that the IRS opens up towards the end of January. So that's our expectation going in. The couple of things that I would point out that we do expect desktop to start decelerating in the second half as we go from the 6% we saw in Q1 likely will be, you know, near the mid-single digits for Q2, but then decelerate in the second half. And on CK, in the second half of the fiscal year, the comps do get harder as we lap prior year's strong performance. But in the areas that are the key growth vectors for the company, you should expect us to continue to execute and continue to build upon the momentum. Taylor Anne McGinnis: Super helpful. Thank you guys so much. Operator: We'll move next to Arjun Rohit Bhatia of William Blair and Company. Your line is open. Please go ahead. Arjun Rohit Bhatia: Perfect. Thank you so much. Sasan, if I can just go back to the OpenAI partnership for a second. I know this is just about to come live, but I'm curious if you would just venture to take a guess on when do you think customers would use Intuit Inc. apps inside ChatGPT versus when they would use kind of core or use Intuit Inc. within your own application and use your Intuit Inc. intelligence capabilities, which also have sort of natural language answers and I'm wondering if in your perspective, if that makes a difference at all or if your goal is kind of just to drive increased engagement and maybe that drives more attach and of services and agentic adoption and all the other good things that come with increased usage? Sasan K. Goodarzi: Yes, thank you for your question. I'll start by saying companies that win will be companies that have platforms. And that they are where the eyeballs are. And that's really what we're doing with this partnership with ChatGPT. It's really for us. It doesn't matter whether the customer comes directly to using our platform or we are where they are within an app, in this case, ChatGPT. As I mentioned earlier, one, they get personalized experiences right within ChatGPT. Two, they're using our apps so the accuracy, safety, and privacy are all protected. There's unchanged. And we get to enjoy the economics that we enjoy today. So what we care about is actually being where the customer is and making it easy for the customer to have the experiences that they need to have. In terms of, you know, only time will tell. We being OpenAI and Intuit Inc. are going to absolutely nail this experience. It's going to be an amazing experience. And only time will tell relative to how much customers are at the end of the day, they're using an Intuit Inc. app, whether they're using it within ChatGPT, or they're directly coming to us, it really doesn't matter. I think only time will tell. The customer behaviors are. The good news is we're positioned for wherever the customers are, and that's what's exciting about this partnership. Arjun Rohit Bhatia: Perfect. That makes a lot of sense. Thank you. Sasan K. Goodarzi: Yes. You're very welcome. All right. I think that's all of the questions. Hey, before we end, I also want to thank Kim. She has been an amazing partner for all of us. Internally and she's made us better. And we are so fortunate to have had the opportunity, Kim, to work with you and the best of luck in your next chapter. And you're gonna miss all of our amazing earnings calls going forward, but we'll see you on the other side. And for everybody that joined, thank you for your time. We'll talk to you next quarter. Bye everybody. Operator: Ladies and gentlemen, thank you for participating. This concludes today's conference call.
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.
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.
Operator: Good day, and thank you for standing by. Welcome to Nano-X Imaging Ltd.'s Third Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note today's conference is being recorded. I will now hand the conference over to your speaker host, Mike Cavanaugh, of Investor Relations. Please go ahead. Mike Cavanaugh: Good morning, and welcome to the Nano-X Imaging Ltd. Third Quarter 2025 Investor Call. Earlier today, Nano-X Imaging Ltd. released financial results for the quarter ending September 30, 2025. The release is currently available on the Investors section of the company's website. With me today are Erez Meltzer, Chief Executive and Acting Chairman, and Ran Daniel, Chief Financial Officer. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements regarding the company's financial results, research and development, manufacturing and commercialization activities, regulatory process and clinical activities, and other matters. These statements are subject to risks, uncertainties, and assumptions that are based on management's current expectations as of today and may not be updated in the future. Therefore, these statements should not be relied upon as representing the company's views as of any subsequent date. Factors that may cause such a difference include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission. We will also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of the non-GAAP to GAAP measures is provided with our press release, with the primary differences being non-GAAP net loss attributable to ordinary shares, non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP research and development expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, and non-GAAP gross loss per share. With that, I would now like to turn the call over to Erez Meltzer. Good morning, everyone. And thank you for joining Nano-X Imaging Ltd.'s Third Quarter 2025 Earnings Call. Erez Meltzer: While many companies talk about global expansion, Nano-X Imaging Ltd. is delivering on it. It is important for us to share not only where we stand today, but also the path we are shaping for 2026 as we work to fulfill our mission and strengthen Nano-X Imaging Ltd. as a leading company in the medical imaging industry. We are building a comprehensive medical imaging portfolio focused on increasing revenues and accelerating our path to profitability. Our strategy includes reinforcing our position in the Medical AI Sector, deepening our foothold in the US healthcare system, and driving meaningful change in the standard of care for medical imaging. We are entering into our second execution phase. We plan to further expand the ARC deployments and pipeline, grow our AI presence through the acquisition of Vaso Healthcare IT that is being contemplated, and explore further opportunities in imaging equipment with potential acquisitions and collaborations. While not every element is fully within our control, we believe it is the right time to share our growth roadmap for 2026. We are guiding for more than $35 million in revenues. Coming back to 2025, the third quarter brought progress across the organization, including our technology expansion, market scaling, AI infrastructure, and operational efficiency. Today, I am excited to share with you the progress we are making across our strategic three pillars where we are demonstrating real momentum in moving from innovation to commercial scale with measurable results. Our first pillar focuses on technology expansion and market scaling, where we see momentum in our commercial deployment efforts. Nano-X ARC is now entering a growth phase in the retail imaging segment, expanding access to advanced imaging in community and outpatient settings where patients need it most. We recently signed two new agreements in The Czech Republic and in France. That represents an important milestone in Nano-X Imaging Ltd.'s European strategy and follows recent distribution agreements in Greece and Romania, demonstrating the rising demand for Nano-X Imaging Ltd.'s ecosystem and strengthening its presence across Europe. We are progressing toward our goal of 100 systems worldwide in various stages for clinical demo and commercial purposes by the end of 2025. A number of systems are pending regulatory approval and site preparations. As we scale our current ARC deployment, we are simultaneously working on unlocking even greater market potential through regulatory advancement. In the US, we continue to work with the FDA to remove the adjective use limitation, which will allow us to market the Nano-X ARC as a standalone modality. Building on both our deployment momentum and anticipated regulatory progress, we are preparing to launch our next-generation platform that will further accelerate market penetration. The new Nano-X ArcX system, which is to be unveiled at the RSNA annual meeting in less than two weeks, will extend our commercial reach even further with its smaller footprint and simplified installation process. Importantly, it has the flexibility to support additional clinical indications in the future. This enhanced platform is designed specifically to meet the diverse needs of our growing customer base and expand our addressable market significantly. I would like to highlight another example of how we are working to expand the market for Nano-X ARC. The Nano-X ARC x is AI-ready, which means it is compatible with future AI solutions that are currently under development to interpret the ARC images. Ultimately, the clinical output will be an AI-enhanced 3D digital tomosynthesis series with annotated pulmonary nodules, which may be an innovative new tool in the arsenal of lung cancer detection. Our second pillar, AI infrastructure, and integration represent the technological heart of our strategy, connecting all the pieces of our ecosystem and driving new revenue opportunities. Artificial intelligence is part of our core value proposition, transforming us from a hardware company into a comprehensive imaging platform. In a key move to advance our AI business, we recently reached an agreement to acquire Vaso Healthcare IT or VHC IT, a wholly-owned subsidiary of Vaso Corporation, which provides best-of-breed healthcare IT solutions from various technology partners. Specifically, imaging information technology solutions, which support imaging workflow for providers. Nano-X Imaging Ltd. and VHC IT together create a powerful synergy that connects Nano-X Imaging Ltd.'s FDA-cleared imaging AI solution with VHC IT's deep expertise in IT integration, implementation, and customer operation. This will potentially help us deliver improved customer service to our growing US customer base. This acquisition will align with our ongoing progress on multiple fronts as we expand our network and collaborations with prominent organizations such as Cedars-Sinai, 3DR, Covera Health, and others. More details are included in my remarks below. Now for an update on our third strategic pillar, which focuses on operational efficiency and sustainable growth. We are building a leaner, more focused organization to support long-term success. Our workers' compensation and retail imaging initiatives continue to grow, creating scan-based revenue opportunities that strengthen our financial foundation. Additionally, we are strengthening our production capabilities through our partnership with Fabrinet, preparing to manufacture hundreds of systems. In parallel, we continue to enhance our tube manufacturing infrastructure as well. Nano-X Imaging Ltd. remains dedicated to accelerating the development of a highly efficient manufacturing operation. Let's now review the progress we made during the quarter in our US deployment progress, which demonstrates the strong commercial traction we are building across multiple channels. Currently, we have a growing number of ARC systems actively scanning, showing consistent utilization and clinical adaptation. One of the most active sites is an imaging center in California. During the third quarter, it achieved above-average scanning levels, and the feedback from them has been very positive. Our installation plan provides us with a solid foundation for revenue generation and market presence. Another example is our recent collaboration with Kaiser University, where the Nano-X ARC has been integrated into their radiological technology graduate program. This flagship training and demonstration site is already actively scanning, giving future imaging professionals hands-on experience with Nano-X ARC early in their careers. The full engagement of our business partners and the upcoming retail infrastructure reinforces our confidence in the next year's guidance. I also want to let you know that Nano-X Imaging Ltd. will have a strong presence at the Radiology Society of North America, or in short RSNA, annual meeting which begins on November 30 in Chicago. There we will provide more detailed insights into our commercial progress and future strategy. We welcome you to visit our booth if you are attending the event. In a recently announced partnership, we entered into a distribution agreement with X-ray, a leading Czech distributor of medical imaging systems, to introduce Nano-X Imaging Ltd.'s advanced imaging solution to healthcare providers across The Czech Republic. Under the terms of this agreement, X-ray will lead the market sale and service of Nano-X Imaging Ltd.'s Medical Imaging Solution, the Nano-X ARC. Founded in 2013, X-ray is recognized as the number one supplier of digital radiography systems in The Czech Republic, with installations in more than half of the country's 200 healthcare facilities, and nationwide sales and service coverage. Additionally, this week, we signed off a distribution agreement in France with Alphea France SARL, part of Altair Group, one of Europe's largest independent providers of managed medical technology services. As part of the agreement, Altea France will lead the introduction, distribution, installation, and service of Nano-X Imaging Ltd.'s Medical Imaging solution, the Nano-X ARC, across France's public and private healthcare sector. We have stated before that our initial foray into many European countries will be best served by commercial partnerships such as this. And rest assured, we are working on others. These partnerships are just some of the steps we took in the third quarter to better position us to scale globally and redefine the standard of care through innovation that makes imaging more accessible and efficient. As we scale our current ARC deployment, we are simultaneously working to unlock even greater market potential through regulatory investment. In the US, the company has submitted the TAP 2D software module to the FDA through the 510(k) program. TAP 2D is a 2D view image output for the Nano-X ARC systems, a practical tool for radiologists to enhance their diagnostic confidence as they become more experienced evaluating digital tomosynthesis images. TAP 2D, once cleared, will be part of a wider vision held by Nano-X Imaging Ltd. to alleviate adjunctive use limitations in the future. For perspective, use limitations do not apply for the CE Mark, Nano-X ARC in the European market. This remains one of our top priorities, and we believe that removing the adjunctive use limitation will be a critical milestone that may unlock significant new market opportunities for the Nano-X ARC platform. This regulatory advancement represents a potential key catalyst for accelerated adoption across healthcare systems. Outside of the US, our regulatory efforts continue, but it is worth noting that these efforts will not be as streamlined as those in the US, where FDA clearances allow distribution in the entire country. The rest of the world by nature is very fragmented, and we are working with many different countries which have their own processes and regulations. In some instances, regulatory progress is slower than we would like. Nevertheless, we have not stopped pushing ahead with our regulatory efforts, which continue to be of paramount importance to Nano-X Imaging Ltd. Now I would like to discuss some of the extensive clinical work we are undertaking that supports all of our commercial efforts by generating robust data supporting the use of our solution across multiple clinical applications. Mike Cavanaugh: I'm happy to report the Erez Meltzer: Cedars-Sinai Medical Center is joining the trial of Nano-X Imaging Ltd.'s AI for a new AI model for aortic valve calcification measurement solution that is under development. The solution is intended to quantify the level of aortic valve calcium, which is an important measure of risk for aortic valve disease. We are very pleased to be partnering with Cedars-Sinai, one of the nation's premier medical institutions. We also have begun a collaboration with MDS Wellness, an independent provider of wellness screening programs located in Michigan, with whom we are engaging in clinical trials to further assess the clinical value of Nano-X ARC in the context of lung cancer detection, management, and screening. Last month, we attended the Early Lung Cancer Action Program's (ECLIP) 40th conference in New York, focused on lung cancer screening and early detection. Among several presentations about the advantages of digital tomosynthesis in lung cancer screening, Dr. Lauren Stannenbaum delivered an inspiring talk about how he believes that Nano-X ARC can be utilized in lung cancer screening and disease management protocols. Outside the US, we are excited about a recent collaboration with All Up Imagery, which is a group of independent radiologists who practice at several sites in Île-de-France, utilizing high-performance technical facilities. Through this collaboration, the Nano-X ARC system has been deployed at Hôpital Privé Jacques Cartier, one of the leading private hospital groups in the Paris Metropolitan Area, for a clinical trial designed to further assess the value of the Nano-X ARC in supporting lung cancer detection, management, and screening. This collaboration advances our clinical evaluation effort in the second-largest country in the EU. The data derived from this trial is intended to demonstrate the ARC's potential to improve patient outcomes through early screening for lung cancer, which is the deadliest cancer worldwide. Mike Cavanaugh: We continue to engage with research partners globally Erez Meltzer: to execute a comprehensive clinical evidence generation strategy. I mentioned we will have a large presence at RSNA this year, and I encourage you to visit our booth. All details regarding our participation were published last week. As I mentioned in my opening remarks, we are acquiring Vaso Healthcare IT or VHC IT, a wholly-owned subsidiary of Vaso Corporation, which provides best-of-breed healthcare IT solutions from various technology partners. Specifically, imaging information technology solutions, which support imaging workflow for providers. Nano-X Imaging Ltd. and VHC IT together create a powerful synergy that connects Nano-X Imaging Ltd.'s FDA-cleared imaging AI solutions with VHC IT's deep expertise in IT integration, implementation, and customer operation. Under the terms of the proposed transaction, Nano-X Imaging Ltd. will acquire VHC IT for a total consideration of $800,000, consisting of a $200,000 cash payment at closing and up to $600,000 in performance-based earn-out payments over a period of up to two years, contingent upon revenue retention targets with respect to existing customers. This transaction is intended to accelerate the deployment of Nano-X Imaging Ltd.'s AI solutions across US healthcare facilities and is expected to be executed and completed within a couple of weeks. Given the rapidly evolving nature of medical imaging technology, it is a challenge to keep up with these changes and informatics. And Vaso Healthcare IT serves as a trusted adviser to address and solve these issues. We expect this partnership to accelerate the commercialization of Nano-X Imaging Ltd.'s AI solutions and help generate scalable recurring revenues. Key synergies include cross-leveraging our organizational shared expertise, active accounts, sales funnels, and product offerings. We believe this acquisition immediately expands the value we deliver to customers and shareholders. We recently entered a commercial partnership with 3DR Labs, one of the largest and most trusted providers of 3D medical imaging cross-processing services in the US. 3DR Labs offers Nano-X Imaging Ltd.'s FDA-cleared imaging solution to its network of more than 1,800 hospitals and imaging centers across the US. The partnership enables 3DR Labs to market Nano-X Imaging Ltd.'s AI software solution to its client-based network of more than 1,800 hospitals and imaging centers across the US. The agreement positions Nano-X Imaging Ltd.'s AI technology to support initiatives to drive early disease detection and improve clinical outcomes at scale across the United States. We are also expanding direct-to-clinician Nano-X Imaging Ltd.'s AI solutions and launching new AI applications that have the potential to improve diagnostic accuracy, early detection, and patient management. I'm happy to report that we have closed our first deal under this new direct-to-clinician business model. This approach enables AI at the clinic level, equipping clinicians with value-added tools on-site and eliminating the need to send patients to other locations for CT scans. I am particularly excited about our current lineup of advanced AI solutions that analyze routine medical CT scans for any clinical indications to help identify patients with asymptomatic or undetected findings correlated with chronic conditions in cardiac, liver, and bone, promoting preventive care management where AI assists clinicians in generating numerical indications for further decision support. We are in the process of developing more innovations to add to our offering, and I look forward to announcing new AI developments as they become available. In other AI-related news, we have successfully expanded our existing agreement with Covera Health. This new agreement builds upon our initial collaboration, which focused on retrospective analysis to identify care gaps and support their platform. Our expanded agreement now includes prospective use cases such as opportunistic screening for improved care outcomes. We've also expanded our AI footprint to India, having recently signed a distribution agreement with an Indian commercial partner, and we're already running two pilot projects with several more in the pipeline. A key element of the third pillar is the creation of a sustainable and efficient supply chain to ensure we can meet anticipated future demand. With that in mind, we continue to engage with third-party manufacturers and suppliers for the commercial production of our digital X-ray tubes and other components for use in the Nano-X ARC. Based on, among other things, cost-effectiveness, etcetera. We are currently developing glass-based digital X-ray tubes for use in the Nano-X ARC. As previously disclosed, we are working with third parties such as CEI and Varex to build tubes and a system-on-a-chip maker located in Switzerland for our chips. Our work with our manufacturing partners is a key component of the third pillar of future success. We will continue close collaboration with our technology suppliers to secure the supply of components needed as our ARC deployment continues. As of today's call, we have fabricated enough emitters and begun scaling tube production to support the initial launch of our next-generation Nano-X ArcX. Specifically, with Varex, we are well underway with reforming all the necessary tubes and ARC-level testing to add them as an approved supplier early next year. We have additionally taken Mike Cavanaugh: receipt from them Erez Meltzer: of multiple MDX multi-source demonstrations to advance our testing and the development of stationary digital tomosynthesis and stationary CT-type solutions. Varex's NBX or multibeam X-ray combines the precision of traditional X-ray with the detailed insight of CT imaging and enables faster, higher-quality scans with reduced radiation exposure, offering clearer images and better patient outcomes. Varex personnel will visit our lab in Israel soon to support these efforts. We're also working in partnership with a novel imaging technology company to explore the utilization of our emitter with their specialty detectors. These efforts toward low-dose single-exposure dual-energy capabilities significantly enhance visualization for medical, security, and inspection applications. On the OEM business development front, in response to requests from the security materials analysis and high-resolution inspection market, we are in the process of fabricating several novel emitter layouts, each with unique functionality to specifically address pain points or add requested capabilities as compared to their current offering. We've also recently delivered two of our developer kits. One is to a leading US academic institute for medical solution development for medical application development, and another to one of the largest global providers of industrial X-ray NPT inspection sources developing their next-generation system. Regarding our project with Oak Ridge National Laboratory, we are now working towards material acquisition and fabrication of the second-generation prototype to be utilized in their novel and compact mobile X-ray technology development. As previously reported, we have entered into a multiyear volume supply agreement with Fabrinet, a leading global electronics manufacturing services provider, to support the scalable manufacturing of Nano-X ARC systems. We believe this collaboration will drive down our manufacturing costs over time, which will, in turn, support our mission to expand access to innovative, affordable imaging technology worldwide. Looking ahead, Nano-X Imaging Ltd. is dedicated to accelerating the development of a highly efficient and scalable manufacturing infrastructure. We will always be looking for ways to extract more efficiencies and may include future strategic collaborations. As we look ahead, we would like to provide our investors with some financial guidance for the coming year. Given our current business trajectory, sales funnel, new partnerships, and the Vaso acquisition, we expect to generate a minimum of $35 million in revenue in 2026. Furthermore, we project the AI business segment, with the addition of VHC IT, will achieve EBITDA breakeven on a quarterly basis sometime in 2026. We expect Nano-X Imaging Ltd. as a whole to reach EBITDA breakeven on a quarterly basis in 2027. These projections reflect our beliefs in an achievable path to sustainable profitability driven by our expanding commercial deployments and recurring revenue streams. We are executing a clear and consistent strategy across all three pillars, moving forward with confidence while systematically expanding our market presence and strengthening our foundation for long-term success. With that, I would like to hand the call to Ran Daniel for a review of our financials. Ran, over to you. Thank you, Erez. We reported a GAAP net loss Ran Daniel: for 2025 of $13.7 million, which is the reported period, compared with a net loss of $13.6 million in 2024, which is the comparable period. Revenue for the reported period was $3.4 million, and gross loss was $2.9 million on a GAAP basis. Revenue for the comparable period was $3 million, and gross loss was $2.8 million on a GAAP basis. The increase of $400,000 in revenue stems from an increase of $600,000 in our revenue from our teleradiology services, a decrease of $300,000 in our revenue from our AI solutions, and an increase of $100,000 in our revenue from the sale and deployment of its imaging systems and OEM services. Non-GAAP gross loss for the reported period was $300,000 as compared to a gross loss of $200,000 in the comparable period, which represents a gross loss margin of approximately 8% on a non-GAAP basis for the reported period, as compared to a gross loss margin of 6% on a non-GAAP basis in the comparable period. Revenue from the teleradiology services for the reported period was $3.1 million, with a gross profit of $100,000 on a GAAP basis, as compared to revenue of $2.6 million with a gross profit of $300,000 on a GAAP basis in the comparable period, which represents a gross profit margin of approximately 25% on a GAAP basis for the reported period as compared to 13% on a GAAP basis in the comparable period. Non-GAAP gross profit of the company's teleradiology services for the reported period was $1.3 million as compared to $900,000 in the comparable period, which represents a gross profit margin of approximately 43% on a non-GAAP basis for the reported period as compared to 35% on a non-GAAP basis in the comparable period. The increase in the company's revenue and gross profit margins in the teleradiology services was mainly attributable to customer retention, increased rate, and increased volume of the company's reading services during the weekends and weekdays. During the reported period, the company generated revenue through the sale and deployment of its imaging systems and OEM services, which amounted to $175,000 for the reported period, with a gross loss of $1.7 million on a GAAP basis and a non-GAAP basis, compared to revenue of $29,000 with a gross loss of $1.5 million on a GAAP basis and a non-GAAP basis in the comparable period. The company's revenue from its AI solution for the reported period was $100,000 with a gross loss of $1.9 million on a GAAP basis, compared to revenue of $400,000 with a gross loss of $1.6 million in the comparable period. Non-GAAP gross profit of the company's AI solution for the reported period was $75,000, compared to a gross profit of $370,000 in the comparable period. Research and development expenses net for the reported period were $4.6 million compared to $4.7 million in the comparable period, which represents a decrease of $100,000. The decrease was mainly due to a decrease of $400,000 in share-based compensation and $500,000 in expenses related to our development activities, which were mitigated by an increase of $500,000 in salaries and wages and a decrease of $300,000 in grants received. Sales and marketing expenses for the reported period were $1.5 million compared to $900,000 in the comparable period, which represents an increase of $600,000 mainly due to an increase of $500,000 in salaries and wages, $500,000 in marketing activities with connection to the commercialization in the US market, which was mitigated by a decrease of $100,000 in share-based compensation. General and administrative expenses for the reported period were $5.3 million compared to $5.7 million in the comparable period. The decrease of $400,000 was mainly due to a decrease of $600,000 in share-based compensation, a decrease of $200,000 in the company's legal expenses, and a decrease of $200,000 in MVNO insurance expenses, which were mitigated by an increase of $500,000 in salaries and wages and recruiting fees. Erez Meltzer: Non-GAAP net loss Ran Daniel: attributable to ordinary shares for the reported period was $9.9 million, compared to $8.7 million in the comparable period. The increase of $1.2 million in the non-GAAP net loss attributable to ordinary shares was mainly due to an increase of $100,000 in the non-GAAP gross loss and an increase of $1.1 million in the non-GAAP operating expenses. Turning to our balance sheet. As of September 30, 2025, we had cash, cash equivalents, and marketable securities of approximately $55.5 million and $3.2 million in short-term loans from a bank. We ended the quarter with property and equipment net of $46.7 million. As of September 30, 2025, and December 31, 2024, we had approximately 65.4 million and 63.8 million shares outstanding, respectively. With that, I will hand the call back over to Erez. Thank you, Ran. The 2025 was transformative for Nano-X Imaging Ltd. Erez Meltzer: As we evolved from a hardware company into a comprehensive imaging platform. With our acquisition of Vaso Healthcare IT, new partnerships with 3DR Labs, Altea, and X-ray, and the upcoming launch of our AI-ready ArcX system at RSNA, we are building the infrastructure for sustainable recurring revenue streams that will define our future growth. Together, with our recent collaboration in Greece, Romania, The Czech Republic, and France, we are strengthening our European footprint. In parallel, our collaborations with Cedars-Sinai and our ongoing clinical trials in France continue to advance the clinical validation of our technology and contribute to the global momentum behind our platform. Through our three strategic pillars, we are executing a comprehensive commercial strategy that combines innovative technology with robust clinical evidence generation and systematic market deployment. Although some elements are beyond our direct control, we believe this is the right moment to present our growth roadmap, and for 2026, we are guiding to revenues of over $35 million. Our purpose remains unchanged: to redefine medical imaging by uniting innovation, intelligence, and accessibility, creating meaningful impact for patients, clinicians, and healthcare systems worldwide. The momentum we are building across our commercial deployments and clinical evidence generation positions us well for continued growth and market leadership. Thank you for your continued support. Operator, please open the call for questions. Operator, just before the question, Erez. One comment regarding what actually was said that last night, we have actually closed the Vaso Healthcare IT acquisition. So actually, it's done. With that, you can go ahead and open for the Q and A. Operator: Thank you. And wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the Q&A roster. Now, the first question is coming from the line of Ross Osborn with Cantor Fitzgerald. Your line is now open. Ross Osborn: Hi. Good morning. Thanks for taking our questions. Congrats on the progress. So starting with the quarter, would you walk through how many systems were in the field and performing scans that resulted in your revenue of $175,000? Erez Meltzer: A few dozens out of all together. A few of them are being installed as we speak. And a few will be installed in the next few weeks. And as mentioned, we are counting on the expansion of the retail, expansion of the business partners, the expansion of the salespeople that are closing deals right now. We have a few, as mentioned, some of them are waiting for regulatory approvals for physics approval, for site preparation, but altogether, this is gonna move. Ross Osborn: Okay. Yeah. Sorry if I wasn't clear. Looking back during the March, so your reported revenue, how did you generate $125,000? Not for the rest of this year, but during the quarter. Ran Daniel: It was a combination of revenue from scans and our OEM services. I assume that we are regarding the paragraph in the script and the PR that describes the revenue from deployed systems and OEM services. Correct? Ross Osborn: Yes. So just curious how many systems were deployed. So I'll refer you to this paragraph, and I don't think in general, it's saying that the answer is changing. With regards to the system. Erez Meltzer: Okay. Ross Osborn: And then looking to the balance of 2025 and meeting 100 units in various stages of deployment. You know, what types of agreements should we be thinking about in terms of those being at least versus capital sales? Erez Meltzer: Most. I would say the majority of the majority are ancestors. Ross Osborn: Okay. Thanks for taking the question. But we still see increased activities in the CapEx arena. Okay? So we do expect to have some CapEx over here. Erez Meltzer: And the retail. Got it. Ross Osborn: I'll jump back in queue. Thank you. Erez Meltzer: No problem. Take your help. Operator: Thank you. Our next question is coming from the line of Jeffrey Cohen with Ladenburg Thalmann. Your line is now open. Jeffrey Cohen: Oh, hi, Erez and Ran. Thanks for taking our questions, and nice to see the company at Medica this week. So a few from our end. It seems like we got a good sense of the top line from where you're talking about for the balance of this year and certainly for 2026 with the many partnerships and Ran Daniel: Jeff, I'm sorry. Can you raise your voice, please? Because you are a little bit far away from the Sorry. Could you talk about how OpEx could look over the next four to six quarters as you talk about Destiny Buch: achieving these, 2026 targets. Versus currently? Erez Meltzer: You generally say, what you would expect to see is that Ran Daniel: our investment in the deployment efforts, namely the sales and marketing expenses, will increase, of course. Because we need to invest in all the activities that are related to the deployment of the systems and the sales. On the other end, you should see more tamed R&D expenses. As the focus is going towards commercialization and less on development activities. And we are trying our best to be more, as you know, to be as efficient as we can be, and you should see the same level of G&A. With some fluctuations. Destiny Buch: Okay. Got it. Ran Daniel: Could you talk about Don't forget that the major portion of our G&A expenses are related to us being a public company. And know, sometimes those expenses increase. Destiny Buch: Got it. Could you talk about Vaso? I saw in the press release, is a mention of approximately 100 customers. Could you talk about what types of customers that they currently have? And the opportunity for those customers into the Nano-X Imaging Ltd. family. So Erez Meltzer: the 100 customers of Vaso are all of them are medical-related. Mike Cavanaugh: They are actually serving hospitals Erez Meltzer: Imaging Centers, Across The United States. From our point of view, we have a lot of cross-selling that can be achieved. They can of the Vaso acquisition the the the majority of the I would say the main purpose will be to serve the operational and the customer base the the growing customer base of of Nano-X Imaging Ltd. AI. But the more we go into, into the the details what we see right now, what's in the PMI and the post-merger integration, that they will be able to expand our sales force to the ARC systems to those institutions. To expand the services of the IT services that they are providing because many of the of those customers are modality-related Mike Cavanaugh: customers. Erez Meltzer: In addition, what we see is that customers a few of the customers already mentioned an interest that USA Rod, the pillar radiology business, will be provided by our teleradiology services. And in addition, the teleradiology the the the those customers are are saying that they can actually refer a few of their customers to teleradiology services to be obtained. The I would say that this will actually strengthen our IT and software, which is one of the major pillars of our growth. And and and we definitely can see their network and their customer base as a as a way to grow our business. Our existing business. Got it. And one more, if I may. Destiny Buch: I did hear you mentioned breakeven 2027 EBITDA levels. But just prior to that, you mentioned something about '26 Could you reiterate that? Erez Meltzer: Yeah. We mentioned this is already the second time that we say that what we are aiming that on a run route basis on '26 where the AI business will be breakeven In fact, this was even before before Vaso acquisition. So right now, Ran Daniel: we believe probably that it will accelerate the Erez Meltzer: probability of this to be breakeven sometimes at at the end of the 2026. And the other thing that we said that the ARC hardware business will will shoot for a breakeven and in 2027. This is something that we already mentioned in the past. And what you can see right now based on the wide and the the what what you see here is the that we are making progress in all the fronts. In technology and the regulation and the commercialization of the business, And we strongly believe that the retail business, the business partners, and our facility with with the actually enable us to be there. Ron, would you like to add anything? Ran Daniel: Yes. Let me fine-tune it. What we have said in the past that, the AI business will be breakeven on a quarterly breakeven during sometimes during 2026, didn't specify any quarter. We do we do emphasize that the growth of the AI division by their expansions of their B2B2B to B to C model, enter into new geographics, and, of course, with the acquisition of Vaso, which expands their operations and the potential for growth and achieving the quarterly breakeven on the one on the quarterly run rate. And while we also have said that we expect that sometimes to during 2027, we may be breakeven in the ARC division. All in total, it will bring us sometime in 2027. We may be break breakeven on a wide company range. Just to be more accurate. Destiny Buch: Okay. That's perfect. Thank you for taking our questions. Erez Meltzer: No problem. Thank you, sir. Ran Daniel: Hopefully, you enjoy the Medica. Erez Meltzer: Conference. Yeah. Operator: Thank you. Next question coming from the line of Scott Henry with HEP. Your line is now open. Scott Henry: Thank you, and good morning or afternoon depending on your location. I want to talk a little bit about the 2026 number. $35 million, that's a pretty big number. So my question is, how should you think about the cadence of the year? Do you expect that to start in Q1 and ramp up? Or should we think about that in the second part? And then as well, do you have any preorders or or any just trying to gauge your confidence in that number. Thank you. Erez Meltzer: So first of all, I would start with the second comment. Most of what we say we are based on not most, but I would say major part, are based on on preorder And the Operator: and the the outcome of what Erez Meltzer: we are doing right now, the the the those three elements, the the business partners, the retail which is a major part, and the and the sales force that we currently have. Not to mention the the new position. Ran Daniel: Second, Erez Meltzer: I would say that it will start slowly from Q1 and ramp up over the quarters and and achieve the the the number at the fourth quarter. If I have to say something about mathematics, I would say that's probably the line will be kind of an exponential one. And not the linear. Okay. Scott Henry: Great. Thank you for that color. And and in terms of levers, Ran Daniel: Just to add a follow-up question is that we do we do see some more activities there. I'm I'm going to refer to the ad of just what we said in the in the last questions for Jeffrey. Of Jeffrey. Don't forget that the current census and your estimates are based without the Vaso position. So when you add the Vaso positions, you're already going up you have to account for the $4 million in revenues that approximately that Vaso have. So other than this, the the growth may come probably organic. And email. Scott Henry: Okay. It I think, Ron, did you say that Vaso would Jason Kolbert: contribute $4 million in revenues? You broke up. You broke up the Erez Meltzer: Yes. Approximately. Jason Kolbert: Okay. And as far as the levers, in 2026, what about teleradiology? It reported a strong growth rate in the third quarter. Is that growth increasing? I mean historically, it's been kind of a 10% grower Are you looking for kind of a breakout in that category? Certainly, it was strong in Q3. Erez Meltzer: The answer is, if if you look at the at the numbers that, we gave as guidance, The numbers are not based on on a major quantum leap growth the teleradiology. We We hope that it will grow, but based on the indication that we gave it's based on the sort of the existing plus-minus numbers. The all the growth will come from the other business that we have, namely the ARC business and the, especially the deployment of the ARC X and especially the hopefully, the elimination of the adjunct device of the FDA and the other business that we said, and the AI business that that we're talking. I think that OEM also will grow slowly and we will see a major growth from 2027. Based on the indication that we currently have. From our existing customers and potential customers of the OEM business. Okay. Scott Henry: Yeah. The first Both and both will be the AI and the R. Ran Daniel: K, and the hardware and the product. Jason Kolbert: Okay. Great. Thank you for taking the and I look forward to seeing you down at the RSNA conference. Ran Daniel: See you there. See you. Erez Meltzer: Thank you very much. Operator: Thank you. And that's the end of our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. And you may now disconnect.
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: 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.